Kind Attention!! Regarding the burning issues of our profession which need the urgent attention of the Council.

Our profession has definitely gone through a transformation that largely parallels the rapid expansion of the economy. It was in the last 15 years the growth of the profession went through on the footprints of Big 4. The only authority, i.e. The council of ICAI can only restrict them.

With due respect I would like to bring some important issues which need the kind attention of council on the issue that the working of Big 4 in India is not legal, according to the basic principle of law i.e. ” what cannot be done directly, that cannot be done in directly’ and same contention was given by the Bar Council of India for these Big 4 operations in India. These firms were hauled up for alleged practice of law with Bar Council of India claiming that they are carrying on unauthorized practice of law & contravenes section 29 of Advocates act which provides that only Indian Citizens who are enrolled with the state bar councils as advocate have the right to practice the profession of law in India and accordingly put ban on these Big 4 consultant firms to practice law in India. These auditing firms are circumventing laws while providing audit services in the country. They are using the permission granted for doing consultancy work but carrying out other services that they are not permitted to do. India does not allow FDI in the field of accounting, auditing, book keeping, taxation & Legal services.

Technically BIG4 cannot provide audit service so they collaborated with Indian Chartered Accountancy Firms  and doing audit services Indirectly in the Name of Such Indian Firms.  These firms employ Chartered Accountants and are rendering audit services contrary to the CA act and are engaged in unauthorised practice of audit & one of the senior partner of the Indian CA firm is either major holder or Board of Director of the master Flag. These big 4 have in a surrogate manner engaged in practice of audit also the Chartered Accountant of big 4 attend partners meeting of their network. These big 4 are involved in determining the business strategy to meet clients and cross refer work to each other and that there is a modus operandi between their international network. Indian firms registered in their flagship uses the logo & share common office space, address, etc. And only one statement come from big 4 that they maintain highest level of professional standards and do not contravene any provision of law.

My submission is that now the time has come where the council has to interfere on the operations of Big 4 in India otherwise it will be real blow for the SMP CHARTERED ACCOUNTANTS and soon their will be a day where majority of the CA firms which are looking for opportunities of organised sector will loose all their importance and all the firms will be working under the umbrella of Big 4 and than no Independence will be their, which will clearly violate the CA act and regulations. When we will be working on sub contract basis than that day will be the black day of our profession and for this we only will be responsible.

Sir, my humble request to react on it as now no representations are going to work in the days to come as we have already seen in extension of date of Tax Audit Report, thus my utter submission to make some kind of regulations and involve the network of Chartered Accountant branches in India to get the maximum inputs so as to arrive at the policy which will help SMP’s.

Sincere Regards,

CA.Rohit Ruwatia (Agarwal)

Chairman- Young Members Empowerment Committee

Regional Council Member, CIRC

(Disclaimer- Above views are personal view of Author)

On March 16, 2016, a Bill to further amend the Companies Act, 2013 was introduced in the Lok Sabha (Upper House of the Parliament) to address the difficulties raised by various stakeholders and to improve the ease of doing business in India.

Most of the amendments proposed in the Bill are to implement the recommendations of the Company Law Committee. The Bill, once passed, would become the second amendment to the Act within a period of two years. There have been a number of notifications, rules, orders, circulars, clarifications, etc. issued already.

 This Bill proposes over 70 amendments. Some of the key amendments are listed below:

Insertion of new Section 3A:  If If at any time the number of members of a public company or a private company  is reduced below the statutory limit, and the company carries on business for more than six months, every person who is a member of the company during that time that it so carries on business after those six months with cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.”.

Amendment of Section 4(1)(c): The Bill proposed to allow the Companies to have a generic object clause or to to pursue any specific object or objects, as per the law for the time being in force. Provided that in case a company proposes to pursue any specific objects or restrict its objects, the Memorandum shall state the said object or objects for which the company is incorporated and any matter considered necessary in furtherance thereof and in such case the company shall not pursue any act or activity or business, other than specific objects stated in the Memorandum.

Amendment of Section 4(5)(i): The period of name reservation is proposed to be reduced to 20 days from sixty days from the date of approval or such other period as may be prescribed.

