C.V.O. CA'S · Interestingly books talks that what makes our brain Happy leads to errors, biases...

NEWS & VIEWSFOR MEMBERS / SUBSCRIBERS / VOL. 23 - NO. 8- MARCH 2020

From President's Desk...Dear Professional Colleagues and Readers,

CA Sanjay Visanji Chheda

Thank you all..... Always in Gratitude

C.V.O. CA'S

Follow us on , , LinkedIn@cvocain Join Yahoo group : [email protected]

“What makes Your Brain Happy and Why You should do the Opposite”. Last week, while surfing on the internet, came across a book by David DiSalvo with aforesaid title. Yet to go through the book, but summary of book is something like

“What Your Brain wants is frequently not what Your Brain NEEDS”

How much true or how far proved scientifically is all subject to studies, surveys, research and so on and so forth. Interestingly books talks that what makes our brain Happy leads to errors, biases and distortions.

But what I liked is novel thinking. Something out of box which easily fits in logic. Broadly, it all revolves around Comfort Zone. What brain wants is Comfort Zone whereas what brain needs is slightly out of this Comfort Zone.

Same thing applies to all of us in each and every phase of life, whether personal or professional. We all are used to first find and then stay within our Comfort Zone, which is dangerous for one's individual growth as well as growth of society, economy as well as universe as a whole.

Recently while listening to some prominent speaker on GDP, one simple thing which was explained in his speech was real growth will come only out of inventions, innovations and disruptions. None can grow while remaining within its own cocoon. If one has to grow, if society has to grow, if Country has to grow, one needs to take calculated risks and tread out of his Comfort Zone. So let's try to know our Comfort Zone and then try breaching it with calculated risks.

Events in retrospect

Between last communication and this communication, lot many things have happened. Union Budget, a longest speech by Finance Minister, which is new record, whole new rate of taxation for individual opting to forego various exemptions, deductions.

CVOCA had its Publication in Gujarati and English which was well received by readers. CVOCA also had Public Program on Union Budget at King George Auditorium which was all House Full event, well received by 600 plus audience for Capital Market as well as Income Tax Provisions. CVOCA also had local meeting at Ghatkopar, which was well received and attended by more than 125 participants.

This month, CVOCA also lost one of its finest leader, Past President Hiten Liladhar Gada, who was always a phone call away for any sort of help in Income Tax or GST queries, always ahead in sports, singing and various other events of CVOCA. With his sad demise, CVOCA has suffered a huge loss. We at CVOCA deeply mourn his demise and pray to lord to give him Param Shanti at the earliest.

Upcoming Events:

CVOCA has planned a Public Program in Hindi / English for Society at Large on “How India can become Economic Super thPower” on Saturday, 11 April 2020 at Yogi Sabhagruh. We look forward to see you all in huge numbers to listen to lucid, free

flow by eminent speakers.

Latest issue of CVOCA News & Views

By the time, you all will receive and start reading this News & Views, we all would have finished all our refresher course and now would be gearing up for Bank Audits. Lot many things have happened over last few months. Due to various factors including latest one COVID-19, also known as Corona Virus, many economies across universe are going to take hit. Industries at large will be hit due to its direct effect on consumption, tourism, trade across borders. All these is going to have impact on entire economy including industries which are clientele of Banks which we are going to audit. Let's remain extra vigil, alert and use all our expertise and prudence while moving our pen for concluding LFAR.

We, at CVOCA, hope and wish that present issue which broadly covers many facets of Bank Audit will help members in better understanding of most evolving banking industry. Wish you all Happy, Interesting and Helpful Reading.

February 29th, 2020.

FROM THE DESK OF CHAIRMAN

NEWS BULLETINNEWS BULLETINCOMMITEECOMMITEE

PresidentCA Sanjay Visanji Chheda

Chairman CA Hasmukh Bhavanji Dedhia Convenor CA Parin Dinesh Gala Jt. Convenor CA Umang Lalit Soni Sp. Invitees CA Rakesh Maganlal Vora

Members CA Dharmi Mulchand Kenia CA Hitesh Keshavji Pasad CA Kunjesh Raju Shah CA Nihar Suresh Dharod CA Nisha Ninad Gala CA Priten Bhupendra Shah CA Ankur Kishor Sangoi CA Nainit Digesh Savla

CONTENTSCONTENTS

CA Hasmukh Bhavanji Dedhia

ASSOCIATIONASSOCIATION

C.V.O. CA'S NEWS & VIEWS

Upcoming Events .........................3

Events in Retrospect...............3 & 4

Bank Audit ‐ Audit Planning ..........5Areas to be caution.

Audit of Advances ........................9

Audit Through ............................14Core Banking Solutions

Gmail Tricks.................................23Everyone Should Know! Brief Update On

SEBI & Corporate Law.................28

FEMA Updates............................31

RERA Updates.............................34

Direct Taxes Law Updates ...........36

GST Updates ...............................39

VOL. 23 - NO. 8 - MARCH 2020

2

What's Ailing Commercial Banking in India India's banking sector is passing through challenging times like never before. With gross NPA's hovering around 12% (for PSU Banks it may be higher, around 14%), credit growth stagnating over last about a decade, CASA not being too favourable and numerous scams getting exposed, tough times are likely to last longer.

So, what's ailing this sector?

The public ownership of most banks and 'populist' loans, especially to the agriculture sector, are often cited as causes of the current impasse

The dominant classes such as rich farmers and industrial capitalists have had a dismal record of defaults and non-repayments of loans despite availing subsidised credit

The role of commercial banks as providers of business funds and

working capital finance got blurred and Banks ended up providing

project finance with long gestation.

Most Development Financial Institutions (DFIs) got themselves converted

into or begun to play role of commercial banks; roles/objectives got mixed

up and long-term or short-term finance increasingly lost relevance,

particularly because PSU banks were made to invest huge in infra

projects

Over the years, this resulted in 'asset-liability mismatch' (ALM) being

ignored for constant monitoring and PSU Banks remained less

capitalised

As a result, resources of the PSBs began draining; profitability was

jeopardised, and politicisation of its management eroded operational

autonomy and efficacy

One major factor, less spoken about, is terrible lack of developed bond

market in India, which could have lessened the burden on bank credits to

a large extent. The share of bonds in India's total corporate debt is a mere

8%; the efforts to develop a competitive fixed income segment largely got

stacked in working papers and reports

Whilst most of the above causes still subsisting, business failures of banks or compromising with credit appraisals and inadequate risk assessment is no wonder.

The statutory and branch auditors of Banks have mammoth task to report the red flags in the given scenario within extremely limited timelines. Bank Branch auditors would be well advised to be technically sound with minute planning of resources and use intensified professional scepticism in course of their engagement.

- CA Hasmukh B Dedhia


3

Event In Retrospect - Programme Committee

VOL. 23 - NO. 8 - MARCH 2020

Forthcoming Event - Programme CommitteeHow India can become Economic Super Power ?

Speaker : Dr. Subramanian Swamy

(Member of Rajyasabha & Economist) Eminent Speaker from Industry

Topic Time Speaker

Impact on Capital

Market

09.30 AM to 11:00 AM

CA Nilesh Shah

Direct Taxes Analysis 11.00 AM to 12:30 PM CA Nitin Maru

Union Budget 2020

Date : February 8, 2020

Time : 9.00 AM to 1.00 PM

Venue : King George, Matunga

Union Budget 2020

Jointly with Shree Ghatkopar Kutchi Jain

Shwetambar Murtipujak Jain Sangh

Date : February 8, 2020

Time : 6.00 PM to 8.30 PM

Venue : Ghatkopar

Topic Speaker

Direct Tax Analysis CA Ketan Gada

Impact on Capital CA Sudhir Bheda

Date : April 11, 2020 Time : 5:30 PM OnwardsVenue : Yogi Sabhagruh, Dadar

Attendance - 600

The accountancy profession lost one of its leading lights when Past President of CVO Chartered & Cost Accountants’ Association, CA Hiten Liladhar Gada passed away on 13th February 2020 in Mumbai at the age of 56 years. He was President of the CVOCA during the year 2001 - 2002.

Late CA Hiten Liladhar Gada was an active member of the profession. He was widely known for his core simplicity, love for sports, cheering nature and always smiling face. The whole profession stands by the aggrieved family of Late Hiten Liladhar Gada on this irreparable loss and prays for the peace of the departed soul.

Attendance - 150

SAD DEMISE

C.V.O. CA'S NEWS & VIEWSVOL. 23 - NO. 8 - MARCH 2020

Career Guidance Session

CVOCA arranged a panel discussion on career guidance for Chartered Accountants qualified in last 3 years on

January 28, 2020. This session was primarily arranged to guide qualified CA's in the area of Practice, Big

Accounting Firms, Industry, and Equity research. The program was well applauded by about 40 budding

professionals.

Thanks to our Panelists & Moderators – CA Atul Bheda, CA Jignesh Kenia, CA Paras Nagda, CA Bhavesh

Dedhia and CA Ketan Saiya, who shared their experiences & expectations from the employer's side so that

young professionals can take right actions to sharpen the required skill sets and execute appropriate

decisions. Special Thanks to CA Priti Savla, Chairperson of WIRC, ICAI for sparing time & sharing views from

Institute with the young CA's.

Event in Retrospect – Membership & Recreation Committee

CVOCA Family Picnic 2020

A Family picinic was organised at Zaverben Poptlal Cenetorium at Lonavala from February 21-23, 2020 and

was attended by 18 families.

Like all CVOCA picnics, all enjoyed this picnic including unique games like Treasure Hunt inside the

Cenetorium. All members took part in games irrespective of age. The families created new memories which

shall be cherished by them for a very long time.

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VOL. 23 - NO. 8 - MARCH 2020

This article covers limited aspect audit planning and caution areas for Bank Branch Statutory Audit.

Banking business in India has been new age banking with variety on online products, instant transactions

through mobile applications. Technology has played vital role in all business so as in banking also. New age

banks do maximum of their business without customer being visiting to bank branch physically. Credit has

also undergone sea change, with greater transparency about borrower through credit rating of an individual

by agencies such as CIBIL and for trade other credit rating agencies certifying credit worthiness of a borrower.

Growth and fall of any business is too fast and hence bank as lender needs to know clients financial position

concurrently. Age-old system of submissions of documents monthly / quarterly submission of data to bank

will not work with but bank must be aware of financial position / market position of the borrower on real time

basis. In absolute terms, NPAs figures have doubled in last 2-3 fiscals. The manufacturing sector is not performing

well, service sectors too are under pressure for margin. Software / ITES which is major export revenue earning

sector has not done good also sector like airline / insurance are still to stabilize in India. In turn there is

pressure of recovery of such loans and threat of advances becoming Non Performing Asset (NPA). Overall

recovery of advances is delayed and it is strictly not as per schedule. In such weak cases, the banks are

aggressive in follow up for recovery and latterly counting 90 days time line so the account does not turn out to

be NPA. This scenario has led pressure on we as auditor to verify the status of the accounts and take a call

whether a particular account needs to be classified as NPA or not.

