FINANCE & LAW TODAY: CA in Practice Vs. CA in Service

FINANCE & LAW TODAY: CA in Practice Vs. CA in Service: The passing out with flying colors from the institute of Chartered Accountants of India in finals provides us two directions to explore , ...

CA in Practice Vs. CA in Service

The passing out with flying colors from the institute of Chartered Accountants of India in finals provides us two directions to explore , either to opt for a job in the corporate world and to start a public practice. It’s important to understand that this is a very important period of transition. Whether you are moving into a new work environment of public practice or learning the ropes of working a regular nine to five in starting out in an industry to take up the first job of your career, there is a lot to understand before venturing out.

An increasing number of CA graduates these days prefer to join corporate than set up their own practice, as real estate and infrastructure investment costs spiral. Data with the Institute of Chartered Accountants of India (ICAI) indicates that this year, the number of working CAs will, for the first time ever; surpass the number of practicing CAs in the country. Many believe that with increasing employment opportunities, practicing CAs will be 20%, while working CAs will be 80% by 2020. The number of women CAs will increase to 30% in the next decade from the current 16% .In the early 1980s, the total composition of CAs was 80% in private practice and 20% employed. “Post-1991, things have changed dramatically. Eighty per cent of CAs will be working for industry by 2020. Over the past decade, 90% are in jobs and just 10% are in private practice,” says TN Manoharan, A Padamshree awardee , former ICAI President and present Chairman of a large PSU Bank.

CA PRACTICE- A REAL TEST OF LIFE

Good quality of patience with extra courage to practice is a basic mantra to decide for public practice. The qualification opens the opportunity to set up independently as a sole practitioner. A member opting for public practice shall have a success rate based on intense or diversified article ship. If you are having tons of patience, go ahead with your own practice otherwise join some established CA firm. In order to remain focused in the chosen area of practice it is necessary for a CA firm to carefully set short term and long term goals.

When a fresh chartered accountant enters into a CA practice he usually opts for a family owned firm or he joins a running firm as a partner. He can also start a new firm from point zero either alone or with his friends who are in the same scenario. In practice scenario number one and two the fresher has a very limited choice and has to fall into the channel at least initially. The fact is that despite being inducted as a partner, he is not able to influence the set thinking pattern of the established firm and in reality is not a partner by heart. Many established CA firms are so sure of their traditional set practice areas and the mode of practice adopted by them that they are averse to the process of reviewing their performance. A fresh CA has a clear cut choice of selection of practice areas and setting of goals only in the third scenario.

A practicing member holds full time COP and is restricted for active engagement in other business. However, a member may opt for certain permissible occupation under C.A. Regulations. For the same, a member is required to file a prescribed application for permission for Engagement in other occupation under Regulation 190(A) of the Chartered Accountants Regulations, 1988.  A member can also hold honorary, nominated or elected positions in public and government.  Staying in public practice offers the opportunity for transfers to different areas of practice (e.g. tax, corporate finance or management consultancy) or, alternatively, a move to a different-sized firm. In the large international firms, overseas opportunities are possible.

But, Investment in setting up office and related infrastructure is huge. Also, one has to work hard to find clients. Setting up one’s own practice may take three to five years, a reasonably long period. Unfortunately CAs has not remained immune to inflation unlike the clients’ propensity to pay appropriate and fair fees! Subscribing to knowledge based websites and purchase of books have all kept pace with inflation and sometimes have outrun inflation, thereby disproportionately increasing operating costs with the revenue generation. There is virtually no support from any quarter. In the last twenty five years, the beginning years of practice were largely financed by the bank audit fees. But no such opportunity is exists now. For the first three years, a young man is not even eligible to conduct the statutory bank audit. The Sole proprietors are not eligible for concurrent audits for their life time. They are debarred from RRB audits. Virtually, there is no opportunity and all such conditions have been put around to serve the Big 4 in the initial years of practice.

CA SERVICE- A REAL PLEASURE OF LIFE

CAs in Industry gets big salary packages for CAs in metros or with the Big 4 firms. The regulator claims there is a huge demand for CAs in the manufacturing and financial services sectors and Fresh graduates get a minimum package of Rs 6 lakh per annum, which is attractive for a 24-year-old graduate. Naturally, most young CAs prefers to work in industry, where they get lucrative salaries without any capital investment.

