Depreciation Rules Under New Companies Act 2013

The Companies Act, 2013 [henceforth ‘the act’] has become new legislation for corporate India. The act has replaced six decades old legislation and overhauled the corporate functioning. The act marks a major step forward and appreciates the current economic environment in which companies operate. It goes a long way in protecting the interests of shareholders and removes administrative burden in several areas. The act is also more outward looking and in several areas attempts to align with international requirements. The act is landmark legislation and is likely to have far-reaching consequences on all companies operating in India. We are getting close to 1 million registered companies in India. A strong company legislation is therefore imperative.

There are lot many changes in new companies act as compared to old act. The scale of change can be assessed from the rules those are finally issued. These changes would need to be assimilated as most of the sections of the act have come into force as on 1^st April, 2014. One of such key changes is related to regulations governing depreciation provisions.

Depreciation

As per Accounting Standard-6, Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is a non-cash flow expense for an entity. The purpose of depreciation is to charge to expense a portion of an asset that relates to the revenue generated by that asset. Depreciation has a significant effect in determining and presenting the financial position and results of operations of an enterprise.

Section 123 of the act stipulates that depreciation shall be provided in accordance with the provisions of Schedule II. And section 123 along with Schedule II of the act has been notified w.e.f 1^st April, 2014. The act has brought a major alteration in the regulations governing depreciation provisions.

As per Schedule II of the act, Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It is further stated that the term depreciation includes amortization.  Amortization of intangible assets is to be done as per notified accounting standard.

Applicability of section 123 & Schedule II

Ministry of Corporate Affairs [MCA] vide General Circular 08/2014, has clarified that although Provisions of Schedule II (Useful lives to compute depreciation) and Schedule III (Format of financial statements) have also been brought into force from 1^st April, 2014; the said provisions would become applicable in respect of financial statements of financial years commencing on or after 1* April, 2014.

So for F.Y. 2013-14, depreciation rules stipulated under the Companies Act, 1956 are to be adhered. And from F.Y. 2014-15 onwards, provisions stated in The Companies Act, 2013 will come into force.

Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.

The Companies Act, 1956 requires depreciation to be provided on each depreciable asset so as to write-off 95% of its original cost over a specified period. The remaining 5% is treated as residual value. 100% Depreciation can be charged on assets whose actual cost does not exceed Rs.5,000/-

In Companies Act, 2013 it is clarified that residual value of the asset can not exceed 5% of original cost of the asset. Further, the provision for 100% Depreciation on immaterial items i.e., assets whose actual cost does not exceed Rs.5,000/-. is omitted.

v  Useful life :

‘Useful life’ may be considered as a period over which an asset is available for use or as the number of production or similar units expected to be obtained from the asset by the entity. Part-C to Schedule II has prescribed the useful life for various categories of tangible fixed assets. There are 15 categories of assets mentioned. And the useful life mentioned under it is different than that of The Companies Act, 1956.

Hence, due to such change in the useful lives of the assets many companies will now need to charge much higher depreciation in the books of accounts as compared to earlier rates, specially considering the fact the backlog of depreciation not provided will have to be divided amongst the remaining residual life of the asset.

Eg:-  X Ltd. has purchased Machinery whose 10 years of life has already expired. Now up to 10 years company was providing depreciation at the rate of 4.52% (95/21). That means X Ltd. has already provided 45% (4.52*10 years). So, now as per Schedule II the remaining useful life is only 5 years. Hence, for these 5 years it will have to provide depreciation at a higher rate of 10% (50/5 years).

v  Component approach :

Schedule II of the act also states that the specified useful lives are for the whole of the asset. When the cost of a part (component) of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part should be determined separately.

This indicates that companies are now required to adopt what is known as the ‘component approach’ to compute depreciation on fixed assets. A company will have to estimate the useful life of such a component (since it may not be provided in Schedule II) and depreciate the cost of that specific component over this estimated useful life.

The requirement to adopt a ‘component approach’ similar to that envisaged in Ind-AS, may be an onerous requirement for capital intensive companies since there will be significant effort involved in estimating useful lives for components.

v  Depreciation rates :

In Schedule XIV of The Companies Act, 1956 the rates provided were minimum rates; hence a company was having liberty to charge depreciation at the rates more than minimum one. And on the other hand, in Schedule II of The Companies Act, 2013 nowhere depreciation rates are specified. So, it is to be construed that a company has to charge depreciation at  the same rates over the years. 