Recent fall of one more large co-operative bank and huge amount of fraud in Non-fund base advances have

posed challenges before audit fraternity and it made them think to be watch dog or blood hound. In real sense

we need to do audit or investigation is big question when we see expectations from auditors by member of

public at large, media and government agencies.

In bank audit, we need to plan very well so we are able to carry out audit effectively. There are various acts

applicable in bank audit but we must be updated with RBI guidelines / master directions/ circulars. All related

circulars/ master directions are available on Reserve Bank of India's website i.e. www.rbi.org.in.

I feel bank branch audit can be divided in following stages:

Stage I - GROUND WORK AT OFFICE

Obtaining Basic Information from Appointment Letter & over Telephone:

We need to obtain basic information such as size of branch, Deposit, Advances and nature of business

carried like whether or not branch is having forex business. Also whether branch is a specialized branch

or not such as service Branch or not?

Audit program and plan, no of persons to be deployed etc. will depend on above factors.

Send the letter of acceptance of audit and other letter like declaration like letter of fidelity and secrecy.

Above draft, letters are normally provided along with appointment letter. Such draft letters were available

in earlier version of ICAI Guidance note also.

Bank Audit Audit Planning, Areas to be caution.

Compiled by:

Hardik Ketan Saiya CA Ketan Damji Saiya

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Issue Intimation letter along with Requirement letter.

We can send intimation letter along with letters given hereunder for requirements.

Send Draft representation letter in Advance.

We need to send representation letter to the bank branch management in advance so they can keep it ready

from their side.

Study Latest RBI circulars / Master direction

Before we go to audit, we should update our self with all the latest pronouncement relating to banking

including circulars and master directions of Reserve bank of India.

Stage II - GROUND WORK AT BRANCH

Obtaining the list of books maintain by the branch / Reports generated by computer system.

When we reach branch we should enquire for all records and books maintained by the bank and also we

should ask about various reports which are generated by the CBS system. We should study error reports

that are generated by the system while year-end closing of the accounts.

Obtain latest reports i.e. auditors and internal reports to H.O.

We should study and obtain all latest auditors' report such as previous year's statutory audit report,

internal audit report, concurrent audit report, head office inspection reports, revenue audit report, RBI

Inspection Audit Report. We should list out all major irregularities reported in this reports and suitably

modify our audit program as per the irregularities noted. We need to study how these irregularities are

rectified by bank.

Obtain monthly average of advances and deposits and interest earned and paid on the same for current

year and previous year.

This works really well. We are able to analyze major income and expenses of bank branch. If there any

deviation as compare to previous year, we should ask for justification for the same. However, we can do

data analysis in various other manners by ratio analysis, comparative data etc.

Review accounting policies and auditors report of the bank.

To understand accounting policies which are being followed at macro level by the bank, we should ask for

bank as whole annual report copy and study the same. Qualification (if any) at bank as whole level can be

examined at for branch level.

Obtain H.O. circulars/guidelines of CSAs

We should obtain bank circulars from head office for closing as well as normal circulars like for change in

interest rates etc. Now-a-days all banks are hosting the internal circulars on their intranet.

Prepare / Amend Audit programme

After study all above we should amend the audit program suitably as per the need of the branch work and

risk detected out of above review. We should focus more on high risk areas where more irregularities are

noted.

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Stage III - ACTUAL AUDIT AT BRANCH

Carry out actual audit.

We should carry out actual audit with full team. Based audit program we should apply appropriate test

check. We should document all our findings and query. Keeping Materiality in mind we should decide

about whether to report, where to report the irregularities found.

Memorandum of changes (MOC) to be given with explanation and justification.

If there are material changes we should issue MOC. We should always give justification for the MOC

prepared. It should have detailed explanation for stand taken by us and we can also report management

view if different from our view.

Issue Nil MOC even if it is NIL or don't make AR subject to MOC.

If there is no MOC we should issue a NIL MOC certificate or accordingly we should mention in our main

report. For qualification we should avoid giving any reference to other reports.

Independence of main report and LFAR- No Referencing of each other, independent qualification/adverse

remarks.

Both this reports are independent reports and we should not do cross referencing in these two reports. We

should refer SA

Discuss the draft reports- reservation, major observation, qualifications with branch managementIt is one of best practices that we should discuss our observations / draft report with the management.

Audit Report format is modified and suggested to see draft report as given in Standard on auditing.

Qualification to be given in bold or italicStill many of us are not reporting qualification as required by ICAI.

To quantify the qualification

We must quantify the qualification (if any). If for any reason we are not able to get qualification from

management we should mention the fact in our report.

Stamping on all pages and initialing the correction done

We must stamp and put our initials on all pages. We must authenticate corrections wherever done in

statements or reports signed by us.

Issue of final reports in time

We must issue report in time. We should adhere to time dead line given by the bank authorities. If there are

any practical problems, we should inform to top management in writing about such problems being cause

of delay for non-completion of audit in time. Now we need to generate UDIN as per ICAI requirements.

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VOL. 23 - NO. 8 - MARCH 2020

8

Critical Areas to be focused

Apart from audit of fund-based advances, auditors must focus on non-fund base advances such as letter of

credit, bank guarantees issued. Auditor must examine entire process from sanction to closure of non-fund

based advances.

Further auditor must examine, source of data given to them. Recent fraud divulge that banks have given data in

excel which was manipulated. Data in given was not original data extracted from system. Post extracting the

data same was manipulated before giving to auditors. Auditor must examine authenticity of data or he himself

should extract the data from system through auditors login given by bank.

Forex Transactions is another critical area as illegal money transfers from India have happened wherein no

proper documents / KYC documents were available with branch office. RBI norms / requirements of filing

various forms with AD need to be understood by auditor and same needs to be examined.

Loan against third party fixed deposit is another gray area which needs proper examination of all

documentation formalities minutely and carefully. Auditor should examine bank must have followed all

process as per their internal guidelines set.

Documents for online transactions / mobile transactions need careful examination by auditor. Modus of

transactions, authorization and complaint for unauthorized transactions calls for auditors attention.

Last but not least, auditor must carefully examine all data given in certification and wherever required he must

give suitable notes / disclaimer / qualification if there is any limitation is place on scope of verification. Auditor

must understand rational/ objective behind each certificate being called by Reserve Bank of India. Once he is

clear about that auditor can ask relevant details / eligibility criteria for such borrower's certificate being asked

for. For example in textile interest subvention certificate auditor should not merely check interest figure but he

must examine whether borrower was eligible for such interest concessions.

Compiled by:


CA Harsh Hasmukh Dedhia

VOL. 23 - NO. 8 - MARCH 2020

Introduction:

Indian banking industry has recently witnessed the roll out of innovative banking models like payments and

small finance banks. RBI's new measures such as instructions to the banks for strict recognition of NPA, faster

resolution of such NPA, enactment of Insolvency Bankruptcy Code, 2016 and its strict implementations,

recapitalization of the banks by the government etc. may go a long way in strengthening the banking industry.

For the onerous task of implementing and complying with the regulator's expectations, bank audits are

carried out. The bank audit is a part of the Internal Control Mechanism of the bank. Chartered Accountants

are entrusted with the responsible task of carrying out their audit. Considering the new and innovative ways of

committing frauds and misappropriation of funds, effective audit and raising red flags in critical issues is of

utmost importance.

Advances, the main part of the Bank audit also constitutes the largest item on the asset side of the balance

sheet of a bank and are major source of income. Thus it needs a significant time of auditor and also he must

have adequate knowledge of the banking industry and regulations governing the banks. While doing

verification of advances, impact of irregularities needs to be seen from point of view of its asset classification.

This article briefly attempts to articulate some key points to be considered while carrying out audit of

advances portfolio of banks.

Types of AdvancesFund based credit facilities are those where, upon sanction, there is an actual outflow of funds from the bank

to the borrower, whereas non-fund based facilities are those, at the time of sanction which do not involve such

outflow of the bank's funds. Some of the credit facilities are as follows:

Audit of Advances

Cash Credit - Enables borrower to meet the gap in their working capital

requirements. Generally granted against the security. Repayable

on demand.

Overdrafts - It may be either secured or without security and does not

generally carry a fix repayment schedule.

Term Loans - Facility provided based on sanctioned terms for various purposes

like acquisitions of plant and machinery or other fixed assets,

meeting personal expenses, meeting deficit in net working capital

requirements, other business needs, etc. Repayable in

installments spread over a period of time.

Working Capital Demand Loans - Generally granted to meet the gap in working capital requirement.

Repayment can be either in the form of installments or a bullet

payment depending on the terms of sanction.

Bills Purchased/ Discounted - It is meant to finance the actual sale transactions. It can be either

accompanied or without the original documents of title to the

goods.

Fund based credit facilities:

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Packing Credit - Facilities extended to exporters in the form of 'pre-shipment credit' and

'post-shipment credit'. It is given either for individual order obtained or

the customer is sanctioned an Export Packing Credit limit.

Foreign Currency Loans - It may be in the nature of term loan or working capital loan. It is

sanctioned as per the EXIM policy and RBI guidelines.

Non fund based credit facilities:

Guarantees - It is a contractual obligation made by the bank to any third person to

undertake the payment risk on behalf of borrower. It comprises both

performance guarantees and financial guarantees

Letter of Credit - Legal document issued by the bank that acts as an irrevocable

guarantee in making payment to a beneficiary. It is mandatory in foreign

transactions.

Co-acceptance of Bills - An undertaking from the bank to make payment to the drawer of bill

(seller/exporter) even if the buyer/importer fails to make the payment on

due date.

Sample Selection Process:

Considering the nature and volume, it may not be possible for the branch auditor to verify 100% of the

accounts. Hence, selection of appropriate samples of advance accounts is critical. Here SA 320 (Materiality in

Planning and Performing and Audit) and SA 530 (Audit sampling) need to be considered. There are no specific

rules for selection of samples for verification of advances and auditor will have to use his own judgment based

on preliminary review of the documents stated above. However, following accounts must be included for

verification:

(Iaccounts appearing in the overdue statement.

(ii) Accounts upgraded by the branch to standard category.

(iii) Top 10 borrower accounts by outstanding at the end of the year depending upon size of branch under

each facility and some accounts randomly selected from other retail loan portfolio.

(iv) Top 5 or 10 accounts sanctioned during the year apart from above accounts.

(v) Accounts having adverse comments in the concurrent audit report of the branch.

(vi) Accounts reported in the previous year LFAR with adverse comments of branch statutory auditor.

(vii) Accounts appearing in the SMA account statement of the branch.

(viii) Accounts restructured during the year.