ICAI has a well established system of Campus Interview and arranges campus interview twice in a year at different locations.  A member may register online with ICAI for campus interview immediately after passing C.A. examination. A large number of fresh chartered accounts are selected every year through campus interview for public sector, private sector, multinationals, banking and insurance companies. Good perks and service conditions are being offered by companies participating in ICAI Campus interviews. It’s not enough, the reality is different and it’s worst in two tier cities.

Brilliant students get what is claimed by the regulator —but at the same time we are also stuck with mediocre students who proudly prefix their name with ‘CA’! Today a CA can be hired for as little as Rs 20,000 per month and still one finds that CA is jobless! The reality bites! This is as much as a graduate gets in a call centre ! Career progression in this setting varies, depending on individual aspirations and abilities, but in industry it is possible to progress to finance director of a major company within 10 to 15 years of qualification. It is like seeing a light at the last of the tunnel. However, a member in employment and holding Certificate of Practice cannot perform audit certification and will not be entitled to train articled clerk. One can also opt for service first then practice for whole life.

No job, alternative–practice?  No practice, alternative–job?

With CAs is flooding the market and not getting a job, the alternative is to start a practice—which is not so easy as the cost of setting up a new practice in metros is very steep with property prices , rentals are beyond the reach of most freshly qualified CAs budgets. One of the methods of development is that we need to find ways and means of working together and increasing revenue. We pool together the resources and the knowledge base. Some of us must develop resources and some of us can develop a knowledge base. We have to standardize ourselves to the changing economy and business structure. We need to get together like-minded professionals and evolve a working relationship which can sustain in the long run. We need to develop a bigger brand as well.

For a practice every partner has to be a “rainmaker” who brings in business through personnel connections.Its fight for the survival and the fittest shall survive. It is not the strongest or the most intelligent who will survive but those who can best manage change.

BE A SPECIALIST

The rising demand for CAs in the corporate sector will result in competition between CAs in the job market. The competition in the practice will not increase. However, a large number of CAs is joining corporate every year and their performance will be rated. Any CA who wants to remain successful has to constantly upgrade his skills.” If one seriously wants to pursue a career as a CA, one will have to assess the focus area of specialization, whether one wants to go into the industry or practice.

In the near future, companies may start replacing non-performing CAs with fresh CAs as fresh CAs is available in plenty. Companies may also look forward to recruiting the fresh as cost cutting measure as fresh CAs is costing less. We as true professionals will have to specialize in various domains to keep growing. There are  powerful advantages to specialization, including being able to command higher billing rates, generating more leads, and being able to attract clients  more easily. We can focus on understanding an industry so well that we can give an alternate to   all the non-accounting business challenges which the industry is facing. Then we can have meaningful conversations about how our services help that industry solve other problems –problems that other CA firms will completely miss. This is a big advantage and will bring you better leads because you offer more solutions. The specialization may be of many types like geographical specialization, specialization in a certain role within organizations & specialization in certain types of problems.

LEARN TO BE MEMBER OF TEAM WORK

Starting a practice as sole proprietor is a difficult task for fresh CAs. This is the first challenge from profession, one has to face if opt for sole proprietors.  Now a day’s various domains have emerged. One needs to have a team for direct taxes, indirect taxes, Sebi, NRIs, etc. Clients give work to specialized CAs who have earned a good reputation and are experienced. However, this is not possible for a fresh CA. A fresher cannot hire a team as it also requires a huge investment.

In real life situations, that’s why very few fresh practitioners exercise this choice of being sole proprietary firm. This is writing on the wall written by the regulator that you can only survive with a team of partners. It is hard to believe that sole proprietor is not eligible for an RRB branch audit having an advance limit of Rs. 1 Crore. The relying on the combination of CAs with a free permutation is injurious to the profession, but as long as the mindset of the regulator does not see any light to change, the fraternity has to force the move towards the modalities fixed by the regulator. So for the time, you have to learn to move as a team member or to go for a fake combination of them. We are forced, not to drive our profession to in our own chosen way, but the practitioner has to prefer to get drive by the circumstances. Since it is easier to pluck the low hanging fruit, one finds sufficient justification for this approach.