Schedule XIV of The Companies Act, 1956 provides separate depreciation rates for double shift and triple shift use of assets.

No separate rates are prescribed for extra shift depreciation. Schedule II provides that Extra Shift Depreciation [ESD] is not applicable to items marked NESD. ESD will apply to plant and machinery items subject to general rate- i.e., useful life of 15years. It has further specified the working of ESD. It provides:-

Ø  50% more depreciation for that period for which asset is used for double shift and

Ø  100% more depreciation for that period for which asset is used for triple shift.

v  Method of Depreciation :

The Schedule XIV to the Companies Act, 1956 prescribes the rates of Straight Line Method [SLM] and Written Down Value[WDV] at which depreciation on various assets need to be provided.

In Schedule II, only useful life is provided, therefore the entity is required to calculate the appropriate rate of depreciation as per the method used by it (SLM or WDV).

v  Classification of Companies :

All companies are divided into the following three classes to decide application of depreciation

(1)   Class of companies as may be prescribed and whose financial statements comply accounting standards prescribed for such class of companies -

These companies will typically use useful lives and residual values prescribed in the schedule II. However, these companies will be permitted to adopt a different useful life or residual value for their assets, provided they disclose jurisdiction of the same.

(2)   Class of companies or class of assets where useful lives or residual value are prescribed by a regulatory authority constituted under an act of the Parliament or by the Central Government -

These companies will use depreciation rates or useful lives and residual values prescribed by the relevant authority for depreciation purposes.

(3)   Other companies -

For these companies, the useful life of an asset will not be longer than the useful life and the residual value will not be higher than that prescribed in the proposed Schedule II.

v  Carrying amount of the asset :

From the date of the Companies Bill coming into effect, the carrying amount (WDV) of the asset as on that date:

§  Will be depreciated over the remaining useful life of the asset according to Schedule II;

§  After retaining the residual value, will be recognized in the opening retained earnings where the remaining useful life is nil.

Potential issue

u The useful life of an asset can be the number of production or similar units expected to be obtained from the asset. This indicates that a company may be able to use Units of Production method for depreciation, which is currently prohibited for assets covered under Schedule XIV of The Companies Act, 1956.

u Companies, covered under class (i) above, will be able to use different useful lives or residual values, if they have jurisdiction for the same. It appears that this provision is aimed at ensuring compliance with Ind-AS 16 for such companies. However, they are likely to be able to start using this option immediately, and need not wait for Ind- ASs to become applicable.

u The application of component accounting is likely to cause significant change in accounting for replacements costs. Currently, companies need to expense such costs in the year of incurrence. Under the component accounting, companies will capitalize these costs, with consequent expensing of net carrying value of the replaced part.

u In case of revaluation, depreciation will be based on the revalued amount. Consequently, the ICAI guidance may not apply and full depreciation on the revalued amount is expected to have significant negative impact on P & L account.

u In case of assets with a nil remaining useful life on the date Schedule II of the act comes into effect, the transitional provisions require that the carrying amount is written off to retained earnings. In other words, the carrying value never gets charged to the P&L account.

u Overall, many companies may need to charge higher depreciation in the P&L because of pruning of useful lives as compare to earlier specified rates. However in some cases, the impact will be lower depreciation, i.e., when the useful lives are much longer compared to the earlier specified rates, such as metal pot line, bauxite  crushing and grinding section used in manufacture of non-ferrous metals.

Conclusion

Although section 123 & Schedule II of the act has been notified, the depreciation provisions are not to be considered for F.Y. 2013-14. But, from next year onwards, the said provisions would have a lot of impact on all the companies in India. So it is a dire need for all of us to understand these provisions, as it would affect accounting of depreciation of companies. Also, while doing audit, it is to be checked that depreciation charged is as per Schedule II of the act.