Verification of Advances:

Sanctioning/ Disbursement

Auditor has to examine whether bank has sanctioned advances beyond the delegated authority and whether

telephonic sanctions are followed by written confirmations by appropriate authorities. He also has to examine

whether the ad hoc limits given to borrower were liquidated in time. Also it needs to be verified that security/

mortgage are created, CERSAI registration and charge has been registered with ROC. Auditor should ensure

that no advance was disbursed without complying with terms and conditions of sanction. Examples/instances

of non-implementing of terms and conditions of sanction:

Promoters contribution not brought in

Guarantors' Networth not furnished

Unit not inspected

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Borrower instructed to close other bank accounts. But the same is not complied with

Security not created e.g., equitable mortgage of immovable property

End use of the loan not verified

Advances given to a group in excess of RBI norms during the year

Reviewing/ Monitoring/ Supervision

Review of ledger for various facilities of large borrower samples selected should be done to get idea on

operations of account. Generally, interest application, penal interest etc., would be done by the system.

However it is advisable to check for few samples whether amount of interest is correct.

An auditor needs to check if there are frequent delays in payment of dues of loans or overdrawing in case of

CC/OD accounts. Apart from this, development of LCs, regularization in account around critical dates such as

dates for consideration as NPA, etc., are some examples, which may require detailed review of the account

operations. Auditor may check the latest audited financial statements of the borrower, qualifications of

borrowers' statutory auditors if any, transactions with related parties etc. Here one should also check if the

account is regularised at end of the financial year by showing cheque deposited under bank reconciliation and

subsequently reverse in the following year indicating possible evergreening.

Auditor should see whether the stock/ book debt statements and other periodic operational data and financial

statements, etc., received regularly from the borrowers and duly scrutinised? Is suitable action taken on the

basis of such scrutiny in appropriate cases? Auditor should verify whether Quarterly book debts statements

are duly certified by CA, if stipulated in terms of sanction, whether the unit is providing age–wise analysis of

Book– debts. Auditor should also see whether stocks are being critically scrutinised for

non–moving/obsolete/damaged stock and action taken thereon, whether such year–end stock/book debt

statements are compared with audited balance sheet to ascertain variance in stocks/ book debts. In cases

where borrower is availing Multiple banking Facility, whether the branch obtains outstanding position from

each Bank and compares the limits availed with stocks held and DP applicable, in order to know whether the

borrower is over – financed, and any margin is to be introduced.

Stock audit for large advances is essential for effective monitoring of the advance. Auditor should comment on

its adequacy and frequency and review the stock audit reports critically. Also, Auditor should check if the bank

has obtained necessary explanations and responses on stock audit reports, from the borrowers and

considered necessary remarks while computing DP.

In case of bill discounting, most banks have policy of recognising interest over period of the bills. Such interest

collected in advance is kept under other liabilities in balance sheet of the branch. Bill wise breakup of the same

may be taken and mapped with the interest on balance period of outstanding bills discounted. In case if

difference is noticed, auditor may ask explanation from the branch and insist for passing necessary entry

through profit & loss account to match the actual interest that ought to be kept under 'interest received in

advance' at the year end.

List of Letters of Credit (LC) and Bank guarantees should be obtained borrower wise. Check if LCs are

outstanding against borrower having frequent overdrawing in other limits. In case of invocation/ devolvement

of LCs, operative CC/OD account of the borrower is to be debited and not to be parked in a separate account to

consider the overdue position in the account. Guarantees should be checked with the dates of expiry and

verified whether all the expired guarantees have been removed from the system. Guarantees are classified in

Performance and Financial. Correct classification of nature of guarantee is very important as it will have

implication on the Risk Weighted Assets of the Bank for its Capital Adequacy requirements. On sample case

selected, commission on LCs and guarantee fees need to be checked along with the adequacy of cash collateral

margin.

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Security

Checking security is the most important aspect of verification of advances. Auditor should verify the following:

i. Mode of creation of security – Mortgage, pledge, hypothecation, assignment, or set-off.

ii. Verify

a) Whether it is legally enforceable

b) Whether it is in effective control of the bank/transferability

c) Whether it is recently inspected

d) Whether valuation of security is realistic, current and stable

e) Whether security covers value of advance

Identification and Verification of NPAs

The non-performing assets are classified into four categories based on the period for which the asset has

remained non-performing and the realisability of the dues.

Sub-Standard Asset

Which has remained NPA for a period less than or equal to 12 months.In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Asset An asset would be classified as doubtful if it has remained in the sub-standard category for a period of 12 months.

A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation, highly questionable and improbable on the basis of currently known facts, conditions and values.

For provisioning, Doubtful Assets are further classified as per age in doubtful category, in sub-categories generally called as D-1, D-2 and D-3.

Loss Asset A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly or partly.

In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Accounts where there is erosion in the value of security/ frauds committed by borrowers

In respect of accounts where there are potential threats for recovery on account of erosion in the value of security or non-availability of security and existence of other factors such as frauds committed by borrowers it will not be prudent that such accounts should go through various stages of asset classification.

In cases of such serious credit impairment the asset should be straight away classified as doubtful or loss asset as appropriate:

Value Classification to be done

Less than 50% Doubtful Asset

Less than 10% Loss Asset

NPA Category Criteria for classification

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Apart from correct classification of NPA category, it is also important to check the correctness of provision

created on NPA accounts. Sometimes, if the classification of advances is found correct, amount of provision

against individual borrower accounts is assumed to be proper and auditor may tend to ignore detailed

verification of computation of such provision. However, in terms of master circular on IRAC norms issued by

RBI, if the valuation report is not obtained for 3 years in case of immovable property and 1 year in case of other

assets, the value of security would be considered as NIL and 100% provision would be required to be created

on outstanding amount. Hence, auditor need to check all the cases of doubtful loans if latest valuation report is

obtained as required. Also, when the classification of any NPA changes all the accounts of borrower

irrespective of regularity of payment with other facilities need to change. Unrealised income in all NPA

accounts is reversed as on the date of NPA classification. An example of NPA classification is as follows:

Classification NPA Date

Sub-Standard 1-April-2019 31-March-2020

Doubtful up to 1 Year (D1) 1-April-2018 31-March-2019

Doubtful 1 to 3 Years (D2) 1-April-2016 31-March-2018

Doubtful more than 3 years (D3) Before 31-March-2016

Some Important Practical aspects:

A few important aspects that may be kept in mind which will help conducting effective audit for Advances of the bank:

Most banks in India are on Core Banking Solution (CBS). Manual intervention is reduced to a large extent due to implementation of CBS and hence it is essential for an Auditor to have a working knowledge of such software.

Entire GL with sub-heads can be asked to converted into excel with opening and closing balances and transactions during the year. This will give accounts where balances are constant and needs to be enquired into.

Last year's MOC and its effect in books subsequent to completion of audit whether given or not to be seen along with copy for auditor's record

A few important exception reports related to advances like excess drawing permitted over sanctioned limit through TOD, changes done in master data of borrowers, interest rate changes, etc. can be asked for.

CC accounts to be verified for interest debits and total credits for the end of the quarter. This is one of the reasons for identifying and classifying NPA in sticky or problematic accounts. CC accounts with no credits in the accounts for the last quarter also need to be classified as NPA.

Concurrent auditor's negative observations or comments on accounts with irregularities should be checked to see whether the discrepancies noticed have been resolved or still persists.

stQuarter to quarter movement of NPA with NPA as on 31 March of previous year to be compared. This will

give a list of advances which are upgraded or restructured or written off during the period Restructuring of advances should not be repeated restructuring Get a Suspicious transaction report (STR) to check response provided by the bank for suspicious

transactions and how they were dealt with by the bank.

Conclusion:

From the above article it is noted that verification of advances is a challenging task. Proper planning and training is required on the part of auditor to audit a specialized industry working in a fully computerized environment and dealing with a commodity called 'money' which is largely public money. Also, since the classification, provisioning and income recognition is governed by RBI norms, we have to carry out audit of advances based on latest RBI norms and directives. Further, ICAI has always been alert and has always updated its knowledge database including Guidance Note on Bank Audits time and again for members.

13


Compiled by:

CA Het Dhanji Bheda

VOL. 23 - NO. 8 - MARCH 2020

Introduction of CBS:

CBS system works on a concept of Centralised Database and processing. Transaction take place at various

geographical locations which get recorded and processed at a Centralised Server. Updating of database is on

Real time basis. Due to centralisation of transaction processing, issues of out of date information is

eliminated.

Under CBS data is stored in centralised servers at data centre. This effectively means that all operations at the

connected branches, CBS developed by various software companies available in the market and most

commonly used are FINACLE, TCS BaNCS and Flex cube

Audit through CBS:

Generally, the following set of steps is recommended at the start of the audit to understand the operations at

the branch level and familiarize oneself with the branch and its team

Document list of software's, application and interface details associated with CBS

Review of usage manual or Document software navigation options and menu codes

Document list of reports available in CBS and its menu codes

Review Exceptions Reports/ MIS Reports generated by Data Centre

This article discussed the area wise indicative list of reports to be generated from CBS and menu codes of few

important areas for performing audit procedures

I. Audit of Loans through CBS

Auditor is required to perform audit process by considering various parameters that may affects proper

disclosure of balance in Loans & borrowings under the financial statements

a. Reports :

Auditor is required to obtained below mentioned reports from CBS for assessment of risk, selection

of samples and further audit procedures

1. Advances snapshot covering all important parameters

2. Accounts with overdue in excess of 90 Days and are classified as Standard Assets

3. List of LCs devolved & BGs Invoked during the period / year and current status of account

4. Non-Fund Based Limits granted to customers

5. List of SMA / Watchlist / Probable NPA/Weak account accounts as on the last date of audit

period

6. Backdated updating of stock and book debt statements (Difference between date of updating

in CBS and date of Stock Statement updated)

7. List of Accounts wherein the facility is not renewed / reviewed

8. List of Accounts slipped to NPA during the current period

9. List of Accounts wherein there is an amendment in date of NPA

10. List of Accounts written off during the period / year

Audit Through Core Banking Solutions

14


VOL. 23 - NO. 8 - MARCH 2020

11. List of Accounts upgraded (along with date of upgrade and the overdues on the date of

upgrade)

12. Quick Mortality (NPA within 1 year of Advance)

13. List of NPA Accounts with Security Valuation not carried out within the prescribed period

14. List of accounts wherein rephasement (Change in EMI, Tenor, Moratorium period) is carried

out in CBS (excluding rephasement due to change in the reference rate)

15. Loan / OD against FD with no linkage to FD (i.e. Security)

16. Loans below the benchmark rate (as applicable in each bank)

17. Loans above the maximum lending rate (as applicable in each bank)

18. Loans where disbursement is made in Cash (Threshold limit may be prescribed)

19. Credit transactions in CC / OD / Loan Accounts with Value Date (Back Date) without Value

Date (Back Date) at Debit Leg

20. Advance accounts where effective interest rate is Zero

21. CC Accounts with primary security is “Nil”

22. Multiple TODs / Adhoc Sanctions for a customer

23. Non delinking of Adhoc facility sanctioned on expiry

b. Audit primary check & system supports :

Followings are the list of activities to be perform while doing the audit of Borrowings and it's

suggested system supports in case of Finacle and BaNCS:

Risk descriptions Auditor's primary checks Menu code

Discrepancies in

setting up the EMI/

Instalments

Whether EMI /instalment is correctly

setup

Whether EMI./ Instalments amount is

matching with sanctioned Terms

Finacle : ACI � Option

“E” Repayment details

BaNCS:

- DL/TL Accounts &

Services � Enquires �

Account

- Deposit/CC/OD accounts

& services � Enquiries �

Deposits/CC/OD Account

Multiple Set of EMI/

Instalments

Whether sets of EMI are properly entered?

