Business Advisor

(Fortnightly inputs for professionals and executives) Volume II Part 2 January 25, 2013

Volume II Part 2 January 25, 2013

Business Advisor

Contents
Mandatory CSR T. N. Pandey - All companies will have to spend 2% of average net profit during three preceding years on CSR. OPC: Success is doubtful Dr S. Chandrasekaran - The concept of one person company (OPC) was first recommended by an expert committee constituted under the leadership of Dr J. J. Irani, in 2005. Fragile circular on recovery of tax demands Dr Sanjiv Agarwal - It would be fair and reasonable that no coercive steps are taken during the pendency of stay applications. Where are we likely to move? Dr B. Yerram Raju - Rational pessimism, to borrow Joseph Stiglitzs phrase, has given way to irrational hooliganism. Toothless GAAR Cartoon by Bimbadhar Mishra Case laws update V. K. Subramani - Inter-corporate deposit written off in the first year not eligible for deduction as bad debt.
(Cover images: Thiruvannamalai Srinivasa Perumal temple steps)

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Mandatory CSR
T. N. Pandey The Companies Bill, 2012 (as passed by Lok Sabha) mandates corporates to contribute for social sector responsibilities. When passed by Rajya Sabha, the Bill will be legalising a practice which is being presently pursued by limited companies in the country concerning social sector responsibilities as corporate social responsibility (CSR). The Bill provides (vide clause 135) that all companies will have to spend 2% of its average net profit during three preceding years on CSR. The Explanation to the clause provides that average net profit shall be calculated in accordance with the provisions of section 198 (and clause 198 of the Bill mentions the method relating to calculation of profits). The legal provision in nutshell (i) The Bill provides that the new law will apply to every company with a net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or a net profit of Rs 5 crore or more during any financial year; (ii) The amount has to be minimum of 2% of average profit as explained earlier. The amount has to be spent in 9 broad areas that results in social good as under (as given in Schedule VII to the Bill). The areas are:(i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortality and improving material health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability (For the full issue, subscribe at http://bit.ly/ShriMagz)
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All companies will have to spend 2% of average net profit during three preceding years on CSR.

Case laws update

V. K. Subramani Once application for registration under section 12AA has been rejected there is no provision for reconsidering the application In Kadakkal Educational Trust v. CIT (2013) 81 DTR (Ker) 345 the application of the assessee for registration under section 12A was rejected. The assessee after rectifying the defects submitted an application for reconsideration of the same. Later the assessee filed an application for approval under section 10(23C)(vi) before Chief CIT and upon which it was presumed that the assessee was not complying/ pressing for registration under section 12A. Subsequently, the assessee filed a writ that registration under section 12A has to be considered by the Revenue which the court held as no longer pending. On conclusion of such finding by the court, the assessee cannot again make a request for reconsideration of the application for registration under section 12A. Defect in declaration in Form No. 15G cannot lead to disallowance under section 40(a)(ia) In Pareek Electricals v. Asst. CIT (2013) 81 DTR (Ctk)(Trib) 342 there was some infirmity in Form No. 15G filed by the assessee which prompted the Assessing Officer to disallow the expenditure claim by way of rent. The tribunal held that the claim of non deduction must be considered under the provisions of section 194-I read with section 197A of the Act. Disallowance under section 40(a)(ia) cannot be made for the infirmity in the declaration filed by the recipient of income. Interest payable to co-operative bank not covered by section 43B In CIT v. Upendra T. Kapadia (2013) 81 DTR (Bom) 279 it was held that interest payable to a co-operative bank not mentioned in the Second Schedule of the Reserve Bank of India, 1934 nor covered by any other bank mentioned in the Explanation to section 11(5)(iii) of the Income-tax Act, will not lead to disallowance under section 43B of the Act.