This Article has been shared by Saurabh Wagle. He can be reached at saurabh.wagle@gmail.com

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Result of CA Final Examination held in May/June, 2014 is likely to be declared on 8th August, 2014

July 28, 2014

IMPORTANT ANNOUNCEMENT

The result of the Chartered Accountants Final Examination held in May/June, 2014 is likely to be declared on Friday, the 8th August, 2014 around 2.00 P.M. and the same as well as the merit list (candidates securing a minimum of 55% and above marks and upto the maximum of 50th Rank and in accordance with the decision of the Examination Committee) on all India basis will be available on the following website:

http://www.caresults.nic.in

Arrangements have also been made for the students of Final Examination desirous of having results on their e-mail addresses to register their requests at the above website, i.e., http://www.caresults.nic.in from 4th August, 2014. All those registering their requests will be provided their results through e-mail on the e-mail addresses registered as above immediately after the
declaration of the result.

In addition to above, it may be noted that for accessing the result at the above website i.e. http://www.caresults.nic.in the student shall have to enter his registration no. and/or PIN no. along with his roll number.

Further, facilities have been made for students of Final Examination held in May/June, 2014 desirous of knowing their results with marks on SMS. The service will be available through India Times.

For getting results through SMS, students should type:
i) for Final Examination result the following
CAFNL(space)XXXXXX (Where XXXXXX is the six digit Final examination roll number of the candidate)
e.g. CAFNL 000028
and send the message to:
58888 - for all mobile services - India Times

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DOWNLOAD REVISED FORM 3CA 3CB AND 3CD

GOVERNMENT OF INDIA 

MINISTRY OF FINANCE 

(DEPARTMENT OF REVENUE) 

(CENTRAL BOARD OF DIRECT TAXES) 

New Delhi, the 25th July, 2014 

NOTIFICATION 

INCOME-TAX 

S.O. 1902 (E) In exercise of the powers conferred by section 295 read with section 44AB of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:— 

1. (1) These rules may be called the Income-tax ( 7th Amendment) Rules, 2014. 
    (2) They shall come into force on the date of their publication in the Official Gazette. 

2. In the Income-tax Rules, 1962, in Appendix-II, for Form No. 3CA, Form No. 3CB and Form 
No. 3CD, the following forms shall be substituted, namely:- 

DOWNLOAD REVISED FORM 3CA

DOWNLOAD REVISED FORM 3CB

DOWNLOAD REVISED FORM 3CD

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Major Changes in New Form 3CD (Tax Audit)

The CBDT has notified Income-tax (7th amendment) Rules, 2014 which substitutes the existing Form No. 3CD with a new form. The new Form 3CD prescribes certain new reporting clauses and substitutes some existing clauses with new ones. The new form requires tax auditor to furnish more and detailed information in the new form for tax audit report.

Unlike old form 3CD which required auditor to report only those inadmissible payments which were debited to Profit and loss account, the new Form 3CD requires reporting of all disallowable payments even if they are not debited to profit and loss account.

With the substitution of Form No. 3CD, reporting in the new form would be a time taking job for the Chartered Accountants. Here is the list of additional reporting requirements as prescribed in the new Form No. 3CD:

(1)		Registration number in case of indirect tax liability:
		Assessees liable to pay indirect taxes (like excise duty, service tax, sales tax, customs duty, etc.) shall furnish their registration number or any other identification number allotted to them[clause 4 of Part A].
(2)		Relevant clauses of section 44AB:
		The relevant clauses of section 44AB shall be reported under which audit has been conducted[clause 8 of Part A].
(3)		Location at which books of account are kept:
		New Form seeks details of the address at which books of account of assessee have been kept[clause 11(b) of Part B].
(4)		Nature of documents examined by the auditor:
		The auditor is required to specify the nature of documents examined by him in the course of tax audit[clause 11(c) of Part B].
(5)		Change in method of accounting/stock valuation:
		A tabular format is specified for reporting of financial impact of changes in method of accounting and method of stock valuation[clause 13 and clause 14 of Part B].
(6)		Transfer of land/building for less than stamp duty value:
		Details of land or building transferred by assessee for less than stamp duty value (under section 43CA or under section 50C) shall be reported in new Form 3CD [clause 17 of Part B].
(7)		Deduction allowable under Sections 32AC/35AD/35CCC/35D:
		Deductions allowable under sections 32AC, 35AD, 35CCC and 35DDD are also required to be reported in revised Form No. 3CD[clause 19 of Part B].
(8)		Disallowances:
		Old Form3CD required reporting of inadmissible payments only when they were debited to Profit and loss account. However, the new Form 3CD requires reporting of following disallowable payments, even if they are not debited to profit and loss account[clause 21 of Part B]:

