r.n.marwah & co llp alert july 2018...rnm alert monthly newsletter vol no 114 july 2018 2018...

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RNM ALERT MONTHLY NEWSLETTER VOL NO 114 JULY 2018 2018 EDITORIAL TEAM R.N.MARWAH & CO LLP 7/31/2018 R.N.MARWAH & CO LLP WWW.RNM.IN RNM ALERT A MONTHLY NEWSLETTER

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Page 1: R.N.MARWAH & CO LLP ALERT JULY 2018...RNM ALERT MONTHLY NEWSLETTER VOL NO 114 JULY 2018 2018 EDITORIAL TEAM R.N.MARWAH & CO LLP 7/31/2018 R.N.MARWAH & CO LLP RNM ALERT A MONTHLY NEWSLETTER

RNM ALERT MONTHLY NEWSLETTER VOL NO 114 JULY 2018

2018

EDITORIAL TEAM

R.N.MARWAH & CO LLP

7/31/2018

R.N.MARWAH & CO LLP

WWW.RNM.IN

RNM ALERT A MONTHLY NEWSLETTER

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R N MARWAH & CO LLP W:WWW.RNM.IN E:[email protected] T:011-43192000, 8826528933

RNM ALERT

AUDIT &

ASSURANCE.

TAX &

REGULATORY

CORPORATE &

LEGAL

CORPORATE

FINANCE

Content:

WELCOME

Message by our

Managing Partner

01 DIRECT TAX

Direct tax case laws 04 INDIRECT TAX IN THE NEWS 07 CORPORATE LEGAL

Law updates 11 CORPORATE FINANCE

Transactions 14 ASSURANCE Updates 18 TAX DIARY Mark Calendar

Welcome Readers,

Dear Readers,

On 23 July 2018, the Lok Sabha has passed the Negotiable Instruments (Amendment) Bill, 2017

as per which the concept of interim compensation of not exceeding 20% of the cheque amount

has been introduced which shall be required to be paid within 60 days of the date of Order.

Team RNM is of the view that this new provision brings certainty of relief for cases which were

earlier suffering long delays in obtaining justice.

A recent Constitution Bench of the Hon’ble Supreme Court in the Sun Export Corporation,

Bombay vs. Collector of Customs has given a landmark judgement on “what is the rule to be

applied while interpreting a tax exemption notification/ exemption when there is ambiguity as to

applicability”. The ruling has made it clear that in such cases of interpretation of tax exemption

notification/ exemption the benefit of the doubt must be given the Revenue and not to the

assessee. The onus of proof rests squarely upon the assessee to demonstrate that it falls within

the exemption provisions. Normally, in taxing statutes the jurisprudence hitherto has been to

favour the assessee in case of ambiguity but a distinction has now been firmly drawn in

exemption cases where the tax authorities would get the benefit of doubt.

Lastly, on the GST front this past month of July has been busy with the GST Council

introducing a slew of relief measures including rate reductions, relief to medium and small

enterprises in composition scheme, compliances and input tax credit. Team RNM welcomes

these changes which would go a long way in enhancing the Ease of Doing Business in India.

We look forward to your comments/ feedback on our social media accounts!

Kind Regards,

CA U.N. Marwah (On behalf of the RNM Alert Editorial Team)

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DIRECT TAX CASE LAWS

Incomes Not included in total income

Section 10(20): NOIDA is not a local authority

(Municipality) as per Explanation to Section 10(20) of the Income Tax Act, 1961 (‘Act’). New Okhla Industrial Development Authority (NOIDA) vs. CCIT (Supreme Court) Civil Appeal Nos. 792-793 of 2014

Income From House Property

Section 23: No addition under section 23 to be

made for tax on notional annual letting value of unsold flats (held as stock in trade) by the builder. Builder would be assessable to tax on business profits, when stock-in-trade comprising of unsold flats, is sold. ITO vs. Arihant Estates Pvt. Ltd (ITAT Mumbai) ITA NO.6037/MUM/2016 [Date of order: 27th June 2018]

Profits and Gains from Business

Section 32: Goodwill is an intangible asset. It falls

under the expression "any other business or commercial rights of similar nature" and is eligible for depreciation u/s 32(1)(ii) of the Act. CLC & Sons Pvt. Ltd vs. ACIT (ITAT Delhi) (Special Bench) ITA No. 1976/Del/2006

Capital Gains

Section 45/48: In order to treat the capital gains

from penny stocks as bogus, the Dept. has to show that there is a scam and that the assessee is part of the scam. The assessee’s involvement in the scam should be established. The Dept. cannot disregard the evidence produced by the assessee. Navneet Agarwal vs. ITO (ITAT Kolkata) I.T.A No.

