Blog # 19. Request for Assessment Records from Assessing Officer

Order Sheets:
In the order sheet there is recording about notices issued to assessee/ taxpayer or other concerned parties, communication to and between assessee/ parties, details of hearings and other matters with which the assessee / concerned party  is directly concerned. Even a departmental communication between two or more authorities, in connection with assessment, penalty , appeal, revision , audit and any other proceedings against the assessee/ concerned party  are relevant to assessee. The order sheet is a very vital part of assessment records/ or record of other proceedings and it is also a very vital evidence concerning proceedings taken in relation to assessment, penalty, appeals, revision, refunds, rectification etc. The evidence in form of order sheet can be used by the A.O. as well as the assessee in any proceedings up to the stage of CBDT and Supreme Court.
Circular of the Board:
The circular of the Board dt. 28.06.1965 No. 17 (XL-36), provides for inspection fees and fees for certified copies of assessment and other records. This circular clears that the assessee or his A/R are entitled to inspect as well as obtain certified copies of assessment and other records records.
The circular also states that normally request for inspection or copies of assessment or other records  must be complied with  within three days of their receipt. In case of urgency the same must be complied on the same day on payment of double of normal fees as provided in the circular.
Relevant provisions of the Indian Evidence Act, 1872:
Section 35. Relevancy of entry in public record, made in performance of duty - An entry in any public or other official book, register or record, stating a fact in issue or relevant fact, and made by a public servant in the discharge of his official duty, or by any other person in performance of a duty specially enjoined by the law of the country in which such book, register or record is kept, is itself a relevant fact.
 Section 74. Public documents
The following documents are Public documents-
(i) Documents forming the acts, or records of the acts
(a) Of the sovereign authority,
(ii) Of Official bodies and the Tribunals, and
(iii) Of public officers, legislative, judicial and executive, of any part of India or of the Commonwealth, or of a foreign country.
1. Public records kept in any State of private documents.
Section  75. Private documents
All other documents are private.
Section 76. Certified copies of Public Documents
 Every public officer having the custody of a public document, which any person has a right to inspect, shall give that person on demand a copy of it on payment of the legal fees therefor together with a certificate written at the foot of such copy that it is a true copy of such document or part thereof, as the case may be, and such certificate shall be dated and subscribed by such officers with his name and his official title, and shall be sealed whenever such officer is authorized by law to make use of a seal, and such copies so certified shall be called certified copies.
Explanation - Any officer who, by the ordinary course of official duty, is authorized to deliver such copies, shall be deemed to have the custody of such documents or parts of the public documents of which they purport to be copies.
Application in relation to order sheets under tax laws:
In view of the above provisions of Indian Evidence Act  the order sheets are relevant evidence in connection with any assessment, penalty, appeal, revision, rectification or any other proceedings taken against assessee or concerned parties.
The order sheets are public documents within the meaning of S.74 of the Evidence Act as reproduced above.
Inspection and copy:
Inspection of order sheets can be made by assessee or his A/R. Therefore as per Evidence Act, certified copies need to be provided by the A.O. as and when a request is made by assessee. Assessee as a  party to proceedings have every right to inspect them and obtain copy of the same duly certified by the concerned officer as true copy of original record.
Rejections of application on flimsy grounds:
Recently it has been noticed that applications for certified copy are being rejected on flimsy grounds. For example, an application was rejected for want of payment of fees. This is wrong because the concerned officer has to give intimation for the fees payable and also provide a challan to enable the assessee to pay the fees.
In one case an application filed with paid challan for fees paid on estimated basis in view of urgency, the officer did not respond to the application for a considerable period. When another application ( as a reminder) was made, it was rejected for want of fees. When fact of fees already paid was brought to his notice he rejected application stating reason on lines that 'order sheets are made for interdepartmental purposes and cannot be provided to assessee'.
Thus we find that there is no consistency in the stand taken by the officer. When at first instance he rejected application for want of payment of fees, (though he did not notify the amount of fees and provided challan), his reason of rejection clearly implied that on payment of fees certified copies shall be provided.
Rejection may be considered as non-cooperation and harassment:
In view of the above discussion about provisions of the Evidence Act and also the circular of the Board it is clear that an  assessing officer must take immediate steps to notify fees payable and provide relevant challan to the assessee. Inspection and certified copies should be provided within three days from the furnishing of the evidence of payment of fees. In case the assessee require them on urgent basis, then he should make application on that basis and the A.O. should issue challan of double of normal fees on the same day and the assessee must be provided certified copies on the day on which evidence of payment of fees is provided. If the officer fails in these, it will amount to failure to perform duties properly and also will amount to disregard and disobeying instructions of the Board. Undoubtedly, so far the assessee is concerned he will definitely feel a strong pinch of non-cooperation as well as harassment by a public servant who acts as a master of public. 
Commitment to tax payers:
Instructions issued by the highest authority like concerned Board (e.g. CBDT, CBEC, Board of Revenue) to authorities which are in nature of commitments made by the Board or the Finance Ministry in Circulars or through websites and public announcements or in any other manner, to the tax payers in relation to  compliance of procedural instructions for convenience of tax payers, must be regarded as commitment to the public and must be complied with the concerned officers. However, it is noticed that in spite of clear instructions, many officers are found to defy them at many of the occasion. In many of the cases the assesses have to chase their applications and claim for refund if they want disposal. Otherwise their matters may be kept pending for a long time, at least till the limitation period, if any. We find several cases being heard and reheard but not disposed off, the reasons are not made known to the assessee for keeping maters pending. All these are not as per Boards Circulars and commitments made on the websites and in advertisement in form of Citizen's Charter etc.  
Taxpayer service review and audit:
Records and orders should be reviewed by senior officers. In fact an audit about failure of officers and office staff in non compliance of boards circular, policy decisions and binding judgments should be conducted by a specially trained audit party to conduct and submit a report entitled  " AUDIT REPORT ABOUT COMPLIANCE OF COMMITMENT AND SERVICE TO TAX PAYERS ".
The report on such matters should be furnished to concerned Chief commissioner and the Board. Any officer who do not comply with the instructions to authorities which are in nature of commitments made by the Board or the Finance Ministry in Circulars or through websites and public announcements or in any other manner   to the tax payers in relation to  compliance of procedural instructions for convenience of tax payers, must be charged for disobeying instructions and binding judgments, disobedience, failure in conduct as public servant, and delinquency and immediate suitable  action against erring officers must be taken.
The biggest advantage of a government servant is that his job, promotions and increments are almost secured. Even some repeated  adverse remarks in his annual confidential reports makes hardly any substantial impact on his carrier and growth.  The officers and staff  take fullest advantage of the same. They are 'public servants', but they consider themselves as master of public. If a complaint is made against them to their senior officers or in grievance cell, they find more reasons to harass the complainant. Experience shows that even a complaint against a peon or notice server may attract strong wrath of the entire office, including the officer. That is the reason that people prefer not to make complaint and are compelled to pay bribes in nature of speed money or fees for co-operation.  
High time to enforce public accountability:

In view of recent substantial increase in salary of government officers, it is high time to make them accountable to comply with the commitments to the public. Higher salary should be paid with more productivity and work efficiency and no corruption. But the situation is opposite. As usual higher the salary higher will be demand of bribes making it very difficult to get work done from public servants honestly.

Alternative : File an RTI 

Blog # 18. Protective Assessment Under Income Tax Act, 1961

In the Income Tax Act, 1961 (the Act), there is provision to make only ‘regular assessment’. As per section 2(40) of the Act, ‘regular assessment’ means the assessment made under section 143(3) or section 144. Again as per section 2(8) of the Act, ‘assessment’ includes reassessment; therefore, assessment made under section 143(3)/144/147 is also a ‘regular assessment’. Protective assessment is said to those assessments which are made to ‘protect’ the interest of the revenue. Now the question is whether there is any provision of ‘protective assessment’ in the Act. The answer is that there is no such provision in the Act. Then how can an Assessing Officer (AO) make such assessment and how is it tenable in the law? The AO is not to execute the Act alone; he is required to execute the Income tax law in its entirety. Income tax law includes i) the Act, ii) the Income tax Rules, 1962, iii) the circulars issued by the CBDT or other competent authority, iv) the instructions issued by the CBDT or other competent authority and v) the judicial pronouncements.
Income tax is a charge on income and not on any other thing. The person who earns the income or to whom the income accrues or arises is only to be assessed. When the AO isn't certain of the person whom the income belongs to, by the time it becomes certain, the assessment may get barred by limitation. In these circumstances the AO may proceed to complete the assessment on protective basis. In a leading English case, it was held that the AO cannot be expected to be a silent spectator of the uncertainty as the inherent power given to him in the law is to protect the interest of the revenue which will be frustrated if he fails to act within the time of limitation. This principle was reaffirmed by the judiciary in India.
In England the leading case on the ‘Protective Assessment’ is Attorney-General v. Aramayo & Others (1925) 9 Tax Case 445 (F). As a precautionary measure before the time limit expired, the Special Commissioners made an alternative assessment for 1917-18 on the company itself in the same amount as that previously made on the Local Board. This has been reaffirmed in Jagannath Hanumanbux v. ITO, (1957) 31 ITR 603 Cal, it was held that though there is no provision in the Act authorizing the levy of income-tax on a person other than ‘the assessee’, i.e., the person by whom the income-tax, etc. is payable, it is open to the income-tax authorities to make a ‘protective’ or ‘alternative’ assessment where, owing to litigation between the parties concerned in Civil Court or for other reasons, the person who is really liable to pay the tax cannot be finally determined by the income-tax authorities. There are various other case laws which recognize the protective assessment.
The demand raised by a protective assessment cannot be recovered. It is required to be stayed by the AO. Similarly there cannot be any penalty on protective assessment. After recording the facts and circumstances of the case and the reason for making the assessment on protective basis in the assessment order, the AO may write that the demand that is attributable to the protective income is being stayed till substantive assessment is made.

