Indian Finance:Updated 29th Oct.16:: Finance Ministry on Bank NPA of Steel & Power:

11th November 2016:-
The RBI has further relaxations in Three Schemes:-
S4/A:
5/25:
Strategic Debt Restructuring: 
Current Status of NPA:-
29th October2016:-
Hand over Stressed Units(NPA) in Power, Steel & Shipping to well functioning Public Sector Companies.
In such cases a part of NPA Debt would be converted into Equity by respective Banks:Taking Control of those Units and appointing Well Experienced even Retired Expert Executives of the respective Area in the New Management Team:
The advantage would be no further deterioration in Assets Quality, Change of Management may help in revival of the Unit.

19th October2016:-
Public Sector Giant-"SAIL" is taking over NPA ridden "Electorsteel"

Largest Public Sector Power Generating 'NTPC' is analysing possiblity to takeover 4 to 5 Power NPA: 

• To tackle NPA Situation RBI is asking for More Skillful & thoughtful approach.

New Governer has asserted Four Stages of NPA: Identification,Recording,Reporting and Resolution.
61% NPA are in Five Sectors:
Infrastructure,Steel,Textile,Power and Telecom.
-----------------------------------------------------------
Two Powerful Investors have joined to Invest in NPA space as follows:-
SBI+Brokefield                    US$1Billion

Piramal+Boston Bain            US$1Billion

Above Two Funds would acquire NPA of Indian Banks at Deep Discounts. 

Introduced in the Lok Sabha in May, the bill seeks to amend four legislations — 

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, 

the Recovery of Debts due to Banks and Financial Institutions Act, 1993, 

the Indian Stamp Act, 1899 

and 

the Depositories Act, 1996.

The EnPforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016  as Reported by Joint Committee is listed for consideration and passing.

to give the RBI powers to regulate asset reconstruction 

companies, 

prioritise secured creditors in repayment of 

debts

 and 

provide stamp duty exemption on loans 

assigned by banks and financial institutions to 

asset reconstruction firms.


Around 70,000 cases involving more than Rs. 5 lakh

 crore are pending in Debt Recovery Tribunals (DRT) 


DRT & SARFAESI Act working in synchronization with Insolvency & Bankruptcy Code2016:

1.  Matter of Agriculture Land would with States.
2. Suggested 21 Major Amendments.
3. 30days Window to submit a view on the status of the Properties being taken over by banks & Financial Institutions.
4. Vacancy in a Tribunal, similarly placed judicial official can also hear a case related to DRT & SARFAESI.

Earlier Recommendations:-

1.  Says CDR has failed to achieve objectives; calls for cases to be settled within six months  

2.  The Finance Standing Committee of Parliament has called for immediate forensic audit of all restructured loans that had turned into bad debts.

3.  Forensic audit is also required for wilful defaults and Reserve Bank of India  has been asked to prepare guidelines for the process.

4.  The analytical reports of the forensic audit should be submitted to the panel in six months, it said in its report, which was adopted here on Friday.

5.  We have adopted the report. We will submit it to the Speaker, said

Veerappa Moily, Chairman of the panel and senior Congress MP, 

6.  The panel asked the apex bank to form empowered committees at the level of RBI, banks and borrowers to monitor large loans.

7.  As on September 2015, net NPAs of public sector banks stood at RS.2,05,024 crore and may reach Rs. 4 lakh crore by the end of this fiscal, the panel said, adding that such a huge figure raises questions on the credibility of mechanisms to deal with NPAs.

8.  The report said wilful defaulters owe public sector banks ₹ 64,335 crore, which constitutes about 21 per cent of total NPAs, and

9.  Called for making public the names of the top 30 stressed accounts of each bank, in the category of wilful defaulters.

10.There is no justification of keeping the names secret and asked the RBI to amend its guidelines, it added.

11.RBI, as a regulator, did not succeed in implementing its own guidelines, it said, and asked the apex bank to proactive and monitor the issue on a regular basis.

12.The panel also recommended the development of a vibrant bond market to finance infrastructure products.

13.Batting for large infrastructural projects, it said the Centre should revive Development Financial Institutions for long-term financing of such projects and urged the Centre to also allow Infrastructure Finance Companies to buy infrastructure projects turning into NPAs and keep them as standard assets.

14.Corporate debt restructuring (CDR) mechanisms had failed to achieve the desired objectives, adding that there should be a definite timeline of six months to settle CDR cases.

15.In 2014-15, most of the slippages came from

restructured debt.

16.On strategic debt restructuring, the report said it could empower banks to take control of the defaulting entity, and recommended that a change in management must be made mandatory in cases involving wilful default.

17.The prolonged slowdown in the economy has eroded the market for distressed assets so much so that even Asset Reconstruction Companies found it hard to offload these, the committee observed, adding that RBI should consider creating a dispensation that allows banks to write off losses in a staggered manner.