2281/Kol/2017

Section 48: Portfolio Management Scheme (PMS)

fees paid by the assessee to the PMS Manager neither falls under the category of transfer fees nor cost of acquisition/improvement. Consequently it is not deductible while computing capital gains from sale of the shares. Mateen Pyarali Dholkia vs. DCIT (ITAT Mumbai) ITA No. 6950/MUM/2016

Section 50B: Section 50B is not attracted to a

transaction by which an undertaking is transferred in consideration of the allotment of shares as this transaction qualifies as an "exchange" and not a "sale". The fact that the agreement refers to the parties as "seller" and "purchaser" is irrelevant. Oricon Enterprises Limited vs. ACIT (ITAT Mumbai) I.T.A./2913/Mum/2015

Section 50C / 54F: If the assessee has invested

the entire sale consideration in new house property, the capital gains are exempt under section 54F. The assessing officer cannot apply section 50C and treat the stamp duty valuation as the consideration and assess the difference between the stamp duty valuation and the actual valuation to capital gains. ITO vs. Raj Kumar Parashar (ITAT Jaipur) ITA No. 11/JP/2016

Cash Credits

Section 68: Assessee was a US citizen as well as

resident and a US passport holder. The assessee, in place of surrendering his Indian passport, used it as a proof for opening a HSBC bank account in Geneva. The assessee did not respond whether this bank account had been disclosed to the US tax authorities. In such circumstances, the suspicion

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DIRECT TAX

R N MARWAH & CO LLP W:WWW.RNM.IN E:[email protected] T:011-43192000, 8826528933

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that deposits in bank account have Indian origin is not unfounded and the matter requires further investigation.

DCIT vs. Rahul Rajnikant Parikh (ITAT Mumbai) ITA No. 5889/Mum/2016 & others

Tax Deducted at source

Section-194I: Amounts constituting annual lease

rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent and subject to TDS. Amounts paid as part of the lease premium or biannual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments. New Okhla Industrial Development Authority (NOIDA) vs. ACIT (Supreme Court) [Civil Appeal No. 15613 of 2017]

Section 195: Section 195 of the Act does not imply

that the moment there is a remittance; the obligation to deduct tax automatically arises. Section 195 of the Act clearly provides that unless the income is chargeable to tax in India, there is no obligation to withhold tax. Hence, section 195 of the Act has to be read along with the charging Section 4, 5 and 9 of the Act. DCIT vs. Sterling Ornaments (P) Ltd (ITAT Delhi) I.T.A. No. 4395/DEL/2014

Stay of Demand

Section 220(6): Administrative circulars (CBDT's

OMs dated 29.02.2016 & 31.07.2017) will not operate as a fetter on powers of Commissioner (quasi-judicial authority) to grant stay on demand for payment lesser than 15%/ 20% (of disputed amount). PCIT-5 & Ors. vs LG Electronics India Pvt. Ltd. (Supreme Court Of India) [Civil Appeal No. 6850 Of 2018]

Appeals To High Court Section 260A: Revenue is required to follow a

consistent view. Same pure question of law should not be admitted to the Court for a different assesse (to ensure that there is consistency in the view taken by the State Court

on a particular question of law). Revenue to give proper explanation for admitting same pure question of law that was considered and decided by the Court earlier. Pr CIT-8 vs. Starflex Sealing India Pvt Ltd (Bombay High Court) [Income Tax Appeal No. 130/151 of 2016]

OTHER IMPORTANT DIRECT TAX NEWS, AND NOTIFICATIONS

Live streaming of court proceedings On 9th July 2018, Supreme Court grants in-principle agreement to live streaming of court proceedings. Attorney General has been instructed to prepare guidelines for live streaming.

CBDT Press Release dated 1st June 2018 Income Tax Department issues revised Income Tax Informants Reward Scheme, 2018. A person can get reward up to Rs Five crore by giving specific information about substantial evasion of Income tax on income and assets in India and abroad. Identity of the informant shall be kept confidential. Threshold Monetary Limits for filing Departmental Appeals has been increased in case of (i) ITAT/CESTAT from Rs.10 lakhs to Rs. 20 lakhs; (ii) High Courts from Rs. 20 lakhs to Rs. 50 lakhs and in case of (iii) Supreme Court from Rs. 25 lakhs to Rs.1 crore. Limits to apply prospectively as well as retrospectively (implying withdrawal of pending low Tax Effect Appeals of Department). The monetary limits specified shall not apply to writ matters and Direct tax matters other than Income tax as well as cases where substantial point of law is involved.

F. No. 370142/11/2018-TPL dated 13th July 2018

CBDT invites suggestions and comments on 'revenue' threshold (for physical goods as well as digital goods including data/software download) & 'number of users' threshold (systematic and continuous soliciting through

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digital means) of business transactions for constituting significant economic presence for determining tax liability of a non-resident in India under section 9(1)(i) of the Income-tax Act, 1961. Constitutional validity of Section 234F challenged in two High Courts

The Constitutional validity of Section 234F has been challenged before the Kerala High Court and the Madras High Court. In both the writs, the petitioners have sought to declare that Section 234F, as inserted by the Finance Act, 2017, is in violation of Article 14 of the Constitution as it levies late filing fee indiscriminately according to income of taxpayers. F.No.225/242/2018/ITA.II dated 26th July 2018 CBDT extends due date for filing of ITR from July 31, 2018 to August 31, 2018. Notification No. 33/2018/F.No. 370142/9/2018-TPL

On or after 20th August 2018, tax audit report (form 3CD) to be filed in a new and detailed format. Until further clarification is issued, existing utility of Form 3CD can be filed/uploaded (for AY 2018-19) up to 19th August 2018.

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In The News:

Pilot project for cash back on digital payments under GST approved The Goods and Services Tax (GST) Council on Saturday cleared a pilot project to offer digital incentives, in the form of cashback of 20 per cent of GST paid on business-to-consumer transactions using RuPay and BHIM platforms, subject to a cap of Rs 100 per transaction. West Bengal’s Finance Minister pressed the need for a relook at incentives in the wake of revenue considerations.