Insolvency Proffessional

Introduction

1. There are different classes of professionals in India: Lawyers, Chartered Accountants, Company Secretaries, Cost and Works Accountant etc. etc. Each one of them is registered, regulated and monitored by their own professional body. However, with the passing of Insolvency and Bankruptcy Code, 2016, a new class of professionals has come into existence who will be called as 'Insolvency Professionals'.
To understand the registration, role, position and responsibilities of Insolvency Professionals, we should first understand the main objectives and processes under The Insolvency and Bankruptcy Code, 2016 (hereinafter referred as 'Code'). The Code is a landmark legislation which subsumes various legislations dealing with corporate and non-corporate (individuals and partnerships) insolvency1. The Code received Presidential Assent on 28 May 2016 and is drafted on the recommendations of Bankruptcy Reforms Law Committee. The code has three-fold objectives. Firstly, to create an institutional framework, consisting of Insolvency and Bankruptcy Board, Insolvency Professional Agencies, Insolvency Professionals, Information Utilities and Adjudicating Authorities. Secondly, to facilitate time bound insolvency process and liquidation. Thirdly, to improve ease of doing business in India and also to set up a better and faster debt recovery mechanism in India2.
The Insolvency and Bankruptcy Board which is a body corporate having perpetual succession and common seal is the centralised regulator3 which is empowered to frame and issue regulations under the Code to regulate Insolvency Professional Agencies and Insolvency Professionals4. Insolvency Professional Agency is a professional body which is registered with Insolvency and Bankruptcy Board under section 201 of the Code5. The Institutes of Company Secretaries; Chartered Accountants; and Cost and Works Accountants have already registered them as Insolvency Professional Agencies through their subsidiaries6. The Insolvency Professionals are the professionals who are enrolled with the Insolvency Professional Agency and registered with the Insolvency and Bankruptcy Board7. They play the major role in carrying out all the processes before adjudicating authority for insolvency resolution or liquidation in case of corporate persons, or insolvency resolution or bankruptcy in case of non-corporate persons. The adjudicating authority in case of corporate person is National Company Law Tribunal and in case of non-corporate person is Debt Recovery Tribunal.
The Code is divided into five parts. First part is preliminary in nature. Part II deals with insolvency resolution and liquidation for corporate persons comprising seven chapters. Part III deals insolvency resolution and bankruptcy for individuals and partnerships (non-corporate persons) comprising seven chapters. Fourth part deals with regulation of insolvency professionals, agencies and information utilities comprising seven chapters. Fifth part is miscellaneous8.
The different processes under the code either lead to resolution of insolvency or initiation of liquidation in case of companies; or resolution of insolvency or initiation of bankruptcy proceedings in case of non-corporate persons (individuals and partnership firms). The process for insolvency under Part II of the code for insolvency resolution or liquidation of corporate persons can be initiated by financial creditor9, operational creditor10 or by the corporate applicant itself. The steps for initiating insolvency resolution varies in each case11. The insolvency resolution can be initiated by a financial creditor by filing an application along with the record of default and name of Insolvency Professional who is proposed to act as an interim resolution professional. The verification of application is done by the adjudicating authority and application is either admitted or rejected. Similarly, the corporate applicant can file an application along with the details of default and verification of application shall be done by the adjudicating authority. The application is either admitted or rejected after verification. However, the operational creditor has to first deliver a demand notice along with the copy of invoice demanding payment of amount involved in default. Corporate debtor can file a reply to such notice or pay within 10 days of the receipt of the notice. The operational creditor can then file an application with the adjudicating authority where no reply or payment is received from corporate debtor. The application is verified by the adjudicating authority and is either admitted or rejected. In either of the cases, once the application is admitted by the adjudicating authority, the insolvency process commences from the date of admission of application. There is a fixed time period within which insolvency resolution process has to be completed or else the company goes into liquidation.
The Insolvency Professional under Part II may be termed as either an Interim Resolution Professional (IRP) or as Resolution Professional (RP). Interim Resolution Professional is the professional appointed by Adjudicating Authority within 14 days from commencement of insolvency process either by itself or accepted by it if applicant has made proposal for name of Insolvency Professional. The Interim Resolution Professional may continue as Resolution Professional if his name is accepted by committee of creditors at its first meeting. The committee of creditors may also replace Interim Resolution Professional with another Resolution Professional.
Part III of the code which deals with insolvency resolution and bankruptcy for non-corporate persons contains two types of insolvency procedures. Firstly, by way of Fresh Start Process12 and secondly, by Insolvency Resolution process13. Under fresh start process, an eligible debtor14 who is unable to pay his debts can make an application to adjudicating authority either personally or through an Insolvency Professional. The application is either admitted or rejected after verification. Similarly, under insolvency resolution process, a debtor or any creditor can make an application for insolvency resolution to adjudicating authority either personally or through an Insolvency Professional which is either admitted or rejected after verification. In either of the cases, once the application is admitted by adjudicating authority, the insolvency process commences from the date of admission of application. If the insolvency cannot be resolved within a fixed time period, then bankruptcy proceedings are initiated.
It may be any process under Part II or Part III of the code, the Insolvency Professionals has a prominent place. This article deals with the different facets of Insolvency Professionals, inter alia, their qualification, duties, obligations and monitoring.

Scope of Profession

2. There are around 700 sick industrial company cases (covered by now repealed Sick Industrial Companies (Special Provisions) Act, 1985), 15000 Debt Recovery Tribunal cases (now subsumed under the Code), 5200 winding up / amalgamation cases pending. It is pertinent to mention that all these cases shall now be covered under the Code and the Insolvency Professional shall occupy the central stage in their processes. Further, a study has revealed that effective implementation of the Code can potentially release about Rs. 25,000 crores capital currently locked in non-performing assets over next four to five years15.


