E newsletter july 2011

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The LearningProfessionals

Newsletter July 2011 / Volume 1

Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com

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Editor’s MEssagE - I feel extremely gratified in communicating with the readers through the medium of “The Learning Professionals Newsletter”. The LP Guide Blog i.e. lpguide.wordpress.com was started on 1st of June this year and in the month with the support of its members issued its first eNewsletter in the same month. At the outset, I would first felicitate and convey my greetings to the CA Fraternity associated with the blog or the readers on the auspicious occasion of CA Day, which is observed every year on 1st of July. I would also like to convey my best wishes to the examinees who just appeared for their respective examinations. May all shimmer with resounding success. I will not dwell on stating the importance of communication, updation, learning, exercising skill or to be brief the importance of carving out niche for own self as it is clear to all of us but I would definitely ponder upon The Learning Professionals’ newsletter and its blog which are one of the medium, of course not only, through which one can have an interface with other learners- professionals or would be professionals. It carries articles, academic updates, academic guidance and other relevant issues related to professional studies. Apart from these updates you would also get a platform to communicate with other professionals and can actively take part in forum, blogs and chat around. I firmly believe that a real professional becomes an architect of values through continuous development of skills, knowledge and proficiency. Let us seize the opportunities to position ourselves as a high role to guiding the corporate. It is my humble request to all of you to utilize the forum at the optimum level. The more we contribute the more our writing skills get sharpened and the benefits of flow of language get manifested during the exams load on the professional field.

Editors:-

Rohit Muchhal

Jay Raithatha

Ankit Agarwal

Hari Krishan

CS Hena Srivastava

Avinash Jha

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Disclaimer:-

While every effort is made to ensure that the information contained within this newsletter is correct, LP Guide Team is not responsible for the accuracy or otherwise of information provided by the contributors.


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1. Article Section :- Page 04

2. SEBI Updates :- Page 10

3. MCA Updates :- Page 12

4. RBI Updates:- Page 14

5. Indirect Tax Updates :- Page 16

6. Service Tax Updates:- Page 18

7. Direct Tax Updates:- Page 20

8. IFRS Updates:- Page 21

9. Post in our blog this month :- Page 22

I N D E X


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AANN IINNSSIIGGHHTT TTOO IIFFRRSS::

WWHHYY WWEE NNEEEEDD IITT AANNDD IIFF WWEE NNEEEEDD WWHHYY IITT IISS DDEELLAAYYEEDD By Rohit Muchhal, CA Final

In the field of Accounting, we are expected to start a new reporting procedure coined as IFRS. It was to be applicable from 1st April 2011 but current status is not known but of course not from April 2011 which was decided earlier by the Ministry. I do not pretend to be an expert in the field of IFRS. I however, being a Chartered Accountant Student, love this subject and it is my attempt to have glimpses of the journey of IFRS and pros and cons and why it’s yet a bane to implement.

HHIISSTTOORRYY AANNDD DDEEVVEELLOOPPMMEENNTT All of us have studied, in the 11th standard only, the golden rules of bookkeeping, leading us to various types of accounts. Through the medium of real, personal and nominal accounts, we have also learnt the basis of preparation of ledger account, periodical trial balance, profit & loss account and a balance sheet.

The earliest evidence of present-day bookkeeping was traced back some 800 years, to an Italian Banker. The Italian monk Luca Paciolo is said to have time documented these bookkeeping principles. He did not claim to be an originator or an author of the system, but only a describer of a practice to write the books of accounts. Even the book (i.e. ‘Summa’) that documents this ‘Bookkeeping’ is a book on mathematics, containing some 36 chapters on bookkeeping and accounts. Since it is a part of a book on mathematics, the present golden rules of bookkeeping have been expressed in the said book in the form of algebraic equations and not in descriptive narration. Since every business transaction has a two-way effect, it was easy to put it in the form of an algebraic equation. It is rightly said, mathematics is the mother of all sciences.

The brief history of origin of bookkeeping emphasises that:

(a) Certain principles are fundamental and are not subject to the normal notion of ‘Change’.

(b) IFRS is making a sincere attempt to make the figures of P & L A/c and Balance Sheet more mathematics-based and avoiding hypothetical figures based on assumptions. It involves a lot of valuation, but again the valuation is based on mathematical modules.

Primary object of the book keeping of as early as 800 years are not changed however what has changed over the year is the trade or commerce in the following aspects:

(a) The nature of trade and commerce

(b) The volume and value of trade

(c) The geographical spread

(d) Entities carrying on the business.

(e) Number and groups of persons who need to know the results of operations.

In early days transactions were important for the businessmen and tax computation was not there instead ad-hoc duties were there. No specific laws, no stakeholders’ activism, no geographical spread, no enterprises structure existed. Individuals existed only might be through a group for business in a mission to earn livelihood and not to acquire businesses, competition at large, mergers or acquisitions, etc.

Radically business and book keeping i.e. just a recording of transactions changed to complex accounting system with the advent of machine in machine age, concern of shareholders’ money by shareholders and geographical spread. Stakeholders (the broader sense) became very active and always eager to put an eye into the business operations. Even the law changed radically to safeguard all in their respective interest and “true and fair view” word came into light. To help the industries Accounting Standards were formulated so as

ARTICLE – THIS MONTH


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to tackle and guide uniformly on the light of transactions/situations and now with the diversified business operations similar Accounting Systems are also required.

