look for communications to our students in this section

Some relevant tax issues

For assessment of income, a notice is issued seeking the taxpayer to produce
the necessary details for examination of the statements filed and income
admitted by him. Technically, a notice must be served on the taxpayer as if it
were a summons issued by a court under the Code of Civil Procedure, 1908.

In CIT vs Inderpal Malhotra (171 Taxman 359) a notice under Section
143 (2) was issued by means of registered post on the last day of the period of
limitation. The law says that the notice under Section 143(2) is required to be
served within 12 months from the end of the month in which the return was filed.
The court held that the statute has used the word ‘served’ in Section 143(2)
and, hence, mere dispatch or issue of notice before the prescribed time is not
sufficient compliance of the legal requirement.

Accordingly, the notice dispatched by registered post on the last of the
limitation time was held as inadequate for seeking compliance from the assessee
and, hence, the decision went in the assessee’s favour.

Tribunal subordinate to HC

In the hierarchy of appellate authorities, the Tribunal is the final
fact-finding authority. However, in respect of questions of law, both the
taxpayer and the Revenue can transverse beyond the Tribunal, to the High Court
and thereafter to the Supreme Court.

In National Textile Corporation Ltd vs CIT (171 Taxman 339), it was
observed by the court that the tribunal is subordinate to the High Court and
hence has to follow the decision of the jurisdictional High Court without making
any comment on the said decision or ignoring it on any grounds except those
which are well-recognised. It referred to a catena of cases in which there have
been deviations from binding decisions of superior authority and held that the
tribunal cannot ignore the decision of the jurisdictional High Court and give a
contrary decision.

Modvat credit

Where the taxpayer acquires a plant and machinery and pays excise duty on
such acquisition, he can claim credit in respect of such duty against duty
payable on goods manufactured by him. Whether the duty credit, which is eligible
for such adjustment, is chargeable to tax as income was the issue in CIT vs
Jay Bee Industries (171 Taxman 386).

The court held that merely because the Modvat credit is irreversible would
not mean that it is an income to be taxed. Following the precedent of the apex
court in the CIT vs Indo Nippon Chemicals Co Ltd (130 Taxman 179) case,
it held that the Modvat credit eligible for adjustment against duty payable is
not chargeable as income.

Estimate of stock on survey

During the course of survey by the income-tax authorities, the value of stock
in the premises surveyed is compared with the books of account to detect and tax
the unaccounted stocks as income. Such stock valuation is a matter of conjecture
in most of the cases.

Whether such stock valuation might result in concealment penalty is to be
decided based on facts. In SSR Pirodia vs Union of India (171 Taxman
221) the addition towards excess value of stock found at the time of survey
was sustained but the concealment penalty was set aside by the tribunal as the
addition to income was made on the basis of mere estimate. The further
consequence of prosecution was quashed by the court in view of relief from
concealment penalty granted by the tribunal.

Forfeiture of exemption

Where a charitable trust advances or allows its funds to remain with an
interested person without security or adequate interest, then such trust is not
eligible for exemption contained in Sections 11 and 12 of the Act.

 

In Kanahya Lal Punj Charitable Trust vs DIT (171 Taxman 134), the assessee
gave advance to a company which had substantial interest in the trust. It was
stated that the advance was towards purchase of land for a school project of the
trust.

The plea of the assessee was taken as an after-thought and the court held
that the income of the trust has been used to the benefit of a person referred
to in Section 13(3) which is one of the disqualifying acts contained in Section
13(1).

Accordingly, the benefit of exemption had to be cancelled to the trust. It
held that the disqualification under Section 13(1)(c) would result in taxation
of entire income of the trust, including voluntary contributions and income from
property held under trust. Such disqualification would saddle the trust to pay
tax on its total income without any exclusion.

However, if the trust for example, does not keep its unspent income in the
approved investments as enumerated in Section 11(5), then only income from such
investments would be subjected to maximum marginal rate of tax and the other
incomes would continue to enjoy the benefit of exemption contained in Sections
11 and 12.

Enhancement of income in appeal

The Commissioner (Appeals) can confirm, reduce, enhance or annul an
assessment order of the AO. The power to enhance the income liable to tax is to
be exercised only after providing an opportunity of hearing to the taxpayer.
However, there is no embargo in sourcing information from the AO while enhancing
the income in an appeal proceeding. It was so held in Goel Die Cast Ltd vs CIT
(171 Taxman 272).

The above has appeared in Hindu and authored by Mr.L.K.Subramani
(The author is an Erode-based chartered
accountant.)

Currency trading launched in India

More than 300 members will be eligible to participate in currency
futures trading on the National Stock Exchange of India on Friday, when
the facility gets flagged off by the Union Finance Minister, Mr P.
Chidambaram, said a top NSE official.

In order to encourage active participation in the Currency
Derivatives segment, the NSE has decided that no transaction charges
will be levied on the trades done in this segment on the exchange from
August 29 till September 30.

However, every trading member participating in currency derivatives
during the above period shall be required to make a lump-sum
contribution of Rs 500 towards an Investor Protection Fund, says an NSE
circular.

Currency futures are standardised foreign exchange contracts traded
on a recognised stock exchange to buy or sell one currency against
another on a specified future date, at a price specified on the
purchase or sale date.

Only US dollar-Indian rupee contracts would be allowed. The contract
size will be of 1,000 US dollars and the tick size (minimum price
fluctuation) will be 0.25 paise.

The prices in currency derivatives segment shall be displayed,
traded and reported up to the fourth decimal place instead of up to
two. For example, Rs 42.50 shall be displayed as Rs 42.5000.

OTC contracts

The trade in currency futures will co-exist with the already
prevalent OTC market for forwards, where the banks and corporates have
been hedging their foreign currency risks so far. The OTC market has an
average daily volume of $34 billion, said the NSE. Unlike OTC contracts
that are bilateral, the exchange-traded currency futures contracts will
be transparent.

Banks are also allowed to become members of the exchange to
participate in currency futures trade. All resident Indians are allowed
to participate in currency futures, only NRIs and FIIs are not eligible
to trade.

All Group 1 securities, bank guarantees, receipts of fixed deposits
will be allowed as collaterals for the margins required to be deposited
by the investors trading in currency futures.

Over the last 2 decades I have seen a dramatic shift in the way students are approaching the CA course. These days students seem to have a "wham bam thank you mam" approach to the course. This has resulted in a new breed of chartered accountants who have been fed on past papers, trends and selective studying rather than an indepth study which is required from a Chartered Accountant who is supposed to be a be all and end all as far as accounting and taxation issues go.Like I keep telling innumerable times I would be scared as hell to go to doctor who proclaims that he has passed out by adopting selective study route. A CA is to the accounting profession what a doctor is to medicine - we are both considered to be the final and absolute authority on their respective subjects. Students have to realise that there are CA's and then there are CAs. Over the years I have noticed certain things which I would like to share with you - things that you should keep in mind and things which will definitely make you a better CA -

Do CA because you want to:

• Study for CA not by force but by choice. You should enrol yourself into this course only because you want to become a CA and not because of reasons like your parents want you to do it or because your friend is doing it. You need to have a passion for the course and more importantly you need to enjoy what you are doing.

CA is an easy course

• Students who join the course straight after Class XII do not realise that CA is a different ballgame altogether and is very different from the kind of examinations they have been giving till now in their life. Till now their examination studies have been limited to the books prescribed by the school or the Board and the questions come from such books only. CA however is an open syllabus and there are no predefined books from where questions are set. So the first mind set that students have to change is that there should be more than one text book for a particular subject. Ca course is HARD but not impossible.