Registration of Insolvency Professionals

3. The registration of Insolvency Professionals is governed by section 207 of the Code read with Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 [hereinafter referred as 'Insolvency Professionals Regulations']. Every Insolvency Professional is required to obtain membership of any professional agency and then register himself with the Insolvency and Bankruptcy Board (hereinafter referred as 'board')16. The professional seeking registration with the board must fulfil eligibility, qualifications and experience requirements.
An individual is eligible to be registered as an insolvency professional if he: (1) is a major; (2) is a person resident in India; (3) possess qualification and experience requirement; (4) has not been convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered; (5) he is not an un-discharged insolvent, or has not applied to be adjudicated as an insolvent; (6) is of sound mind; and (7) is a fit and proper person. The fit and proper person is considered after taking into account criterion relating to integrity, reputation, character, competence and net worth.
An individual is said to be qualified and experienced if he: (1) has passed the National Insolvency Examination; or (2) has passed the Limited Insolvency Examination, and has fifteen years of experience in management, after he received a Bachelor's degree from a university established or recognized by law; or (3) has passed the Limited Insolvency Examination, and has ten years of experience as a Chartered Accountant, Company Secretary, Cost Accountant or an Advocate.
An individual who fulfils the eligibility, qualification and experience requirements has to make an application to the Board in Form A as mentioned in Second Schedule of the Insolvency Professional Regulations along with non-refundable application fee. The Board then inspects the documents submitted by the applicant. It may call for further information or additional documents to decide on the application. Once the Board is satisfied after inspection or inquiry as it deems necessary that the applicant is eligible, it may grant certificate of registration to the applicant to carry out activities of an Insolvency Professional. This certificate is issued in Form B as mentioned in Second Schedule of the Insolvency Professional Regulations. The time period prescribed for granting the certificate for registration is sixty days excluding the time given by the Board for representations17.
The Board has the powers to refuse granting of certificate for registration under Insolvency Professional regulations18. In such cases, the Board, prima facie forms an opinion after considering the application of an Insolvency Professional. The affected applicant is then given an opportunity to give explanations. The Board after considering the explanations of the applicant forms a final opinion and communicates it to the applicant.
In Re: ABC19, the Board took into cognizance the 'fit and proper' criteria to refuse granting of certificate of registration as there were three criminal cases pending against the professional enrolled with XYZ Insolvency Professional Agency. The three criminal cases were registered by the Registrar of Companies under section 58A(10) of the Companies Act, 1956 (1956 Act) for non-compliance of directions issued by Company Law Board under provisions of section 58A(9) of 1956 Act. The Board took strength from the SEBI regulations/Securities Appellate Tribunal (SAT) orders to hold that "It is thus clear that reputation and character of the applicant is a material consideration. What is material is what others feel about the applicant who has three criminal proceedings pending against him. It is also material what kind of association the applicant has with the Company which has been repeatedly contravening the provisions of the Act and ignoring several directions of the CLB and whom he was representing before the CLB for these contraventions. Does such a person inspire confidence of the stakeholders who can entrust him with property of lakhs of crores for management under corporate insolvency resolution process? Pendency of three criminal proceedings against the applicant adversely impacts his reputation and makes him not a person fit and proper to become an IP."
In another case20, the Board denied registration to a professional as he was engaged in some other employment. The Board formed an opinion that his employment shall create conflict of interest as the insolvency process has to be completed within a time period of 180 days which mandates time critical services to be rendered by the Insolvency Professional. Further, the Board held that engagement in some other employment shall violate Clause 23 of the Code of Conduct for Insolvency Professionals: "23. An insolvency professional must not engage in any employment, except when he has temporarily surrendered his certificate of membership with the insolvency professional agency with which he is registered."


Appointment

4. The appointment of a registered Insolvency Professional to a particular case under the Code varies from process to process. Under Part II of the Code, if the process for corporate insolvency is initiated by a financial creditor or the corporate debtor himself, then the appointment of Insolvency Professional is almost automatic provided that there is no disciplinary proceedings pending against the Insolvency Professional21. The financial creditor is bound to furnish the name of Resolution Professional proposed to act as an interim resolution professional22. The interim resolution professional may become resolution professional later on if his name is accepted by the committee of creditors. Similarly, a corporate debtor is also bound to furnish the name of resolution professional proposed to be appointed as an interim resolution professional23. However, an operational creditor while initiating insolvency proceedings may name a resolution professional as interim resolution professional. The Adjudicating Authority makes a reference to the Board if no proposal is made by the applicant. The Board is required to recommend the name of an Insolvency Professional against whom no disciplinary proceeding is pending.
Under Part III of the Code, there are two types of processes: (1) Fresh Start Process and (2) Insolvency Resolution Process. A Fresh Start Process may be initiated by an eligible debtor either personally or through a resolution professional. Similarly, insolvency resolution process may be initiated by a creditor or debtor either personally or through a resolution professional. In either of the cases, the Adjudicating Authority makes a reference to the board if the applicant has not named any resolution professional24. The Board is required to recommend the name of an Insolvency Professional against whom no disciplinary proceeding is pending.