WWHHAATT AARREE AACCCCOOUUNNTTIINNGG SSTTAANNDDAARRDDSS Accounting standards are authoritative statement on how transactions are to be recorded and disclosed in the financial statements. They ensure uniformity amongst the various entities of the readers of financial statements. The compliance to standards is mandatory as per Section 211 to the Companies Act, 1956 to ensure that the accounts are true and fair.

This uniformity is now proposed to be spread from local boundaries to across the world with the advent of single global accounting standard, namely, IFRS.

IINNTTRROODDUUCCTTIIOONN TTOO IIFFRRSS IFRSs are adopted by the International Accounting Standards Board (IASB), the independent standard-setting body of the International Accounting Standards Committee Foundation (IASC Foundation).

More than 100 countries now require or permit the use of IFRSs or are converging with the International Accounting Standards Board’s (IASB) standards. EU recognised IFRS in 2005 and the SEC has in its announcement on November 2007 permitted IFRS without reconciliation with US GAAP for non-US companies. It is also proposed that soon U.S. will also adopt IFRS within coming few years.

Many of the accounting standards forming part of the IFRS are known by the earlier name of International Accounting Standards (IAS), which were issued between 1973 and 2001 by the board of International Accounting Standards Committee (IASC). In April 2001, IASB adopted all IAS and continued their development calling new standards as IFRS which consist of:

IFRS standards issued after 2001 (Total- 9)

IAS standards issued before 2001(Total- 29)

Interpretations by International financial Reporting Interpretations Committee (IFRIC) (Total- 16) and,

Standing Committee Interpretations (SIC) issued before 2001(Total- 21)

Thus, total 38 standards and 27 interpretations.

Financial statements under IFRS:

Under IFRS the financial statements would comprise:

Statement of financial position as at end of the period and comparatives (Statement of changes in equity for the period),

Statement of comprehensive income for the period,

Statement of cash flow for the period

Notes, comprising a summary of significant accounting policies and other explanatory information

IINNDDIIAANN IINNIITTIIAATTIIVVEE TTOOWWAARRDDSS IIFFRRSS The Institute of Chartered Accountants of India (ICAI) has issued a ‘Concept paper on convergence with IFRS in India’ in October 2007. The document lays down the convergence strategy. The roadmap of convergence were issued and was likely to start its implementation from April 2011 but its certainly not possible as still lot of questions are yet unanswered.

As envisaged, India has finally chosen to converge with IFRS, as opposed to adopting IFRS on the pretext that Indian regulators and standard-setters will review the existing IFRS standards and their applicability in Indian context and will issue converged accounting standards called as Ind-AS. Recently MCA had notified the 35 IndAS (IFRS) though the date of implementation is yet to be notified.

The final journey has just begun and we are already seeing deviations in new standards and we don’t know how far or near we will be from IFRS though MCA have issued the text of Ind AS.


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KKEEYY DDIIFFFFEERREENNCCEESS BBEETTWWEEEENN IIFFRRSS AANNDD IINNDDIIAANN GGAAAAPP The adoption of IFRS affects more than a company’s accounting policies, processes, and people.

Ultimately, most aspects of a company’s business and operations are affected potentially.

IFRS is a principle-based approach to standard-setting. It is less reliant on bright lines and detailed rules as compared to the US GAAP.

At various places IFRS provides scope of judgment and requires information to be presented on the basis of substance rather than rule. For example, redeemable preference shares may be treated as liability and convertible debentures as equity.

While applying IFRS, usage by an investor is kept in mind and requirement of the law and management takes a backseat. For example, in case of the business combination the acquirer under IFRS could be different than the legal acquirer (like in case of reverse merger for tax benefit or other purposes).

Financial statements under IFRS place more reliance on the management estimate. For example, in case of depreciation of assets this, under IFRS, would have to be based on estimated useful life as against the present Indian requirement to follow Schedule XIV of the Companies Act, 1956.

The fair value concept is embodied in many of the IFRS (like IAS 30 on Financial Instruments, IAS 40 Investment Property, etc.). The concept of fair value poses several issues on valuation, valuation models and accuracy and reliability of the same for the purpose of accounting and presentation.

Major overhauling cost for fixed assets which can be capitalised under IFRS (provided it meets certain criteria) as against the present requirement to expense out the same

Inventory for service organisation for work which is in progress (already covered by proposed Indian Accounting Standard)

Prior period items to be given effect retrospectively in opening equity

Proposed dividend is not required to be reflected in financial statements under IFRS

Under IFRS, provision made for dismantling of asset or for site closure can be capitalised

Under IFRS, EPS to be disclosed separately for continuing and discontinuing operations, etc.

CCHHAALLLLEENNGGEESS UUNNDDEERR IIFFRRSS Joint ventures : Consolidation proportionate or otherwise may become an issue. Consolidation method

may impact the structure of new arrangements.