(i)		Disallowance for TDS default under Section 40(a)
(ii)		Disallowance for cash payments under section 40A(3)
(iii)		Disallowance for provision for gratuity under section 40A(7)
(iv)		Disallowance under Section 40A(9)
(v)		Particulars of any liability of a contingent nature
(vi)		Amount of deduction inadmissible under section 14A
(vii)		Interest inadmissible under the proviso to section 36(1)(iii)

(9)		Deemed income under Section 32AC:
		Section 32AC of the Act provides for investment allowance of 15% for investment in plant and machinery. New form provides for reporting of deemed income which results from sale or transfer of new asset, (if asset was acquired and installed by the assessee for the purpose of claiming deductions under Section 32AC) within a period of five years from the date of its installation[clause 24 of Part B].
(10)		Receipt of unlisted shares:
		A new clause is inserted in the Form 3CD which requires reporting of all unlisted shares which were received by assessee either for inadequate consideration or without consideration in view of section 56(2)(viia)[clause 28 of Part B].
(11)		Issue of shares above fair market value:
		A new clause is inserted in the Form 3CD which requires reporting of all transactions of issue of shares where consideration received by assessee exceeds its fair market value in view of section 56(2)(viib)[clause 29 of Part B].
(12)		Speculation losses:
		New Form No. 3CD provides for reporting of losses from speculation business as referred to in Section 73[clause 32(c) of Part B].
(13)		Losses from business specified under section 35AD:
		Assessee shall furnish details of losses incurred as referred to in Section 73A in respect of specified businesses mentioned in Section 35AD[clause 32(d) of Part B].
(14)		Reporting of deductions claimed under Sections 10A and 10AA:
		If any deduction has been claimed by assessee under Sections 10A and 10AA then it shall be reported in new Form No. 3CD[clause 33 of Part B].
(15)		Compliance with TCS provisions:
		Old Form 3CD required reporting on compliance with TDS provisions only. However, New Form No. 3CD requires reporting on compliance with TCS provisions as well[clause 34(a) of Part B].
(16)		Filing of TDS/TCS statements:
		The tax auditor shall report on the compliance by the assessee with the provision of furnishing of TDS or TCS statement within prescribed time[clause 34(b) of Part B].
(17)		Assessee-in-default:
		If assessee is deemed as an assessee-in-default and he is liable to pay interest under Section 201(1A) or 206C(7), the tax auditor shall furnish the TAN of assessee, interest payable and interest actually paid[clause 34(c) of Part B].
(18)		Dividend Distribution Tax:
		Revised Form No. 3CD requires reporting of following reductions as referred to in clause (i) and clause (ii) of Section 115-O(1A)[clause 36 of Part B]:

i)		Dividend received by domestic company from its subsidiary, and
ii)		The amount of dividend paid to any person for or on behalf of the New Pension System Trust referred to in Section 10(44).

(19)

Audits:

(i)		Cost audit: Old Form No. 3CD required reporting only when statutory cost audit was carried out under Section 233A of the Companies Act, 1956. However, the revised Form No. 3CD specifies reporting requirement even when cost audit has been carried out voluntarily. The requirement of attachment of copy of cost audit report along with Form has been substituted with reporting of qualifications in cost audit report[clause 37 of Part B].
(ii)		Cost Audit under Central Excise Act: The requirement of attachment of copy of cost audit report along with Form has been substituted with reporting of qualifications in cost audit report [clause 38 of Part B].
(iii)		Special Audit under Service Tax: If any service-tax audit is carried out in relation to valuation of taxable services, the tax auditor shall report any qualifications made in relation to valuation of taxable services[clause 39 of Part B].

(20)		Ratios:
		Unlike old form which required reporting of certain ratios pertaining to current year only, the new Form requires reporting of ratios of preceding financial year as well. Further, total turnover is to be reported for the previous year as well as for preceding financial year[clause 40 of Part B].
(21)		Demand raised or refund issued:
		The new Form seeks details of demand raised or refund issued under any tax laws (other than Income Tax Act, 1961 and Wealth Tax Act, 1957) along with details of relevant proceedings[clause 41 of Part B]. Source: Taxmann

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Changes made by Finance (No. 2) Bill, 2014 as passed by the Lok Sabha

Changes made by Finance (No. 2) Bill, 2014 as passed by the Lok Sabha

1. Unlisted securities and units of MF transferred between 1-4-2014 and 10-7-2014 shall be deemed to be long-term capital assets, if held for more than 12 months:

It is proposed that unlisted shares and units of a mutual fund (other than Equity oriented mutual fund) shall be categorized as long-term capital assets only if they are held for more than 36 months. The existing provision requires holding them for a period of more than 12 months so as to categorize them as long-term capital assets.