Duties and Role

5. The duties of insolvency professionals can be studied separately for corporate persons under Part II and non corporate persons under Part III. The insolvency professional plays two roles under Part II: Interim Resolution Professional and Resolution Professional. The duties of Interim Resolution Professional are enshrined under section 18 of the Code. They are as follows:
(a) Collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to: (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified;
(b) Receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;
(c) Constitute a committee of creditors;
(d) Monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
(e) File information collected with the information utility, if necessary; and
(f) Take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including: (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority;
In addition to the above mentioned duties, the interim resolution professional has to perform other duties. The interim resolution professional makes a public announcement immediately after his appointment25. The contents of public announcement should be as per the provisions of section 15 read with Regulation 6 of Insolvency Professional Regulations. Thereafter, he has to manage the affairs of corporate debtor. All powers of the board of directors are exercised by the interim resolution professional26. He has to manage the corporate debtor as a going concern27. The interim resolution professional after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors28.
The duties of resolution professional are enshrined under section 25 of the Code. They are as follows:
(a) Take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b) Represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;
(c) Raise interim finances subject to the approval of the committee of creditors under section 28;
(d) Appoint accountants, legal or other professionals;
(e) Maintain an updated list of claims;
(f) Convene and attend all meetings of the committee of creditors;
(g) Prepare the information memorandum in accordance with section 29;
(h) Invite prospective lenders, investors, and any other persons to put forward resolution plans;
(i) Present all resolution plans at the meetings of the committee of creditors; and
(j) File application for avoidance of transactions.
Where the Adjudicating Authority passes an order of liquidation of the corporate debtor, the resolution professional appointed for insolvency resolution process acts as liquidator unless replaced by the adjudicating authority29. The insolvency professional acting as liquidator also performs various functions as enshrined under section 35 of the Code.
Under Part III, insolvency professional has an important role to play in both Fresh Start process and Insolvency resolution process. The insolvency professional may make an application to adjudicating authority. After his appointment, he submits a report recommending for approval or rejection of application. Insolvency professional registers the claim of the creditors and prepare a list of creditors. He conducts the meetings of creditors, submits repayment plan and supervises the implementation of the repayment plan. Where the adjudicating authority passes an order of bankruptcy for non-corporate persons, the insolvency professional may act as bankruptcy trustee30.


Code of Conduct and Other Obligations

6. The Insolvency Professionals are bound to abide by the Code of Conduct as a condition to the certificate of registration31. The First Schedule to the Insolvency Professional Regulations contains the Code of Conduct which must be observed by Insolvency Professionals. The focus areas of this Code of Conduct are: (1) Integrity and objectivity; (2) Independence and impartiality; (3) Professional competence; (4) Representation of correct facts and correcting misapprehensions; (5) Timeliness; (6) Information Management; (7) Confidentiality; (8) Occupation, employability and restrictions; (9) Remuneration and costs; and (10) Gifts and hospitality.
In addition, Schedule attached to the Insolvency and Bankruptcy Board of India (Model Bye Laws & Governing Board Insolvency Professional Agencies) Regulations, 201632 lays down some other obligations of the Insolvency Professionals: (1) Act in good faith in discharge of his duties as an insolvency professional; (2) Endeavour to maximize the value of assets of the debtor; (3) Discharge his functions with utmost integrity and objectivity; (4) Be independent and impartial; (5) Discharge his functions with the highest standards of professional competence and professional ethics; (6) Continuously upgrade his professional expertise; (7) Perform duties as quickly and efficiently as reasonable, subject to the timelines under the Code; (8) Comply with applicable laws in the performance of his functions; and (9) Maintain confidentiality of information obtained in the course of his professional activities unless required to disclose such information by law.


Remuneration

7. The Code does not prescribe any fixed or specific remuneration or fee for Insolvency Professionals. The professional has to make objective assessment of his own33. The Code of Conduct for Insolvency Professionals provides some principles for charging fee by the professionals: (1) An insolvency professional must provide services for remuneration which is charged in transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations; (2) An insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration; and (3) An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.
However, the manner to determine fee payable to Insolvency Professionals acting as liquidator in case of liquidation has been prescribed34. The committee of creditors may fix the fee payable to liquidator before a liquidation order is passed under sections 33(1)(a) or 33(2) of the Code. In all other cases, the liquidator is entitled to a fee as a percentage of the amount realised net of other liquidation costs, and of amount distributed as prescribed under Regulation 4. The fee payable to the liquidator forms part of the liquidation cost.


Opportunities for Professionals

8. The Insolvency and Bankruptcy Code, 2016 has opened up plethora of opportunities for professionals. The professionals who were dealing with corporate matters like winding up, restructuring, debt recovery are gearing up to become Insolvency Professionals. The Insolvency Professionals can do various ancillary work arising out of the Code. Deepak Jain35 in his write up on opportunities for professionals under the Code has highlighted various ancillary works which can be done by professionals: (1) Working out voting share or voting rights of the lenders / creditors; (2) Valuation of securities held by lenders / creditors at the time of making application; (3) Valuation of assets including properties, stock, securities at the time of making of resolution plan, liquidation etc.; (4) Drawing the information memorandum and resolution plan; (5) Advisory and Due Diligence services; (6) Opportunity to run as Information Utility centres.


Conclusion

9. From the above discussion, it can be noticed that the Code has opened up plethora of opportunities for Insolvency Professionals. However, the profession of Insolvency Professionals is full of challenges. It requires a high standard of integrity and morality. Only senior professionals having an experience of 15/10 years are required for the profession. The effective role of Insolvency Professionals calls for multiple skills in the field of finance, people management, court procedures, stakeholder management, business dynamics, strategic foresight and business valuation36. The Code lays down two-tier structure for strict regulation of the insolvency professionals – (1) Insolvency Professional Agencies and (2) Insolvency and Bankruptcy Board of India. Be it as it may, the single codified law for corporate insolvency is still in infancy. The regulator and other functionaries have to stand the test of time.