• Preamble:-  Around Rs.2.20Lac Crores of Banks Funds are blocked in NPA. These NPA's consist of from Smaller Rs1Lac to Crores of Rupees. 

• NPA has became a big Headache for Ministry of Finance, Banks and to Individual Borrowers.  In this article we are trying to discuss a way out for problems of Small Borrowers  Outstanding up-to Rs5Crores.

• Import & Export has become Powerful Tool to Create NPA:
• Is it possible to create Specific Foreign Exchange Department for Foreign Remittances.

• Current Scenario

1. The present Scenario is frustrating and very critical NPA's are increasing. Assets in the possession of the Banks are also increasing.
2. On approaching the Bank Staff they are totally Non Cooperative.And asking for payments even if lot many wrong debits and recoveries are appearing in the  Outstanding Statement provided.
3. Average Borrower's Securities are Seized.Borrower is reaching Debt Recovery Tribunal where cases are piling up and hearing Date earlier than Three years is not expected.Interest, Compounded Interest, overdue Interest and Penalties are continuing. 
4. DRT is completely in the grip of Touts, Brokers. Bank is Loading all type of Interest on the Loan itself.Loan account became unbearable.
5. Present Market Value of Collateral is Several times higher than Cost/Security Value, which may not realize through Bank auction.
6. Through Bankers only "Lower value" is realizing of the Securities pledged causing huge losses to the original Borrower.
7. Borrower is totally frustrated no way seems out?

• In such cases What to do now to get Collateral released?

1. We can take advantage of Securitzation & Reconstruction of Financial Assets act and Enforcement of Securities Act.(SRFAESAI).

2.A Scheme  can be prepared: without approaching "Debt Recovery Tribunal" for amicable Settlement of Dispute with Banks.

3.Continuous Communication with Bankers:-
My submission if a Communication Link with Bankers are established that would help in repayment of Loan and release of Securities amicably.Avoiding bitter experiences like Auction of Property etc.

4.The Scheme may be submitted to various Bank Authorities  and Authorities in Ministry of Finance Govt. of India with complete details in a Systematic Manner.

5.Detailed working bifurcating Principal, Interest, Penal Interest and other recoveries including Charges separately date wise would help.

6.Normally Recovery Statement lacks above details Systematic presentation in the Form of Dossier would definitely help.

7.Help of Consumer Court: Bank is a Service Industry. Not Charging correct Interest is equivalent to deficiency in Service. One can approach Consumer Court for such Lapses. And One Can get rectified Interest Demand.


8.Similarity in Restructuring through Bank Officials: order by DRT/BIFR:- In all these cases the proposal is of Bank only. Therefore the Bank Officials are the Common factor.Only an Order is passed on the consent of the Bank.

Therefore the Banks can pass similar orders in case of Direct request also.

In case Branch Level officials not agrees we can approach Higher Bank Officials.

The Corporate Debt Restructuring (CDR) cell:- A forum of bankers appointed by the Reserve Bank of India (RBI) formed in early 2000s,It takes a call on individual debt recast packages. All public sector and leading private lenders apart from NBFCs are its members. For a restructuring package to be approved, 75 per cent of the lenders by value and 60 per cent by number have to agree to the proposal and the promoters must infuse[  25 per cent of the fresh loan being sought as fresh capital. To increase owner's Margin

B.Systematic submission of Dossier to Bankers, emphatic follow up of the proposal would definitely bring Concrete Results.

For a Public Limited listed Company it is also possible to Convert Outstanding Public Sector Bank Loan into Equity under Strategic Debt Restructuring (SDR) discussed in following Paragraphs:-

C. Reforms in Debt Recovery Tribunal

Looking to Scenario at B above, the Govt has taken certain proactive Steps.
Indian banks may soon be able to settle their grievances with Debt Recovery Tribunals at a faster pace as proceedings go online. 
Digitising Entire Procedure of DRT System
The finance ministry is planning to computerise the entire operations of theDRTs and do away with unnecessary procedures."I have suggested to the department of financial services, since the administration of DRT is not under any judicial authority but the department looks after it, to consider the digitising of the entire procedure on a high priority basis," finance minister Arun Jaitley said at the industry lobby Indian Banks'

Association's annual general meeting in Mumbai on Monday. The minister said that DRT is one forum where the tribunal and appellate authority

can function exclusively with all the filings and proceedings shifting online."There will be provisions for only two hearings interim and final. All other procedures will be eliminated, 

The gross non-performing loans are estimated at Rs3.1 lakhcrore as of March 31, which is over 4% of the advances. DRTs were created to help financial institutions recover dues speedily without being subjected to the lengthy procedures of usual civil courts. 