So, only a security listed on stock exchange as well as units of equity oriented fund held by an assessee for more than twelve months shall be considered as 'long-term capital assets'.

The Finance Bill, 2014 as passed by the Lok Sabha has inserted a new proviso in section 2(42A) to provide that the unlisted shares and units of a Mutual Fund shall continue to be deemed to be long-term capital assets if they have been transferred during the period from April 1, 2014 to July 10, 2014 after holding them for a period of more than 12 months (instead of more than 36 months). This proviso shall be inserted w.e.f. April 1, 2015.

2. LTCG on Mutual Fund Units transferred between 1-4-2014 and 10-7-2014 shall be taxable at 10% without indexation:

Long-term Capital Gains on mutual funds (other than equity oriented mutual funds) are proposed to be taxed at the rate of 20%. Accordingly, option to pay tax at the rate of 10% (without indexation) would not be available in case of long-term capital gain arising from sale of such units.

However, the Finance Bill, 2014 as passed by the Lok Sabha provides that the benefit of the proviso shall continue to be available for the long-term capital assets, being units of Mutual Funds, transferred between April 1, 2014 and July 10, 2014. Thus, the assessee shall have an option to pay tax at lower of following rates if units of Mutual Funds are transferred between the said periods:

a.		At 10% of capital gains as computed after reducing the cost of acquisition without indexation
b.		At 20% of capital gains as computed after reducing the indexed cost of acquisition

The Finance Bill, 2014 provided that the amendments to section 112 will take effect from Financial Year 2014-15. This raised doubts among investors regarding the retrospective effect of the provision to tax the units of Mutual Funds (other than equity oriented mutual funds) redeemed during period April 1, 2014 to July 10, 2014. Thus, a proviso has been inserted for the transitional period to allow benefits of concessional tax rates during the aforesaid period.

3. Determination of Arm's Length Price when more than one price is determined by most appropriate method:

Under the existing TP regulations, where more than one price is determined by most appropriate method, the arithmetic mean of all such prices is taken for determination of arm's length price with a tolerable range of +/- 3% or +/- 1%, as the case may be.

The application of this methodology has been one of the reasons for TP litigations among taxpayers and revenue. Thus, to address this issue, Finance Minister in his budget speech proposed use of range for determination of arm's length price, where adequate number of comparables are available in the benchmarking set. However, the Finance Bill as presented in the House on July 10, 2014 did not include any clause to address this issue.

Accordingly, the Finance Bill as approved by Lok Sabha has inserted a third proviso in section 92C to provide that where more than one price is determined by the most appropriate method, the arm's length price in relation to an international transaction or specified domestic transaction shall be computed in such manner as may be prescribed.With introduction of the new mechanism the provisions of first and second proviso (arithmetic mean and tolerable range) shall not apply. This proviso shall be inserted w.e.f. April 1, 2015.

4. Taxpayers can approach Settlement Commission even for pending re-assessment cases:

As per section 245C of the Act, an assessee may apply to Settlement Commission for settlement of cases at any stage of a case relating to him. The term 'case' as per section 245A(b) shall mean any proceeding for assessment which may be pending before an Assessing Officer on the date on which application is made before Settlement Commission.

Before June 1, 2007 an assessee was allowed to apply for settlement of cases even when the proceedings for re-assessment were pending before the Assessing Officer. Subsequently, Finance Act, 2007 restricted the scope of the provisions by providing that an assessee shall not be allowed to make the application before the Commission during the pendency of reassessment proceedings or during pendency of proceedings of making fresh assessment where original assessment was set aside.

Finance Act, 2007 inserted a proviso for the purpose of section 245A(b) to provide that proceedings for reassessment or fresh assessment where original assessment was set aside shall not be deemed to a proceeding pending before the Assessing Officer. Consequently, a taxpayer was not able to file an application for settlement of cases in cases where reassessment was pending before the Assessing Officer. Effectively, the scope of the term 'case' for which an application could be made was curtailed by the Finance Act, 2007.