1. Deepak Jain, "The Insolvency and Bankruptcy Code, 2016 - An Analysis and Opportunities for Professionals under the Code," Chartered Secretary, March 2017, pp. 38-42.
2. Rakesh Wadhwa, "Insolvency and Bankruptcy Code, 2016," Chartered Secretary, September 2016, pp. 23-28.
3. See generally, Chapter I of Part IV of the Insolvency and Bankruptcy Code, 2016 (herein after referred as Code of 2016 or Code).
4. Code of 2016, s. 240
5. See generally, Chapter III of Part IV of the Code.
6. ICSI Insolvency Professionals Agency; Indian Institute of Insolvency Professionals of ICAI; and Insolvency Professional Agency of Institute of Cost Accountants of India.
7. Code of 2016, ss. 206 and 207.
8. See generally, Code of 2016.
9. Ibid., s. 5(7): Financial Creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.
10. Ibid., s. 5(20): Operational Creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.
11. Mahesh A. Athavale and Anagha Anasingaraju, "Opportunities for Company Secretaries under the Insolvency and Bankruptcy Code, 2016," Chartered Secretary, September 2016, 88-92.
12. Code of 2016, s. 8.
13. Ibid., s. 94.
14. Ibid., s. 80(2). Eligible debtor is a person who fulfils the conditions laid down under section 80(2).
15. ASSOCHAM and CRISIL, "Insolvency and Bankruptcy Code 2016: A Game Changer," 2016.
16. Code of 2016, s. 207.
17. Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, Regulation 7.
18. Ibid., Regulation 8.
19. Re: ABC, Insolvency and Bankruptcy Board of India, 14 March 2017.
20. Re: ABC, Insolvency and Bankruptcy Board of India, 02 March 2017.
21. D K Prahlada Rao, "Role & Responsibility of Insolvency Professionals under the Code – An Analysis," Chartered Secretary, March 2017, pp. 21-23, at p. 21.
22. Code of 2016, s. 7(3)(b).
23. Ibid., s. 10(3)(b).
24. Ibid., s. 97.
25. Ibid., s. 13.
26. Ibid., s. 17.
27. Ibid., s. 20.
28. Ibid., s. 21.
29. Hemant Sharma, 2017, p. 58.
30. Code of 2016, s. 125.
31. Insolvency Professional Regulations, Regulation 7(2)(h).
32. Part VII: Duties of Members, Schedule, Insolvency and Bankruptcy Board of India (Model Bye Laws & Governing Board Insolvency Professional Agencies) Regulations, 2016.
33. Alka Kapoor and Lakshmi Arun, 2017, p. 31.
34. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, Regulation 4.
35. Deepak Jain, 2017, p. 41.
36. Alka Kapoor and Lakshmi Arun, 2017, p. 31.

Whether Income Tax can be Abolished ?

Income Tax Vs. Bank Transaction Tax

  • There are excellent arguments in favour of abolishing the income tax in India. Given the chaos that surrounds the system currently, the leakage, it doesn't even pass the usual equity desires of making sure that the richer people carry a larger part of the tax burden and as we all should know an income tax is an inefficient method of taxation to boot. So, the start of this idea is just fine, that perhaps India should cut through the Gordian Knot by just abolishing that income tax system altogether.
  • However, there is then the question of where to gain that necessary revenue from in the absence of that taxation system. And that's where this idea fails and fails horribly. A bank transaction tax--any transaction tax in fact--would be far worse than even the current income tax system. Plus, of course, a bank transactions tax would push everyone back into the cash and black money economy we've all just spent so much time and effort trying to destroy.
  • So, good marks for describing the problem, none at all for the solution: The most damning evidence of evasion was the fact that out of 7.6 million individuals who declare incomes above Rs 5 lakh, 5.6 million are in the salaried class, for whom the taxes are deducted at source. Clearly, it cannot be the case that India has only two million businessmen and self-employed people who earn incomes above Rs 5 lakh. Tax evasion is rampant in the country and is especially high among the non-salaried class.
  • That's the evidence of the failure of the current system. As Adam Smith remarked there's nothing wrong, indeed much just about, with insisting that those with higher incomes should carry a more than in proportion burden of the tax system. Thus we're just fine with the general concept of a progressive income tax. Yet as we can see the current system isn't in fact progressive, we all know that the salariat is making less than those (at least, some of those) running their own businesses but it's the salariat paying the income tax. Thus we fail that equity test of the tax system.
  • Once we've agreed that then we want to go and look at the efficiency of the system. And India's tax system is not greatly known for that in any manner. However, in economic terms we do have a spectrum of taxes, from high efficiency to low. That spectrum runs land value tax, consumption tax, income tax, capital and corporate tax, transactions taxes.
  • For those who don't quite get the jargon here, a consumption tax is a sales tax, perhaps a VAT like the GST just coming. Yes, it's collected upon transactions but a sales tax is once only at the retail point, a VAT (or the GST) is collected in stages but it amounts to just the one rate in total at that retail point. A transactions tax is quite different, it's a tax on each and every transaction. Say it was of 1% on each transaction, just to invent a number. So, the miller buys the wheat from the farmer, 1% is paid, the miller sells the flour to the baker, 1%, the baker to the shop, 1%, the shop the bread to the consumer, 1%. But now think about a more complex and possibly more efficient economy. The farmer to the grain trader, the grain trader to the miller, the miller to the flour trader, the trader to the baker, the baker to the wholesaler, the wholesaler to the shop and so on. We've more transactions and thus more tax points and thus more tax being paid upon the same process, turning wheat into bread.
  • Say the VAT or GST or sales tax on bread was 10%. The consumer would be paying 10% whatever the system, however many transactions there were in the process of bringing the bread to where it may be eaten. A transactions tax charges different amounts dependent upon how much division and specialisation of labour we've got in that supply chain. Worse, the more we have the more the tax rate is in total. And that's really not something we want to do, tax the division and specialisation of labour, that's the very thing which makes us richer (Adam Smith again).
  • Transactions taxes are thus a very bad idea. They're worse than other forms of taxation in terms of efficiency. But the suggestion is that instead of the income tax we should have a transactions tax:
  • Also, a loss of over Rs 3 lakh crore that the move would entail can be easily replaced with much more efficient mechanisms. A banking transaction tax can be considered. A small tax on any banking transaction in an economy can vastly increase the government's tax base and revenue compared to the current inefficient method.
  • No, that's much more inefficient, a terrible idea. We want to move left along our spectrum, to more efficient taxes, not right to less. Raise the level of the GST perhaps, have a land value tax maybe, but replacing an income tax with a bank transactions tax is not something we want to do.
  • Quite apart from anything else we get less of whatever it is that we tax. And we've just gone through great pain to encourage people to stop using cash and use banks instead. Taxing bank transactions would entirely reverse that, wouldn't it?