Is there any substantial differences st ndbetween 1 Set of EMI and 2 or other sets

st nd(e.g. 1 set Rs. 5,000 and 2 1,00,000)

which cause doubt on debt serviceability

Finacle : ACI -� Option

“E” Repayment details

BaNCS:

- DL/TL Accounts &

Services � Enquires

� Account

- Deposit/CC/OD accounts

& services � Enquiries �

Deposits/CC/OD Account

15


VOL. 23 - NO. 8 - MARCH 2020

System determined

Asset Classification vis

a vis user defined

Asset Classification

CBS contains two sets of parameters. At

first instance CBS identify the account

based on se t parameters under

classification types

In few CBS it has been observed that user

is generally given the option to differ and

select/amend the classification. In such

cases detailed scrutiny of NPA system is

required to be carried out

Finacle :

- ACM/ACI option � 'Y'

Asset classification inquiry

BaNCS :

- A report containing

account wherein there is

difference between Asset

Classification by System

and by user should be

requested for. Account

listed in the said report

should be thoroughly

Manipulation in SL/DP Changes in SL/DP should be cross

checked with sanctioned letter.

Whether any changes in Limit is

supported by necessary documentation?

Finacle :

- ACLHM � Account limit

history maintenance

BaNCS:

- Tailor Made report on

Incorrect moratorium

period

Based on moratorium period CBS will

identify the loan instalment and will track

repayment

In case the moratorium period / instal-

ment start date is erroneously updated

system will not show correct result

Finacle :

- ACI � Option “E”

Repayment details

BaNCS:

Account Master details

Re- Phasement without

reporting it as

reschedule

Loan Account Instalment are rephased/

recalibrated without reporting the same

as Re- Schedule.

Verify whether any changes in Repayment

in Repayment instruction is made

through system. Compare the said

account with list of

Finacle:

- ACI � Option “E”-

Repayment details

BaNCS:

- Account Master details

(Long inquiry)

Instalment start date is

Future date

Check whether instalment start date

entered as per sanctioned term?

In case of future date system will not

identify instalment and any repayment

received will be shown as “overflow”

Finacle :


Repayment details

BaNCS:

- Account master details

Interest Demand date Check whether Interest start date entered

is as per sanctioned term?

In case of future date as Interest Demand

date system will not accrue interest and

any repayment received will be shown as

“Overflow”

Finacle :


Repayment details

BaNCS:

- Account master details

16


VOL. 23 - NO. 8 - MARCH 2020

Round tripping from

internal accounts

Close scrutiny of transactions and review

of Chain/Series of transaction for accounts

with deficiency is required

Such transactions will inflate the credit

turnover in the account.

Finacle:

- ACLI � (use CTRL + E

to Explore the Tran)

- Using only account

turnover information

generated through “ATOR”/

“CUTT”/ “ACTI”

Menu may lead to

incorrect interference,

since the credit are not

solitary credits in

accountsI. BaNCS :

- Deposit/ CC/OD accounts

& services � Enquires �

Transaction

Temporary overdrafts Check whether TOD is sanctioned in

order to bring the overdrawn limit to base

level additional facility through TOD is

sanctioned

Finacle :

- ACLI � Option “O”

- TODRP � TOD register

printing

BaNCS :

TOD report

Devolved bills parked

in office accounts and

not in limit account

Devolved Bill under LCs are required to be

debited to the limit accounts only.

Assessment of Asset classification will be

based on composite overdrawn portion

limit + LC Devolved amount (if any on

devolvement)

Check whether the amount of devolve-

ment of LC backed bills are parked in

office accounts or any

Finacle :

- BI & FBI� with Bill

status as “K” using status

date filter

BaNCS:

Report on Devolved bills

under Import LC

Fictitious credit

through office account/

Inter- branch account

Are there any quarter/ year end credits

cited in the account?

Check the source of credit entries

Review transactions in office accounts/

Inter Branch accounts

Finacle:

- ACLI � (Use CTRL + E

to Explore the Tran)

- Review of Office accounts

ledger

Bancs :

- Deposit/ CC/OD accounts

& services � Enquires �

Transaction

- DL/TL Account &

Services � Enquiries �

Transactions

17


VOL. 23 - NO. 8 - MARCH 2020

Multiple CUST ID to

prevent the other

account from

becoming NPA

Check whether multiple CUST IDs have

been opened for the borrower with

different accounts?

NPA report and search all the case by few

characters of name

Finacle :

- ACS � Account selection

(search based on Name)

- LAGI Loan account

general inquiry (Inquiry

based on other

parameters)

BaNCS:

- Customer management

� Enquiries � Search by

Name

II. Profit & loss account :

Interest income is the major source of revenue for the banks, hence thorough checking of collection of

interest requires to be carry out by the auditor.

a. Reports:

Followings are the few reports that will be useful to the auditor to check in details about major income

and expenses booked in profit and loss accounts :

i. Manual debit to Interest Income and Other Income Account

ii. Manual credits to Interest Income and Other Income Account

iii. Manual debit to Interest Expense Account

iv. Interest Pegging marked as “Y” for loans sanctioned at variable rate i.e. w.r.t. benchmark rates

(Pegging may freeze the interest rate at the respective time.)

b. Audit primary checks & system supports:

Auditor's Primary Check Menu codes

Interest pegging in advance accounts set as “Y”. (If “Y” is selected

system will charge interest at the rate prevailing at the time of

accounts opening. For the cases of fixed rate loan pegging flag will

be “Y”)

Future date is updated in interest demand date

Interest on Principle / Payment of interest flag is set as “N”

Effective rate of interest is updated as “0”

Account open and interest start dates are identical

Account open and interest demand dates are identical

Interest Table codes “Zero” is selected

Interest Demand date is past date

Interest Demand frequency is Blank

Finacle : INTCI,

AINTRPT, INTPRF,

INTTM

TCS BaNCS:

- OD/CC Accounts �

Interest Rate History

- DL/TL � Interest

rate

III. Audit of Office accounts through CBS

The transactions processed in office/ parking accounts are not routine hence it calls for continues

monitoring and earliest reversal followings are the list of events can be found in the banks using office

accounts and suggested system supports for detailed verifications

18


VOL. 23 - NO. 8 - MARCH 2020

Multiple CUST ID to

prevent the other

account from

becoming NPA

Check whether multiple CUST IDs have

been opened for the borrower with

different accounts?

NPA report and search all the case by few

characters of name

Finacle :

- ACS � Account selection

(search based on Name)

- LAGI Loan account

general inquiry (Inquiry

based on other

parameters)

BaNCS:

- Customer management

� Enquiries � Search by

Name

II. Profit & loss account :

Interest income is the major source of revenue for the banks, hence thorough checking of collection of

interest requires to be carry out by the auditor.

a. Reports:

Followings are the few reports that will be useful to the auditor to check in details about major income

and expenses booked in profit and loss accounts :

i. Manual debit to Interest Income and Other Income Account

ii. Manual credits to Interest Income and Other Income Account

iii. Manual debit to Interest Expense Account

iv. Interest Pegging marked as “Y” for loans sanctioned at variable rate i.e. w.r.t. benchmark rates

(Pegging may freeze the interest rate at the respective time.)

b. Audit primary checks & system supports:

Auditor's Primary Check Menu codes

Interest pegging in advance accounts set as “Y”. (If “Y” is selected

system will charge interest at the rate prevailing at the time of

accounts opening. For the cases of fixed rate loan pegging flag will

be “Y”)

Future date is updated in interest demand date

Interest on Principle / Payment of interest flag is set as “N”

Effective rate of interest is updated as “0”

Account open and interest start dates are identical

Account open and interest demand dates are identical

Interest Table codes “Zero” is selected

Interest Demand date is past date

Interest Demand frequency is Blank

Finacle : INTCI,

AINTRPT, INTPRF,

INTTM

TCS BaNCS:

- OD/CC Accounts �

Interest Rate History

- DL/TL � Interest

rate

III. Audit of Office accounts through CBS

The transactions processed in office/ parking accounts are not routine hence it calls for continues

monitoring and earliest reversal followings are the list of events can be found in the banks using office

accounts and suggested system supports for detailed verifications

19


VOL. 23 - NO. 8 - MARCH 2020

Events Audit actionable Menu codes

Cash payment from

office accounts

Authorisation of transaction

as per Delegated Authority

Finacle:

- ACLI � For

Transaction

- FTI �For search

BaNCS :

- BGL � Enquiries �

TOD through Office

accounts

Through ineligible credit

originating from a office

account, customer can be

accommodated.

It also circumvents the number

of TODs granted to customer.

Moreover, interest will not

Finacle :

- ACLI � For transaction

in office account

BaNCS:

- BGL � Enquires �

Transaction

Parking of cash

difference in office

accounts, Clearing/

Remittance differences

through office accounts

Differences in Reconciliation,

Cash Shortage debited to office

account and not reversed

Review ledger account in

detailed on monthly basis

Finacle:

- ACLI : For transaction

in office account

- IOT � For Inquiry on

outstanding transaction

- MSGOIRP: For printing

of outstanding office

account transaction

reportI. BaNCS:

- BGL � Enquire �

Transaction

- “Outstanding BGL

Rotation of entries in

office accounts

To preven t en t r y be ing

reported as long outstanding

entry a new transaction with

debit and credit leg in the same

account is posted. Thus, the

system considers the new

transaction date for reporting

as outstanding entries.