The Finance Minister during his budget speech has proposed to enlarge the scope of the Income-tax Settlement Commission so that taxpayers could approach the Commission for settlement of disputes. Accordingly, the Finance Bill, 2014 as passed by Lok Sabha has deleted the proviso which restricted the scope of the term 'case' to the pending assessment cases only. Such amendment would reinstate the existing position wherein an assessee can apply for settlement of even those cases which are pending for re-assessment proceedings. The changes in the provisions shall take effect from October 1, 2014.

Similar changes have been made in Wealth-tax Act as well for settlement of cases.

5. Resident taxpayers can approach Authority for Advance Ruling:

As per the existing provisions of section 245N(a), the term 'Advance Ruling' shall mean:

(a)		A determination of any question of law or fact arising out of a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant;
(b)		A determination of any question of law or fact by the Authority in relation to tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident;
(c)		A determination or decision by the Authority in respect of an issue relating to computation of total income which is pending before any income-tax authority or the Appellate Tribunal and such determination or decision;
(d)		A determination or decision by the Authority, whether or not an arrangement, which is proposed to be undertaken by any person, being a resident or a non-resident, is an impermissible avoidance arrangement as referred to in Chapter X-A (GAAR) or not (applicable from 1-4-2015).

Currently, an advance ruling can be obtained for determining the tax liability of a non-resident. This facility is not available to resident taxpayers, except Public Sector Undertakings. Thus, the Finance Minister proposed, in his budget speech to extend the scope of advance ruling so as to enable resident taxpayers to obtain an advance ruling in respect of their income-tax liability above a defined threshold.

Accordingly, section 245N(a) is amended to provided that the term 'Advance Ruling' shall mean a determination by the authority in relation to the tax liability of a resident applicant arising out of a transaction undertaken or proposed to be undertaken by him. Further, the meaning of the applicant has been amended so that the Central Government may notify the class of resident persons for the purpose of obtaining the advance ruling.

6. Changes aiming at strengthening Authority for Advance Rulings ('AAR')

The Finance Minister, Sh. Arun Jaitley, in his budget speech had said that additional benches of AAR would be constituted for strengthening the AAR. Thus, following amendments have been made to the Finance Bill as approved by the Lok Sabha under section 245-O in order to strengthen the AAR:

a.		Increase the strength of members of AAR: The existing provision provides that the AAR would only consist of three members, namely, a Chairman, an officer of Indian Revenue Service and an officer of Indian Legal Service. The amendment provides for additional appointment of Vice-Chairmen as member of AAR. Further, Central Government has been empowered to appoint such number of Vice-Chairmen, revenue members and law members as it deems fit.
b.		Eligibility criteria for appointment of members of AAR:

(i)		Chairman: As per the existing provision a person who is a retired judge of the Supreme Court can be appointed as Chairman. The Finance Bill, 2014 as passed by the Lok Sabha provides that only a person who has been a judge of the Supreme Court would be eligible for appointment as Chairman.
(ii)		Vice-Chairman: It is provided in the Finance Bill, 2014 as passed by the Lok Sabha that a person, who has been a Judge of a High Court, can be appointed as a Vice-Chairman.
(iii)		Member of IRS: The existing provision provides that an officer of IRS who is qualified to be a member of CBDT is eligible for appointment as member of AAR. The new provision provides that a revenue member from IRS, who is a Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Income-tax is eligible for appointment as member of AAR.
(iv)		Member of Indian Legal Service: The existing provision provides that an officer of Indian legal service, who is or is qualified to be an additional Secretary to the Government of India, is eligible for appointment as member of AAR. The new provision provides that a law member from IRS, who is an Additional Secretary to the Government of India, is eligible for appointment as member of AAR.
(v)		Additional benches of AAR: The existing provision does not provide for constitution of benches of AAR at various locations. It merely provides that office of AAR shall be located in Delhi. The amended provisions provides as under:

■		The office of AAR shall be located in Delhi and its benches shall be located at such places as Central Government may specify.
■		Further, benches of AAR have been given authority to exercise power and functions of AAR and it has been further provided that such benches would consist of Chairman or the Vice-Chairman and one revenue member and one law member.