Coaching class is the key to success:

• If that were the case then everyone who attended any coaching class (including reputed ones who charge a bomb) should pass out. The coaching class culture (especially in Mumbai) has moulded the mindset of the students into thinking that they are the be all and end all of studies for CA (while this might be true for an SSC class - where a thorough mugging of 100 questions would ensure that you get atleast 70% - this is not true for CA). Remember coaching classes are mere guiding stones which should impart concepts and keep telling you along the way whether you are going wrong somewhere. "Coaching class notes" (and it could be best class in the world - I dont care) are by themselves not sufficient to make you pass the exams - you would still need to refer text books.

Repeated solving of the same problems cannot help you score more:

• More often than not students preparation for the exams is restricted to solve their coaching class problems umpteen number of times. This only results in making them expert of those problems - but give them a different type of a problem and they will blink like idiots. Another example which I keep giving -" Driving up and down a lane will only make you an expert driver on that lane but to drive on the highway you need presence of mind". Remember you need to solve more and more variety of problems thereby increasing the chances of getting a problem solved by you in the examination paper.

Aversion to buying text books:

• This is another surprising thing which I am noticing in the new generation - aversion to buy reference books - now I dunno whether it has got to do with money - if that is so my only request is to cut down on your mobile bills and use the money to buy books. By a reasonable estimate the maximum amount you would spend on text books (for the entire CA course) would not exceed Rs.10000. Considering the fact that good CA's would start their career with a minimum salary of Rs.60000 the entire amount of Rs.10000 would be recovered in the first 5 days salary of their career - THINK ABOUT IT!!!!. So dont think of books as expenses think of them as investments which is going to give you returns till you are 60 (or even more).

CA course needs hard work:

• While CA course is hard like I have mentioned before - It doesnt require you to slog like donkey - what it requires is a systematic and smart work. If it were just hardwork then everyone could have passed by putting in 16 hours of studies.
  

Classes should get over 6 months before the exams:

• This is another myth that needs to be shattered. This has again arisen from the coaching class culture prevalent for SSC levels where classes get over atleast 6 months before the exams. The most common query that I face from the students - "Sir when will the classes get over"!!. They are not just interested in learning the subject thoroughly - their only focus is on the class getting over. My question is what is the harm if the class gets over 3 months before the exams - dont you consider the time spent in the class learning new concepts as a productive use of time? Out of 16 hours of productive time that you have daily cant you give 4 hours to the class? Infact the last few months of the class are really the most productive ones because of the fact that you will able to clear most of your doubts during that period. It is only when you have started studying do you come up with doubts which is normally in the last 3 months. If the classes get over 6 or 8 months before the exams then where will you clear the doubts which will arise when you seriously start preparing. The concept of finishing lectures 6 months before the exam is a trend which has been started by the coaching classes so that they can make more money by starting a new batch (it has nothing to do with giving the students more time to prepare) - Ideally speaking you dont need more than 4 months to prepare for the exams.

Students dont keep themselves updated:

• Students are aspiring to become finance professionals but they hardly ever read a business daily (e.g. Economic times, Business Standard) - The common refrain is that they dont understand - C'mon guys give me a break - what do you expect a specialised tutorials or coaching class which will take class on how to read economic times (but knowing Mumbai I wouldnt be surprised if classes spring up for this specific purpose). Stop being spoon fed and learn to do certain things on your own. When you start reading business dailies you will not understand anything for maybe two weeks then gradually you will get the hang of it.Most of the students think - "Oh what is the point - I dont understand it anyways - I will start reading it once I pass out" !!! - Do you think you will grow horns on the day of passing out and that these horns will give you some divine knowledge which will help you understand business dailies from the very next day of your passing out? No Sirrrrr!!!! it is a habit and like any habit has to be cultivated over a period of time.

Reading Bare act is not necessary -

• How can we call ourselves experts in the field of company law and taxation without even reading through the respective acts even once. Final students are strongly advised to read through the bare acts.
• I mean think of a situation like this - the results have come out today and you have become a chartered accountant (without even knowing what a bare act is ). So your father takes you to a social do that very evening and proudly introduces you as a chartered accountant. One person (say a retired pensioner) walks upto you and asks a income tax query - How stupid will you look saying that you dont know what the act says". You cant also say that since you dont know how to read a act you are unable to advise him - the person will have a poor opinion not only about you but also about the profession - So dont disgrace the profession by being a mugpot.

Train yourself to think and not to memorise:

• Your success or otherwise in becoming a chartered accountant really depends on how well your mind works during the 3 hours of the exam - During this 3 hours your mind must be fresh and tuned to think rather than focussing on recollecting what you have practiced - Do not underestimate the powers of the human brain - It is a wonderful piece of machinery and at any given point of time we are only using 25% of it. You might practice 100 types of problems before the exam but what happens if a 101th type of problem comes in the paper - your concepts must be clear enough to understand and solve the problem in the allotted 1/2 hour for each question - this is where clarity of concepts come in.

Your troubles will end when you become a CA -

• Trust me - this is the most common mistake every one makes - they think passing out and becoming a CA is a end of all their troubles . Guys , passing out CA is just the beginning of your troubles - you need to be constantly updating yourself or you will find no takers for you in the job market. The career rat race, corporate politics, constant updating, meeting deadlines, taking decisions which could involve outlay of crores - these are just some of your problems.

Improve your communication skills:

• this is one areas where the MBA scores over a CA. CA's by and large tend to have poor communication skills because the course has never given weightage to this important aspect which plays a key role in your growth as a professional - now this is something that can only be developed with lots of reading - again another aspect which CA's lack.
  

In case of a rising interest rate scenario the borrower is exposed to the risk of increasing his interest burden. He may opt for a fixed rate loan but this may not always be possible due to bad market conditions, credit rating etc and as a result of which his cost of borrowing in fixed rate will be pretty high. Given this scenario the only solution he may have is to go for a floating rate liability and then swap the floating rate liability into a fixed rate liability. This floating rate liability can be swapped with someone who has an exact opposite requirement or request a bank to arrange for a swap.

The following diagram illustrates the case in which an intermediary, e.g. a bank, is involved in a swap deal between two counter parties. Borrower A has a floating rate loan, but would prefer a fixed rate loan. There is another borrower B who has a fixed rate loan, but would prefer a floating rate loan. The intermediary can now match these two borrowers as described in the following diagram.
Diagram:







Example:
A manufacturing company embarks on a project for which it borrows USD 4 million working capital on a floating interest rate basis, payable quarterly for two years. Since the treasurer of the company felt that the floating rate payments will involve serious risks, he decides to enter into a swap with a bank and convert the same into a fixed rate loan. The bank now swaps the floating rate payments into a fixed rate at 12%. The resultant cash flow arising out of the transaction is illustrated below.


Cheers!!!!
Happy studying

File your returns without Form 16

The government on Friday (i.e. 18th July 2008) said that the annexures and certificates relating to TDS like Form 16 are not required to be submitted along with Income tax returns.

"No annexures, TDS/ TCS certificates are required to be annexed to the returns of income. Wherever documents are attached with the returns, the receiving official is required to detach and return to the tax payer all such annexures" a statement from CBDT said. It said that the original documents and certificates may be produced by the assessees as and when called for by the AO.

The credit for TDS/TCS will be allowed on the absis of details furnished in the relevant schedules of the returns forms subject to relevant instructions on verification of TDS claims the statement added. AO cannot disallow claim in this regard only on the ground that the TDS/TCS certificates have not been filed with the return, the statement said.

what is better - bank deposit or FMPs?

What is better --- A Bank Deposit or a FMP?
Lately the interest rates on bank deposits have increased leading many investors to wonder whether a simple Bank Fixed Deposit (FD) would serve better than having to go through the process of investing in an FMP. Though Bank FDs and FMPs currently offer a similar rate of return; the tax impact tilts the scales in favour of the FMP.