Review transactions with

same debit and credit amount

through ledger

Finacle :

- ACLI : For transactions

in office account

BaNCS :

- BGL � Enquire�

Transaction

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VOL. 23 - NO. 8 - MARCH 2020

Correctness in

mapping of reversal

transaction to

originating

transactions

If the transactions have not

been reversed against the

related originating entries

the report generated by CBS

will show incorrect out-

standing items

Finacle:

- ACLI : For reversal

transactions in office

account

BaNCS :


Value dated (Back

dated) transactions

Transactions credited in the

advance type accounts,

Operative accounts with a

value date (Back date)

wherein the clear funds were

not available in the office

accounts

Review the transactions from

revenue leakage perspective

Finacle :

- ACLI : For transaction in

the office account

- FTI � For value dated

transaction

BaNCS :


Transaction

Round tripping Rotation of entry from office

a c c o u n t t o o p e r a t i v e

account(s) without any

jus t i f i ca t ions / source

documents

Review the transactions from

the perspective of inflating

credit turnover of account

Finacle:


office accounts

BaNCS:


Transaction

Advance paid for Fixed

Assets not capitalised

Entries for payment of

advance against procure-

ment of fixed assets not

reversed

Finacle :


office account

- IOT� For inquiry on


- MSGOIRP � For printing


account transaction report

BaNCS :


Transaction

- Outstanding BGL

21


VOL. 23 - NO. 8 - MARCH 2020

Income realised not

credited to revenue

account

Loan instalment received from

customer not adjusted

Processing fees received , not

credited to Income account

Charges collected, not credit

to income account

Finacle :


office account

- IOT � For inquiry on


- MSGOIRP � For printing


account transaction report

BaNCS :

- BGL � Enqire �

Transaction

- Outstanding BGL

IV. Exceptional and Irregularities reports :

Apart from the above report auditors can use the below mentioned exceptional reports for the

detailed scrutiny of the transactions

a. Balance exceeded account limit

b. Manual debit to Income account

c. Value dated transaction

d. Manual entry for SI failure cases

e. Instrument passed against clearing

f. Backdated entries (normally restricted)

g. Granting of Intraday TOD

h. Passing of Instruments against clearing effects

22


Compiled by:

CA Henik Dilip Shah

Almost all of the readers must be having at least one Gmail address, i.e. a Google account. Here are a few ways

in which you can use that account effectively and efficiently in your daily activities, for free.

1. Snooze

Gmail gives you the option to resurface any email on your inbox later in the day, tomorrow, later this week,

on the weekend or next week. This means an email you snooze will simply pop back up in your inbox when

you want it to, as though it's a fresh email. It reminds you of particular emails to be worked upon in later

time.

Gmail Tricks Everyone Should Know!

VOL. 23 - NO. 8 - MARCH 2020

2. Schedule

You draft an email and keep it ready but do not want to send immediately. In such scenarios, you can

schedule your emails to be sent at a later time. Gmail will send that email automatically at that specified

time. Further, you can also cancel the sending and re-schedule the time.

3. Label

Gmail label is a tag that can be added to every email you receive or send. You can also add them to drafts.

You can also apply more than one label to a single email. These labels can be used to keep your inbox

organized. You can search for emails of the particular label.

23


VOL. 23 - NO. 8 - MARCH 2020

4. Check mail from other accounts

If you have, say, a Rediffmail account, and you want to check those emails on Gmail, then you can use the

said option from “Accounts and Import” tab under Settings.

5. Auto-forwarding

You can automatically forward all the emails which are received by your staff or another Gmail account to

your email through “Forwarding and POP/IMAP” tab under Settings. Further you can also set filters for

forwarding emails received from specified email addresses.

6. Themes

Bored of the white background on the Gmail web-page? Do you want to give some different/ personalised

touch? You can do that through Settings>Themes. You can select any of the available themes or your

favourite picture through the “My photos” option at the bottom on the left.

24


VOL. 23 - NO. 8 - MARCH 2020

7. Calendar

You can set and send periodic reminders of various events through Google calendar. Further, the guests

can be asked in the reminder email itself whether they would be attending the event. The creator of the

event reminder email will receive an email every time a guest agrees to attend. The icon of Calendar is

located below the profile picture of the email account holder. For creating a new event, clicking on the

calendar, and then selecting “Edit in Calendar” will open a web-page as below:

8. Sharing Folders

You can create a folder on Google drive and share it with any person. Once the invitation is accepted, that

person can also upload the documents, spreadsheets etc. in the folder. Thus data can be stored at one

place on the cloud accessible to specific people. The need to email data and keep a track of files no longer

exists.

25


VOL. 23 - NO. 8 - MARCH 2020

8. Cloud printing

Print any document from any mobile or computer to your office printer through cloud printing option.

This shall work even for regular non-WiFi printers provided they are connected to a computer with a

logged in Google account. In such a computer, you shall open the Chrome browser, go to Settings>

Advanced settings> Printing> Google Cloud Print> Manage Cloud Print devices. Click on it and a new

web page opens up, which will ask you to add printer. Here it will ask to log in to the Google account. Once

done, it shows the printer to be registered, then by clicking on “Manage printer”, select the printer you

want to share to other Google accounts. Once the share invitation is accepted by such persons, they can

also print from their phones or computers. (You may need to install the Google cloud printing app on your

phone, and the Google cloud printing driver on your computer from https://www.google.com

/cloudprint/learn/apps/)

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VOL. 23 - NO. 8 - MARCH 2020

10. Alerts

If you want to receive emails on any new happening in your topics of interest, then you can create an alert

from Google alerts. Further, you can also set the frequency of alert emails, the region (India), language, etc.

Many day to day Apps that we use have features which you might be unaware of, and when used can make your

life simpler.

Think over it! Think Different!

27


BRIEF UPDATE ON SEBI AND CORPORATE LAW

by CA IP Neha Rajen Gada and CA IP Rajen Hemchand Gada

VOL. 23 - NO. 8 - MARCH 2020

SEBI

A. CIRCULARS

1. Non-compliance with certain provisions of the

SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 and the

Standard Operating Procedure for suspension

and revocation of trading of specified

securities

[Issued by the Securities and Exchange Board

of India vide Circular No. SEBI/HO/CFD/CMD/

CIR/P/2020/12 dated January 22, 2020]

The Notification lays down the quantum of

penalty to be paid for non-compliance with the

requirements specified in SEBI (Listing Obliga-

tions and Disclosure Requirements) Regulations,

2015. It also lays down the steps to be taken in

case of continued non-compliance.

2. Streamlining the Process of Rights Issue


of India vide Circular No. SEBI/HO/CFD/DIL2

/CIR/P/2020/13 dated January 22, 2020]

SEBI has introduced credit of rights entitlement

in dematerialized mode. It has also laid down the

process for credit, renunciation and trading of

rights entitlements.

3. Disclosure Standards for Alternative Invest-

ment Funds (AIFs)


of India vide Circular No. SEBI/HO/IMD/DF6/

CIR/P/2020/24 dated February 06, 2020]

SEBI has laid down the template of Private

Placement Memorandum being issued by AIFs. It

has also introduced the concept of performance

benchmarking of AIFs and has laid down the

operational guidelines for performance

benchmarking.

4. Guidelines for Portfolio Managers


of India vide Circular No. SEBI/HO/IMD/DF1/

CIR/P/2020/26 dated February 13, 2020]

In addition to the revised SEBI (Portfolio

Managers) Regulations, 2020 notified on January

16, 2020, SEBI has issue the stated guidelines.

These guidelines deal with the following aspects

of Portfolio Managers:

(a) Fees and Charges

(b) Direct on-boarding of clients by Portfolio

Managers

(c) Nomenclature 'Investment Approach'

(d) Periodic reporting by Portfolio Managers

(e) Reporting of Performance by Portfolio

Managers

(f) Disclosure Documents

(g) Supervision of Distributors

The provisions of the guidelines are applicable

from May 01, 2020.

CORPORATE LAW

A. RULES

1. Companies (Winding Up) Rules, 2020

[Issued by Ministry of Corporate Affairs vide

Notification No. G.S.R. 46(E) dated January

24, 2020]

28


VOL. 23 - NO. 8 - MARCH 2020

The Central Government has issued a 241 page

notification (113 pages in English language)

laying down the Winding Up Rules which would

be effective from April 01, 2020. It deals with

various aspects of Liquidation, actions of

Liquidators, Procedure and Compliances to be

undertaken and contains various formats and

forms.

2. Companies (Accounts) Amendment Rules,

2020


Notification No. G.S.R. 46(E) dated January

24, 2020]

Every Non-Banking Financial Company

(NBFC) that is required to comply with

Indian Accounting Standards (Ind AS) shall file

the financial statements with Registrar together

with Form AOC-4 NBFC (Ind AS) and the

consolidated financial statement, if any, with

Form AOC-4 CFS NBFC (Ind AS).

3. Companies (Compromises, Arrangements and

Amalgamations) Amendment Rules, 2020


Notification No. G.S.R. 79(E) dated February

03, 2020]

Rule 3(4) has been newly inserted wherein a

member either singly or alongwith any other

member / members holding not less than three-

fourths of the voting right shall file an application

with MCA for acquisition of remaining shares of

the Company.

This sub-rule does not apply to any transfer or

transmission of shares through a contract,

arrangement or succession, as the case may be,

or any transfer made in pursuance of any

statutory or regulatory requirement.

The application has to be supported by a

valuation certificate issued by a registered valuer

and details of a separate bank account, opened

specifically for the purpose takeover of remaining

shares, wherein atleast fifty percent of the funds

to be utilized for the purpose of acquisition are

deposited.

4. National Company Law Tribunal (Amend-

ment) Rules, 2020



03, 2020]

It has been notified that the application for

takeover of shares of unlisted companies, as

specified under section 230(11) read alongwith

Rule 3 (4) o f the amended Companies

(Compromises, Arrangements and Amalga-

mations) Amendment Rules, 2020, shall be

accompanied with a fee of Rs. 5,000/- and the

following information / documents:

(a) Affidavit verifying the petition;

(b) Memorandum of appearance with copy of the

Board's Resolution or the executed

vakalatnama, as the case may be;

(c) Documents in support of the grievance

against the takeover; and

(d) Any other relevant document.

5. Companies (Issue of Global Depository Rece-

ipts) Amendment Rules, 2020



13, 2020]

Among others, the reference to “Foreign Currency

Convertible Bonds and Ordinary Shares

(Through Depository Receipt Mechanism)

Scheme, 1993” has now been amended to

“Depository Receipts Scheme, 2014”.

6. Companies (Incorporation)Amendment Rules,

2020



18, 2020]

29


VOL. 23 - NO. 8 - MARCH 2020

SPICe+ form has to be used for

reservation of name for new

incorporations. For change of name of

existing companies, the Run form needs

to be utilized.

B. CIRCULARS

1. Relaxation of additional fees and

extension of last date of filing of AoC-4

NBFC (Ind AS) and AoC-4 CFS NBFC

(Ind AS) for FY 2018-19 under the

Companies Act, 2013 - reg.

[Issued by Ministry of Corporate Affairs

vide General Circular No. 02/2020

dated January 30, 2020]

The last date for filing of AoC-4 NBFC (Ind

AS) and AoC-4 NBFC CFS (Ind AS) has

been extended to March 31, 2020 without

payment of additional fees.