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Service Tax E Book CA Pritam Mahure

Download Service Tax E Book from the Below Book.


Download Service Tax E Book

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Income Tax Calculator For F.Y 2014-15

Download income Tax calculator for F.y 2014-15 from the Below link.

Download Income Tax Calculator For F.y 2014-15 

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Beaking News: Nov. 2014 Examinations of ICAI are likely to be start from 7th Nov. 2014

Breaking News:
Nov. 2014 Examinations of ICAI are likely to
be start from 7th Nov. 2014
CA Final-
Group - 1
7th,9th,11th & 13th
Group - 2
15th, 17th, 19th & 21st
IPCC-
Group - 1
8th,10th,12th & 14th
Group - 2
16th, 18th & 20st
Here is link of Announcment...
http://220.227.161.86/34161exam23857ma
in.pdf
Examination of CPT for Dec. 2014 will be
held on 14th Dec.2014
http://220.227.161.86/34162exam23857cp
t.pdf
All the Best Friends...& Must Share this
news..

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No appeals by ITD for tax loss upto 4 lacs for ITAT, 10 lacs for High Court and 25 lacs for Supreme Court and as per merits of case

To

All Chief Commissioners of Income-tax and
All Directors General of Income-tax

Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and Supreme Court - measures for reducing litigation - Reg -

I am directed to enclose herewith CBDT's Instruction No 5/2014 dated 10.07.2014 on the above mentioned subject.

2. This Instruction is issued u/s 268 A (1) of the Act and should be brought to the notice of all officers, DRs, Standing counsels and other counsels representing Department before ITAT or courts of law within the region for strict compliance with immediate effect.

3. Several instances have been brought to Board's notice wherein Department has had to face criticism/flak/stricture for filing appeal without due application of mind. I am,therefore, directed to draw your attention to Para 3 of the Instruction and re-iterate that the monetary limits so prescribed are merely guiding factor in deciding whether appeal should be filed or not. They should not be considered as the only factor in arriving at such decisions. Filing of appeal has to be decided strictly on merits.

(Priyank Singh)

(OSD), ITJ, CBDT



To
All Chief Commissioners of Income-tax and
All Directors General of Income-tax

Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and Supreme Court - measures for reducing litigation - Reg -

Sir/Madam,

Reference is invited to Board's instruction No 3/2011 dated 09/02/2011
wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Appellate Tribunal, High Courts and Supreme Court were specified.

2. In supersession of the above instruction, it has been decided by the Board
that departmental appeals may be filed on merits before Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified below.

3. Henceforth appeals shall not be filed in cases where the tax effect does not
exceed the monetary limits given hereunder: -

S No Appeals in Income-tax matters Monetary Limit (in Rs)
1. Before Appellate Tribunal 4,00,000/-
2. U/s 260 A before High Court 10,00,000/-
3. Before Supreme Court 25,00,000/-

It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.

4. For this purpose, "tax effect" means the difference between the tax on the
total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as "disputed issues"). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In
case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.

5. The Assessing Officer shall calculate the tax effect separately for every
assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in
case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the 'tax effect' is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which 'tax effect' exceeds the monetary limit prescribed. In case where a composite order / judgement involves more than one assessee, each assessee shall be dealt with separately.

6. In a case where appeal before a Tribunal or a Court is not filed only on
account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that "even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction". Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing
an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.

7. In the past, a number of instances have come to the notice of the Board,
whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any
precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CsIT must be maintained in a systemic manner for easy retrieval.

8. Adverse judgments relating to the following issues should be contested on
merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect.

(a) Where the Constitutional validity of the provisions of an Act or Rule are
under challenge, or
(b) Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by the
Department.

9. The proposal for filing Special Leave Petition under Article 136 of the
Constitution before the Supreme Court should, in all cases, be sent to the Directorate of Income-tax (Legal & Research), New Delhi and the decision to file Special Leave Petition shall be in consultation with the Ministry of Law and Justice.

10. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute & rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file -appeal in such cases may be taken on merits of a particular case.

11. This instruction will apply to appeals filed on or after 10th July, 2014
However, the cases where appeals have been filed before 10th July, 2014 will be governed by the instructions on this subject, operative at the time when such appeal was filed.

12. This issues under Section 268A (1) of the Income-tax Act 1961.

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