Interest on Bank FDs is fully taxable whereas the return from FMPs is either subject to the Dividend
Distribution Tax (for the dividend option) or the capital gains tax
rate (for the growth option). The Distribution Tax rate @14.16% or the
capital gains tax rate @10% are lower than the income tax rate,
especially in the case of investors in the higher tax bracket. Tax
directly eats into returns, which is why FMPs have the edge over Bank
FDs.

To illustrate this point, have a look at
the following table. It is assumed that both, the Bank FD as well as
the FMP yield the same rate of interest i.e. 10.25% p.a. An investment
of Rs. 1 lakh is made in an FMP of 91 days. The corresponding figures
for the Bank FD appear alongside.

Mumbai, July 11 India’s sovereign credit ratings are under threat from factors such as rising fiscal deficit, rising inflation and widening current account deficits, said international rating agency Standard and Poor’s.
If these reasons last long, the ratings on India could be lowered to speculative grade, from the current stable grade, said a report issued by S&P.
The country’s credit profile has worsened in the past 12 months, but the upside and downside risks to its ‘BBB’ rating are currently balanced.
According to the report, risks like increasing fiscal deficit, high inflation and widening current account deficit are mitigated by India’s deep domestic markets, which allow it to finance large fiscal deficits without recourse to external funds, and by its strong external liquidity.
Subsidies to oil companies in the form of the Rs 94,600-crore worth oil bonds, the decision to waive farm loans worth Rs 71,000 crore, the 10-27 per cent reduction in the prices of complex fertilisers, and the increased outgo in case the Sixth Pay Commission’s recommendations are implemented are the reasons that will put pressure on the country’s fiscal position. Inflation challenge
Inflation, which is at a 13-year high, is a key challenge and there is a likelihood that Reserve Bank of India may hike policy rates again, the report said. This may push up bond yields, and consequently, the Government’s cost of funding would also increase, as the public sector is the largest borrower in the domestic bond market.
India’s current account is likely to reach $35 billion in the calendar 2008, higher than $25 billion in 2007, mainly due to higher oil prices and still-strong demand for external goods and services.
There is a possibility that the lowering of the sovereign rating may impact the ability of corporates to raise funds overseas. In any case, with the restrictions imposed on the RBI, there has been a slowdown in the overseas commercial borrowing.
According to RBI data, corporates had raised about $1.16 billion through ECBs and Foreign Currency Convertible Bonds in April and about $1.27 billion in May. As against this, in March the total overseas borrowing was nearly $4.47 billion
- The above article has appeared in Hindu business line on 11th July 2008

Calculation of appreciation / depreciation of currency
It never struck me that the students can get confused over this issue - but a query raised by one of our students made me realise this .. The issue raised is:

Situation 1:
Quote given : Re/$ = 40 (i.e 1$ = Rs.40)
$ appreciates by 10% - so what should the new quote be.

View 1: The new quote is 1$=44
View 2: The new quote is 1$ = 44.44
Solution: You have to read the situation like this -"THE SAME DOLLAR WILL NOW FETCH MORE RUPEES"
Correct view : 1$=44

Situation 2:
Quote given Re/$ = 40 (i.e 1$=Rs.40)
Re depreciates by 10%
You have to read the situation like this - "THE SAME RUPEES WILL NOW FETCH LESSER DOLLARS"
So the solution is:
Rs.40 = 1$
or Rs.40 = 0.90$
or 1$ = [40/0.90] = 44.44


A currency is said to have appreciated if one is able to purchase more of the other currency against it after appreciation. Thus $1=Rs.50 changes to $1=55 then one is able to get more rupees for the same dollar - hence we say $ has appreciated by 10%. This also indicates that the rupee has depreciated but the percentage would change. When you quote it with reference to rupees because then your initial quote would be 1Re = 0.02$ and the new quote would be Re1=0.01818 (based on1$=Rs.55) which would indicate rupee has depreciated by 9.1%

I hope the above clears some fog over the issue...
cheers and happy studying

Wake up and smell the daisies

For all those who are still living in a fools paradise, thinking that everything will be hunky dory .. wake up and smell the daisies. No point in behaving like an ostrich with its head in the sand hoping that the storm will go away. The crash in the market is real and here to stay for some time. I have been time and again telling that we are likely to see rough seas ahead - so brace yourself to be hit by a hurricance. Oil has crossed $145. My target for oil was $150 .. now that this almost been reached where next? Unless the governments are able to successfully pressurise OPEC to control price rises my call is $170. Inflation crosses 12%. Consumers are reeling under the impact of price rises. Stock market is testing the lower limits of 12000. Another repo rate hike seems inevitable because smart investors are taking advantages of the arbitrage opportunities given by a low repo rate and the high call money rates. Oil bonds are another disaster stories. Political stability is at a premium - the left seems to be hell bent on pulling out the plugs. If a Samajwadi - Congress combine were to emerge then chances are that the Reliance group (both Anil and Mukesh faction) would emerge healthy. Anil is close to Amar Singh and Mukesh's proximity to congress is too well known. FII's have been instructed to keep out of India for some more time. The selling pattern in the market in the past two days is something that needs to be analysed. FII's have not sold, MF's have not sold, retail investors cannot sell at these levels as they have all entered at a higher level- so it seems that the selling has been orchestrated by a few big corporates and individuals in the know about the political imbroglio that is brewing in the centre.

So, for all those who are thinking that these are good levels to buy.. please wait and watch before you commit hara-kiri.You may be better off donating that money to charities - atleast you get a better tax break!!!!

CA's asked to gear up

NEW DELHI: Prime Minister Manmohan Singh on Monday regretted the lack of
adequate attention to good corporate governance in public discourses and
cautioned the industry that it would fail to compete effectively in the absence
of global recognition on this count.

Inaugurating the diamond jubilee celebrations of the Institute of Chartered
Accountants of India (ICAI) here, Dr. Singh pointed out that in the era of
protectionism, “few bothered about corporate governance and transparency in
accounting and management. Such laxity is no longer possible...Shareholder
democracy has come to stay...”

Dr. Singh noted that chartered accountants were “the watchdogs of [the] new
corporate world” and said “the dynamism of globalised capital market and
emergence of knowledge-based economy has posed major challenges to accurate and
speedy financial reporting.”

Observing that the role of the accounting profession was also critical in
lending credibility to financial markets, the Prime Minister said: “Market
participants, investors and shareholders look to you [chartered accountants] for
high quality information, which ensures market discipline and foster confidence
of various stakeholders.”

In his address, Dr. Singh asked chartered accountants to expand their
overseas operations and seek global challenges and opportunities and also
highlight the need for a proper accounting system for funds received and spent
by panchayati institutions.

Urging chartered accountant firms to go global, Dr. Singh said: “Like our
engineers, doctors and other professionals, our chartered accountants too faced
global competition and stood their ground. It is for this reason that today they
are able to face the heat of that competition at home also.” Turning to
panchayati raj institutions, the Prime Minister said that the UPA Government had
laid great emphasis on the devolution of financial and administrative powers to
these bodies and asked the ICAI to meet the manpower needs of skilled accounting
personnel for the growing rural economy to “impart local ownership to
development schemes and encourage transparency and accountability”. “A proper
accounting system for funds received and spent by panchayat institutions will be
critical to making decentralisation a success,” he said.

Dr. Singh said that the Ministry of Corporate Affairs had taken an initiative
to amend the Chartered Accountants Act, 1949, to enable ICAI to strengthen its
professional standing. “A law of limited liability partnership is on the anvil.
This would help in the consolidation of small firms and promote
multi-disciplinary practices in line with the global trends,” he said.

A little "Crude" facts about Oil

Crude oil prices touched another record high of $140 a barrel early this week
before slowing down a bit.What is at work - "Demand - Supply gap" or speculation?