2. Filing of forms in the Registry (MCA-21)

by the Insolvency Professional (Interim

Resolution Professional (IRP) or

Resolution Professional (RP) or

Liquidator) appointed under Insolvency

Bankruptcy Code, 2016 (IBC, 2016)


vide General Circular No. 04/2020

dated February 17, 2020]

The Central Government has laid down

the process and procedure for filing of

various documents in case of a corporate

debtor where and Insolvency Resolution

Professional / Insolvency Professional /

Liquidator has been appointed by

National Company Law Tribunal or the

National Company Law Appel late

Tribunal.

C. Notifications

1. Commencement notification dated

03.02.2020 – Section 230 (11) & (12) of

Companies Act, 2013


vide Notification No. S. O. __(E) dated

February 03, 2020]

The Provisions relating to takeover of

unlisted company have been notified.

Rules regarding the same have been

mentioned herein before.

30

CA Manoj Chunilal Shah CA Viral Vinod Satra

Compiled by:FEMAUPDATES


VOL. 23 - NO. 8 - MARCH 2020

Relaxations in Voluntary Retention Route for Investment in Debt Markets by Foreign Portfolio Investors

A.P. DIR (Circular Series) No. 19 dated January 23, 2020

Reserve Bank vide A.P. DIR Circular 34 dated May 24, 2019 had introduced, separate channel called

“Voluntary Retention Route – VRR” to enable FPIs to invest in debt markets in India. The features of route were

directed in said circular hereinafter referred to as “Directions”. Following changes have been made to the said

directions:

a. Investment cap is increase to Rs. 1,50,000 crores. Previously it was Rs. 75,000 crores.

b. FPIs are allowed to transfer their investments made under General Investment Limited to VRR.

c. Presently FPIs can invest under VRR in any Corporate Debt Instruments listed under Schedule 1 of Debt

Instrument Regulations other than those specified at 1(a) and 1(d) of the said schedule.

FPIs are now also allowed to invest in Exchange Traded Funds which are investing only in debt instruments.

Revision in Merchanting Trade Transactions guidelines

A.P. (DIR Series) Circular No. 20 dated January 23, 2020

The existing guidelines of Merchanting Trade Transactions (MTT) are revised as under:

a. Goods shall not enter domestic tariff area.

b. Considering that in some cases goods acquired may require certain specific value addition/processing,

state of goods may be allowed transformation subject to AD being satisfied of documentary evidence.

c. MTT shall be undertaken for goods that are permitted for export/import under Foreign Trade Policy.

d. AD bank shall satisfy itself with the bonafides of the transactions. Further, KYC and AML guidelines shall

be scrupulously adhered to by the AD bank while handling such transactions.

e. The entire Merchanting Trade is to be routed through the same AD bank. The AD bank shall verify the

documents like invoice, packing list, transport documents and insurance documents (if originals are not

available, Non-negotiable copies duly authenticated by the bank handling documents may be taken) and

satisfy itself about the genuineness of the trade. The AD bank may, if satisfied, rely on online verification of

Bill of Lading/ Airway Bill on the website of International Maritime Bureau or Airline web check facilities.

However, the AD bank shall ensure that the requisite details are made available /retrievable at the time of

Inspection/Audit/investigation of the transactions.

f. The entire MTT shall be completed within an overall period of nine months and there shall not be any

outlay of foreign exchange beyond four months. The commencement date of Merchanting Trade shall be

the date of shipment / export leg receipt or import leg payment, whichever is first. The completion date

shall be the date of shipment / export leg receipt or import leg payment, whichever is the last.

31


VOL. 23 - NO. 8 - MARCH 2020

g. Short-term credit either by way of suppliers' credit or buyers' credit may be extended for MTT to the extent

not backed by advance remittance for the export leg, including the discounting of export leg LC by the AD

bank, as in the case of import transactions. However, Letter of Undertaking (LoU)/ Letter of Comfort (LoC)

shall not be issued for supplier's/ buyer's credit.

h. Any receipts for the export leg, prior to the payment for import leg, may be parked either in Exchange

Earners Foreign Currency (EEFC) account or in an interest-bearing INR account till the import leg liability

arises. It shall be strictly earmarked/ lien-marked for the payment of import leg and the liability of the

import leg, as soon as it arises, shall be extinguished out of these funds without any delay. If such receipts

are kept in interest-bearing INR account, hedging thereof may be allowed by the AD bank at the request of

its customer, as per extant regulations. No fund/non-fund-based facilities shall be extended against these

balances

i. In case of discounting of export leg LC where payment for import leg is still to be made (even if partially),

the proceeds shall be utilized in the manner prescribed at point no. (h) above.

j. Payment for import leg may also be allowed to be made out of the balances in EEFC account of the

merchant trader.

k. Merchanting traders may be allowed to make advance payment for the import leg on demand made by the

overseas supplier. In case where inward remittance from the overseas buyer is not received before the

outward remittance to the overseas supplier, AD bank may handle such transactions based on its

commercial judgment. It may, however, be ensured that any such advance payment for an import leg

beyond USD 500,000/- per transaction, shall be made against Bank Guarantee / an unconditional,

irrevocable standby Letter of Credit from an international bank of repute. Overall prudential limits on

allowing such advance payments by a customer may be fixed by the AD bank.

l. Letter of Credit to the supplier for the import leg is permitted against confirmed export order, keeping in

view the foreign exchange outlay of four months and completion of the MTT within nine months and

subject to compliance with the instructions issued by Department of Banking Regulation on “Guarantees

and Co-acceptances”, as amended from time to time.

m. AD bank shall ensure one-to-one matching in case of each MTT and report defaults in any leg by the

traders to the concerned Regional Office of the Reserve Bank, on half yearly basis in the format as

annexed, within 15 days from the close of each half year, i.e. June and December.

n. Merchant traders with outstanding of 5% or more of their annual export earnings shall be liable for

caution listing.

The Merchanting traders shall be genuine traders of goods and not mere financial intermediaries. Confirmed

orders must be received by them from the overseas buyers. AD banks shall satisfy themselves about the

capabilities of the Merchanting trader to perform the obligations under the order. The Merchanting trade shall

result in profit which shall be determined by subtracting import payments and related expenses from export

proceeds for the specific MTT.

32


VOL. 23 - NO. 8 - MARCH 2020

Write-off of unrealized amount of export leg:

i. AD bank may write-off the unrealized amount of export leg, without any ceiling, on the request made by

the Merchanting trader, in the following circumstances:

a. The MTT buyer has been declared insolvent and a certificate from the official liquidator specifying that

there is no possibility of recovery of export proceeds has been produced.

b. The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the

importing country and a certificate to that effect has been produced.

c. The unrealized amount of the export leg represents the balance due in a case settled through the

intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization;

provided, the MTT is in adherence to all other provisions except the delays in timelines (either for outlay

or completion period of MTT or both) attributed to reasons mentioned at a, b and c above.

ii. In addition to above, write-off as at (i) shall be subject to following conditions:

a. AD bank shall satisfy itself with the bonafides of the transactions and ensure that there are no

KYC/AML concerns.

b. The transaction shall not be under investigation under FEMA by any of the investigating agency/ies.

c. The counterparty to the merchant trader is not from a country or jurisdiction in the updated FATF

Public Statement on High Risk & Non-Co-operative Jurisdictions on which FATF has called for

counter measures.

Third party payments for export and import legs of the MTT are not allowed.

Agency commission is not allowed in MTTs. However, AD banks may allow payment of agency commission up

to a reasonable extent by way of outward remittance under exceptional circumstances, subject to the following

conditions:

a. MTT has been completed in all respects.

b. The payment of agency commission shall not result in the MTT ending into a loss.

c. The Merchanting trader shall make a specific request to the AD bank in this regard.

AD bank may approach Regional Office (RO) concerned of the Reserve Bank for regularization of the MTT for

deviation, if any, from the prescribed guidelines and the MTT shall be closed only after receiving approval from

the RO concerned of the Reserve Bank.

Reporting for Merchanting Trade Transactions under FETERS shall be done on gross basis, against the under

mentioned codes:

Trade Purpose Code

under FETERS

Description

Export P0108 Goods sold under Merchanting /receipt against export leg of Merchanting trade

Import S0108 Goods acquired under Merchanting /payment against import leg of Merchanting trade

33


Compiled by:

CA Ashwin Bhawanji Shah

RERA

UPDATES

VOL. 23 - NO. 8 - MARCH 2020

UPDATE ON REAL ESTATE (REGULATION &

DEVELOPMENT ) ACT , 2016

RECENT JUDICIAL PRONOUNCEMENT ON

S E C T I O N 7 ( 3 ) P R O N U O U N C E D B Y

MAHARERA AUTHORITY Contd…

ANALYSIS OF SECTION 7 OF RERDA, 2016 :-

Section 7(1) of the Act deals with Revocation of

registration of project upon satisfaction that :-

a. Promoters violates anything required to be

done under Act, Rules and Regulation made

thereunder.

b. Promoter violates terms or conditions of the

approval granted by competent authority

c. Promoter is involved in any kind of unfair

trade practices or irregularities.

Section 7(2) of the Act provides that no such

revocation can be done by authority unless not

less than 30 days notice stating the grounds of

revocation is given to the promoter and promoter

be given chance of reply to the proposed

revocation.

Section 7(3) of the Act empowers the Authority to

impose certain terms and conditions on

promoter in the interest of allottees, instead of

revoking the registration and these terms and

conditions shall be binding on the promoter.

The issue raised by various developers under

Writ Petition 2737 of 2017 before Hon. High

Court Mumbai in connection with stringent

provision of Section 6 has been elaborately

discussed in the said judgement as under :-

a. Section 6 permits authority to grant

extension only for one year and such

provisions were harsh in nature and it fails to

appreciate various force majeure conditions

and the same has been challenged by

developers in the Writ Petition for declaring it

to be arbitrary and constitutionally invalid.

b. Hon. High Court observed that intention of

the legislation to be viewed looking at the

larger public interest and there lies answer in

Section 7(3) which empowers authority to

further grant extension beyond one year

based on merits of the case. Harmonious and

balance construction of Section 6 and

Section 7(3) shall suffice the purpose of

enactment of RERA law.

Accordingly, authority was required to

consider each such case individually on merit

and decide the terms and conditions to be

imposed upon the promoter for further

extension instead of revoking the registration

of project as spelled out in Section 7(3) of the

Act.

However, authority has issued Maharera thOrder No.07/2019 dated 8 Feb , 2019

imposing common conditions to all such

promoters intending to seek further

extension beyond one year that concerned

association of allottees resolves that existing

promoter be permitted to complete the

project in specified time limit.

This means that if association of allottees

decides not to continue with the existing

promoter then association of allottees shall

34


VOL. 23 - NO. 8 - MARCH 2020

have first right of refusal to continue as

promoter and it can appoint some other

developer as promoter.

Authority has imposed such blanket conditions

on all promoters without first going into the

merits of the case and satisfying whether such

projects requires imposition of terms or

conditions.