The government is also working on expediting arbitration cases. "The arbitration law, which is now pending in Parliament, has provisions which facilitate cheaper and faster arbitration. A chapter on fast-track settlement of disputes is introduced.

For more details please contact undersigned

7228805981:ashok.agarwal8@gmail.com 

I invite comments from Readers

Indian Income Tax: Updation10th September 16-Online filining of Appeal - Present System Options are not as per requirements

Removal of Shortcomings in filing online Income Tax Appeal:-
a. Appeal Staff needs Computer Training: To accept Online Appeals, Downloading, Verification, Acknowledgement to Appellant and Submission to Commissioner: 

b.Upto Five Chances to be provided to Appeallnts for Submissions:Supporting Documents are need to be provided in JPG/PDF FORMAT.This is must to upgrade your Appeal duly supported by recent case laws.

c. Number of Words to be provided in each submission upto10000(Ten Thousand). Further Internal restriction of Words like in Facts and  in Grounds of Appeal remove.

d. Therefore restriction to provide Upfront list of Documents & Evidences to be removed.

Precautions:- A.Intimation under Section 143-1 must be Compared with Computation and for any discrepancy Application under Section 154 must be filed.

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B. One of the Important Condition of Correct filing of Income Tax Return is Return must be filed in Applicable form only.
 

B.Central Board of Direct Taxes PRESS RELEASE DATED - 30-12-2015:Electronic filing of first appeal before CIT(Appeals): Electronic filing of appeal before CIT(Appeals) is being made mandatory for persons who are required to file the return of income electronically.


Error Free Service as Validations will be inbuilt resulting in fewer deficient appeals. 

Online Appeal filing will also facilitate fixation of hearing of Appeals Electronically.
The existing Form 35 for filing of First appeal is being substituted by a new Form. The new Format for filing of appeals is more structured, objective, systematic, and aligned with the current provisions of the Income-tax Act.


B. A detailed examination of the return of income filed by the assessee to check whether:

NOTICE:-Such notice shall be SERVED on the assessee within 6 months from the end of the financial year in which the return is furnished. It is interesting to note that if notice is SENT to assessee on the last day of the period of limitation of 6 months, but was SERVED on the assessee a few days after period of limitation, it is not a valid notice

1.    Income has been understated
- Any excessive loss has been computed

- Tax has been under-paid or not.
- The major emphasis of the Department is saving of  Loss of Revenue through Income Tax; The Assesse has not understated the Income,Have not computed Excessive Loss,or has not underpaid Income Tax in any manner: Therefore mainly following Areas are emphasized when the Cases are selected for Scrutiny:-

• Assessment must be completed within 24 Months from the end of the Assessment Year.

• To curb Recycle of Black Money through Share Capital root in Scrutiny Assessment emphasis is laid on:-

       Increase in Share Capital of a closely held    
       Company, Source of Such Share Capital 
       Section56(2)(viia) excluding Shares received  
       under Amalgamation and Merger. 
        Share Capital received without Cash/
        Inadequate consideration.
       Is there any benami transaction in the Share 
       Capital issued. 

       Under Valued Share Capital(below FMV-
       Fair  Market Value:is taxable in the hands of              Recipient .

       Therefore explain in detail Share Capital    
              Transactions till the end of this Assessment Year.

        The Share Capital need to be explained with 
       Supporting s of various ROC filing Bank-
       transactions etc.

• Figures already available with the Deptt. cross verification with Supporting Documents submitted during the course of Scrutiny Assessment.

 

• Increase or fall in Profitability % of the Company.Ascertainment of the Reasons of the same.Gross Profit as well as Net Profit of the Company both in numbers as well as%

     

• Concrete Reasons must be established in the   reply       for falling       GP and NP.

• Transactions more specifically Transactions above Rs.50000/- each in all the Bank Accounts.

      Such transactions are carried out in the Interest of

      the Company or not.

• Compliance's of Section 40,40A & 43-B are complied with or not.

 

• Vigorous follow up of TDS Provisions like TDS is correctly deducted : Deposited in Time and Quarterly Returns are correctly filed with accurate PAN numbers. TDS deducted and Deposited are matching. Further TDS deposited is matching with Quarterly TDS Returns.

•  As per requirement of Section 40a-Payment without deduction of TDS: Expenditures are not allowable.

• All Income Taxes including Advance Tax, Self Assessment Tax are correctly paid. In case of delay Income Tax under all Four Sub Sections of Section 234 are paid.

• Similarly Wealth Tax is correctly paid and Return is filed

• Various Claims of Expenditure are correct No Excess Claims in case of Section 35: Depreciation and others.