Regards
K.K Singh

FINANCE & LAW TODAY: PIO must observe time limit in rejecting RTI Appli...

FINANCE & LAW TODAY: PIO must observe time limit in rejecting RTI Appli...: Public Information Officers (PIOs) must be  Alert  & Careful in consuming time for rejecting RTI  Applications : The Public Informat...

PIO must observe time limit in rejecting RTI Applications

Public Information Officers (PIOs) must be Alert & Careful in consuming time for rejecting RTI Applications:

The Public Information Officers role is confined to extracting/copying & supplying such disclose-able “information”, within the stipulated time limit, to those Applicants who seek such information under Section 6(1) of the Right to Information Act, 2005. Any delay in supplying the information to the Applicants may attract a maximum penalty under Section 20(1) of the Right to Information Act, 2005 reaching upto a maximum penalty of Rs.25,000, calculating at the rate of Rs.250 per day till the applicant is received the information or furnished by the PIO. In addition to Monetary Penalty, in cases of repeated defaults by the PIO the Information Commission may recommend for disciplinary action (as per service rules applicable to him/her) under Section 20(1) of the Right to Information Act, 2005, against the PIO. It is to be noted carefully that the PIOs alone have to face the penalty award or disciplinary action and no other person or official shall be caught entitled for that.

The time limit stipulated under the provisions of the RTI Act is normally 30 days either for supplying information or rejecting the application, from the date of receipt of such Application under Section 6(1) of the Right to Information Act, 2005. However, when such information is under the custody of other division, department or agency, the application or the relevant part of such application has to be transferred, under Section 6(3) of the Right to Information Act, 2005, to the PIO of such division, department or agency, it should be done within five days from the date of receipt of such application by the first PIO. In such transferable cases, the time limit stipulated under the provisions of the RTI Act is 35 days in toto from the date of receipt of such Application originally by the first PIO.

Immediately on receipt of Application the PIO could conclude as to whether the information sought by the applicant is releasable/ disclose-able or not. If the information sought by the Applicant is releasable/ disclose-able, then the PIO could utilize complete 30 days time available at his/her disposal for procurement and supplying the information to the Applicant under Section 7(1) of the Right to Information Act, 2005. However, if the information sought by the Applicant is exempt from the disclosure of such information for any of the Reasons specified under Sections 8 and 9 of the Right to Information Act, 2005, it would be much better & safer to reject the application expeditiously by intimating accordingly to the Applicant as per Section 7(1) of the Right to Information Act, 2005. Otherwise, the delay occurred in disposing such application by denying the information sought by the applicant, may lead to attract more & more penalty at the rate of Rs.250 per day for delayed period, if such applicant could be successful in his/her Appeal/s before the Appellate Authorities.

As per Section 19 of the Right to Information Act, 2005, there is provision for two Appeals – (1) First Appeal before the First Appellate Authority (FAA), and (2) Second Appeal before the Second Appellate Authority (SAA) (i.e., IC/CIC).

First Appeal before the First Appellate Authority (FAA):

As per Section 19(1) of the Right to Information Act, 2005, those aggrieved by the action/decision of the PIO may prefer an appeal within 30 days before First Appellate Authority (FAA) who is an officer Senior in rank to the PIO in the same office/division/department. Since the FAA is in same office/division/department, the PIOs may take it an added advantage to prolong the period intentionally to reject the applications, ignoring the fact that this delay may enhance penal sum, if the applicants be successful in Appeals.

Second Appeal before the Second Appellate Authority (SAA) (i.e., IC/CIC):

As per Section 19(3) of the Right to Information Act, 2005, those aggrieved by the decision of the First Appellate Authority (FAA) may prefer an appeal within 90 days before Second Appellate Authority (SAA), that is, Information Commissioner (IC) or Chief Information Commissioner (CIC), appointed at/for Central Information Commission.

Since delay in disposing application lead to accumulate penal amounts on daily basis, early disposal of applications would also automatically work to diminish the attraction of penalty. Those PIOs who ignore this simple logical reasoning will wait upto deadline or for nearing 30^th day and then dispose the application denying information. This ignorance is leading to fetch a penalty upto Rs.25,000 together with other departmental disciplinary actions against the PIOs (in the cases of repeated defaults).