The following issues and practical difficulties

arises from operation of this order of the

authority :-

a. In many projects , there are secured creditor

like banks and financial institutions having

charge on the project land and various units.

The issue remains unaddressed in light of the

facts that these financial institutions have

absolute right to dispose of the project land as

it is where it is.

b. It is difficult to unite all such allottees in the

absence of required data viz address, contact

details etc. The current Form 3 issued by

Chartered Accountants does not have all these

details and practically uniting all these

allottees is challenge before authority

especially where promoter are not attending to

such proceedings.

c. Further, there is requirement of resolution of

association of allottee which means that

meeting is required to called for and resolution

is to be passed in the said meeting. Practically

various allottee are spread over geographical

area across various cities or countries and it

become difficult for promoter to hold the

meeting of the association of allottee for getting

the resolution passed in favour of the

promoter.

d. In lay out conditions standalone project if

revoked will affect the entire project land which

remains unexplored on account of proposed

projects in future and there could be ongoing

litigation by the promoter to protect his rights

and interest.

e. There are many projects which have become

non feasible for new developer to take over and

association will have to complete the project on

its own by contributing additional funds and on

this count no resolutions could be dawn by the

association of allottees.

In Nutshell , the issue requires analytical thought

process in depth industry to revive the stalled

projects under prevailing state of recession on Real

Estate Sector with various stakeholders like

financial institutions, promoter and association of

allottees etc.

Authority need to assume its administrative

jurisdiction to balance out the progress of real

estate sector and protect the rights of consumers

and should not on back seat by issue of such order

u/s 7(3) of the Act and passing all the tasks to be

performed by association of allottees which are

generally unorganized with different group of

allottees having different mind set.

Further, complaint filed by allottees with respect to

their claim u/s 18 for refund of entire sum with

interest or interest claim for delay in possession,

remain unaddressed till revival of the project and

presently their complaints are disposed off and they

have liberty to re approach Maharera once project

is revived by filing new complains , which involves

further cost on the part of complainants.

35


Compiled by:

CA Haresh Padamshi Kenia

DIRECT TAXES LAW UPDATE

VOL. 23 - NO. 8 - MARCH 2020

I. Substitution of Form No. 10DA being report

for claiming deduction under section 80JJAA

of the Income-tax Act. [268 Taxman (St.) 1].

The CBDT, vide notification No. GSR 937 [E]

[No.104/2019(F. No. 370142/28/2019-TPL)],

dated 18-12-2019, in exercise of power under

section 80JJAA (2)(c), hereby gives the Income-THtax (15 amendment) rules 2019.It substitutes

Form No. 10DA being the report under section

80JJAA of the Income-tax Act.

II. Assessment- Inquiry before assessment-

extension of time limit for filing of response to

notice issued under section 142(1) under

E-assessment Scheme 2019. [268 Taxman

(St.) 42].

The CBDT vide order [F. No. PR.CCIT

(NeAc)/2019-20/61],dated 24-12-2019, with a

view to provide relief to the taxpayers and tax

professionals and to facilitate the compliance

with respect to e-assessment proceeding under

E-assessment Scheme, 2019, the time limit for

filing of response to notices under section 142(1)

of the Income-tax Act Issued up to 24.12.2019 by

the National e-Assessment Centre is extended up

to 10.01.2020 or time given in such notices,

whichever is later.

III. Extension of due date for filing Income-tax

returns and tax audit reports for assesses of

Union Territories of Jammu & Kashmir and

Ladakh [268 Taxman (St.) 43].

The CBDT vide order No.225/306/2019-ITA-II,

dated 24-12-2019, on consideration of reports of

disturbances in internet facility in certain areas

of Jammu and Kashmir, the CBDT, in exercise of

powers conferred under section 119 of the

Income-tax Act,1961 and in partial modification

of CBDT's order under section 119 of the Act

dated 23.07.2019, 27.09.2019 and 31.10.2019

hereby further extends the 'due-date' for filing of stIncome-tax Returns/Tax Audit Reports to 31 ,

January, 2020 in respect of all categories of

income-tax assessee in the Union Territory of

Jammu and Kashmir and Union Territory of

Ladakh who were/are required to file the Income-

tax Returns/ Tax Audit Reports by the due date

specified under section 139(1) of the Act read

with orders of CBDT under section 119 of the Act

dated 23.07.2019, 27.09.2019 and 31.10.2019.

It is also clarified that ITRs/ TARs filed by the

income-tax assessee after 30.11.2019 till the

date of issuance of this order shall be deemed to

have been filed within the due date specified

under section 139(1) of the Act read with CBDT's

order under section 119 of the Act dated

23.07.2019, 27.09.2019 and 31.10.2019.

IV. Extension of last date of payment of December

installment of advance tax for Financial Year

2019-20 in respect of assessee of North

Eastern States i.e. Assam, Tripura, Arunachal

Pradesh, Meghalaya, Nagaland, Manipur and

Mizoram.[268 Taxman (St.) 43].

The CBDT vide Order [F. No. 385/38/2019-

IT9B0], dated 16-12-19, considering the large-

scale disruption of Internet Services in the North

Eastern States-Assam, Tripura, Arunachal

Pradesh, Meghalaya, Nagaland, Manipur and

Mizoram, the Central Board of Direct Taxes, in

exercise of power conferred under section

119(2)(a) of the Income-tax Act, 1961, has

36


VOL. 23 - NO. 8 - MARCH 2020

decided to extend the last date for payment of

December Installment of Advance tax for FY th st2019-20, from 15 December, 2019 to 31

December, 2019 all case of all the assessee,

Corporate and other than Corporates, in the

abovementioned states.

V. Extension of due date of payment of Tax

Deducted at Source under section 194M. [268

Taxman (St.) 44].

The CBDT vide Circular No. 31/2019[F. No.

370142/18/2019-TPL], dated 19-12-2019,

considering the fact that the utility for payment

of tax deducted at source under section 194M of

the Income-tax Act, 1961 was deployed on 17-

12-2019, the Central Board of Direct Taxes, in

exercise of the power conferred under section

119 of the Act, hereby extends the due date for

payment of tax deducted at source under section

194M during the month of September,2019 and

October,2019 and the due date for furnishing the

challan-cum-statement in Form 26QD for the

same, from 31-10-2019 and 30-11-2019

respectively to 31-12-2019. Consequently, the

due date of furnishing of the certificate of

deduction of tax in Form 16D has also been

extended for the tax deducted during the month

of September ,2019 and Octomber,2019 to 15-

01-2020.

VI. Acceptance of payment through prescribed

electronic modes-clarification in respect of

prescribed electronic modes under section

269SU of the Act read with rule 119 AA of

Income-tax Rules, [268 Taxman (St.) 45].

1. The CBDT vide Circular No. 32/2019 [F. No.

370/35/2019-TPL], Dated 30-12-2019, in

furtherance to the declared policy objective of

the Government to encourage digital economy

and move towards a less-cash economy, a new

provision namely section 269SU was inserted in

the Income-tax Act, 1961, vide the Finance (No.

2) Act, 2019, which provides that every person

having a business turnover of more than Rs. 50

Crore (“specified person”) shall mandatorily

provide facilities for accepting payment through

prescribed electronic modes. The said electronic

modes have been prescribed vide notification

No. 105/2019, dated 30-12-2019 (“prescribed stelectronic modes”). Therefore, with effect 1

January, 2020, the specified person must

provide the facilities for accepting payment

through the prescribed electronic modes.

Further, section 10A of the payment and

Settlement System Act, 2007, inserted by the

Finance Act, provides that no Bank or system

provider shall impose any charge on a payer

making payment, or a beneficiary receiving

payment, through electronic modes prescribed

under section 269SU of the Act. Consequently,

any charge including the MDR (Merchant

Discount Rate) shall not be applicable on or after st1 January, 2020 on payment made through

prescribed electronic modes.

2. In this connection, it may be noted that the

Finance Act has also inserted section 271DB in

the Act, which provides for levy of penalty of five

thousand rupees per day in case of failure by the

specified person to comply with the provision of

section 269SU. In order to allow sufficient time

to the specif ied person to install and

operationalise the facility for accepting payment

through the prescribed electronic modes, it is

hereby clarified that the penalty under section

271DB of the Act shall not to be levied if the

specified person installs and operationalizes the stfacilities on or before 31 January,2020.

However, if the specified person fails to do so, he

shall be liable to pay a penalty of five thousand strupees per day from 1 February, 2020 under-

section 271DB of the Act for such failure.

37


VOL. 23 - NO. 8 - MARCH 2020

VII. Furnishing of information and maintenance

of documents by constituents entity of

international group-Rule 10DA and 10DB of

Income-tax rules. [ 268 Taxman (St.) 54]

The CBDT vide notification no. G.S.R.14(E) [No.

03/2020(F. No. 370142/19/2019-TPL)], Dated

06-01-2020, in exercise of the powers conferred

by section 92D(4)(1) and section 286(8) of n d Income -tax Act , g ives Income -tax (2

Amendment) Rules 2020.

It amends rule 10DA and rule 10DB.

Under Rule 10DA every person of a constituent

entity of an international group, shall keep and

maintain information and document in respect

of an international group in Form 3CEAA. The

information and document specified in the above

ru l e sha l l be furn ished to the Jo in t

Commissioner on or before the due date for

furnishing the return of income as specified by

the authority. The constituent entity shall furnish

Part A of Form No. 3CEAA even if the conditions

specified under sub-rule (1) are not satisfied.

Where there are more than one constituent

entities resident in India of an international

group, the Form No. 3CEAA may be furnished by

any one constituent entity designated by

international group.

In Rule 10DB every constituent entity resident in

India, shall, if it is constituent of an international

group, the parent entity of which is not resident

in India, it shall intimate to Joint Commissioner

as may be designated by the Director General of

Income-tax (Risk Assessment). Every parent

entity or the alternate reporting entity, resident in

India, shall, for every reporting accounting year,

in respect of the international group of which it is

a constituent, furnish a report in Form No.

3CEAC two months prior to the due date for

furnishing of report.

One may refer to the above Magazine for further

Details.

38

C.V.O. CA'S NEWS & VIEWSC.V.O. CA'S NEWS & VIEWS

Compiled by:GST UPDATESGST UPDATES

CA Nitin Dhanji Kenia CA Bharat Kalyanji Gosar

VOL. 23 - NO. 8 - MARCH 2020

39

NOTIFICATIONS - CENTRAL TAX:

Notification No. 73/2019 - Central Tax dated th23 December, 2019.

The due date of furnishing return in FORM

GSTR-3B for the month of November, 2019 is rdextended to 23 December, 2019.


Notification No. 04/2020 - Central Tax dated th10 January, 2020.

The late fee is waived for the registered persons

who failed to furnish the FORM GSTR-1 for the

months/quarters from July, 2017 to November,

2019 but furnishes FORM GSTR-1 between the

period from 19th December, 2019 to 10th

January, 2020. Date of furnishing GSTR-1 threturn further extended to 17 January, 2020.