Debt/equity : Possible reclassification of preference shares as liabilities

Subsidiaries and associates : Different rules may impact the current treatment

Valuation : Greater use of fair value

Detailed hedge documentation, and ongoing effectiveness testing is required to achieve hedge accounting under IFRS

Embedded derivatives : Possible requirement to fair value components of other instruments, including long-term contracts

Contracting : Different rules will present different opportunities, challenges, management and accounting issues

Financial communications will have to address changes in presentation of financial information as well as fundamental change towards fair value accounting and its impacts on traditional ratios and performance indicators

Uncertainly about Income-tax Dept. response

Requires multi-disciplinary participation

Aiming at a moving target


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o Uncertain timetable for implementation

o Uncertainty about final form of IFRS

CCOONNVVEERRSSIIOONN//CCOONNVVEERRGGEENNCCEE TTOO IIFFRRSS The conversion to IFRS will have to be managed like any other large-scale project. Sufficient time must be incorporated into project plan, proper resources must be ensured and all key players must be involved in critical decision-making. IFRS is more than an exercise for the accounting and finance department. Its impact is far reaching, affecting areas from internal control and sales to research and development.

Typically the following three phases will be involved in convergence to IFRS:

Stages Key focus points

Pre-implementation phase

Formulation to detailed plan

Identifying key areas of difference between existing accounting policies and requirements of the IFRS

Understanding the implications

Educating/training the accounting team Transition phase Make changes in the controls, process, business documentation/SOP

Map the existing systems, process, controls with IFRS and identify the impacted areas

Post-implementation phase

Validation of changes made — this involves testing of high-risk areas for accuracy of systems and procedure

Continuous monitoring of IFRS regulatory changes IIMMPPAACCTT AANNDD CCOONNSSIIDDEERRAATTIIOONNSS OOUUTT OOFF IIFFRRSS

First-time adoption could be a heavy task and hence it is essential to ensure that proper care and diligence is exercised so that there are no spill-over impacts in subsequent periods. IFRS 1 deals exhaustively with the first-time adoption.

To ensure that the judgment, estimated and fair valuation concepts are not misused by the Management, lot of reliance would have to be placed on independent valuers.

Proper planning is required for transition to IFRS and hence to ensure that the company must have a proper road map/strategy and resources to migrate to IFRS.

Emphasis on transparent and exhaustive disclosure which would mean that the source of data, compilation process and methodology are more robust.

To ensure that the commercial colour of the transaction is correctly reflected in the accounting of the same.

More data analysis, narrative accounting and hence more qualitative accountants and more time will be required to review.

The taxation team will have to work closely with the accounts teams to examine IFRS impact. Since, there is no response yet from taxation department then of course Tax laws are to be followed for their compliance.

The CFO will need to focus on the underlying commercial nature of transactions and events. Other areas where more judgment is required include property, leases, revenue recognition, provisions and consolidation policy.

Convergence to IFRS will have an impact on the processes which lead to recording of a specific transaction and necessitate re-engineering of those process and related internal controls.


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IFRS would benefit all the users of financial statements. It would take accounting and financial reporting to a new level. However, it would in the initial years put too much burden on the preparers and reviewers of financial statements.

Lot of research and development is still under progress for various items like fair value, etc. and the evolved version would lead to better and more narrative financial statements.

IFRS in India is an opportunity for Indian enterprises to be in line with the global companies and would in turn help raise finances globally. It would be a boon to the accounting fraternity as it would expose them to international arena and would help service the global accounting market even now they are internationally honoured.

The decision to converge and not to adopt IFRS gives the flexibility to carve out and or deviate from the accounting principles and policies in IFRS. The important question is to what extent we should use this flexibility. If, we make significant changes in IFRS using the flexibility, the new accounting standards will not be fully convergent with IFRS and the purpose of convergence will be lost. Our accounting practices will fall short of globally accepted accounting practices. Inflow of foreign capital may be affected adversely. Indian companies, that are listed in stock exchanges in USA, Europe and other countries, using accounting standards fully convergent with IFRS, will have to prepare two sets of financial statements.

Moreover with tax authorities are still silent it appears that the converged accounting standards may not be acceptable for tax filings for next three to five years and till then the current Indian GAAP would be used for tax purposes. This will ultimately result into three sets of financial statements being prepared by Indian companies.

CCOONNCCLLUUSSIIOONN The first decade of the 21st Century noticed severe expectation gap between the stakeholders and those who managed the business. Sarbanes-Oxley also played its part. Earlier business failures were also bothering everyone and a need was felt to have a worldwide common accounting language, along with stringent corporate governance provisions. Even the US agreed to modify its own earlier tough stand and accepted in principle the worldwide common accounting language and IFRS has now evolved. Our country has also accepted gradual introduction of IFRS, to begin with, for listed companies. We the Chartered Accountants, in the interest of our professional development, are required to accept them, study them and should take part in their proper presentation. There should be neither an ecstasy nor any agony in the use of a common language.