How to lessen the Penal Sum?: It is very practicable. Have a look at the following two Tables, which explains the detailed calculation of accumulation of Penal Sums in both cases of rejecting applications by (a) Availing Maximum Time Limit Allowable, and (b) Availing Minimum Time.

Table-A: Penal Sum on Availing Maximum Time Limit Allowable

Sl. No.	Head of Time Consumption	Time/Days		Cum. Days	Penal Sum
		Allowable	Utilized
1.	For Disposal by PIO	30 Days	30 Days	30
2.	For Disposal by FAA	30 Days	30 Days	60
3.	For Disposal by SAA	30 Days	30 Days	90	Rs.22,500
If Time Limit allowed to/utilized by Appellants to submit the Appeals is added while reckoning total days of delay, maximum penalty will attractable/applicable is Rs.25,000

Table-B: Penal Sum on Availing Minimum Time

Sl. No.	Head of Time Consumption	Time/Days		Cum. Days	Penal Sum
		Allowable	Utilized
1.	For Disposal by PIO	30 Days	05 Days	05
2.	For Disposal by FAA	30 Days	05 Days	10
3.	For Disposal by SAA	30 Days	30 Days	40	Rs.10,000

It is to be noted that the onus to prove that the denial of information to the applicant is on PIO only, and that the consequential penal awards will be on PIO and no other person or official will be held responsible/liable. Therefore, the PIOs have to be very careful in disposing the applications received by them.

Regards
K.K Singh

FINANCE & LAW TODAY: Check List for Company Registration in Hong Kong

FINANCE & LAW TODAY: Check List for Company Registration in Hong Kong: 1. GENERAL- The most common type of  business  entity registered in Hong Kong is a private limited liability company. Anyone can form a ...

Check List for Company Registration in Hong Kong

1. GENERAL-

The most common type of business entity registered in Hong Kong is a private limited liability company. Anyone can form a company in Hongkong. A non HK resident may incorporate a private limited company in Hogkong.

· There can be registered two types of private limited companies-

i) Company limited by shares.

ii) Company limited by guarantee.

· The company name must be approved before you can proceed with incorporation of a Hong Kong Company.

· The minimum number of director must be one (should be a natural person who can be of any nationality) & maximum number of director can be unlimited.

· A Hong Kong private limited company can have a minimum of 1 and maximum of 50 shareholders. There is no residency requirement for shareholders.

· A director and shareholder can be the same or different person. The shareholder must be at least 18 years of age and can be of any nationality.

· There is no minimum share capital requirement.

· The registered address must be a physical address and cannot be a PO Box.

2.Time Limit for registration-

A successful application is usually processed within 5 to 7 working days and the Companies Registry will issue a Certificate of Incorporation.

3. Documents required for company registration-

Normally the following documents will be required:-

· Copy of the Articles of Association for the company.

· A duly completed incorporation form that includes the following:-

o Company name

o Registered address

o Brief description of business activities

o Particulars of shareholders, directors and company secretary

o Liability of members

o Share capital registered on incorporation

o Number of shares taken up by subscribers

· For non-resident shareholders and directors:

o Copy of passport, overseas residential address proof, bank reference letter

4. Reptreation of money from Hong Kong-

Documents and procedure for remittance of Profit, Dividends & Bonuses:-

1. Documents to be submitted to Bank-

· Tax payment statement and Tax Return

· Resolution of the Board of Director on dividend and bonus distribution.

2. Bank verifies authenticity of documents.

3. Bank complete remittance procedure.

4. Bank reports to local branch.

Regards
K.K.Singh

FINANCE & LAW TODAY: Rajya Sabha adjourns sine die without passing the ...

FINANCE & LAW TODAY: Rajya Sabha adjourns sine die without passing the ...: With the Prime  Minister  Shri. Narendra Modi  Government  going hammer and tongs using its majority in Lok Sabha to clear legislative age...