Blog # 15. Metamorphosis : The New Tomorrow ~ Digital & Forensic

A unique IT National Conference : “Metamorphosis : The New Tomorrow ~ Digital & Forensic", hosted by Ahmedabad branch of WIRC of ICAI is all set to become premier gathering in the area of IT audit / assurance, Security & Control Professionals IT risk management, Governance, Forensics and just about anyone interested in Topics like Digital Currency, ERP for SMESs MSMEs, Big Data, Money Laundering, Forensics, Digital Footprints, IOTs etc.

It will be a Happening Event of Knowledge, Opportunities, Learning, Wisdom, Live Demonstration and Case Studies, with best of the best Speakers from the Country. Don’t forget to spread the word.

This Round Table Conference is set to be held on 11th & 12th August, 2017 @ Golden Glory Hall – Karnavati Club, Ahmedabad.

For more details & Registration visit :

Blog # 14. All about Aadhar Privacy Case

  • The Supreme Court today observed that it is nearly impossible to define privacy, which is not absolute and the state cannot be prevented from imposing reasonable restrictions on citizens, according to a report by The Hindu. The nine-judge bench of the apex court, which is looking into the limited matter of right to privacy, attached to the Aadhaar case, also observed that any attempt to define privacy may cause more harm than good. The hearing in the privacy matter will continue on the second day tomorrow.
  • The petitioners today put forth a statement by Finance Minister Arun Jaitley, which he had given in the parliament while moving the Aadhaar Bill. “The present bill presupposes and is based on a premise, and it’s too late in the day to contest that privacy is not a fundamental right. Privacy is not an absolute right, which is subjected to a restriction established by law on a fair and just procedure,” Jaitley had said.
  • In past, the Apex court has held that right to privacy is not a fundamental right. On Tuesday, however, the Supreme Court observed, “In a Republic founded on a written Constitution, it is difficult to accept there is no fundamental right to privacy.” The court’s observation put a put a question mark on the government’s apparent efforts to make Aadhaar mandatory for access to a number of state-sponsored doles and services as well as for taxation and other aspects of regulatory governance. The court also formed a nine-judge bench headed by Chief Justice J S Khehar to decide on the privacy debate.
  • The top court on Tuesday also said that the larger bench would examine the correctness of the two judgements delivered in the cases of Kharak Singh and M P Sharma in which it was held that right to privacy was not a fundamental right. While the Kharak Singh judgement was delivered by a six- judge bench in 1960, the M P Sharma verdict was reported in 1950 and was delivered by an eight-judge Constitution bench, according to PTI.
  • The nine-judge bench also include justices J Chelameswar, S A Bobde, R K Agrawal, Rohinton Fali Nariman, Abhay Manohar Sapre, D Y Chandrachud, Sanjay Kishan Kaul and S Abdul Nazeer.

Blog # 13. Hon’ble Gujarat High Court raps RBI for giving Directions to NCLT

The Hon'ble Gujarat High Court today rebuked the Reserve Bank of India for asking the National Company Law Tribunal in its June 13 directive to give priority to the insolvency proceedings against companies with huge debts.
It also questioned the functioning of the central bank.
The bench of Justice S G Shah came down heavily on the RBI for stating in its press release dated June 13, 2017 that the Insolvency and Bankruptcy Code (IBC) proceedings against companies with outstanding dues of more than Rs 5,000 crore “will be accorded priority by NCLT.”
Essar Steel had moved the high court challenging the RBI order to banks.
The court also questioned the “functioning” of the RBI for its decision to issue the press release in which it had directed banks to initiate insolvency proceedings against defaulting companies.
“The RBI has to be careful while issuing press releases, it must be in consonance with the Constitutional mandates, based upon sound principles of law, but in any case should not be in the form of advise, guidelines or directions to judicial or quasi-judicial authorities in any manner what so ever,” the court said in its order.
Further reacting to the central bank’s submission that it has no document on record based on which the decision to issue press release was taken, the court said, “This goes to show the manner in which the RBI is functioning, in as much as there is a press release even without a decision at certain level that press release is to be published and what should be included in such press release.”
“This is also an equally serious issue. It has been conveyed to the respondents that on such disclosure that there is no other document, pursuant to such disclosure, now, they would be debarred from relying upon any such document, if any,” it added.
The court interpreted RBI’s statement in its press release that “such cases (for insolvency proceedings) will be accorded priority by the NCLT” that the tribunal “has to give priority to cases filed by the directives of RBI against the cases, which are filed by other creditors or petitioners before the NCLT.”
The RBI even tendered an apology to the court saying that the statement was made due to “poor drafting” of the press release, and even issued corrigendum on July 8, to delete the line.
Through in a press release dated June 13, the RBI had directed banks to launch IBC proceedings against companies with outstanding dues of more than Rs 5,000 crore, and for other NPAs, banks should finalise resolution plans in the next six months.
During its submissions, the central bank had apologised from the court for issuing that statement in the press.