Bookkeeping captured business transactions some 800 years back(as stated) through mathematical module and we are once again through IFRS, embracing in a way a mathematical base for presentation based on what is known as fair valuation. The truth is mathematics is pure, but mathematics can give many possible answers but the truth. What has happened on Wall Street and everywhere in the present situation is all-round confusion, giving rise to a crisis which has given rise to erosion in confidence, leading to depression and doom. Hope so that IFRS does not get caught by twisted mathematicians in the field of fair valuations. Certainty exist that India will soon be IFRS compliant one, after all India is having a huge professional resource, though there are many deviations or lacuna pointed through out to be IFRS-Compliant nation and again it is obvious that the Government and professional fraternity must be preparing themselves to find out the solution to the technical and the logical problem the nation is facing now.

In any debate on convergence or adoption, India must first aspire to uphold the purity of IFRS and be fully IFRS-compliant nation and second it should take a stand that it has full belief in the proposed deviations as being the best practices and then the confidence and conviction to influence the International Accounting Standards Board (IASB) through consensus about what it believes is right and the need to bring the required improvement/amendments in IFRS rather than remaining as a carved-out nation. We cannot just take short-term local view rather we need to take long-term global view on IFRS.


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SEBI Update Shareholding of promoter/promoter group to be in dematerialized mode 17 June 2011 CIRCULAR NO. ISD/ 3/2011

In order to further promote dematerialization of securities, encourage orderly development of the securities market and to improve transparency in the dealings of shares by promoters including pledge / usage as collateral, SEBI in consultation with Stock Exchanges, has decided that the securities of companies shall be traded in the normal segment of the exchange if and only if, the company has achieved 100% of promoter's and promoter group's shareholding in dematerialized form latest by the quarter ended September 2011 as reported to the stock exchanges. In all cases, wherein the companies do not satisfy the above criteria, the trading in securities of such companies shall take place in trade for trade segment.

SIMILALRY, SEBI has also amended Grant of prior approval to registrars to an issue and share transfer agents and merchant bankers Change of Name by Listed Companies 16 June 2011CIRCULAR NO. MRD/DP/07/2011

All listed companies seeking change of name to comply inter alia with the following provision:-

At least 50 per cent of its total revenue in the preceding 1 year period should have been accounted for by the new activity suggested by the new name Or The amount invested in the new activity/project (Fixed Assets + Advances + Works-in-Progress) is at least 50 per cent of the assets of the company. The 'Advances' shall include only those extended to contractors and suppliers towards execution of project, specific to new activity as reflected in the new name. To confirm the compliance of the aforesaid provision 2.2, the company shall submit auditor's certificate to the exchange. Standardisation of Rating Symbols and Definitions 15 June 2011CIR/MIRSD/4/2011

Considering the international practices, standardised symbols and their definitions have been devised for the following: a) Long term debt instruments; b) Short term debt instruments; c) Long term structured finance instruments; d) Short term structured finance instruments; e) Long term mutual fund schemes; and f) Short term mutual fund schemes.

RELEVANT UPDATES – JUNE 2011


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Processing of investor complaints against listed companies in SEBI Complaints Redress System (SCORES) 03 June 2011CIR/OIAE/2/2011

This has the following salient features: • Complaints and reminders thereon are lodged online at anytime from anywhere; • An email is generated instantaneously acknowledging the receipt of the complaint and allotting a unique complaint registration number for future reference and tracking; • The complaint moves online to the entity (intermediary or listed company) concerned for its redressal; • The entity concerned uploads an Action Taken Report (ATR) on the complaint; • SEBI peruses the ATR and disposes of the complaint if it is satisfied that the complaint has been redressed adequately; • The concerned investor can view the status of the complaint online; • The entity concerned and the concerned investor can seek and provide clarification(s) online to each other; • The life cycle of a complaint has an audit trail; and • All the complaints are saved in a central database which would generate relevant MIS reports to enable SEBI to take appropriate policy decisions and or remedial actions. Liquidity enhancement schemes for illiquid securities in equity derivatives segment June 2011CIR/D1NPD/5/20102

In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit Stock Exchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidity of illiquid securities in their equity derivatives segments.

The LES can be introduced in any of the following securities: a. New securities permitted on the Stock Exchange after the date of this circular, b. Securities in case of a new Stock Exchange / new Segment, and c. Securities where the average trading volume for the last 60 trading days on the Stock Exchange is less than 0.1% of market capitalization of the underlying. In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit Stock Exchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidity of illiquid securities in their equity derivatives segments. Visit for complete details : http://lpguide.wordpress.com/2011/06/24/liquidity-enhancement-schemes-for-illiquid-securities-in-equity-derivatives-segment/ Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) Guideline CIRCULAR NO. MRD/DP/06/2011

Exemptions have been sought by Stock Exchanges from strict compliance with Clause 24 of the Annexure to Circular dated October 28, 2004 on the ground that the residual amount remaining after satisfaction of claims against the defaulting broker should be refunded to the broker and not credited to the IPF/CPF. SEBI hence amended the clause with a view to harmonise the practices followed by various exchanges to meet investor claims. For Details visit: http://lpguide.wordpress.com/2011/06/20/modification-to-investor-protection-fund-ipf-customer-protection-fund-cpf-guidelines/


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Periodical report- Grant of prior approval to underwriters 17 June 2011, CIRCULAR NO. MIRSD/6/2011

SEBI (Underwriters) Regulations, 1993, have been amended vide Notification No. LAD- NRO/GN/2011-12/03/12650, dated April 19.With the said amendment, the requirement of taking prior approval by the underwriters from SEBI for change in status or constitution has been dispensed with. However, the underwriters are required to take prior approval from SEBI for change in control. Pursuant to the aforesaid notification, all underwriters shall report the following change(s) to SEBI on a half-yearly basis within 15 days of expiry of the half-year, commencing from the half-year ended September 30, 2011.If there is no change during the relevant half-year, it shall be indicated in the report.