Rajya Sabha adjourns sine die without passing the GST Bill

With the Prime Minister Shri. Narendra Modi Government going hammer and tongs using its majority in Lok Sabha to clear legislative agenda, Shri. Modi’s reform agenda suffered a major blow on Thursday, August 13, 2015, when the lawmakers ended the Monsoon Parliament session without approving the much awaited Constitution (122^ndAmendment) Bill, 2014 on Goods and Services Tax (“GST Bill” or “122^nd CAB”) aimed at boosting economic growth by harmonising a mosaic of State and Central levies replacing a chaotic structure that inflates costs.

The Monsoon session of the Parliament, which saw protests between the Government and the Opposition, has been a complete washout. However, on the second day of the session, i.e. on July 22, 2015, Select Panel of the Rajya Sabha managed to submit its Report on the GST Bill amid Opposition furore over the Lalit Modi row.

The Central Government tried to give it final push to the GST Bill in the Rajya Sabha on the last day of the Monsoon session but Monsoon session of the Parliament has ended without a scrap of work being done as all appeals by the Central Government to let the Government function were drowned amidst the voices of the relentless Congress. The Rajya Sabha adjourned sine die and the Centre’s most important reform Bill remained in the Upper House without it being passed.

Whether Joint session can be called?

The Joint session is a rare law-enacting instrument used rarely, last time by the Vajpayee-led NDA Government on March 26, 2002 to get the contentious Prevention of Terrorism Act (POTA) passed. The other two laws enacted by the Joint session were Dowry Prohibition Bill on May 9, 1961 and Banking Service Commission Repeal Bill on May 16, 1978.

The President is empowered under Article 108 of the Constitution of India to summon a Joint session of the Parliament on the advice of the Government “for the purpose of deliberating and voting on the Bill”. There are, however, three caveats:

• If a Bill passed by one House but rejected by the other; or
• If disagreement between the two Houses on amendments to the Bill; or
• When more than six months have lapsed after the date of receipt of the Bill by the other House without passing it.

Thus, calling a Joint session to make up the difference is not an option for two reasons viz. GST Bill was struck in the Rajya Sabha with Oppositions neither saying yes or no and for a Constitutional Amendment Bill, it needs to be passed separately in each house by a 2/3^rd majority of the members, present and voting.

Extending the session after break

Still keen to ensure passage of the GST Bill, the Centre has kept its option open of reconvening the session with the Cabinet Committee on Parliamentary Affairs on Thursday deciding not to recommend immediate prorogation of the Houses after they are adjourned sine die.

Special session

According to a Government strategist, the Government might even call a Special session. But any such decision will need to have the Opposition, particularly the Congress, on board and will need to factor in the Bihar State polls expected in end-October.

If a Special session is called, the Rajya Sabha will take up the GST Bill and vote on the amendments suggested by a Select panel. If the GST Bill passes, it will be forwarded for passage to the Lok Sabha, where the Government has the numbers.

Advancing Winter session by a fortnight

Another Government strategist expressed the hope that the deadline could still be met if the Winter session of the Parliament could be advanced and at least half the States ratify the GST Bill soon after it is passed by the Parliament, enabling the two Houses to take up other GST related Bills in the Budget session. Either of these scenarios could work only if the Government manages to reach out to a Congress leadership livid after the personal attacks on it by External Affairs Minister Sushma Swaraj and Finance Minister Arun Jaitley.

GST Bill hangs midway: April, 2016 deadline under mist

The virtual closing of the Monsoon session without any major business being transacted is a blow to the Government which was looking to get major pending legislations, including the GST bill, passed in both houses of the Parliament so as to get the economy back on track.

The delay in the passage of the GST bill has put a question mark on the planned roll out of the GST era by the appointed date of April 1, 2016 which now seems to be cumbersome task for the Government to meet a self-imposed deadline.

The GST Bill which will subsume all Indirect taxes into one uniform levy across the Country, has to be first passed in the Rajya Sabha with 2/3^rd majority followed by its ratification by at least 50% of the States before it becomes law of the land. Following this, the Government will set up the GST Council within 60 days from the date of commencement of 122^nd CAB, with the Union Finance Minister as the Chairman and Minister of State, Finance & the State’s Finance Ministers as members to decide on the crucial issues of the final design of GST, including RNR and the threshold level or the revenue level beyond which GST will be levied on traders, etc.