Insertion of two new section after Section 4(6): 1. Section 4(6A): A company may adopt the model memorandum applicable to such a company; 2. Section 4(6B): Any company which is registered after the commencement of the Companies (Amendment) Act, 2016, in so far as the registered memorandum of such company does not exclude or modify the contents in the model memorandum applicable to such company, those contents shall, so far as applicable, be the contents of the Memorandum of that company in the same manner and to the extent as if that was contents of the duly registered memorandum of the company.

Amendment of Section 7(1)(c): A declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the  promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;

Amendment of Section 12(1): The Company shall have a registered office within thirty days of its incorporation.

Amendment of Section 12(4):  Notice of every change of the situation of the registered office, after the date of incorporation, shall be given to the Registrar within thirty days of the change.

Subsititution of section 42: Entire section 42 is substituted. The key highlights of section 42 proposed by the Bill are as follows:

Subsititution of section 62(2): The notice referred to in sub-clause (i) of clause (a) of sub-section (1) (offer letter) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.

Amendment of Section 73(2)(c): depositing, on or before the 30th day of April each year, such sum which shall not be less than twenty per cent. of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account;”;

Omission of section 73(2)(d): The requirement for deposit insurance is omitted.

Insertion of 4th proviso to Section 77(1): Creation of such charges are not required which are in consultation with the Reserve Bank of India (RBI).

Amendment of Section 78: In case the Company fails to register the Charge within a period of thirty days, the Registar  may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed:

Subsititution of section 90: The key highlights of section 90 are as follows:

Insertion of proviso to Section 92(1)(c): The Central Government may prescribe abridged form of annual return for one person and small company.

Omission of section 93: Return in case of promoter’s stake changes and top ten shareholders is proposed to be omitted.

Amendment of Section 96(2): Annual General Meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Amendment of Section 100(1): An extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.

Amendment of Section 101(1): a general meeting may be called after giving shorter notice  if consent, in writing or by electronic mode, is accorded thereto-

1. In case of AGM- by not less than 95% of the members; and

2. In the case of any other general meeting, by members of the company-

a) company having a share capital- not less than ninty-five per cent. of such part of the paid-up share capital of the company

b) company having no share capital-not less than ninty-five per cent. of the total voting power exercisable at that meeting

Amendment of Section 117(2): 1. The fine on failure to file form MGT-14 has been reduced;  2. No need to file MGT-14 for power exercised by the Board of Directors of any of the powers under clause (a) and (c) of section 180(1).

Amendment of Section 123(3): The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till the holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year or out of profit generated in the financial year till the quarter preceding the date of declaration of the interim dividend.

Amendment of Section 129(3): The Company having subsidiaries or associate companies, it shall prepare a consolidated financial statement of the Company and and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards. It shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed.

Amendment of Section 134(1): The financial statement, including consolidated financial statement, if any, shall be signed  by the chairperson of the company or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.

Insertion of sub section (3A) to section 134: The Central Government may prescribe an abridged Board’s report for One Person Company or small company.

Amendment of Section 135(1): The provision of CSR is applicable to companies which fall under the threshold limit of net worth or turnover or net profit during any financial year. The Bill proposed to replaced the words “any financial year”  by the words “preceding financial year”. Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.

Amendment of Section 135(5): For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.’.

Insertion of new proviso to section 135(1): where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”

Omission of first proviso to section 139(1): Ratification of Statutory Auditor by the shareholders is proposed to be omitted.

Subsititution of section 149(3): Every company have a residental director during the financial year.

Amendment of Section 149(6)(c): The Bill proposes to specify limits with respect to pecuniary relationship to determine the independency of a person to be appointed as an Independent Director and to equipped with the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 with respect to material’ pecuniary relationships.

Insertion of proviso to section 153: Any identification number, prescribed by the Central Government  shall be treated as Director Identification Number for the purposes of this Act (The Companies Act, 2013 read with The Companies (Amendment) Act, 2016.

Insertion of proviso to Section 160(1): The requirements of deposit of  Rs. 100,000 shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178.”.

Insertion of explanation to Section 165(1): For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

Amendment of Section 167(1)(a): In case a director incurs disqualification under sub-section (2) of section 164, he shall vacate the office in all the companies, other than the Company which made default.

Amendment of Section 177(1) : It is proposed that every listed public company shall constitute an Audit Committee.