Grant of prior approval to Depository Participants CIR/MIRSD/9/2011 dt June 17, 2011

With this amendment, Depositary Participant would be required to take prior approval from SEBI for change in control.

SIMILARLY FOR DEBENTURE TRUSTEE, CREDIT RATING AGENCY, BANKERS TO AN ISSUE & MECHANT BANKERS.

MCA Update Companies (Amendment) Regulations, 2011 14 June 2011G.S.R. (E).

Power of RDs under Section 25 and Section 609(2) has been extended and clarified. Guidelines for declaring financial institution as Public Financial Institution under Section 4A of the Companies Act, 1956 02 June 2011General Circular No 34/2011

Now, the Central Government has framed following criteria for declaring any financial institution as PFI under section 4A of the Companies Act, 1956:—

(a) A company or corporation should be established under a special Act or the Companies Act being Central Act;

(b) Main business of the company should be industrial/ infrastructural financing;

(c) The company must be in existence for at least 3 years and their financial statement should show that their income from industrial/infrastructural financing exceeds 50 per cent of their income;

(d) The net-worth of the company should be Rs. one thousand crore;


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(e) Company is registered as Infrastructure Finance Company (IFC) with RBI or as an Housing Finance Company (HFC) with National Housing Bank;

(f) In the case of CPSUs/SPSUs, no restriction shall apply with respect to financing specific sector(s) and net-worth.

Guidelines for Fast Track Exit mode for defunct companies under section 560 of the Companies Act, 1956 07 June 2011General Circular No. 36/2011

In order to give an opportunity for fast track exit by a defunct company, for getting its name struck off from the register of companies, the Ministry has decided to modify the existing route through e-form – 61 and has prescribed the new Guidelines. The Guidelines for “Fast Track Exit mode” for defunct companies under section 560 of the Companies Act, 1956 are enclosed herewith. These Guidelines will be implemented w.e.f. 3rd July, 2011 By 30th June, 2011 on proposed new rules namely Companies (Dematerialization of Certificates) Rules, 2011 06 June 2011No 17/143/2011-CL.V

The Ministry of Corporate Affairs is considering to issue Companies (Dematerialization of Certificates) Rules, 2011 so that all public Companies and their subsidiaries which have raised money by issue of shares, debentures, by accepting public deposits, stock, bond or any other financial instruments from public, other than from directors of the company, shall be required to issue and keep such share certificates, debenture certificates and certificates issued for receipt of deposits, stock, bond or any other financial instruments in dematerialized form only, in the manner prescribed in the Depositories Act, 1996

Clarification regarding participation by shareholders or Directors in meetings under the Companies Act,1956 through Electronic mode 06 June 2011General Circular No. 35/2011

Green Initiatives in the Corporate Governance-Clarification regarding participation by shareholders or Directors in meetings under the Companies Act,1956 through Electronic mode. In respect of shareholders meetings to be held during financial year 2011-12, video conferencing facility for shareholders is optional. Thereafter, it is mandatory for all listed companies The Companies (Cost Accounting Records) Rules, 2011 June 03 2011Notification

The Companies (Cost Accounting Records) Rules, 2011 Dated 03-06-2011 Companies Director Identification Number (Second Amendment) Rules, 2011 02 June 2011Notification Special Drive to clear pendency of e-forms filed with Registrar of Companies prior to implementation of revised Regulation 17 of the Companies Regulation, 1956


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RBI Update Enhancement of Rates of Provisioning for Non-Performing Assets and Restructured Advances 1.Sub-Standard Advances : Advances classified as “sub-standard” will attract a provision of 15 per cent as against the existing 10 per cent. The “unsecured exposures” classified as sub-standard assets will attract an additional provision of 10 per cent, i.e., a total of 25 per cent as against the existing 20 per cent. However, “unsecured exposures” in respect of Infrastructure loan accounts classified as sub-standard, in case of which certain safeguards such as escrow accounts are available as indicated in our circular DBOD.No.BP.BC.96/08.12.014/2009-10 dated April 23, 2010, will attract an additional provision of 5 per cent only i.e. a total of 20 per cent as against the existing 15 per cent. 2. Doubtful Advances : Doubtful Advances will continue to attract 100% provision to the extent the advance is not covered by the realisable value of the security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis. However, in respect of the secured portion, following provisioning requirements will be applicable: The secured portion of advances which have remained in “doubtful” category up to one year will attract a provision of 25 per cent (as against the existing 20 per cent); The secured portion of advances which have remained in “doubtful” category for more than one year but upto 3 years will attract a provision of 40 per cent (as against the existing 30 per cent); and the secured portion of advances which have remained in “doubtful” category for more than 3 years will continue to attract a provision of 100%.