In the long term it is demand supply theory for sure - the supply has just not kept pace with the surge in demand in the developing countries

Can you believe it - we face a deficit of about 2 million barrels of
crude per day! Add to this the fact that subsidised fuel prices in developing countries ensure that the consumption does not come down with an increase in prices.

In China for instance, fuel prices at the pump are kept artificially low, and
electricity rates too are subsidized. With no economic incentive to conserve,
Chinese demand for oil, coal and natural gas are soaring. As a result, China’s
oil imports have soared 27% year over year.

However, nothwithstanding the demand supply scenario, it has been speculation which has been a driving force for rise in prices -

It is rumored that investors have stashed about $150
to 200 billion in cash into commodity index funds since 2003. With the stock markets either stagnating or falling even conservative investors have taken a liking for the commodity markets especially crude.

As a result, crude oil prices have more than doubled over the past year.Oil has set 28 new record highs this year alone – and has more than doubled
in the past 12-months. In fact, crude oil prices have soared 697% since late
2001 – the best performing global asset class by far since then.

The last time we saw a run like this was in infotech sector leading up to the dot com bust In fact,
the parallels are eerily similar (see graph above).

The good news for oil bulls is that old familiar supply-demand imbalance at
work. It takes years to locate, exploit, and fully produce a major new oil field
– and there just aren’t many of those left in the world that remain
undiscovered.

In “reality” oil
should be trading between $80 and $100 a barrel right now amid a slowdown in
global growth. So it has clearly been moving up in the speculative zone

This time around, the CA (Final) papers, including the one on auditing, should have brought cheer to the candidates. The advanced auditing paper is well-conceived, covering a cross-section of the syllabus.
On the face of it, the paper seems complex, but not so for those who have prepared well. In Question 8, a new trend appears to have been set by way of asking the candidates to write short notes on Clause 49 of the listing agreement about independen t directors, P/E ratio, integral foreign operations, etc., which are not normally asked in the auditing paper.
Conspicuous by their absence were questions on peer review and audit of cooperative societies. Conspicuous by its presence was the question on audit trail for five marks.
The spread of the question paper has been on expected lines: Company audit (32 marks); AS and AAS (28); code of conduct (21); miscellaneous items (21); management and operations audit (8); EDP audit (6); insurance companies (5); stock brokers (5); tax audit (5); and basics (4).
The candidates are expected to answer for 100 marks, of which Questions 1 and 2 on company audit and code of conduct are compulsory, carrying 36 marks. As a strategy, if one is thorough with AS and AAS, company audit (which, anyway, one has to study at the PCC level) and code of conduct, getting through the paper should not be difficult. This has been demonstrated time and again.Some errors
The paper, though, is not without its share of bloomers.
Question 2(d) reads as follows: “M, a chartered accountant in practice, is the statutory auditor of S Ltd for the year ended March 31, 2008…”
Auditors are not appointed for a particular financial year. The period of office of the statutory auditor is from the conclusion of one AGM to the conclusion of the subsequent AGM.
Question 1 on company audit covered newer areas and is not the copy-paste stuff from old papers.
Part A is based on payment of dividend rules while part B is on accounting estimates. We have an auditing standard on accounting estimates, though not an accounting standard exclusively dedicated to it.
Parts C and D are based purely on Accounting Standards 2 and 13, which are quite easy to comprehend.
Question 2 on code of conduct is about the easiest in recent years.
Part A on “profit forecast” is a straight lift from the study material. The auditor should not give any opinion about the future in such a way as to vouchsafe for the statement.
Part B is on “other misconduct”. Based on the facts of the case, if the council determines to be so, the auditor may be guilty of other misconduct.
Part C is on communication to the retiring auditor. The firm would be guilty of misconduct if the assignment “previously held by a member” is accepted without first communicating to the outgoing auditor. The clause applies to all the assignments and not restricted to audits only.
Part D is a clever mix of company audit with code of conduct.
The auditor is guilty of misconduct unless his appointment is valid under Sections 224 and 225.
Under Section 226(4), the auditor is disqualified from being appointed as auditor of S Ltd. Hence he is guilty of misconduct.
Question 3 is purely textual. Part (a) of this question, on EDP audit, involves using some imagination.
Question 3(b), on independent director, is a twister.
Question 3(c), on audit trail, must have caught the students unawares.
But at the CA (Final) level, the candidates would have had hands-on experience on audit trail to be bamboozled by the question. One should welcome such questions.
Question 4(a), on differences between financial and operations audit, is from the study material. The other part of the question is on CARO.
Question 5 could have as well been asked at the PCC level.
Part (a) of this question, on audit for advance for goods, should not have posed any problems to those who did their articles properly.
Part (b) on audit risk is on AAS-6. The general tendency of candidates is to take this standard a bit easy as it appears to be a bit too complex for the teachers as well.
Question 6 is a cakewalk. Part (a) on reserve for unexpired risk at 25 per cent is too elementary.
So is the case with Part (b) on rolling settlement on audit of members of stock exchange.
Part (c) on haphazard sampling was among the easiest questions in the paper.
Question 7(a) briefly touches upon due diligence audit. Part (b) is a sequel to Question 2(d), where the auditor is disqualified. The procedures to ensure that the appointment is valid under Sections 224 and 225 are clearly given in the study material.

A new accounting standard –Financial Instruments: Disclosures (AS-32) has received the nod of the Central Council of the Institute of Chartered Accountants of India (ICAI).

The Council proposes to make AS-32 recommendatory from April 1, 2009, and mandatory from April 1, 2011.

The objective of this accounting standard is to require entities to provide disclosures in their financial statements to enable users to evaluate the significance of financial instruments for the entity’s financial position and performance.

The draft of the standard can be found here
As if the current Accounting standards were not confusing enough we now have more Standards to confuse us even more - HAPPY READING !!!!

AS -30 awaits panel approval

Companies can continue with their existing accounting practice on derivatives as the Centre is yet to notify a new set of accounting standards (AS) for the purpose.

The Ministry for Corporate Affairs (MCA) is awaiting recommendation by the National Advisory Committee on Accounting Standards (NACAS) on standards for Financial Instruments (Recognition and Measurement) or AS-30.

A senior Ministry official told Business Line that, “The Institute of Chartered Accountant of India (ICAI) formulated AS-30 has been referred to NACAS. And once NACAS recommendations come it would be notified.”

AS-30 establishes principles for recognition, de-recognition and measurement of financial instrument. In other words, it lays down the principles that would determine the manner in which financial instruments such as options and other derivatives should be measured and recognised in the balance sheets of banks and companies.

Meanwhile, the central council of ICAI is understood to have at its meeting held here on Thursday approved the Accounting Standard on disclosure of Financial Instruments (AS-32).

Recognising the importance of financial reporting in providing essential financial information about the company to its shareholders and other stakeholders, the Government prescribes the accounting standards in consultation with NACAS. A body of experts including representatives of various regulatory bodies and Government agencies, NACAS is engaged in examining the standards prepared by the ICAI for use by the corporates.

The ICAI council in October last year approved AS-30, which deals with Financial Instruments: Recognition and Measurements, and AS-31, which prescribes for Financial Instruments: Presentation. The Standard is to come into effect for accounting periods commencing on or after April 1, 2009, and will be recommendatory in nature for two accounting years. It will become mandatory for corporates from accounting year beginning April 1, 2011.

Instruments classification


For the purpose of AS-30, financial instruments are classified into financial assets or financial liabilities at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets and other financial liability. While, AS-30 also establishes principles for hedge accounting, AS-31 is for presenting financial instruments as liabilities or equity and related principles of interest, dividends, losses and gains.