•  Reasons for increase/decrease in GP/NP rates

• Weighted deductions correctly claimed or not: Supporting from Monitoring Department is enclosed confirming that deduction claimed is correct

• Payments Expenses and Reimbursements to Related persons under Section 40A(2b) 

• Payments in Cash Exceeding Rs.20000/-40A(3)(a) read with Rule 6-D or otherwise than by Account Payee Cheque/ Demand Draft 

• Sec36: Family Planning;Bad & Doubtful debts: Contribution towards Provident Fund,Pension,Gratuity, and Staff welfare schemes. Interest on borrowed capital.Discount on zero Coupon bonds.

• Expenses under Section 37: not covered under sec.30 to 36,none of Capital,Personal,offensive & prohibited . Incurred in previous year for Business,

• Details of all Expenses(Residual) under Section 37(1) more specifically expenses above Rs.1Lac 

• Details under provisions of Section 68-Cash Credits,69-Unexplained Investments,69A to 69D Unexplained Money,  Undisclosed Investments, Unexplained Expenditures, Amount borrowed or repaid on Hundi. These details must be with complete address,PAN numbers to be provided

•   To obtain Confirmation of Accounts from Suppliers Section133(6)is applicable. The LAO is 

      is asking for Addresses and Contact particulars.

•  Whether Penalties levied under any Statutory Act is claimed as Expenses-always disallowed under Income Tax Act.

• Whether Interest on TDS is claimed as Expenses- same is always dis allowable.

• Whether Scrap value of Fixed Assets sold is reduced from WDV of the Block or not.

• Always verify in detail 26 AS with Computation and Income Tax Return before moving to reply various queries of Assessing officer.This 26 AS is also containing Recoveries on   account of TDS.

• Section 14A Expenditure incurred in relation to Income not included in Total Income.

• Expenditure incurred and Claimed without any benefit to the Assessee." To establish "Commercial Expediency" before the Assessing Officer(Superme Court in the Case of S.A.Builders).  

• Expenses claimed under Section36 like Interest on Borrowed Capital, Payment to Employees. Payment to Employees welfare funds etc.

 

• Normally Scrutiny Assessment results in Ist Appeal or at times even 2nd Appeal i.e. with ITAT.therefore the replies of Assessing Officer's queries must be submitted with complete documentation: That would also be useful at Appeal-Stage. 

•  Purchase/Sale of Immovable Property:-In this case TdS would be applicable under section 194IA.

• Foreign Tour Expenses incurred Whether for Company's Work or for Personal purpose: Supporting confirming that Expenses are incurred only for Business trip; Supporting like invitation to visit country etc. 

•  Exemptions claimed under Chapter VIA: 80IA to 80IC is verified in detail based on following documents:- 
• The deduction must be based on Audited Balance Sheet of the Individual Unit(s) and Form 10CCB

      need to be enclosed.

• Delay in depositing Advance Tax or delay in Filing Income Tax return need to be explained in detail.

• More than 3year old Debtors and Creditors need to be explained with reasons along-with PAN numbers.

• Contribution to Political Parties under section 80GGCmust be supported with Receipt. 

• Interest under all Four Sub Sections of Section 234 must be paid.

• Whether Minimum Alternate Tax is correctly paid or not & Audit Report in Form 29B need to be submitted. 

•  Concealment penalty under Section 271-1(c) is applicable or not:

• Peculiar Problem of Pharma Companies: Claim of Expiry and Breakages of the Products: The Pharma Products are having a Fixed shelf Life. As soon as Shelf Life is over the Products cannot be sold in the Market.Expiry Rules and Regulations are framed by IDMA. Therefore under all circumstances the Products need to be replaced free. 

     When New Products are Launched it takes some 

     to get the Product accepted in the Market. Even 

     branded goods sometimes expired. therefore such

     claim on account of Expiry of goods must be 

     accepted.

• Investment in Loan to Sister Concern:- It must be established that the Company is having sufficient Funds in hand and have therefore invested to meet Business exigencies and commercial expediency(SA Builders).

     If the Assessee is able to establish that Increase 

     in Share Capital and Increase in Reserves have 

     resulted in Cash Accrual of the Company and the 

     Company is having sufficient Cash in hand. 

• Where an assessee fails to comply with a notice under Section 143(2), the penalty is fixed at      Rs. 10,000 for each such failure. This is specified in Section 271(1)(b).

• Notice u/s 143(2) has been issued, proceedings for rectification u/s 154 of intimation u/s 143(1) can’t be initiated.

• Where an assessment order u/s 143(3) is passed without issuing a notice to assessee u/s 143(2), the said order is invalid –

C.Depreciation Powerful Tool for Income Tax Planning:-
   

• Energy Saving Devices:

•     Pollution Control Equipments 

    Above Two are getting Higher Rate of depreciation.

•   When Civil Construction of the Plant is carried out        as per requirement of the Machinery. Separate            HVAC, Inbuilt Air Locking System, Separate                Enclosures and as per requirement of the                    Machinery such Civil-Construction must be                  treated        as Plant.
•