Inclusion of the “Sberbank” in the Second Schedule to the Reserve Bank of India Act, 1934 01 June 2011RBI/2010-11/553

Remittance of assets by foreign nationals - Opening of NRO Accounts 09 June 2011A.P. (DIR Series) Circular No. 70

The foreign nationals employed in India holding valid visas are eligible to maintain resident accounts with an Authorised Dealer Category - I (AD Category-I) bank in India. The AD Category-I banks are required to close the resident accounts of such foreign nationals on their leaving the country and transfer their assets to their accounts maintained abroad. When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating her / his stay outside India for an uncertain period, her / his existing account should be designated as a Non-Resident (Ordinary) [NRO] Account.

AD Category-I bank should obtain the full details from the account holder about his legitimate dues expected to be received into his account. There should not be any other inflow / credit to this account other than this. The funds credited to the NRO account should be repatriated abroad immediately, subject to the AD Category-I bank satisfying itself regarding the payment of the applicable Income tax and other taxes in India. The amount repatriated abroad should


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not exceed USD one million per financial year. The debit to the account should be only for the purpose of repatriation to the account holder’s account maintained abroad.

Prudential Guidelines on Restructuring of Advances by Banks 10 June 2011RBI/2010-11/ 561

Banks were advised that if due to lack of expertise / appropriate infrastructure, they find it difficult to ensure computation of diminution in the fair value of advances extended by their small / rural branches, they will have the option of notionally computing the amount of diminution in the fair value and providing therefore at five percent of the total exposure in respect of all restructured accounts where the total dues are less than rupees one crore till the financial year ending March 2011. It was also advised that the position would be reviewed thereafter. On a review, it has been decided that the above alternative option of computing diminution in the fair value of advances extended by small and rural branches on restructuring will remain applicable for another two years, i.e. till the financial year ending March 31, 2013.

Pre- funded instruments / Electronic fund transfers 09 June 2011 CIR/MIRSD/03/2011

While receiving funds from the clients through pre-funded instruments, such as, Pay Order, Demand Draft, Banker’s cheque, etc., it is observed that the stock brokers are unable to maintain an audit trail of the funds so received, as the details of the name of the client and bank account-number are not mentioned on such instruments. This may result in flow of third party funds / unidentified money, which is not in accordance with the provisions of the aforesaid circular and also affects the integrity of the securities market.

Therefore, with a view to address the aforesaid concerns, it has been decided in consultation with the major stock exchanges and associations of stock brokers, as under:

a. If the aggregate value of pre-funded instruments is ` 50,000/- or more, per day per client, the stock brokers may accept the instruments only if the same are accompanied by the name of the bank account holder and number of the bank account debited for the purpose, duly certified by the issuing bank. The mode of certification may include the following:

i. Certificate from the issuing bank on its letterhead or on a plain paper with the seal of the issuing bank.

ii. Certified copy of the requisition slip (portion which is retained by the bank) to issue the instrument.

iii. Certified copy of the passbook/bank statement for the account debited to issue the instrument.

iv. Authentication of the bank account-number debited and name of the account holder by the issuing bank on the reverse of the instrument.

b. Maintain an audit trail of the funds received through electronic fund transfers to ensure that the funds are received from their clients only.


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OTHER RELEVANT NOTIFICATIONS

INDIRECT TAX Update CBEC amends tariff value of brass scrap 15 June 2011Notification No. 38/2011 - Customs (N. T.)

7404 00 22 --- Brass Scrap (all grades) --- Tariff value US $ (Per Metric Tonne) 4323

Regarding constitution of Committees to advise the authority for writing off of arrears of Central Excise duty and Customs duty 01 June 2011Circular No. 946/07/2011

It has been decided by the Board to constitute three - member Committees of Chief Commissioners and Commissioners, which will examine the proposals for write – off of irrecoverable arrears and recommend deserving cases to the authority competent to order such write – off.

Notification related to Diesel and cinematographic film 25th June, 2011 Notification No. 33/2011-Central Excise

In the said notification, in the Table,-

Particulars Notification & Dates

Retail Electronic Payment Systems – NEFT / NECS / RECS / ECS – Levy of Processing Charges

02 June 2011RBI/2010-11/559

Opening of Branch/Subsidiary/Joint Venture/Representative Office or Undertaking Investment Abroad by NBFCs

14 June 2011RBI/2010-11/566

Findings of Forensic Scrutiny - Guidelines for prevention of frauds

31 May 2011RBI/2010-11/555

Reporting of Offshore Derivative Instruments(ODIs)/ Participatory Notes(PNs) activity

15 June 2011CIR/IMD/FII&C/7/2011

Redemption of Indian Depository Receipts (IDRs) into Underlying Equity Shares

03 June 2011CIR/CFD/DIL/3/2011

Overseas Direct Investment-Liberalisation and Rationalism

29 June RBI/2010-11/584

FDI- Issue of Equity Shares under the FDI Scheme allowed under the Government route

30 June RBI/2010-11/586


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(i) against S. No. 19, against item (i) occurring in column (3), for the entry in column (4), the entry “Nil” shall be substituted.