Volume II Part 2 January 25, 2013

Business Advisor

Inter-corporate deposit written off in the first year not eligible for deduction as bad debt In Bharti Televentures v. Addtl. CIT (2013) 81 DTR (Del) 225 the assessee made inter-corporate deposit for the first time during the year and claimed the same as bad debt after writing off the amount in its books of account. The court held that being the first year the inter-corporate deposit claimed as bad debt was not a trade debt or part of any money-lending business. Accordingly, the claim of deduction was disallowed by the court. Amount received towards carbon credit is a capital receipt, hence not chargeable to tax In My Home Power Ltd v. Dy. CIT (2013) 81 DT (Hyd) (Trib) 173 the assessee received a sum towards carbon credit given to another person who had negative point of carbon credit. It was held that the amount received was a capital receipt and hence could not be charged to tax. Amount in Personal Ledger Account (PLA) is deductible under section 43B In CIT v. Maruti Suzuki Ltd (2013) 81 DTR (Del) 152 it was held that the amount shown in personal ledger account under the central excise law is deemed to be an expenditure incurred. Such sum hence cannot be subjected to disallowance was the verdict of the tribunal and which the court upheld as valid. Return has to be filed before the due date under section 139(1) to be eligible for deduction under section 10A In Saffire Garments v. ITO (2013) 81 DTR (Rajkot) (SB) (Trib) 131 it was held that non-filing of return within the due date prescribed under section 139(1) would lead to denial of deduction under section 10A. The tribunal held that the provisions of section 10A are mandatory. Business not in existence at the time of formation of trust cannot be called property held under trust In CIT v. Mehta Charitable Prajnalay Trust (2013) 81 DTR (Del) 104 it was held that a business not held at the time of formation of the trust cannot be called property held under trust. Thus section 11(4A) will not apply. When the business carried on by the trust is not incidental to the achievement of the objects, it will not fall under section 11(4) and thus it is not entitled to exemption under section 11.
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Actual expenditure paid to supplier for windmill is to be reckoned for depreciation regardless of the fact that it was returned earlier by a previous customer to the supplier In Navlakha Translines v. ITO (2013) 81 DTR (Pune) (Trib) 103 the assessee acquired windmills from the supplier who took those windmills from a customer who surrendered the same because of its inability to pay the cost of windmills. In spite of the previous customer availing depreciation thereon the assessee who acquired windmills by incurring actual cost was held as eligible to claim depreciation. It held that the fact of previous sale and return of such machineries by a customer will not alter the eligible depreciation claim. A composite housing project with eligible and ineligible units entitles deduction under section 80-IB in respect of eligible units In Viswas Promoters (P) Ltd v. Asst. CIT (2013) 81 DTR (Mad) 68 it was held that in a housing project consisting of eligible and non-eligible units, the assessee could claim deduction under section 80-IB in respect of eligible units notwithstanding non-eligible units also form part of the same project. (V. K. Subramani is Chartered Accountant, Erode)

Budget 2013 expectations Business Advisor invites business leaders and professionals to mail in Budget 2013 expectations.
State in about 100 words what you wish the Finance Minister should do in the forthcoming Budget, and email along with your photo to dmurali [at] outlook.com. Rush in before February 15, 2013.
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List of contributors to this issue

T. N. Pandey, Former Chairman, CBDT, Noida Dr S. Chandrasekaran, Chandrasekaran Associates, Delhi Dr Sanjiv Agarwal, Agarwal Sanjiv & Company, Jaipur Dr B. Yerram Raju, Regional Director, PRMIA, Hyderabad Bimbadhar Mishra, Andhra Bank, Hyderabad V. K. Subramani, Chartered Accountant, Erode

Volume II Part 2 January 25, 2013

Business Advisor

Business Advisor
On finance, accounting, controls, risk management, taxation, and more

Published by: Shrinikethan, Chennai http://bit.ly/ShriMap Edited by: D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk January 25, 2013 Volume II Part 2 January 25, 2013 8 Business Advisor