Nil rated Sanitary Napkins: An optical Illusion Some companies lowered prices of sanitary napkins after the feminine hygiene products were exempted from the goods and services tax. Till then sanitary napkins were taxed at 12 percent GST. But prices have not been impacted much. That’s because manufacturers can no longer claim input tax credits for taxes paid on inputs as they could earlier set off the credits against tax liabilities As companies have been denied input tax credit, they will be able to pass on to consumers only the net benefit of GST exemption, i.e. the actual value add on the production of the said product India’s goods and services tax law make it mandatory for manufacturers to pass on the benefit of lower GST rates to the consumer. Strict anti-profiteering penalty is slapped on those who fail to comply.

Refund to Foreign Tourists still under pipeline Foreigners coming to India may not get GST refunds on goods purchased and carried back by them as the government has not invoked relevant provisions of the Section 15 of the Integrated Goods and Services Tax Act yet.

According to the section, integrated tax paid by a tourist leaving India on any supply of goods taken out of India by him shall be "refunded in such manner and subject to such conditions and safeguards as may be prescribed".

Country’s first ‘green bus’ project: GST Dispute resolved The first “green bus” project in the country, started at the instance of Union Transport on December 6, 2016, has run into rough weather with a GST dispute arising between the operator, Scania India, and the Nagpur Municipal Corporation (NMC). Two months ago, the company had sent a letter to the NMC, stating that it will withdraw the bus services from August 12. The company has contended that its dues should include 18 per cent GST as well. Now it has been told that GST is not applicable to the service since it is a stage carriage (transport with stoppages) meant for common public and not a contract carriage or tourist service. The Union minister assured the company that all its dues will be paid and that the NMC will give a written undertaking for the responsibility for non-application of GST.

Cabinet clears amendments to GST laws The Cabinet on Wednesday approved GST laws amendments which included hiking threshold limit for availing composition scheme dealers to Rs 1.5 crore, among other things. The government will now table amendments to the Central GST law, Integrated GST law, Compensation Cess law in the ongoing monsoon session of Parliament.

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INDIRECT TAX

R N MARWAH & CO LLP E: [email protected] W: www.rnm.in T: 011-43192000 ,8826528933

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Solar industry demands urgent clarity on rate of GST on projects Country’s solar industry has sent out a SoS to policy makers, including key officials in the Finance Ministry, seeking urgent clarification on the rate of goods and services tax (GST) on solar projects after controversial Authority for Advance Rulings (AAR) held these would face 18% and not 5%. The problem has genesis in the fact that concessional GST rate of 5% applies to solar power generating system, but solar power generating systems (SPGS) are is not defined in the law.

Recommendations from The GST Council Meet

Change in rate of goods

GST on certain goods has been reduced as mentioned below:

Also, rate on hotel accommodation services to be based on transaction value in place of declared tariff.

Other legislative changes

The threshold limit for composition scheme to be increased from INR 1 crore to INR 1.5 crores;

Clarification on permissibility of Input Tax Credit in relation general insurance, repair and maintenance of motor vehicles, vessels and aircrafts;

ITC to include certain vehicles (used for transportation of more than 13 persons), vessels and aircrafts;

ITC permissible of motor vehicles used for transportation of money for/by banking and financial institutions.

Interest to be waived-off in case of reversals of ITC for non-payment of consideration within 180 days from date of issue of invoice.

Supply of goods from a place in the non - taxable territory to another place in the non – taxable territory without goods entering India.

Supply of warehoused goods to any person before clearance for home consumption

NOTIFICATIONS & CIRCULARS:

Notification no. 13/2018- Central Tax (Rate) –

Central Tax (Rate): Effect to amendments in

rate of goods and services

GST rate on supply of food for human consumption: Any supply food or any other article for human consumption by canteen, mess, cafeteria or dining space of an institution would be taxable at the rate of 5% with prohibition of availment of Input Tax Credit. Supply, of goods, being food or any other

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article for human consumption or any drink, by the Indian Railway or Indian Railways Catering and Tourism Corporation Ltd. would also be taxed at the rate of 5%. However, any service of outdoor catering based on any event or occasion would continue to be taxed at 18%.

GST rate on Hotel accommodation: Rate of services of accommodation would be based on actual value of supply i.e. amount charged by the service provider rather than the declared tariff.

GST rate on Multimodal transport:

Services of transportation of goods by way of

multi-modal transport would be taxed at 12% GST, subject to the condition that at least two different modes of transport have been used from the place of acceptance of goods to the place of delivery of goods by a multimodal transporter. However, there is no prohibition in relation to ITC used in supply of the said services. Notification no. 15/2018- Central Tax (Rate) – Central Tax (Rate): Changes in Reverse Charge

Mechanism

New entry in the list GST on services by Direct Selling Agents (Individuals) to a banking company or a non-banking financial company, located in the taxable territory to be paid under RCM by the service recipient.