Amendment of Section 177(4)(iv): It is proposed that in case of transaction, other than transactions referred to in section 188, if not approved by the Audit Committee, it shall make recommendation to the Board.

Amendment of Section 178(1):  It is proposed that every listed public company shall constitute the  Nomination and Remuneration Committee.

Amendment of Section 178(2): It is proposed that the Committee shall specify the methodology for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency.

Amendment of Section 178(4)(c): The Nomination and Remuneration policy shall be disclosed in the website of the Company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.

Amendment of Section 180(1)(c): It is proposed that to calcualte the borrowing limit, aggregate of paid-up share capital, free reserves and securities premium shall be considered.

Subsititution of Section 185: Some of the key highlights are:

a) Restriction on advancing of any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by any director of company, or of a company which is its holding company or any partner or relative of any such director; or any firm in which any such director or relative is a partner.

b) Loan can be granted to the parties covered under explanation to section 185(2) subject to special resolution passed, explanatory statement to notice shall contain the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient and the loans are utilised by the borrowing company for its principal business activities.

Amendment of Section 186: Key highlights are:

Omission of Section 186(1);

Employee will not be included in the ambit of section 186(2);

Where the Investment, Loan made and Guarantte ot secutity provided exceed the limit prescribed under section 186(2), Special Resolution shall be required;

No approval of shareholders shall be required  where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company.

Amendment of Section 188(1): It is proposed that the requirement relating to restriction on voting by relatives in the general meeting shall not apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties

Amendment of Section 188(3): It is proposed that the non-ratified transaction shall be voidable at the at the option of the Board or, as the case may be, of the shareholders.

Omission of Section 194 (prohibition on forward dealing in securities of company by director or KMP) & 195 (prohibition on insider trading of securities)

Amendment of First proviso to Section 197(1): It is proposed that the no Central Government approval shall be required in case of payment of remuneration exceeding 11% of net profit of the Company.

Amendment of Second proviso to Section 197(1): It is proposed that the Special Resolution shall be required for payment of remuneration exceeding the limit prescribed under the second proviso to section 197(1).

Amendment of Section 366(2): It is proposed to allow conversion of partnership firms, LLP, society or any other business entity formed under any law for the time being in force into companies with two or more members.

Amendment of Section 447: It is proposed that any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one percent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.

Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.

Author: CS Manohar Mishra-Associate Member of the ICSI & a Commerce Graduate from Calcutta University, he can be contacted atcsmanoharmishra@gmail.com

Hence It must also be understood that the issue whether the turnover/gross receipt exceeds the prescribed limit is to be determined in each year independent of the results obtained in the preceding year or years. This section applies only if turnover/gross receipt exceeds the prescribed limit according to the accounts maintained by the assessee. It would be advisable to maintain basic records to support the turnover/gross receipt for declare audit required or not.

Basics

♠ Tax audit is applicable With Following Conditions:

♣ In the Following Conditions Tax Audit is not apply:

Provision of Section 44AB

Analysis of Provision

♣ Who are required to get their accounts audited?

Every Person

♣ As per Guidance Note on Tax Audit Issued By ICAI the following activities have been held to be Business :

(i) Advertising agent

(ii) Clearing, forwarding and shipping agents – CIT v. Jeevanlal Lalloobhai & Co.

(iii) Couriers

(iv) Insurance agent

(v) Nursing home

(vi) Stock and share broking and dealing in shares and securities – CIT v. Lallubhai Nagardas & Sons

(vii) Travel agent.

♣ Turnover

It includes

It excludes

 ♣ Circumstances Audit Applicable

⇒ In case the person is required by or any other law to get his accounts audited

It shall be sufficient compliance with the provisions of this section i.e. such assessee is not required to get his accounts separately audited under this section subject to the following conditions

– The audit under that law must be completed before the specified date i.e. before 30th day of September of the Relevant assessment year &

– The audit report under that law & an additional tax audit report in the form (3CA/CD) prescribed under this section must be furnished by that date.

(i) Turnover Basis

a. Any Business Turnover > 1 Crore

–  What if Purchase cross limit but not Sales?