(ii) for S.No.73A and the entries relating thereto, the following S.No.37 and entries shall be substituted, by Colour positive unexposed cinematographic film in rolls of any size and length and colour negative unexposed cinematographic film in rolls of 400 feet and 1000 feet

Notification related to Crude,Diesel, petrol and petroleum product 25 June 2011 Notification No.52/2011-Customs

In the said notification, in the Table,-

(i) after S. No 72A and the entries relating thereto, the following S. No. and entries shall be inserted, namely:-

(1) (2) (3) (4) (5) (6)

“72B. 2710, 2711, 2712, 2713, 2714 or 2715

All goods, other than goods mentioned at S. Nos. 72 A, 73, 74A,74B, 75 E, 76, 77A, 488A and 488B

5% - -’’;

(ii) against S. No. 487, for the entry in column (4), the entry “Nil” shall be substituted;

(iii) against S. No. 488A, for the entry in column (4), the entry “2.5%” shall be substituted;

(iv) against S. No. 488B, for the entry in column (4), the entry “2.5%” shall be substituted;

Regarding imposition of definitive anti-dumping duty on import of sewing machine needles from China PR Notification No. 50/2011-Customs

Heading/Sub Heading

Country of Origin

Country of exports

Producer Exporter

Duty Amount

Unit Currency

(2) (4) (5) (6) (7) (8) (9) (10)

8452.30 China PR China PR Any Any 1,55,362 Per lakh needles

Indian Rupee

Seeks to amend Notification No.107/2008-Customs, dated the 6th October, 2008 so as to enhance the extent of Margin of Preference in respect of specified goods imported from Least Developed Countries of South Asian Free Trade Agreement (SAFTA) Notification No. 49 /2011-Customs

Amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.107/2008-Customs, dated the 6th October, 2008, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 718 (E), dated the 6th October, 2008, namely:-

in the Table, in column (4), for the entry “75%”, wherever it occurs, the entry “100%” shall be substituted.


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Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011 28 June 2011 Notification No. 41 /2011-Customs

CBEC determines that the rate of exchange of conversion of each of the foreign currency specified in Schedule I & II into Indian currency. Refer www.lpguide.wordpress.com for further details.


SERVICE TAX Update

CBEC came out with a circular clarifying certain issues pertaining to newly introduced services:

Short Term Accommodation Service:

Sl. Queries Clarification

1. What is the relevance of declared tariff? Is the tax required to be paid on declared tariff or actual amount charged?

“Declared tariff” includes charges for all amenities provided in the unit of accommodation like furniture, air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. The relevance of ‘declared tariff’ is in determining the liability to pay service tax as far as short term accommodation is concerned. However, the actual tax will be liable to be paid on the amount charged i.e. declared tariff minus any discount offered. Thus if the declared tariff is Rs 1100/-, but actual room rent charged is Rs 800/-, tax will be required to be paid @

Particulars Notification reference

Regarding centralised registration facility for recorded smart card manufacturers

03 June 2011

Notification No.14/ 2011 - Central Excise (N.T.)

Bifurcating their excess Input Tax Credit by certain dealers

14 June 2011

No.F.6(86)/Policy/VAT/2011/170-177

Framing of assessments under CST Act, 1956 Notice Date : 22 June 2011

Clarification on circular No 33/2011 dated 01.06.2011

Notice Date : 20 June 2011


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5% on Rs 800/-.

2. Is it possible to levy separate tariff for the same accommodation in respect of corporate/privileged customers and other normal customers?

It is possible to levy separate tariff for the same accommodation in respect of a class of customers which can be recognized as a distinct class on an intelligible criterion. However, it is not applicable for a single or few corporate entities.

3. Is the declared tariff supposed to include cost of meals or beverages?

Where the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.

4. What is the position relating to off-season prices? Will they be considered as declared tariff?

When the declared tariff is revised as per the tourist season, the liability to pay Service Tax shall be only on the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place.

5. Is the luxury tax imposed by States required to be included for the purpose of determining either the declared tariff or the actual room rent?

For the purpose of service tax luxury tax has to be excluded from the taxable value.

Services Provided by Restaurants:

1. If there are more than one restaurants belonging to the same entity in a complex, out of which only one or more satisfy both the criteria relating to air-conditioning and licence to serve liquor, will the other restaurant(s) be also liable to pay Service Tax?

Service Tax is leviable on the service provide by a restaurant which satisfies two conditions: (i) it should have the facility of air conditioning in any part of the establishment and (ii) it should have license to serve alcoholic beverages. Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax.

2. Will the services provided by taxable restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to a restaurant be also liable to Service Tax?

The taxable services provided by a restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to the restaurant are also liable to Service Tax as these areas become extensions of the restaurant.

3. Is the serving of food and/or beverages by way of room service liable to service tax?

When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor. Also, the same cannot be charged under the Short Term Accommodation head if the bill for the food will be raised separately and it does not form part of the declared tariff.

4. Is the value added tax imposed by States required to be included for the purpose of service tax?

For the purpose of service tax, State Value Added Tax (VAT) has to be excluded from the taxable value.