The principles in this Standard complement the principles established in AS-30. AS-30 and AS-31 are based on the corresponding International Accounting Standards — IAS 39, Financial Instruments: Recognition and Measurement and IAS 32, Financial Instruments: Presentation — respectively. There are no material differences between AS 30 and IAS 39, and AS 31 and IAS 32.

checkr for feeddemon

HIGHLIGHTS OF ANNUAL POLICY STATEMENT FOR 2008-09

Key Rate Change: CRR hiked by a further 25 bps to 8.25% by May 24, 2008

Outcome: To drain out an additional Rs. 9250/- Crores and moderate monetary expansion

Impact: To curb inflation now being targetted at 5.50%




Highlights of the Annual Policy Statement from RBI for the year 2008-09

Highlights

· High priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while sustaining the growth momentum.
· Swift response on a continuous basis to evolving adverse international and domestic developments through both conventional and unconventional measures.
· Emphasis on credit quality and credit delivery while pursuing financial inclusion.
· Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
· Scheduled banks required to maintain CRR of 8.25 per cent with effect from the fortnight beginning May 24, 2008.
· GDP growth projection for 2008-09 in the range of 8.0- 8.5 per cent.
· Inflation to be brought down to around 5.5 per cent in 2008-09 with a preference for bringing it close to 5.0 per cent as soon as possible. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes a medium-term objective.
· M3 expansion to be moderated in the range of 16.5-17.0 per cent during 2008-09.
· Deposits projected to increase by around 17.0 per cent or Rs.5, 50,000 crore during 2008-09.
· Adjusted non-food credit projected to increase by around 20.0 per cent during 2008-09.
· Active demand management of liquidity through appropriate use of the CRR stipulations and open

market operations (OMO) including the MSS and the LAF.
· Introduction of STRIPS in Government securities by the end of 2008-09.
· A clearing and settlement arrangement for OTC rupee derivatives proposed.
· Domestic crude oil refining companies would be permitted to hedge their commodity price risk on overseas exchanges/markets on domestic purchase of crude oil and sale of petroleum products based on underlying contract.
· Currency futures to be introduced in eligible exchanges in consultation with the SEBI; broad framework to be finalised by May 2008.
· Indian companies to be allowed to invest overseas in energy and natural resources sectors.
· Reserve Bank can be approached for capitalisation of export proceeds beyond the prescribed period of realisation.
· Loans granted to RRBs for on-lending to agriculture and allied activities to be classified as indirect finance to agriculture.
· The shortfall in lending to weaker sections would be taken into account for contribution to RIDF with effect from April 2009.
· RRBs allowed selling loan assets to other banks in excess of their prescribed priority sector exposure.
· The Reserve Bank to disseminate details of various charges levied by banks.
· Asset classification norms for credit to infrastructure projects relaxed.
· The prudential guidelines for specific off-balance sheet exposures of banks to be reviewed.
· Reserve Bank to carry out supervisory review of banks' exposure to the commodity sector.
· The limit of bank loans to individuals for housing having lower risk weight of 50 per cent enhanced from Rs. 20 lakh to Rs. 30 lakh.
· Consolidated supervision of financial conglomerates proposed.
· Working Group to be set up for a supervisory framework for SPVs/Trusts.
· Inter-departmental Group to review the existing regulatory and supervisory framework for overseas operations of Indian banks.
· All transactions of Rs. one crore and above made mandatory to be routed through the electronic payment mechanism.
· Dispense with the extant eligibility norms for opening on-site ATMs for well-managed and financially sound UCBs.
· Regulations in respect of capital adequacy, liquidity and disclosure norms for systemically important NBFCs to be reviewed.

17 tax free incomes under the Income tax Act

The following are 17 important items of income, which are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.

1. Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

Agricultural income which fulfils the above conditions is completely exempt from tax.

2. Receipts from Hindu Undivided Family (HUF)

Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Share from a partnership firm

Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94.

For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount which bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.

4. Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

5. Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

6. Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

7. Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs. 3,00,000.

8. Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The maximum amount of money received at such VR which is so exempt is Rs. 500,000.

9. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

10. Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

11. Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10 (15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7 Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9 per cent or 8.5 per cent or 8 per cent or 7 per cent Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India [Get Quote] or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified,
(viii) Interest on 6.5 per cent Savings Bonds [Exempt] issued by the RBI, and
(ix) Stipulated new tax free bonds to be notified from time to time.

12. Scholarship and awards, etc

Any kind of scholarship granted to meet the cost of education is exempt from tax under Section 10(16). Similarly, certain awards and rewards, etc. are completely exempt from tax under Section 10(17A), for example, Lakhotia Puraskar of Rs 100,000 awarded to the best Rajasthani author, every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.

Any daily allowance received by a Member of Parliament or by an MLA or any member of any Committee of Parliament or State legislature is also exempt from tax under Section 10(17).

13. Gallantry awards, etc. -- Section 10(18)

The Finance Act, 1999 has, with effect from AY 2000-2001, provided for complete exemption for the pension and family pension of Gallantry Award Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and also other Gallantry Award winners notified by the Central Government.

14. Dividends on shares and units -- Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

15. Long-term capital gains of transfer of securities -- Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax (STT).

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains. This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

16. Amount received by way of gift, etc -- Section 10(39)

As per the Finance (No. 2) Act, 2004, gift, etc. received after 1-9-2004 by an individual or an HUF whether in cash or by way of credit, etc. is being subjected to tax if the same is not received from a stipulated relative. Section 10(39) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of tax payment.

Similarly, amount received on the occasion of marriage from non-relatives, etc. would also be exempted. It may be noted that the gift from relatives, as specified in the section can be received without any upper limit.

17. Tax exemption regarding reverse mortgage scheme -- sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax. These amendments by the Finance Bill, 2008 apply from FY 2007-08 onwards.

Brokerages squeeze out jobs

The below reproduced article has appeared in the Economic times (Mumbai edition) on 28th March 2008 - Again this article only confirms what I had predicted in my earlier article titled "Kindly Bear with Me" regarding how this so called new leveraged finance whiz kids risk losing their jobs.... Q.E.D



MUMBAI: The year would have been much better for Naveen Khadilkar (name changed), had he not lost his job months before his marriage. The 26-year-old, who worked as a relationship manager with a Mumbai-headquartered brokerage, walked into office last week only to be told that his services had been terminated.

But Naveen is not the only one who is bearing the brunt of a bear run in the market. If market sources are to be believed, top brokerages have already begun downsizing staff (or stalling new recruitment) to reduce costs in what has been a nightmarish quarter. Following the market crash in late January, most retail brokerages have been hit by a double whammy of bad debts and a sharp drop in daily turnover.

Last year, many brokerages had expanded their branch network, hoping that they could get private equity investors to pay more for a wider presence. But uncertain market conditions are forcing many brokerages to have second thoughts on the need for so many branches and staff. “Underperformance” is cited as the most common reason given for laying off people.

“This is a normal trend and it doesn’t have anything to do with the current market conditions. Employees who have not done well even after giving adequate training and support are asked to leave at all times,” said Indiabulls Securities CEO Divyesh Shah.

Lacklustre market and lack of interest on the part of investors to participate in daily proceedings have put a question mark over earnings for most broking firms. The business model of most broking firms (and also fund houses) is highly correlated to general market conditions. Indian financial services institutions are expected to do better in times of good markets. Pursuant to the fall, brokerages are focusing more on distribution of insurance products to make up for losses in equity broking.

More than specific functionaries like dealers and research analysts, it is relationship managers who are finding the future of their jobs up in the air. A mid-size brokerage could have anywhere between 500 and 1,000 relationship managers in its rolls. The job profile of relationship managers includes marketing and selling of financial products, client servicing, acquiring new clients, garnering more business and advising HNIs on their long-term and short-term investments. Relationship managers are paid in the range of Rs 5-12 lakh depending on their experience and performance. They are bound to stiff and at times impossible-to-achieve targets.