This may not leave too much time for the Trade and Industry to prepare for GST.

However, if the legislation fails to enter the statute book by appointed time frame, it may obstruct the Government’s ‘victory’ and ‘triumphant march’ towards economic progress. The Government now needs to devise a persuasive but effective strategy if they actually plan to convert their words into action.

- See more at: http://taxguru.in/goods-and-service-tax/rajya-sabha-adjourns-sine-die-passing-gst-bill.html#sthash.067roVVr.dpuf

FINANCE & LAW TODAY: Claim cannot be denied for mere non-reply to notic...

FINANCE & LAW TODAY: Claim cannot be denied for mere non-reply to notic...: Claim  cannot be denied if sufficient documents are in hand of AO even though the party does not reply to notice issued u/s 133(6); (even...

Claim cannot be denied for mere non-reply to notice u/s 133(6) if AO have other sufficient evidences

Claim cannot be denied if sufficient documents are in hand of AO even though the party does not reply to notice issued u/s 133(6); (even though the party confirmation is not available against notice issued u/s 133(6))

The issue which was never raised by the AO or remained the subject matter of setting aside order of the ITAT, the same cannot be raised while passing fresh order.

Citation of the case:

Cheil India Pvt .Ltd Vs ITO Ward 3(3), (ITAT Delhi), Income Tax Appeal No.6183/Del/2014, Date of decision-16-07-2015

Brief of the case:

AO had issued a notice u/s 133(6) to one of the party of the assessee for gaining some information but that party had responded late to the notice from the time frame mentioned in the notice so the AO had Not considered the reply and made addition to the income of the assessee. The AO was having sufficient documents related with that party to whom notice was issued u/s 133(6) which can solve the purpose of AO but he had not considered the same and made addition. Assessee aggrieved by the decision filed an appeal with CIT(A) who also confirmed the decision of AO against which appeal was filed then assessee filed the appeal with ITAT who remanded back the order to AO to consider the documents he was having and pass a fresh order.

When the order was remanded back to the AO to make the fresh assessment then CIT(A) directed AO to made addition for non deduction of TDS also on the payment made by the assessee to that party. Assessee challenged the same with ITAT and it was decided that the CIT(A) had exceeded its jurisdiction because the same matter was not considered before by the AO and also the same was not the matter which was set aside and remanded back for fresh order.

Contention of the assessee:

The assessee was of the view that although the documents which AO demanded was received by the AO after passing of his order but AO was having all the relevant documents like ledger account, bank statements etc which he required to test the genuineness of the party but the AO had not referred the same and again issued a notice u/s 133(6) to the third party to seek confirmation again.

The assessee was of the view that the CIT(A) had exceeded his jurisdiction by directing the AO to disallow the amount paid u/s 40(a)(ia) because the appeal was preferred against the order passed by the AO u/s 254 read with 143(3) of the act and the same matter was never raised before the ITAT and the ITAT had not asked the AO to make the fresh order on the TDS issue.

Contention of the revenue:

Revenue was of the view that the assessee had failed to discharge its onus to prove the genuineness of the claim and moreover the third party failed to respond to the notice of AO issued u/s 133(6). So the party did not seem to be genuine so the addition was to be made u/s 68.

Revenue was of the view that if the question of taxability of new income is concerned which was not dealt earlier then the same could be dealt by the first appellate authority i.e CIT(A).

Held by ITAT:

ITAT held that as the supporting documents were already there in the hands of the AO from whom he can judge the genuineness of the third party, So the disallowance made by the AO is not tenable in spite of the fact that the third party had not replied to the notice issued u/s 133(6).

ITAT held that when the question of taxability of new source of income is concerned which was never raised in the appeal or considered before by the AO in his order then the same cannot be raised by the first appellate authority i.e CIT(A)

Regards
K.K Singh

FINANCE & LAW TODAY: Bogus sales / purchases- Addition based on mere st...

FINANCE & LAW TODAY: Bogus sales / purchases- Addition based on mere st...: Case Law Citation:   ACIT vs. Tristar Jewellery Exports Pvt. Ltd (ITAT Mumbai), I.T.A. No. 7593/Mum/2011, I.T.A. No. 6435/Mum/2013 & I...