Essar Steel had moved the high court seeking the court’s direction to quash the RBI’s direction to the banks to initiate insolvency proceedings against it.

Blog # 12. Half Monthly Digest (Income Tax) - July 2017

In this edition, we have analysed few orders. A very brief catch note of the related section of The Income Tax Act, 1961, indicates the contents of the order. For reading the whole order, click on the hyperlink attached with the name of the order.

S.221(1). Penalty u/s 221(1) cannot be levied on the interest component charged on “tax”.




221(1) – Penalty u/s 221(1) cannot exceed the amount of “Tax in arrears”


S.37(1). Predevelopment expenses which are directly identifiable with the operations and maintenance of existing business shall be treated as revenue expenses, irrespective of treatment given in the books of accounts.




44AA. Separate books of accounts would be justified only when several distinct business are carried on and not when several business activities are carried on within the same business.



S.68. Where the assessee during the course of assessment proceedings, produced all the documentary evidences to prove identity, genuineness and creditworthiness of share applicants, addition u/s 68 of the Act cannot be made on the ground that the appellant could not produce share applicants in person.



Disclaimer:  The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we have taken due care and precautions in providing accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Errors can occur. We assume no liability or responsibility for any errors or omissions in the contents contained herein neither does it give any guarantee of completeness, accuracy or timeliness. The information and data contained herein may be used at your sole risk after ensuring its accuracy, correctness or completeness.

Quotes : 
Everybody pities the weak, Jealousy you have to earn

Blog # 11. Attachments under Prohibition of Benami Propert Tranactions Act, 1988 and Initial Response

Under the provisions of Prohibition of Benami Property Transactions Act, 1988, the attachments are made as per the provisions of Section 24 by an Initiating Officer. 
Who are Initiating Officers ?
As per Section 2(19) of Prohibition of Benami Property Transactions Act, 1988, initiating officer means an Assistant Commissioner or Deputy Commissioner as defined in clause (9A) and (19A) respectively of section 2 of the Income Tax Act, 1961.
As per Section 2(9A) of the Income Tax Act, 1961 , "Assistant Commissioner" means a person appointed to be an Assistant Commissioner of Income-tax  [or a Deputy Commissioner of Income-tax] under sub-section (1) of section 117;] And As per Section 2(19A) of The Income Tax Act, 1961, "Deputy Commissioner" means a person appointed to be a Deputy Commissioner of Income-tax under sub-section (1) of section 117;
Accordingly, proceedings under The Prohibition of Benami Property Act, 1988 as amended by the present Modi Government can be initiated by an Assistant Commissioner or Deputy Commissioners of Income Tax. After receiving evidences/material against the benamidar or beneficial owner, if the initiating officer has reasons to believe that the case falls within the purview of Prohibition of Benami Property Transactions Act, 1988 then :-
( 1 )    Record reasons in writing that any person is a benamidar.
( 2 )    Issue notice u/s 24(1) of the Act to the Benamidar asking as to why the property should not treated as benami property.
( 3 )    Notice to Beneficial Owner as well if his identity is known.
( 4 )    If Initiating officer feels that the person who is in possession of Benami Property may alienate such property, then he may attach such property. Procedure of Attaching such property:-
Step No.1         à Previous Approval from Approving Authority.
Step No. II.  à Pass Provisional Attachment Order attaching such Benami property for a period of maximum of 90 days from the date of issuing notice to benamidar.
( 5 )     Thereafter he makes such inquiries, calls for reports or evidences as he deems fit and taking in to account all the materials, if he opines that the property is benami then he may continue such provisional Attachment beyond a period of 90 days or attaches the property if the same has not been attached before 90 days of issuing notice u/s 24(1) of the Act, after :-
Ø  Taking prior approval of Approving Authority.
Ø  Has to again pass an order continuing the provisional attachment. The same shall continue till the time specified in such order or till the order is passed by the Adjudicating Authority.
Ø  Draw up statement of the case and refers it to the Adjudicating Authority.
Or

Revokes provisional attachment after passing an order in writing after taking approval from Approving Authority if he is satisfied that the transaction

Initial Response to be taken if you receive notice u/s 24(1) of the Act :-
( 1 )    Request Initiating Officer to provide materials against you.
( 2 )    Request for the reasons recorded for initiating the proceedings.

Initial Response to be taken in case of proceedings before the Adjudication Authority :
Request for the Case Statement submitted by Initiating Officer.