“We set stiff internal targets for our relationship managers, but at the same time, we do not hesitate to revise them (targets) when markets are down,” said India Infoline vice-president (strategy & planning) Harshad Apte. “And as far as laying off underperformers are concerned, we do that even in the time of good market conditions. In fact, the bad market is the best time to test your relationship managers,” Mr Apte added.



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The below reproduced article has appeared in the Economic times (Mumbai edition) on 28th March 2008 - Again this article only confirms what I had predicted in my earlier article titled "Kindly Bear with Me" regarding how this so called new leveraged finance whiz kids risk losing their jobs.... Q.E.D



MUMBAI:
The year would have been much better for Naveen Khadilkar (name changed), had he not lost his job months before his marriage. The 26-year-old, who worked as a relationship manager with a Mumbai-headquartered brokerage, walked into office last week only to be told that his services had been terminated.



But Naveen is not the only one who is bearing the brunt of a bear run in the market. If market sources are to be believed, top brokerages have already begun downsizing staff (or stalling new recruitment) to reduce costs in what has been a nightmarish quarter. Following the market crash in late January, most retail brokerages have been hit by a double whammy of bad debts and a sharp drop in daily turnover.



Last year, many brokerages had expanded their branch network, hoping that they could get private equity investors to pay more for a wider presence. But uncertain market conditions are forcing many brokerages to have second thoughts on the need for so many branches and staff. “Underperformance” is cited as the most common reason given for laying off people.



“This is a normal trend and it doesn’t have anything to do with the current market conditions. Employees who have not done well even after giving adequate training and support are asked to leave at all times,” said Indiabulls Securities CEO Divyesh Shah.

Lacklustre market and lack of interest on the part of investors to participate in daily proceedings have put a question mark over earnings for most broking firms. The business model of most broking firms (and also fund houses) is highly correlated to general market conditions. Indian financial services institutions are expected to do better in times of good markets. Pursuant to the fall, brokerages are focusing more on distribution of insurance products to make up for losses in equity broking.

More than specific functionaries like dealers and research analysts, it is relationship managers who are finding the future of their jobs up in the air. A mid-size brokerage could have anywhere between 500 and 1,000 relationship managers in its rolls. The job profile of relationship managers includes marketing and selling of financial products, client servicing, acquiring new clients, garnering more business and advising HNIs on their long-term and short-term investments.

Relationship managers are paid in the range of Rs 5-12 lakh depending on their experience and performance. They are bound to stiff and at times impossible-to-achieve targets.

“We set stiff internal targets for our relationship managers, but at the same time, we do not hesitate to revise them (targets) when markets are down,” said India Infoline vice-president (strategy & planning) Harshad Apte. “And as far as laying off underperformers are concerned, we do that even in the time of good market conditions. In fact, the bad market is the best time to test your relationship managers,” Mr Apte added.



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Meghnad Desai's view of risk and risk takers

Six
months ago when the first signs of the financial crisis appeared many were taken
by surprise. It was predictable in principle that after years of cheap liquidity
and a lot of new risk vehicles in which people were investing, sooner or later
something would give way.



The
difficulty with economics is that while one can predict an event is likely to
happen given the various related phenomena, one cannot forecast the date and
time when it will happen. Economists are not astrologers; they aspire to be more
like astronomers. They observe remote movements in markets and map their
dynamics. It is an imperfect science, yet it has some lessons to
teach.



Also at that time last
summer, many were saying that somehow the emerging economies - especially China
and India - had decoupled themselves from the developed country markets and so
India would be spared the worst of the crisis. We know better now. Financial
markets, much more so than real economies, are interlinked by fast flowing funds
which can come and go. This is not worrying because these flows move Sensex and
other indices up and down, but the speed and volatility by themselves insulate
the real economy against these fluctuations. Of course, this assumes that
monetary policy is sound and financial regulation
works.



The financial economy is
global and fast moving; the real economies are integrated only through traded
goods and services which leave a lot of the economy in each country to
experience such shocks with some delay. The 1973 oil price rise was different
because it was a direct shock to the real economy and not via financial markets.
What we have seen is that while there has been turmoil in financial markets it
has had little impact on the real
side.



Those who buy and sell in
the stock markets should know that volatility is the name of the game; indeed
great stock market players like George Soros make their fortunes by being one
step ahead of volatility. If you make losses by the same token that is your
problem. There is no need to rescue rich losers on the stock markets. What we
are seeing on Wall Street now is that when large losses are made somehow the
believers in free markets rush to the government for help. Thus they are
socialists when they make losses and free market fundamentalists in good
times.



The rescue of Bear
Stearns by the Federal Reserve was a prime example of this whereby J P Morgan
got the assets at a throwaway price (even after the recent upping of the bid
from $2 to $10 a share). The Fed has taken a possible loss of up to $25 to $30
billion while J P Morgan only loses at most $5 to $6 billion but then will
profit from its acquisition. This under a government which believes in free
markets! Ben Bernanke has devised a generous injection of liquidity which will
come back to haunt the American
economy.



The Bank of England is
more independent compared to the Fed. Mervyn King, the bank governor, has taken
the correct view that if banks make foolish deals they should pay for any help
he can give them to get them out of trouble. He has been much criticised since
the powerful lobby of the rich players in financial markets and their apologists
in the media and parliament are howling with rage that the bank is not doling
out cheap money.



Northern Rock
was a smaller mortgage lender than Bear Stearns, which was an investment bank,
and when it was in trouble the first step was to assure the depositors that
their money was safe. But after that, instead of giving it to a private firm to
profit from this rescue, the government took Northern Rock over. When it has
paid


off its support loan of
£25 billion it will be denationalised. In the meantime, the shareholders
are likely to get what their shares were truly worth when the firm was rescued,
i.e. zero.



I wish governments
enforced market logic more rigorously rather than helping out risk takers. A lot
of these hedge funds or banks have made money by borrowing a large multiple of
what their paid-up capital is. In the case of Carlyle Corporation, this was up
to 30 times. Leveraging, as this is called, is financed by short-term loans.
While the investments keep going up, the company is happy as are its lenders.




But then suddenly even triple
A securities issued by the US government-backed housing finance companies, Fanny
Mae and Freddy Mack, found that their shares declined massively. Firms, which
had borrowed 30 times, found their value collapsing and their lenders demanding
money on the dot. So a multi-billion company like Carlyle went bust.




Sensex has had its gyrations,
going down to below 15,000 and now struggling back up. This is as it should be.
Stock markets are for grown-ups. As President Truman said in the context of
politics, one can say about stock markets: "If you can't stand the heat, get out
of the kitchen". In any case one hopes the government does not give any help to
the losers. It is one thing to help farmers who are in debt, but another to help
financiers who thrive on debt. Let them pay the
price.



The above article has been written by Meghnad Desai - The writer is a member
of the British House of Lords and it only affirms what I have written in my earlier article "Kindly Bear with me"!!!!!

Hey guys,
have a look at the video - It is a parody of the popular Police number - "Every Breath you take" and takes a dig on the financial markets

lovely video --- an absolute must watch


http://hk.youtube.com/watch?v=3u2qRXb4xCU

Kindly "BEAR" with me......

JAO MAT DOST ..... SHOW ABHI BAAKI HAI!!!!!!