Bogus sales / purchases- Addition based on mere statement of supplier not justified

Case Law Citation:  ACIT vs. Tristar Jewellery Exports Pvt. Ltd (ITAT Mumbai), I.T.A. No. 7593/Mum/2011, I.T.A. No. 6435/Mum/2013 & I.T.A. No. 8292/Mum/2011, Date of decision – 31^st July 2015, Assessment year: 2006-07

Brief of the case- ITAT Mumbai has held in the case of ACIT vs. Tristar Jewellery Exports Pvt. Ltd. That Reliance on statement of supplier who confesses to providing accommodation entries without giving assessee right of cross-examination violates principles of natural justice. . A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. So addition base on such statement are not justified.

Brief Facts of the Case and Grounds of Appeal

Brief Facts of the case:

The Assessee is in the business of purchase and sale of jewellery in the export promotion zone. During the year under consideration, the assessee has purchased diamonds worth Rs. 4,09,12,718/- from M/s Zalak Impex.

As per the record, the completed assessment of the assessee for the year under consideration, i.e. A.Y. 2006-07 was reopened on the basis that information was received from the ITO -25(20(1), Mumbai, that during the survey proceedings conducted at the premises of M/s Zalak Impex. The proprietor of the said entity has confessed in the statement recorded u/s 131 of the Income Tax Act 1961, to have provided accommodation entries in the form of sales and purchases to various parties, including the assessee, who had allegedly obtained bogus bills for non existing purchases of Rs. 4,09,12,718/- during the year. The A.O. added 25% of such alleged bogus purchases to the income of the assessee. The ld. CIT(A) reduced the addition to 7%, amounting to Rs. 35 lacs.

ITA No. 7593/Mum/2011 has been filed by the Department whereas ITA No. 8292/Mum/2011, stands filed by the assessee, against the action of the ld. CIT(A) in restricting the disallowance of 25% of purchases made by the A.O. to 7%. The Department’s contention is that the disallowance had to be confirmed in toto, whereas according to the assessee, the disallowance requires to be deleted in full.

ITA No. 6435/Mum/2013, for A.Y. 2006-07 is Department’s appeal against the ld. CIT(A)’s action of deletion of concealment penalty of Rs. 11,94,545/- imposed on the assessee in the aforesaid matter.

Grounds of Appeal:

The Revenue failed to appreciate that appellant has not given the opportunity to cross-examine Shri Hiten Rawal, proprietor of M/s Zalak Impex even after specifically asking for the same.

Contention of the Revenue:

The Revenue contended that as per the assessment order, the A.O. had asked the assessee to produce Shri Hiten L. Rawal, which the assessee did not do; and that therefore, the addition made by the A.O. was perfectly justified and it ought to have been confirmed in its entirety.

Contention of the Assessee:

It has been submitted that the statement of Shri Hiten L. Rawal, proprietor of Zalak Impex was never provided to the assessee and no opportunity of cross examination of Shri Rawal was afforded to the assessee, thereby leading to the illegal addition, which was wrongly sustained in part by the ld. CIT(A), though it ought to have been deleted in full.

Held by the Tribunal:

It remains undisputed that the assessee was never provided any opportunity to cross examine Shri Hiten L. Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the A.O., by asking him to produce Shri Rawal, even though it was the A.O. who had relied on the statement of Shri Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party.

Also, as the Assessee is in Export Promotion zone, the movement of its goods is controlled and customs approved. The assessee had also submitted customs certified invoices, therefore there was no question of their being bogus purchases. It was noted that the payments made by the assessee to Zalak Impex were through account payee cheques only. Also nothing was brought by Revenue on record to prove that the invoices were fabricated. In the result, ITA Nos. 7593/Mum/2011 and 6435/Mum/2013 filed by the Department are dismissed.

The addition made by Revenue is not sustainable as it did not stand confirmed that the assessee had willfully submitted in-accurate particulars to conceal its income. Therefore the basis of the levy of penalty in question no longer survives. Hence ITA No. 8292/Mum/2011 filed by the assessee is allowed.

Best Regards
K.K Singh