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COMPANY LAW UPDATES

Companies (Appointment and Qualification of Directors) Fourth Amendment Rules, 2018 The MCA has notified the ‘Companies (Appointment and Qualification of Directors) Fourth Amendment Rules, 2018 which shall come into force from 10th July, 2018. Through this notification, the format of e-form DIR-3 KYC under new Rule 12A (Directors KYC) vide, along with procedure for restoration of deactivated DINs of Directors, applicable w.e.f. 10 July, 2018, has been introduced. The Central Government or Regional Director (Northern Region), shall be empowered to deactivate the Director Identification Number (DIN), of an individual who does not intimate his particulars in e-form DIR-3-KYC within stipulated time. The de-activated DIN shall only be re-activated after e-form DIR-3-KYC is filed along with prescribed fee of Rs. 5,000/-. Further, e-form DIR-3-KYC is required to be filed every year on or before 30th April and for the financial year ended 31st March, 2018, eform DIR-3 KYC shall submit on or before 31st August, 2018. [Source: MCA Notification G.S.R. 615(E) dated July 05, 2018]

Companies (Registration of Charges) Amendment Rules, 2018 The MCA has notified the much-awaited amendments through the Companies (Registration of Charges) Amendment Rules, 2018, which shall come into force from the date of their publication in the Official Gazette i.e 05-07-2018. A Company or charge holder shall within a period of 300 days, instead of 30 days, from the date of payment or satisfaction in full or any charge registered, give intimation of the same to the Registrar in Form No. CHG-4 along

with the prescribed Fee. Further, if the form is filed beyond 300 days, the Registrar shall not register the same unless the delay is condoned by the Central Government. [Source: MCA Notification vide G.S.R. 614(E). dated July 05, 2018]

Companies (Acceptance of Deposits) Amendment Rules, 2018 MCA has notified the Companies (Acceptance of Deposits) Amendment Rules, 2018 which shall come into force from 15-08-2018. According to the amendments, Certificate of statutory auditor of the company is required to be attached in form DPT-1 shall state that the company has not committed default in the repayment of deposits or in payment of interest on such deposits accepted either before or after the commencement of the Act or in the payment of interest on such deposits, the certificate shall state that the company has made good the default and a period of 5 years has lapsed since the date of making good the default as the case may be. MCA after extending the period twice has finally omitted the provisions w.r.t Manner and extent of Deposit Insurance. Further, for Maintenance of Liquid Assets and Creation of Deposit Repayment Reserve Account, the amount remaining deposited shall not at any time fall below 20% of the amount of deposits maturing during the financial year. [Source: MCA website]

Establishment of Centralised Scrutiny & Prosecution Mechanism (CSPM) and officers are appointed as Inspectors for Compliance of Investor Education & Protection Fund

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CORPORATE LEGAL

R N MARWAH & CO LLP E: [email protected] W: www.rnm.in T: 011-43192000

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The Ministry of Corporate Affairs has established the Centralised Scrutiny & Prosecution Mechanism (CSPM) and officers are appointed as Inspectors for Compliance of Investor Education & Protection Fund (Section 124-125 of the Companies Act, 2013) provisions conferred under first proviso to sub-section 4 of Section 206 of the Companies Act, 2013. All Regional Director's and Registrar of Companies are directed not to initiate any scrutiny proceedings against the Company and its directors for non-compliance of Section 124 -125 of the Companies Act, 2013. Further, all pending and closed scrutiny cases are required to be forwarded to the Inspectors appointed by the MCA, within 14 days, on their email id's. The sanction of prosecution shall be intimated to the concerned Registrar of Companies's along with case file by the Inspector and the Registrar of Companies's are required to file prosecution with in fortnight without fail under intimation to the concerned Inspector. [Source: MCA Website]

Companies (Incorporation) Third Amendment Rules, 2018 MCA has notified the Companies (Incorporation) Third Amendment Rules, 2018 which shall come into force on the date of their publication in the Official Gazette i.e 27-07-2018. For the purposes of these rule, the term “resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding Financial Year replacing the word ‘Calendar Year. Further, while counting the number of days of stay of a director in India for the financial year 2018-2019, any period of stay between 01.01.2018 till the date of notification of this rule shall also be counted. The requirement of Affidavit from first directors and subscribers at the time of incorporation has been done away with and Declaration on a plan papers from Subscribers and First Directors shall suffice the purpose. [Source: MCA Notification dated 27/07/2018]

Companies (Accounts) Amendment Rules, 2018

MCA has notified much awaited exemptions for One Person Company or Small Companies by releasing the Companies (Accounts) Amendment Rules, 2018 which shall come into force on the date of their publication in the Official Gazette i.e 31-07-2018. The Board shall additionally disclose, as to whether maintenance of cost records as specified by the Central Government under section 148(1) of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained and a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Further, the Rule 8(5) shall not apply to One Person Company or Small Company. New Rule 8A has been inserted to deal specifically to deal with the Matters to be included in Board’s Report for One Person Company and Small Company. [Source: MCA Notification dated 31/07/2018]

Commencement of Amended Sections of Companies (Amendment) Act, 2017 MCA has issued Notification regarding commencement of Section 36 of the Companies Amendment Act, 2017 i.e. Section 134 (Financial Statement, Board’s Report, etc ) w.e.f 31.07.2018. [Source: MCA Notification dated 31/07/2018] IBBI Updates

Insolvency and Bankruptcy Code (Second Amendment) Bill 2018 The Insolvency and Bankruptcy Code (Second Amendment) Bill 2018 was placed in the Lok Sabha and shall replace the Insolvency and Bankruptcy Code (Amendment)Ordinance, 2018. The bill brings about significant changes to improve the insolvency resolution framework in the country. Under the new Bill, Section 29A will not apply to a resolution applicant holding a non-performing asset (NPA) account due to the acquisition of a distressed asset with a non-performing account for three years from the date of such acquisition. This will ensure that corporates that have already bought a distressed

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asset are not prohibited from bidding for more such assets. The Bill also offers a disqualification breather to financial entities holding NPAs: they, too, will be exempted from Section 29A.