All you so called new gurus of the stock markets ......Welcome to the grim realities of the stock market!!!. The stock market has taken its 2nd bigger ever hit sliding over 951 points on Monday, 17th March 2008.The major falls of sensex have been -

21-1-2008: 1408 pts
17-3-2008: 951 pts
3-3-2008: 900 pts
22-1-2008: 875 pts
11-2-2008: 834 pts
18-5-2006: 826 pts
13-3-2008: 771 pts
18-10-2007: 717 pts
18-1-2008: 687 pts

The sensex recorded its peak on January 8, 2008 touching 20873. On 17th March i.e 3 months later the sensex is at 14800 levels ie a fall of 29% (6073 pts).Oil prices have crossed the $100 barrier. Gold has shot past Rs.12000 giving a clear indication of the tough times ahead. I, for one, am not at all complaining about the scenario - for this was something that was waiting to happen - anyone who did not anticipate this was clearly blind as a bat and stupid as an owl.

But what pisses me off is the so called "stock market pundits" turning a blind eye towards the pressure build up and thereby failing to issue the clarion call to the investors. What were the so called tie toting smug looking research analysts (who were in anycase being paid many times over their real intellectual worth) doing all these while? It is only after the meltdown happens that these stupid dilbert like characters come out and say that the scenario looks bleak --- shuttttt up... now even my 10 year old son can say that the situtation is grim - I dont need a overpaid, Mr.know it all to tell me that on CNBC.

Some of the so called big shots (or people in the know as I prefer to call them) have issued statement which go as under (the quotes have appeared in ET on 18th March 2008- just for the records)(the words in italics are my comments and not theirs!!!:-
Mr. R. Venkataraman (ED - India infoline) says "It will take some time for the sentiment to change (ha ha as if this is something new). There is a need for large institutions like LIC to start buying frontliners to provide a filip to sentiment (Why Mr Venkataraman? LIC ne market ka theka le rakha hai kya? When you were filling your pockets during the boom time did you pass on some of your positions to LIC telling them to keep the profits - Why should they come to the rescue of the market - so that to ensure that you make a profit ? SORRRRRRY SIR - that is not what LIC is there for).

Mr. Motilal Oswal (CMD Motilal Oswal Securities) (This one takes the cake) - This is time to accumulate good quality stocks from medium to long term perspective. They can go for old economy stocks like GSK, Bharti etc (In my humble opinion old economy stocks meant TISCO, ACC etc since when has Bharti become a old economy stock).... and Now comes the punch line - read this - " Markets have overreacted to global events.But that does not mean that they cannot go further. Now I am confused - should I buy old economy stocks or should I wait for them to go down.

I mean you dont need to be a genius to tell someone that the markets may either go up or it may go down... DUHHHH.. what kind of a view is that -- even my ghar ka kaamwaali bai can tell that --- gimme a break Mr. Oswal.This only proves that no one ... I repeat no one has any clue about which direction the market is going to take - If that is the case then may I call upon CNBC to please invite my kaamvali bai and ask her to give an opinion on the markets - my apologies to the viewers that she wont sport a tie nor will she speak in broken english and she wont refer to complex charts - in any case to tell that a stock market will either go up or down you dont need any of these.

Mr. Venkataraman's call to LIC seems totally devoid of any logic - why doesnt he call upon the Pvt Sector Mutual funds to start buying (if he sees value in today's stock prices?) - these guys wont because they are worried about their annual fat bonuses getting hit - it is the bechara LIC fund manager who is any way not entitled to the hefty bonuses that is being called upon so that the market can be revived and the private sector fund managers can look forward to a vacation in Seychelles out of their hard earned Bonus ...(Sic) . Talking about the private sector brings me to another interesting development - The Bear Sterns Collapse ---So much for the young investment turks who give an appearance that they started wearing ties even before their momma taught them how to tie diapers....armed with a degree from one of the management institutes these Mr. Know it all think that the only way the market can go is up - and start designing fancy instruments and have no inkling about the risks associated with them . Having seen two scams and over 17 years in the capital market my only word to them - "Kiddos.......welcome to world of MEN"

Now we will see the other repurcussions happening on the employment front in the financial sectors - the brokerages and investment houses will soon implement pay slashes which will result in a myriad of problems to these financial sector kiddos who have anyway leveraged their present earnings many times over to buy plush houses and fancy cars.. now we will see pink slips being issued in a lot of broking houses who will start cutting down costs if there is a further market slide.

It is also rumored that DBS of singapore has instructed its traders to limit its exposure to Lehman Bros. So the goldman sachs, JPs of the world be careful.... you might not be god's gift to mankind after all .

I wonder why none of these pundits actually gave a sell call when these signals started originating - I mean we all knew US was entering into a recession, we all knew that oil prices was spiralling up fuelling inflation, we all knew gold prices was shooting up giving a clear indication that global investors were jittery against currencies especially dollars, we all knew that dollar was getting hit against all major currencies especially Yen... hey wait a minute - I have been saying we all knew - am I missing something out here - dont these pundits read newspapers or do they read some other news paper I am not aware of....Till last week I was receiving research reports from some big brokerage houses recommending a value buy based on FUNDAMENTALS. I am tempted to quote a oft repeated joke in the market circles " FUNDAMENTALS pe mat jaana - pehle FUND jaayega phir tum MENTAL ho jaaoge" !!!!!!

What we lack in this market are people who are willing to stick out their neck and say with conviction which way the market will go - if they cant take a view then let them have conviction to tell that they are clue less rather than pretending to be the nose in the air know it all gurus.

My view - the market is going to be in a bear grip for atleast 6 months - and my reasons - US recession, failure to control oil prices might triger global inflation, slow down in new projects due to bearish sentiments in the financial sector...Interest rates definitely looking to go up in the near term and with March around the corner lot of banks will have to book losses on mark to market procedures on their investments - so they might be loathe to taking fresh buying - If I am proven wrong then so be it - I will be a happy person because my portfolio value would increase and If i am proven right - I can always proclaim "I said so"!!!! . So it is heads I win tails you lose........

55 Amendments that go against the court rulings

In Budget 2008 there are 55 amendments to the Income-Tax Act, 1961. Amendments to statutory provisions are made because of (i) changes in the economy, (ii) to plug the existing loopholes, and (iii) to provide a fillip to priority areas.

While a push given to certain sectors of the economy by means of incentives and tax holidays is generally welcomed by taxpayers, changes made to plug the loopholes in the provisions are normally not. In addition to the aforementioned reasons, amendments are made to unsettle court decisions which favour the taxpayers.

The following are some of the amendments which have approved or negatived some of the current court decisions.

Agricultural income

Income from saplings or seedlings grown in a nursery was held as agricultural income in the CIT vs Soundarya Nursery (2000 241 ITR 530 Madras) case. A contra decision can be found in H. H. Maharaja Vibhuti Narain Singh vs State of UP (1967 65 ITR 364 Allahabad).

The Finance Bill, 2008 has proposed to confirm the decision rendered in the Soundarya Nursery case by deeming such nursery income as agricultural income. Because of the amendment, even where basic operations are not carried out on land, such income will be deemed as agricultural income, eligible for exemption.

Charitable purpose

Any activity in relation to trade, commerce or business for a cess or fee is not tax-free from the assessment year 2009-10. This amendment nullifies the Supreme Court decision in the CIT vs Gujarat Maritime Board (2007 295 ITR 561 SC) case.

In this case, the Maritime Board was meant for the development and maintenance of minor ports in Gujarat. The application for registration was rejected and it was held that the assessee’s predominant purpose was to develop minor ports in the Gujarat and, hence, is eligible for registration under Section 12A. Now this decision stands nullified because of the amendment.

Business expenditure

Expenditure paid otherwise than by account-payee crossed cheque or account-payee crossed bank draft in excess of Rs 20,000 is not allowable. Taxpayers generally resort to more than one payment with each being within the monetary limit and, thereby, avoid disallowance. More than one payment in a single day was accepted by the courts (CIT vs Aloo Supply Company — 1980 121 ITR 680 Orissa) as not violative of Section 40A(3).

Now the amendment says that if the aggregate payment to a person in a day exceeds Rs 20,000 otherwise than by the prescribed mode, it is to be disallowed.