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Check the above notifications at: http://www.servicetax.gov.in/st-notfns-home.htm

DIRECT TAX Update Section 10(15)(i) of the Income Tax Act, 1961 - Amendment in Notification No G.S.R. 607(E), dated the 9th June, 1989 03 June 2011Section 10(15)(i) of the Income Tax Act, 1961

Post Office Savings Bank Account To an extent of the interest of Rs. 3,500 in the case of an individual account and Rs. 7,000 in the case of joint account.

Section 10(23AAA) o the Income Tax Act 1961 - Amendment in Notification No S.O. 672(E) dated the 27th July, 1995 03 June 2011 NOTIFICATION NO.33/2011

In the said notification, in paragraph (1), after clause (c), the following clause shall be inserted, namely:—to meet the cost of annual medical tests or medical checkups of the member, his spouse and dependent children.

Exemption u/s 139(1) to Specified Person from the requirement of furnishing a return of income for Assessment year 2011-12

In exercise of the powers conferred by sub-section (1C) of section 139 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby exempts the following class of persons,

Subject Date and Notification No. Remarks

Amends Notification No. 07/2010-Service Tax, dated the 27th February,2010

14 June 2011

Notification No. 38/2011-Service Tax

Seeks to rescind Notification No. 33/2009 dt. 01.09.2009

Exempt service provided in relation to transport of specified goods by rail

14 June 2011

Notification No.39/2011-Service Tax

Extended upto 1-1-2012

Amends Notification No. 09/2010-Service Tax, dated the 27th February,2010

14 June 2011

Notification No.40/2011-Service Tax

Seeks to amend Notification No. 01/2006 dated 01.03.06 to provide abatement for transport of goods by rail.


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subject to the conditions specified hereinafter, from the requirement of furnishing a return of income under sub-section (1) of section 139 for the assessment year 2011-12, namely :—

Class of Persons

1. An Individual whose total income for the relevant assessment year does not exceed five lakh rupees and consists of only income chargeable to income-tax under the following head,—

(A) "Salaries";

(B) "Income from other sources", by way of interest from a savings account in a bank, not exceeding ten thousand rupees.

Conditions

2. The individual referred to in para 1,—

(i) has reported to his employer his Permanent Account Number (PAN);

(ii) has reported to his employer, the incomes mentioned in sub-para (B) of para 1 and the employer has deducted the tax thereon;

(iii) has received a certificate of tax deduction in Form 16 from his employer which mentions the PAN, details of income and the tax deducted at source and deposited to the credit of the Central Government;

(iv) has discharged his total tax liability for the assessment year through tax deduction at source and its deposit by the employer to the Central Government;

(v) has no claim of refund of taxes due to him for the income of the assessment year; and

(vi) has received salary from only one employer for the assessment year.

Cost Inflation Index for Financial Year 2011-12 is 785 23 June 2011 Notification No. 35/2011

IFRS Update IFRS implementation faces more delayed: The implement of new accounting norms for the Indian Inc. may be delayed by a year, until a new law on taxes i..e.DTC becomes an Act, providing relief to thousands of companies struggling to meet the deadline to shift to new standards.

Global Accounting Body for full IFRS in India: The IASB has requested the government to adopt global accounting standard instead of the converged one. As soon India’s problem will become global issue.


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1. Relaxation in SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

2 Cost Accounting Records Rules and Cost Audit Report Rules, 2001

3. Amendment in Companies Act : Definition of PFI

4. BSE-New Norms for Revocation & Direct Listing

5. MCA General Circular: Regarding filing of Annual Documents

6. Companies (Passing if the resolution by Postal Ballot) Rules, 2011

7. XBRL Mandatory : Latest

8. Green Initiative in Corp governance regarding participation Of Shareholders & Directors through E-Mode

9. Filing of Balance Sheet and Profit and Loss Account in XBRL Format

10. General Circular No. 37/2011 dated 07th June 2011 on XBRL Taxonomy

11. Indian Government Accounting Standards (IGAS) 1 – Guarantees given by Governments: Disclosure Requirements

12. Last week : News from the Ministry of Corporate Affairs

13. SEBI: Standardization of rating symbols and change in criteria for seeking name change

14. SEBI: Shareholding of promoter/promoter group to be in dematerialized mode

15. Periodical report- Grant of prior approval to underwriters

16. Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) Guidelines

17. Withdrawal of 1937 Stamp Duty notification in Delhi on Merger

18. Liquidity enhancement schemes for illiquid securities in equity derivatives segment

19. Directors & Officer’s Liability Insurance

20. Buy Back : Complete

21. 12 Cases of Wrong E-Filing Detected

22. Shareholders Rights :Must See

23. Settlement Of Prosecution

POSTS IN OUR BLOG THIS MONTH


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24. Learn CARO easily and sequentially

25. Section 233B of the Companies Act,1956- Audit of Cost Accounts in certain cases.

26. Cost Inflation Index for F.Y.2011-12 is 785.

27. Exemption u/s 139(1) to specified person from the requirement of furnishing the return of Income for A.Y.2011-12

28. Amendment in the process of issue of TDS Certificate.

29. Payment of interest in respect of PPF HUF a/c.

30. Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011.

31. ODI-Liberalisation and Rationalism.

32. FDI-Issue of Equity Shares under the FDI Scheme allowed under the Government route.

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E newsletter july 2011