It appears from the Chief CIT v. Vijay Maheshwari HUF ruling of the supreme court that it would safe for assessee to get their accounts audited under section 44AB if purchase exceeds prescribed limit although sales might not have exceeded the limit. However A mere dismissal of SLP of The Loardship Mrs. Sujata v. Manohar & D. P. Wadhwa J. J. Without assigning any reason does not mean that the High Court decision is approved on merits so as to be a judicial precedent.

b. Any Profession Gross Receipt > 25 Lakhs

ii. Profit Basis

c. If showing income below the prescribed in section 44AE/BB/BBB (Specified Business for Specified Assessee)

If 44AE/BB/BBB applicable to Assessee then the provisions of section 44AB (c) requires such an assessee to get his accounts audited irrespective of the fact that his turnover has not exceeded the prescribed limit.

d. If showing income below the prescribed in section 44AD (Any Business for Specified Assessee) and Total Income Exceeds Basic exemption limit

There is twist in the provision. Clause states “and whose Total Incomeexceeds the maximum amount which is not chargeable to income tax”. Important thing to be kept in mind is whether “Total Income” is exceeding the exemption limit or not. So we have to consider all the sources of income to arrive Total income

Eligible Assessee

Resident Individual, HUF & Partnership Firm

Non Eligible Business/ Profession

(A) Profession as per 44AA(1)

The following have been listed out as professions in section 44AA read with Rule 6F and other professions notified

(i) Accountancy

(ii) Architectural

(iii) Authorised Representative

(iv) Company Secretary

(v) Engineering

(vi) Film Artists/Actors, Cameraman, Director including an assistant director; a music director, including an assistant music director, an art director, including an assistant art director; a dance director, including an assistant dance director; Singer, Story-writer, a screen-play writer, a dialogue writer; editor, , lyricist and dress designer .

(vii) Interior Decoration

(viii) Legal

(ix) Medical

(x) Technical Consultancy

(xi) Information Technology

(A)  Commission Brokerage Income

(B)  Agency Business

(C)  Business of 44AE

♣ Multiple Business

The Aggregate ( Clubbing) sales, turnover and/or gross receipts of all Businesses ( ACIT v Dr K Satish Shetty) carried on by an assessee would be taken into consideration in determining whether the prescribed limit as laid down in section 44AB has been exceeded or not.

– Turnover is Assessee wise rather than Business wise

– Turnover of All Business Activities carried on by assessee is aggregated other than presumptive(44AD/AE/BB/BBB)

– Circumstances in which the tax audit report can be revised

♣ Income from PGBP & other

The Language of Section 44AB is Clear. The requirement of compulsory audit is only in respect of Business carried on by the person and not in respect of his income from other sources.The audit report is required only in respect of books of account pertaining to the business.(Gai construction v. State of Maharashtra)

♣ Tax Audit applicable income v. Not applicable income

There may be another circumstance where an assessee has mixed of different source & Head of Income amenable to taxation and also get audit meanwhile one PAN accept only one ITR/Audit Report so separate form/Report cannot be file. Hence, The tax auditor auditing the books of account etc. relating to business covered by the provisions relating to Tax Audit should sufficiently indicate in his report ( For 3CA/CB/CD) that his audit report only relate to the business covered by the provisions relating to Tax Audit and his audit report does not relate to business/ other income head/source assessable under the normal provisions of the Act.

♣ Some Example

(i) Professional Receipts rupees 27Lakhs & Turnover in Business are Rupees 72Lakhs.

(ii) Professional receipts rupees 21 lakhs and total turnover from business are rupees 86lakhs

(iii) Dealings on F & O : 70lakhs

Loss: 2Lakhs

Salary Income : 6Lakhs

Section 44AB deals with Business income

Section 44AD covers speculative Business

Business Income (loss of 2lakhs) is below the 8% of turnover and

assessee’s Total Income (salary income cannot be set off with business income so that 6lakhs) exceeding the maximum amount which is not chargeable to income tax.

(iv) Proprietorship Business Sales: 38 Lakhs & Purchase : 36laks

Professional Receipt : 23Lakhs & Expenses 19Lakhs

Business income is below 8%

Total income exceeds Basic exemption limit

(v) Agricultural Income : 1.5crore

Other Income : 5Lakhs

(vi) Society Receipt : 100lakhs

-by Bharat Paudel

Faridabad, Harayana

+91-9871571335