Book Profit

Deferred tax liability debited to profit and loss (P&L) account was not to be added to the net profit while computing the book profit under Section 115 JB (Shree Umaid Mills Ltd vs CIT — 2007 17 SOT 72 JP; CIT vs Balarampur Chini Mills Ltd — 2007 14 SOT 372 Kolkata).

The Finance Bill, 2008 provides for retrospective amendment for adding the amount of deferred tax provision debited to P&L account and thereby nullifies the tribunal decisions.

Deemed satisfaction

While completing the assessment, the assessing officer (AO) must record his satisfaction about the concealment for levy of penalty. The amendment now says that it is sufficient if the order contains a direction for initiation of penal proceedings. Such remark in the assessment order shall be deemed as the AO being satisfied about the need for initiating penalty proceedings.

This amendment nullifies the decision in the CIT vs Ram Commercial Enterprises Ltd (2000 246 ITR 568 Delhi) case.

Reasons for reassessment

For issue of notice under Section 148, sanction must be obtained from the Joint Commissioner. In Dr Shashi Kant Garg vs CIT (285 ITR 158 Allahabad), it was held that the Joint Commissioner must issue the notice. Now the amendment proposed by inserting Explanation to Section 151(2) says that it is enough if the AO has recorded the reasons and the Joint Commissioner or the Commissioner is satisfied about the fitness of the case. The amendment, retrospectively applicable, nullifies the court decision.

Reassessment of pending appeal

Where the assessment is completed and pending before the appellate authorities, the AO cannot initiate reassessment proceedings even in respect of other matters. Now a proviso to Section 147 is proposed to be inserted to allow reassessment of the matters other than those which are in appeal, reference or revision.

In CIT vs Sakseria Cotton Mills Ltd (124 ITR 570), it was held that only the points on which the appeal is made would merge with appellate order and in respect of other matters the limitation would start from the date of original order.

In effect, reassessment in respect of uncontested issues might get time barred if the proceedings are initiated after the disposal by the appellate authority. To overcome this difficulty, the Finance Bill, 2008 proposes to empower the AO to reassess the income in respect of matters other than those which are subject to appeal.

Monetary limit for appeal

In Berger Paints India Ltd vs CIT (Civil Appeal Nos.1081 to 1083 of 2004) it was held by the apex court that in one case if the appeal is not made, on the very same issue in the case of any other assessee an appeal cannot be made. To nullify the decision a new Section 268 A is proposed to be inserted, whereby an appeal not filed for an assessment year is no bar for preferring an appeal in another assessment year or in any other case.

The aforementioned decisions are ones that have been nullified by the Finance Bill, 2008. Every year it has become routine to find some of the court decisions favouring the assessee being upset by the amendments, sometimes retrospectively and where it could not be backed by reasons, by means of deeming provisions.

55 Amendments that go against the court rulings

In Budget 2008 there are 55 amendments to the Income-Tax Act, 1961. Amendments to statutory provisions are made because of (i) changes in the economy, (ii) to plug the existing loopholes, and (iii) to provide a fillip to priority areas.

While a push given to certain sectors of the economy by means of incentives and tax holidays is generally welcomed by taxpayers, changes made to plug the loopholes in the provisions are normally not. In addition to the aforementioned reasons, amendments are made to unsettle court decisions which favour the taxpayers.

The following are some of the amendments which have approved or negatived some of the current court decisions.

Agricultural income

Income from saplings or seedlings grown in a nursery was held as agricultural income in the CIT vs Soundarya Nursery (2000 241 ITR 530 Madras) case. A contra decision can be found in H. H. Maharaja Vibhuti Narain Singh vs State of UP (1967 65 ITR 364 Allahabad).

The Finance Bill, 2008 has proposed to confirm the decision rendered in the Soundarya Nursery case by deeming such nursery income as agricultural income. Because of the amendment, even where basic operations are not carried out on land, such income will be deemed as agricultural income, eligible for exemption.

Charitable purpose

Any activity in relation to trade, commerce or business for a cess or fee is not tax-free from the assessment year 2009-10. This amendment nullifies the Supreme Court decision in the CIT vs Gujarat Maritime Board (2007 295 ITR 561 SC) case.

In this case, the Maritime Board was meant for the development and maintenance of minor ports in Gujarat. The application for registration was rejected and it was held that the assessee’s predominant purpose was to develop minor ports in the Gujarat and, hence, is eligible for registration under Section 12A. Now this decision stands nullified because of the amendment.

Business expenditure

Expenditure paid otherwise than by account-payee crossed cheque or account-payee crossed bank draft in excess of Rs 20,000 is not allowable. Taxpayers generally resort to more than one payment with each being within the monetary limit and, thereby, avoid disallowance. More than one payment in a single day was accepted by the courts (CIT vs Aloo Supply Company — 1980 121 ITR 680 Orissa) as not violative of Section 40A(3).

Now the amendment says that if the aggregate payment to a person in a day exceeds Rs 20,000 otherwise than by the prescribed mode, it is to be disallowed.

Book Profit

Deferred tax liability debited to profit and loss (P&L) account was not to be added to the net profit while computing the book profit under Section 115 JB (Shree Umaid Mills Ltd vs CIT — 2007 17 SOT 72 JP; CIT vs Balarampur Chini Mills Ltd — 2007 14 SOT 372 Kolkata).

The Finance Bill, 2008 provides for retrospective amendment for adding the amount of deferred tax provision debited to P&L account and thereby nullifies the tribunal decisions.

Deemed satisfaction

While completing the assessment, the assessing officer (AO) must record his satisfaction about the concealment for levy of penalty. The amendment now says that it is sufficient if the order contains a direction for initiation of penal proceedings. Such remark in the assessment order shall be deemed as the AO being satisfied about the need for initiating penalty proceedings.

This amendment nullifies the decision in the CIT vs Ram Commercial Enterprises Ltd (2000 246 ITR 568 Delhi) case.

Reasons for reassessment

For issue of notice under Section 148, sanction must be obtained from the Joint Commissioner. In Dr Shashi Kant Garg vs CIT (285 ITR 158 Allahabad), it was held that the Joint Commissioner must issue the notice. Now the amendment proposed by inserting Explanation to Section 151(2) says that it is enough if the AO has recorded the reasons and the Joint Commissioner or the Commissioner is satisfied about the fitness of the case. The amendment, retrospectively applicable, nullifies the court decision.

Reassessment of pending appeal

Where the assessment is completed and pending before the appellate authorities, the AO cannot initiate reassessment proceedings even in respect of other matters. Now a proviso to Section 147 is proposed to be inserted to allow reassessment of the matters other than those which are in appeal, reference or revision.

In CIT vs Sakseria Cotton Mills Ltd (124 ITR 570), it was held that only the points on which the appeal is made would merge with appellate order and in respect of other matters the limitation would start from the date of original order.

In effect, reassessment in respect of uncontested issues might get time barred if the proceedings are initiated after the disposal by the appellate authority. To overcome this difficulty, the Finance Bill, 2008 proposes to empower the AO to reassess the income in respect of matters other than those which are subject to appeal.

Monetary limit for appeal

In Berger Paints India Ltd vs CIT (Civil Appeal Nos.1081 to 1083 of 2004) it was held by the apex court that in one case if the appeal is not made, on the very same issue in the case of any other assessee an appeal cannot be made. To nullify the decision a new Section 268 A is proposed to be inserted, whereby an appeal not filed for an assessment year is no bar for preferring an appeal in another assessment year or in any other case.

The aforementioned decisions are ones that have been nullified by the Finance Bill, 2008. Every year it has become routine to find some of the court decisions favouring the assessee being upset by the amendments, sometimes retrospectively and where it could not be backed by reasons, by means of deeming provisions.