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018 The Insolvency and Bankruptcy Board of India (IBBI) has notified, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018 which shall come into force on the date of their publication in the Official Gazette and shall apply to corporate insolvency resolution processes commencing on or after the said date. The regulations provide for a model timeline of the corporate insolvency resolution process assuming that the interim resolution professional is appointed on the date of commencement of the process and the time available is 180 days. The salient amendments to the regulations includes, constitution of the panel of insolvency professionals to act as the authorised representative of creditors in each class, if the corporate debtor has classes of creditors having at least ten creditors in the class; An application for withdrawal of an application admitted under Section 7, 9 or 10 of the Code (for closure of corporate insolvency resolution process) may be submitted, if the application is approved by the CoC with 90% voting share; Where the appointment of resolution professional is delayed, the interim resolution professional shall perform the functions of the resolution professional from the fortieth day of the insolvency commencement date till a resolution professional is appointed. Further, a meeting of the CoC shall be called by giving not less than five days’ notice in writing to every participant. The CoC may, however, reduce the notice period from five days to such other period of not less than forty-eight hours where there is any authorised representative and to twenty-four hours in all other cases. [Source: IBBI Notification No. No. IBBI/2018-19/GN/REG031 dated 03.07.2018]

NCLT_New Bench in Jaipur, Rajasthan The Central Government has notified that a

Bench of the National Company Law Tribunal

will be set up in Jaipur, Rajasthan which will be

effective from July this year. The Central

government, in exercise of its power under

Section 419 (1) of the Companies Act, 2013, has

set up this new Bench at Jaipur. The notification

will take effect from July 1. In the absence of a

NCLT Bench at Rajasthan, all the disputes under

the Companies Act had to be heard by the New

Delhi Bench.

[Source: MCA Notification No. S.O. 3145(E) dated 28/06/2018]

SEBI UPDATES

Master Circular for Mutual Funds

SEBI has released a Master Circular for Mutual Funds which is a compilation of all the circulars issued by SEBI on Mutual Funds, which are operational as on June 05, 2018. For effective regulation of the Mutual Fund Industry, Securities and Exchange Board of India (SEBI) has been issuing various circulars from time to time. In order to enable the industry and other users to have an access to all the applicable circulars at one place, Master Circular for Mutual Funds has been prepared. The Master Circular has 18 Chapters which include Governance norms, Disclosures and Reporting norms, Loads, fees and expenses, among other things. This Master Circular shall supersede the previous Master Circular CIR/IMD/DF/ 18/ 2014 dated October 01, 2014. Further, in case of any inconsistency between the master circular and the applicable circulars, the contents of the relevant circular shall prevail.

[Source: SEBI website]

Discontinuation of acceptance of cash by Stock Brokers

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SEBI has issued circular w.r.t. Discontinuation of acceptance of cash by Stock Brokers. SEBI has taken a decision keeping in view, various modes of payment through electronic means available today, directed all the Stock Brokers not to accept cash from their clients either directly or by way of cash deposit to the bank account of stock broker. Accordingly, all payments shall be received / made by the stock brokers from / to the clients strictly by account payee crossed cheques/ demand drafts or by way of direct credit into the bank account through electronic fund transfer, or any other mode permitted by the Reserve Bank of India. Further, the stock brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. Stock Exchanges are further directed to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above direction immediately. [Source: SEBI Circular dated 12.07.2018]

RBI UPDATES Incorporation of Name of the Purchaser on the Face of the Demand Draft RBI has mandated for Incorporation of Name of

the Purchaser on the Face of the Demand Draft.

In order to address the concerns arising out of

the anonymity provided by payments through

demand drafts and its possible misuse for

money laundering, it has been decided that the

name of the purchaser be incorporated on the

face of the demand draft, pay order, banker’s

cheques, etc., by the issuing bank. These

instructions shall take effect for such

instruments issued on or after September 15,

2018. Accordingly, Section 66 of the Master

Direction on KYC dated February 25, 2016, as

amended on April 20, 2018, has been amended.

[Source: PR no. 20/2018 dated 21.06.2018]

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Mergers & Acquisitions

Sahara India to sell New York’s Plaza Hotel to Qatari firm The tiny but ultra-rich Gulf state of Qatar has agreed to buy one of New York’s most iconic buildings, the Plaza Hotel, for around $600 million, adding a development that was once owned by U.S. President Donald Trump to its luxury property portfolio. Qatar’s state-owned Katara Holding is buying full ownership of the hotel, including a 75 percent stake from Indian business group Sahara India Pariwar, a source familiar with the deal told Reuters. [Source: VC Circle, 03 July, 2018]

Sterlite Technologies to buy Italian optical cable maker for $54.3 mn Sterlite Technologies, which manufactures products for the telecom market, has agreed to acquire 100% stake in Italy-based optical cable maker Metallurgica Bresciana for 46.67 million euros ($54.3 million or Rs 373 crore) in a cash deal.In a stock exchange disclosure, Maharashtra-based Sterlite said that it would make the acquisition through its wholly-owned Italian subsidiary Sterlite Technologies S.P.A. The acquisition is being funded through a combination of debt instruments and internal accruals, the disclosure added. [Source: VC Circle, 09 July, 2018]

Cipla to acquire South African drugmaker Mirren for $33 mn Cipla Ltd, India’s second-largest drug maker by market value, has agreed to acquire South Africa’s Mirren (Pty) Ltd to strengthen its foothold in the African nation.