Vide this Notification, following Rules are

amended in the Central Goods & Services Tax thRules, 2017. Amendments are effective from 26

December, 2019 unless otherwise stated.

Rule 36(4): As per newly inserted sub-rule,

maximum cap of 20 % of eligible ITC as per

GSTR 2A has been set on a registered tax payer

for claiming ITC for which suppliers have not

uploaded invoices/ debit notes. This cap of 20 %

is reduced to 10 % with effect from 01/01/2020.

Rule 86A: Vide this newly inserted Rule, powers

are given to the Commissioner or an officer

authorised by him not below the rank of an

Assistant Commissioner for not allowing debit of

an amount equivalent to specified input tax

credit (ITC) fraudulently availed or is ineligible.

The specified ITC are * ITC availed on the basis

of tax invoices/ debit notes/ any other document

issued by a non-existent registered person or

issued by a registered person not conducting any

business from any place for which registration

has been obtained; or ITC credit is availed

without receipt of goods or services or both * ITC

is availed but supplier has not been paid GST to

the Government * the registered person availing

the ITC is found non-existent or not conducting

any business from any place for which

registration has been obtained * ITC is availed

but the registered person is not in possession of

a tax invoice/ debit note/ any other document.

Rule 138E(c): A new clause is inserted to Rule

138E. Now a tax payer, who doesn't file statement

of outward supplies (GSTR-1) for two successive

tax periods, cannot generate Part-A of GST-EWB-

01 of e-way bill. The amendment is effective from

11/01/2020.



The time limit for furnishing the details of

outward supplies in FORM GSTR-1, by

registered persons whose principal place of

business is in the State of Assam, Manipur or

Tripura having aggregate turnover of more than

1.5 crore rupees in the preceding financial year

or the current financial year, and return in GSTR

3B for registered persons whose principal place

of business is in the State of Assam, Manipur,

Meghalaya or Tripura, for the month of

November, 2019 is extended till 31/12/2019.


VOL. 23 - NO. 8 - MARCH 2020


The due date of a registered person whose

principal place of business is in the State of

Assam, Manipur or Tripura required to deduct

tax at source u/s 51 of CGST Act in FORM GSTR-

7 for the month of November, 2019 is extended

till 25/12/2019.

Notification No. 01/2020 - Central Tax dated st1 January, 2020.

The Finance (No.2) Act. 2019 has amended

Sections 10, 22, 25, 44, 49, 52, 168, 171 and

inserted new Sections 31A and 53A in CGST Act,

2017. All this amendments and new insertions

will be effective from 01/01/2020.

Notification No. 02/2020 - Central Tax dated st1 January, 2020.

Vide this Notification, following Rules are

amended in the Central Goods & Services Tax stRules, 2017. Amendments are effective from 1

January, 2020 unless otherwise stated.

Rule 117(1A) & (4): Due date of furnishing

FORM GST TRAN-1 and FORM GST TRAN-2 has stbeen extended from December 31, 2019 to 31 thMarch, 2020 and from January 31, 2020 to 30

April, 2020 respectively in respect of registered

persons who could not submit the said

declaration by the due date on account of

technical difficulties on the common portal and

in respect of whom the Council has made a

recommendation for such extension.

FORMS: Amendments are carried out to Form

REG-01, GSTR-3A. Form INV-01 is newly

substituted.

st Notification No. 03/2020 - Central Tax dated 1

January, 2020.

The Notification seeks to amend the Notification

No. 62/2019-CT dated 26.11.2019 to amend the

transition plan for the Union Territories of

Jammu & Kashmir and Ladakh.


Refer at Notification No. 74/2019 - Central Tax thdated 26 December, 2019.


The Notification seek to appoint the Principal

Commissioner or Commissioner of Central Tax

for decisions or orders passed by the Additional

or Joint Commissioner of Central Tax; and the

Additional or Joint Commis-sioner of Central

Tax for decisions or orders passed by the Deputy

Commissioner or Assistant Commissioner or

Superin-tendent of Central Tax, as the Revisional

Authority under Section 108 of the CGST Act.

Notification No. 06/2020 - Central Tax dated th10 January, 2020

The Notification seeks to extend the last date for

furnishing of annual return/reconciliation

statement in FORM GSTR-9/FORM GSTR-9C for

the period from 01.07.2017 to 31.03.2018.

Where principal place of business is in the

state/Union Territories of Chandigarh, Delhi,

Gujarat, Haryana, Jammu and Kashmir, Ladakh,

Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh,

Uttarakhand, due date is extended to 5th

February, 2020. Where principal place of

business is in the state/Union Territories of

Andaman and Nicobar Islands, Andhra Pradesh,

Arunachal Pradesh, Assam, Bihar, Chhattisgarh,

Dadra and Nagar Haveli and Daman and Diu,

Goa, Himachal Pradesh, Jharkhand, Karnataka,

Kerala, Lakshadweep, Madhya Pradesh,

Maharashtra, Manipur, Meghalaya, Mizoram,

Nagaland, Odisha, Puducherry, Sikkim,

Telangana, Tripura, West Bengal, Other Territory,

due date is extended to 7th February, 2020.

Notification No. 07/2020 - Central Tax dated rd3 February, 2020

The due date for furnishing the return in FORM

GSTR-3B for the months of January, 2020,

40


VOL. 23 - NO. 8 - MARCH 2020

February, 2020 and March, 2020 for taxpayers

having an aggregate turnover of up to Rs. 5 Crore

in the previous financial year, whose principal

place of business is in the States of Chhattisgarh,

Madhya Pradesh, Gujarat, Maharashtra,

Karnataka, Goa, Kerala, Tamil Nadu, Telangana

or Andhra Pradesh or the Union territories of

Daman and Diu and Dadra and Nagar Haveli,

Puducherry, Andaman and Nicobar Islands and

Lakshadweep shall be, 22/02/2020, 22/03/2020

and 22/04/2020 respectively. AND whose

principal place of business is in the States of

Himachal Pradesh, Punjab, Uttarakhand,

Haryana, Rajasthan, Uttar Pradesh, Bihar,

Sikkim, Arunachal Pradesh, Nagaland, Manipur,

Mizoram, Tripura, Meghalaya, Assam, West

Bengal, Jharkhand or Odisha or the Union

territories of Jammu and Kashmir, Ladakh,

Chandigarh and Delhi shall be 24/02/ 2020,

24/03/ 2020 and 24/04/2020, respectively. For

taxpayer having turnover exceeding Rs. 5 crores thdue date continue to remain same as 20 of next

month.

NOTIFICATIONS - CENTRAL TAX- RATE:

Notification No. 27/2019 - Central Tax (Rate) thdated 30 December, 2019.

Notification No. 27/2019 - State Tax (Rate) th

dated 6 January, 2020.

Notification No. 26/2019 - Integrated Tax th(Rate) dated 30 December, 2019.

Woven and non-woven bags and sacks of

polyethylene or polypropylene strips or the like,

whether or not laminated, of a kind used for

packing of goods covered by Chapter / Heading

/3923 or 6305; Flexible intermediate bulk

containers covered by Chapter / Heading / 6305

32 00 shall be liable to IGST @ 18 % or CGST +

SGST @ 9 % each. The amendments are effective

from 01/01/2020.

Notification No. 28/2019 - Central Tax (Rate) stdated 31 December, 2019.

Notification No. 28/2019 - State Tax (Rate) nddated 2 January, 2020.

Notification No. 27/2019 - Integrated Tax st(Rate) dated 31 December, 2019.

The Notification seeks to amend Notification No.

12/ 2017- Central Tax (Rate) so as to modify

conditions for exemption related to upfront

amount called as premium, salami, cost, price,

development charges or by any other name

payable in respect of service by way of granting of

long term lease of thirty years, or more of

industrial plots or plots for development of

infrastructure for financial business. The

amendments are effective from 01/01/2020.

Notification No. 29/2019 - Central Tax (Rate) stdated 31 December, 2019.

Notification No. 29/2019 - State Tax (Rate) nddated 2 January, 2020.

Notification No. 27/2019 - Integrated Tax st(Rate) dated 31 December, 2019.

The Service of renting of any motor vehicle to

carry passengers where the cost of fuel is

included in the consideration charged from the

service recipient, and service is provided to a

body corporate is brought under Reverse Charge

Mechanism (RCM).

NOTIFICATIONS – INTEGRATED TAX:

Notification No. 01/2020 - Integrated Tax stdated 1 January, 2020.

The Finance (No.2) Act. 2019 has amended

Section 17 of IGST Act, 2017. The amendment

will be effective from 01/01/2020.

41


VOL. 23 - NO. 8 - MARCH 2020

Disclaimer: The views / opinions expressed in the articles are purely of the writers. The readers are requested to take proper professional guidance before abiding the views expressed in the articles. The publisher, the editor and the association disclaim any liability in connection with the use of the information mentioned in the articles.

PRINTED AND PUBLISHED BY MANOJ SHAH ON BEHALF OF C.V.O. CHARTERED AND COST ACCOUNTANTS' ASSOCIATION - 304, JASMINE APARTMENT, DADA SAHEB PHALKE ROAD, DADAR (EAST), MUMBAI - 400014.TEL: 022-24105987. EDITOR: RAMESH CHHEDA

CIRCULARS - CGST:

rd Circular No. 128/47/2019 - GST- dated 23

December, 2019.

The Circular deals with generation and quoting

of document Identification Number (DIN) on any

communication including e-mails issued by the

officers of the Central Board of Indirect Taxes

and Customs (CBIC) to tax payers and other

concerned persons.

th Circular No. 129/48/2019 - GST- dated 24

December, 2019.

The Circular in details gives Standard Operating

Procedure to be followed in case of non-filers of

returns.

Circular No. 130/49/2019 - GST- dated Nil.

The Circular gives clarification on the RCM

applicability on Service of renting of any motor

vehicle to carry passengers where the cost of fuel

is included in the consideration charged from

the service recipient, and service is provided to a

body corporate.

rd Circular No. 131/1/2020 - GST- dated 23

January, 2020.

The circular in details give Standard Operating

Procedure (SOP) to be followed by exporters.

ORDERS: GST:

th Order No. 1 /2020 – GST- dated 7 February,

2020

Due date of furnishing FORM GST TRAN-1 is

extended to 31/03/2020 in respect of registered

persons who could not submit the said

declaration by the due date on account of

technical difficulties on the common portal and

in respect of whom the Council has made a

recommendation.

ORDERS: CGST:

th Order No. 10/2019 - Central Tax – dated 26

December, 2019.

The Order extends the due date of furnishing the

annual return in FORMs GSTR-9 and GSTR-9C st stfor the period from the 1 July, 2017 to the 31

stMarch, 2018 to 31 January, 2020.

42

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