The Indian company will pay 450 million South African rand (Rs 228 crore or $33 million) for Mirren in cash, it said in a stock-exchange filing. [Source: VC Circle, 12 July, 2018]

Wipro to buy Alight's India operations for $117 mn Software services exporter Wipro Ltd has agreed to acquire Alight HR Services India Pvt. Ltd, the local arm of US-based Alight Solutions, for $117 million (Rs 800 crore) in cash. Wipro said in a stock-exchange filing that it expects to complete the transaction by September after receiving regulatory approvals. FCM Consulting facilitated the transaction between the two parties. [Source: VC Circle, 20 July, 2018]

Hindalco’s US unit to buy aluminium

producer Aleris for $2.6 bn

India’s Hindalco Industries Ltd said on Thursday its U.S. unit Novelis Inc has agreed to buy aluminium maker Aleris Corp for $2.6 billion, giving the company an entry into the aerospace sector and a higher customer base in the car industry. Hindalco is owned by conglomerate Aditya Birla Group. The deal will include $775 million of equity and $1.8 billion of debt which will be funded through Novelis, Kumar Mangalam Birla, chairman of Aditya Birla said. [Source: VC Circle, 26 July, 2018]

Venture Capital

1Crowd, Infuse Ventures back home Page 11

CORPORATE FINANCE R N MARWAH & CO LLP E: [email protected] W: www.rnm.in T: 011-43192000

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automation firm Silvan Innovation Silvan Innovation Labs Pvt. Ltd, which provides home automation solutions, has raised Rs 4.5 crore (around $650,000) in a bridge round from equity crowdfunding platform 1Crowd and existing investor Infuse Ventures. 1Crowd contributed Rs 2.15 crore while the rest came from Infuse Venture and a few individual investors. [Source: VC Circle, 06 July, 2018]

Microlender Sambandh gets equity funding from Singapore investor Sambandh Finserve Pvt. Ltd has raised $2.5 million (Rs 17.2 crore) in equity funding from Singapore-based Base of Pyramid Asia (BOPA) Pte Ltd, the Indian microlender's chief executive Deepak Kindo said on Wednesday. BOPA invests in small microlenders in Asia and this is its first investment in India. It had earlier invested in Vietnam, Cambodia, Timor Leste (East Timor), Myanmar and Kazakhstan [Source: VC Circle, 11 July, 2018]

Sequoia, three other VC firms invest $21 million more in Unacademy Online learning platform Unacademy has raised $21 million (Rs 144 crore) from existing investors Sequoia Capital, Nexus Venture Partners and SAIF Partners. Early-stage venture capital firm Blume Ventures, the first institutional investor in the startup, also participated in the funding round, the company said in a statement. The funding round takes the total money Bengaluru-based Unacademy has raised so far to $38.6 million. [Source: VC Circle, 17 July, 2018]

Metaform Ventures, others infuse fresh capital into Log 9 Materials Bengaluru-based nanotechnology startup Log 9 Materials Scientific Pvt. Ltd has raised Rs 3 crore ($436,000) in an extended pre-Series A round from a clutch of investors that include Metaform Ventures. The startup will use the fresh capital funds to strengthen its commercial operations, product portfolio and for research and development. [Source: VC Circle, 23 July, 2018]

Shunwei Capital backs another vernacular platform, leads $5 mn investment in Vokal Bombinate Technologies Pvt. Ltd, which runs vernacular knowledge-sharing platform Vokal, has raised $5 million (around Rs 34 crore at current exchange rates) in a Series A round of funding led by Chinese venture capital firm Shunwei Capital. Vokal is led by R Aprameya, who started the firm after his previous venture TaxiForSure was sold to ride-hailing rival Ola for an estimated $200 million in 2015. [Source: VC Circle, 26 July, 2018]

Private Equity

Blackstone to acquire Indiabulls' Chennai commercial property for $123 mn Private equity giant Blackstone Group LP has agreed to buy a commercial property in Chennai from Indiabulls Real Estate Ltd for Rs 850 crore ($123 million). The transaction is part of Indiabulls Real Estate’s decision to reorganise its commercial leasing business in India and exit non-core markets, the Mumbai-listed developer said in a statement on Friday. [Source: VC Circle, 06 July, 2018]

Morgan Stanley PE, BanyanTree pump $75 mn into education services firm NSPIRA NSPIRA Management Services Pvt. Ltd, which offers services in the education sector, has raised $75 million (around Rs 515 crore) from Morgan Stanley’s private equity arm and mid-market PE firm BanyanTree Capital. In a statement, NSPIRA said that a fund managed by Morgan Stanley Private Equity Asia (MSPEA) had pumped in around $67 million as primary capital for an unspecified minority stake in the company. NSPIRA said it would use the fresh capital to fund both its organic and inorganic growth plans. [Source: VC Circle, 11 July, 2018]

CPPIB to step up India play, explore consumer space Page 12

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Canada’s biggest public pension scheme sees India as its main focus for investment in Asia as the country pours money into infrastructure development. Canada Pension Plan Investment Board (CPPIB), which manages Canada’s national pension fund, has invested nearly C$7 billion ($5.30 billion) in India since entering the market a decade ago and is looking for opportunities to invest in Indian infrastructure, power and real estate projects. [Source: VC Circle, 19 July, 2018]

IFC to invest $23 mn in Hyderabad poultry firm Srinivasa Farms International Finance Corporation plans to make an equity investment of $23 million (Rs 158 crore) in Srinivasa Farms Pvt. Ltd to help the Hyderabad-based poultry company expand its operations. The fresh capital will help Srinivasa expand its layer, broiler and breeding operations by setting up additional farms and hatcheries, the World Bank’s private-sector investment said in a disclosure. Srinivasa Farms was founded by chairman Jagapati Rao Chitturi in 1965. The Chitturi family collectively owns about 80.04% of the company, the disclosure showed. [Source: VC Circle, 26 July, 2018]

TPG leads $100 mn investment in SME lender Five Star Business Finance

Private equity firm TPG said on Tuesday it has led a $100 million (Rs 685 crore) investment round in Five Star Business Finance Ltd, which makes loans primarily to small and medium businesses. Five Star Business Finance Ltd. provides loans to nearly 40,000 customers including single-shop retailers like vegetable vendors, provision stores, food retailers and self-employed individuals. It manages around Rs 1,220 crore in assets across more than 150 branches. [Source: VC Circle, 31 July, 2018]

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Understanding the difference between

risk appetite and risk tolerance can deter

organizations from digesting too much

risk.

By Sridhar Ramamoorti and Richard Stover

As published on May 15, 2018 in the ‘Internal

Auditor’ journal

The concepts of risk appetite and risk tolerance

were introduced in 2004 in The Committee of

Sponsoring Organizations of the Treadway

Commission's (COSO's) Enterprise Risk

Management–Integrated Framework. Specifically,

COSO defines risk appetite as "the amount of

risk — on a broad level — that an entity is

willing to accept in pursuit of value." Naturally,

organizations will have different risk appetites

depending on their industry, management

philosophy, operating style, culture, and

objectives. Therefore, a range of appetites

potentially exist for distinct risks, which may

change over time. It is conceivable that

organizations with separate business segments

with various operations or subsidiaries

operating in differing industries will have

varying levels of risk appetite. In pursuing

diverse business objectives, organizations

should broadly understand the risk they are

willing to undertake.

Risk tolerance is the acceptable range of variation

in the achievement of objectives. Both

quantitative and qualitative measures are

recommended when evaluating risk tolerance.

And while risk appetite is about the pursuit of

risk, risk tolerance is about what an organization

can actually cope with at a more granular level.

There is a lot of confusion surrounding risk

appetite and risk tolerance, providing an

opportunity for internal auditors to educate

organizational stakeholders and facilitate risk

measurement and management.

An Updated Risk Framework

COSO's 2017 framework update, Enterprise Risk

Management–Integrating With Strategy and

Performance, likely will create a heightened

expectation for risk and compliance functions.

Internal auditors are expected to educate

executive management and the board in this

area and to apprise them of key enterprise risk

management (ERM) developments. COSO's

2017 ERM revision appropriately reflects the

growing realities of the complexities and speed

of risks in the global business environment and

the need to integrate risk considerations with

strategy and performance. Internal audit is

positioned to provide an assessment of the

propriety of the measures of the organization's

risk appetite and tolerance.

The 2008 financial crisis and the subsequent

recovery highlight how some of the largest

corporations defined and measured their areas

of risk and related appetite for risk, but still

experienced massive business failures due to

their risk management systems crashing. Many

of the failures can be attributed to the lack of

understanding about the level of risk tolerance

an organization can truly accept. Despite setting

clear goals, there may not have been any

articulation of risk appetite or identification of

those responsible when risks were incurred.

Since the recovery, organizations have

developed even more systems to address and

measure their level of risk appetite, but a

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ASSURANCE

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disconnect continues to exist as to how much

risk tolerance the organization can truly

accept — despite the proliferation of chief risk

officers in certain industries.

Internal Audit's Role

As the independent function within an

organization, internal audit ideally is positioned

to assess what level of risk tolerance is truly

being accepted by an organization. The unique

relationship that internal audit has with

operational management, senior management,

and the board of directors allows for unbiased

reporting of risk appetite and the level of

tolerance that can be accepted.

Over the years, organizations were more aligned

with documenting and reporting what their risk

appetite was and did not extend that to the level

of risk tolerance the organization might accept.

In other words, organizations became adept at

measuring the size of the risk meal, but not the

potential consequences of consuming the whole

meal. Taking that analogy further, the result of

overconsumption typically leads to

indigestion — and it may lead to dire

consequences for the organization.

Addressing risk appetite and risk tolerance

under the updated COSO ERM framework leads

the internal auditor toward a matrix reporting of

the organization's risk areas, risk appetite, and

risk tolerance. Today, many internal audit

functions use reporting tools such as heat maps,

which can be adjusted to include qualitative and

quantitative measures, enhanced visual

presentations, and other forms of output

indicating the potential risk tolerance outcomes

the organization accepts.

A matrix reporting structure allows for a more

robust picture of risk within the organization to

senior management and the board. It includes

results of internal audit testing presented by

functional and business areas (See "Sample

Matrix of Risk Reporting Within Organizations"

at right). A risk issue in purchasing would be

reported not solely for purchasing, but also for

manufacturing and finance to reflect the wider

impact to the organization. Further, this

reporting would provide both quantitative and

qualitative risk tolerance and risk appetite

assessments and indicate whether additional

action may be required. To illustrate, an

automotive parts manufacturer provides its

purchasing department the forecast for its

aluminum raw material needs for the next six

months. Purchasing is rewarded based on the

level of cost controls over major essential

purchases and in preventing stock outs of

essential purchases. Suppose the purchasing

department buys double the amount requested

because the supplier offered a special volume

discount. On the surface, the organization

would have viewed its level of risk appetite in

purchasing as low because raw materials are

readily consumed. However, the level of risk

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tolerance being accepted by allowing the

purchasing department to overstock has

qualitative issues (e.g., rewards based on cost

and on preventing stock outs). From a

quantitative standpoint, the risk tolerance may

be unacceptable given that the over-ordering of

aluminum could lead to cash flow problems for

payment, logistics costs for storing excessive

amounts of inventory, and plant efficiency

issues because of the space taken up by excess

inventory. Reporting of this qualitative excess of

risk appetite to purchasing, manufacturing, and

finance would bring the wider effects into sharp

relief. Given the integrated nature of

manufacturing operations and incentive

compensation systems, such effects must be

carefully considered before taking action.

Frequently, the results of internal audit

reporting require management to address risk

appetite in a cross-functional manner. For

instance, an acceptable level of risk appetite in

purchasing may be unacceptable in finance.

Although the planning phases of ERM typically

may involve executive management across

functions, this may not be true when results of

risk assessments or findings are shared. A

concerted effort should be made to share these

results broadly to avoid narrow acceptance of

findings and unintended consequences. In other

words, the same breadth of organizational input

that went into planning should exist when

evaluating the output and outcomes as well.

A Complex Assessment

The basic risk-reward theory from financial

economics informs us that assuming a certain

threshold of calculated risk is necessary for

business success. Once a certain level of risk

within the risk appetite has been assumed, the

next step is to worry about how much more risk

can be tolerated. Business environments globally

are dynamic and ever-changing. As such, both

risk appetite and risk tolerance must be

evaluated in the context of a shifting landscape,

tracking a constantly moving target — a

complex assessment that is easier said than

done.

Specifically, with regard to risk management

policies, reference points, and boundaries, the

internal audit function must evaluate existing

risk tolerance and risk acceptance relationships

to determine whether:

Existing risk tolerances are appropriately linked to the organizational risk appetite.

Additional risk tolerances need to be created to ensure that the business is effectively managed relative to the risk appetite.

The company is operating within the risk tolerance parameters that it has established.

Once it has completed the risk assessment,

internal audit then must communicate its

findings to help senior management and the

board understand the company's current state.

Reporting in a matrix format with assessment of

risk tolerance and risk appetite by affected

functional areas is useful to allow management

to address issues in a more holistic manner. For

board and audit committee reporting, the need

is to be more concise and direct as to where

quantitative or qualitative risk tolerance and

appetite areas seem problematic (flag as red),

could be cautionary (flag as yellow), or appear

acceptable with no items to report or no action

required (flag as green). Some boards and audit

committees might only want to see items

flagged as red or yellow to avoid information

overload — critical due to myriad challenges

that many organizations face in today's volatile,

global economic environment. Volatility is the

new norm in today's business climate and

requires a greater need than ever to understand

the relationship an organization has in its level

of risk appetite and risk tolerance.

Correspondingly, this reality also underscores

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the importance of continuously re-evaluating

the risk appetite statement in light of changing

conditions.

Enhancing Risk Management Capabilities

As organizations move aggressively to enhance

their risk management capabilities, risk

assessments of risk appetite and risk tolerance

are going to assume a new and higher level of

significance. While risk appetite will always

mean different things to different people, a well-

communicated, appropriate risk appetite

statement can actively help organizations

achieve goals and support sustainability.

Clearly, risk management capabilities are

evidenced by having disciplined and systematic

ways of measuring, calibrating, and responding

to risk. In today's environment, such capabilities

have become indispensable. Unless internal

audit coaches executive management and the

board to thoroughly understand the relevance

and importance of the vocabulary around risk

and control, organizations will still not have

learned real lessons from 2008's financial crisis.

Team RNM has a pool of experienced and

talented resources to support clients in dealing

effectively with the different facets of risk

management.

Page 17

Questions for Internal Audit, Executive Management, and the

Board

Internal audit should consider:

1. Quantitative and qualitative reporting: As the internal audit department updates or develops its risk assessments of the organization by functional areas against pre-established criteria, do they report the level of risk appetite in both qualitative and quantitative terms?

2. Traffic-light indicators: Are there indictors reported in the assessment of the levels (red/problematic, yellow/cautionary, green/acceptable) of risk tolerance the organization is accepting?

3. Variability reporting: Are the levels of risk tolerance being presented in terms of variability? Are these within allowable bands of variation?

4. ERM training adequacy: Are the levels of training provided for internal audit personnel and for those in governance over risk policies, management, and acceptance processes adequate?

Management should consider:

1. Enterprise wide risk communications: Have the organization's strategies and objectives been fully communicated throughout the organization? Has this communication addressed the level of risk tolerance and risk appetite that is considered acceptable?

2. Cross-functional application: Does management have a cross-functional opportunity to address issues raised by internal audit in its reporting of its assessment of risk tolerance and risk appetite?

3. Scenario analysis: Does management view risk tolerance and risk appetite assessments using "what if" scenarios to consider business volatility?

The board and the audit committee should consider:

1. Comprehension of ERM philosophy: Does the board understand the level of risk tolerance and risk appetite being accepted in the organization and as implemented by management?

2. Board/internal audit relationship: Does the board have direct input into the level of assessment being performed by internal audit to report its results quantitatively and qualitatively?

3. Responsible and prudent governance: Is the risk reporting in sufficient detail to allow the board to fulfill its governance responsibilities to address any concerns that could affect organizational stakeholders?

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