The ruling was delivered by a Mumbai ITAT bench of Shri Pramod Kumar and Shri B. R. Mittal.
Kushal K Bangia V. ITO [TS-51-ITAT-2012(Mum)]
The capital markets regulator, Securities and Exchange Board of India (Sebi), today announced several measures aimed at checking manipulators and reducing wide fluctuations in the share prices of companies making their stock market debut.
At present, there is no limit on share price movements on the day of listing of shares following a public offer. This was allowed to enable price discovery but also leads to huge fluctuations on either side. From day two onwards, the circuit filters which cap stock movements to five per cent, 10 per cent or 20 per cent, depending on the size, come into play.
Sebi now plans to introduce this circuit filter on listing day itself. The new rules, to take effect four weeks from now, will include extending the ‘pre-market call auction’ window on listing day and delivery-based trading for the first 10 days.
“In light of the high volatility and price movement observed on the first day of trading, it has been decided to put in place a framework of trade controls for Initial Public Offer (IPO) and re-listed scrips,” said the regulator in a circular.
Further, for issues of ~250 crore or less, only delivery based trades will be allowed for the first 10 days after listing. The pre-open call auction window, which currently is used for Nifty and Sensex stocks, will be used for arriving at an equilibrium price on the first day of trade of an IPO and relisting stocks. However, unlike index stocks, where the window is for 15 minutes, IPO stocks will have a one-hour window between 9 and 10 am. The first 45 minutes will be for order entry, modification and cancellation, the next 10 minutes for order matching and trade confirmation, and the remaining five minutes shall be the buffer period to facilitate transition from preopen session to the normal trading session.
In case the equilibrium price is not discovered for relisted stocks, all orders shall be cancelled and the scrip shall continue to trade in the call auction mechanism until the price is determined. For IPO scrips with issue size of less than ~250 crore and re-listed scrips, a 100 per cent margin shall be required for the order to be eligible in the pre-open session.
Under normal trading, stocks with issue size of less than ~250 crore will trade in a price band of five per cent of the equilibrium price. For issues greater than ~250 crore, the price band will be 20 per cent of the equilibrium price. In case the equilibrium price is not discovered in the call auction, similar price bands linked to the issue price will be applicable.
Market experts said the move would definitely help reduce volatility. “These were much-need steps. Introduction of trade-to-trade on issue size of below ~250 crore will help in reducing manipulation considerably, if not totally,” “The immediate impact will be fewer issues. All operators driven IPOs will be out,” “The process of trade to trade will hurt the market. No jobber will come. That will affect liquidity in the stock. Brokers who participate in IPO funding will also take a hit.”
Regulator introduces circuit filters and pre-open call auction for IPO stocks and relisted scrips on Day One
Under normal trading, stocks with issue size of less than ~250 crore will trade in a price band of five per cent of the equilibrium price
In view of the two decisions of the Supreme Court which held the field when the return was filed, the claim was patently disallowable. The claim was also not discernible on the face of the record and the details of expenses had to be gone into in order to decipher the claim. The argument that the assessee does not have expertise in taxation matters and so it relied on expert opinion is not acceptable because the opinion was furnished for accounting purposes. An accountant’s view is not really material for deciding the deductibility or otherwise of an expenditure. The assessee knew about the problem at the time of filing of return, but still made the claim. Not only this, the claim was pursued even up to the level of the CIT (A) in gross disregard for the decision of the Supreme Court, which the assessee came to know at least after receiving the assessment order. Therefore, the claim was not only wrong but also false and it was persisted with for some time. The fact that the assessee did not even seek explanation from the tax auditor or the CA gave the impression that the whole thing was a sham.
Though the assessee owned the unaccounted transactions only after search action, when an assessee admits his mistake and that he has committed a wrong and offers the additional income to tax, it cannot be said that his statement is false or not bona fide. Neither the CIT (A) nor the Tribunal were completely clear about the exact amount of concealment and there was no conclusive evidence as some additions had been deleted. S. 271(1)(c) gives discretion to the AO to exonerate the assessee from levy of penalty even in case where the assessee has concealed the income or furnished incorrect particulars of income. Penalty should not be imposed merely because it is lawful to do so. The AO has to exercise his discretion judiciously. If an assessee files a revised return though at a later stage or discloses true income, penalty need not be levied. No doubt, merely offering additional income will not automatically protect the assessee from levy of penalty but in a given case where the assessee came forward with additional income though after detection because he was not in a position to explain the seized material properly and expresses remorse in his conduct un-hesitantly, the AO has to exercise the discretion in favour of such assessee as otherwise the expression ‘may’ in s. 271(1)(c) becomes redundant. In a case of admitted income, concealment penalty is not automatic. The discretion vested in the AO should be used not to levy penalty. On facts, the case was most befitting to exercise such discretion because there was divergent opinion while deleting or sustaining the addition and there was no conclusive proof that the assessee concealed income or furnished inaccurate particulars of income. The assessee’s offer was to avoid litigation. If the AO had clinching evidence of concealment, he should not have accepted the assessee’s offer and should have proceeded on the basis of material on record (VIP Industries 112 TTJ 289, Siddharth Enterprises 184 TM 460 (P&H) & Reliance Petro Products 322 ITR 158 (SC)
In a Portfolio Management Scheme, the choice of securities and its period of holding is left to the portfolio manager and the assessee has no control. Only the portfolio manager can deal with the Demat account of the assessee. While, at the time of depositing the amount, the assessee will make entry in his books of account as investment in PMS, he is not aware of the transactions in the shares being entered into by the portfolio manager on his behalf as his agent. Since the assessee comes to know about the purchase and sale of shares under PMS after the expiry of the quarter, the accounting treatment in the books of the assessee in respect of shares purchased/sold by the portfolio manager under PMS cannot be entered in the books of the assessee. It is at the end of the year the shares available in the DEMAT account can be entered. Therefore, at the time of deposit of amount, the intention of the assessee was to maximize the profit. As the purchase and sale of shares under PMS is not in the control of the assessee at all, it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment. The portfolio manager carried out trading in shares on behalf of his clients to maximize the profits. Therefore, it cannot be said that shares were held by the assessee as investment. The fact that the transactions were frequent and its volume was high indicated that the portfolio manager had done trading on behalf of the assessee. The fact that the shares remaining at the end of the year were shown under the head ‘investment’ makes no difference. Even the LTCG is assessable as business profits and s. 10(38) exemption is not available. The fact that the AO took a contrary view in the preceding year is irrelevant. There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. There is, however, a difference between investment in a mutual fund and PMS.
The AO has jurisdiction to make a reference to the TPO only if there is an “international transaction”. Though the question as to whether there is an “international transaction” may be disputed, the AO is not obliged to grant hearing to the assessee, invite and consider the objections with respect to the question whether there was an “international transaction” before making a reference to the TPO. The AO’s opinion has to be based on available material and would have “ad-hoc” finality. The power cannot be exercised arbitrarily or at whims or caprice. S. 92C (1) has inbuilt safeguards to ensure that the reference is made only in appropriate cases with approval of the higher authority. At the stage of framing the assessment in terms of the TPO’s report the AO is entitled (despite the amendment to s. 92CA(4)) to consider the objections of the assessee that in fact there had been no “international transaction”. If the assessee succeeds in establishing such fact, the AO would have to drop the entire transfer pricing proceedings. Even the DRP has the power to consider whether there was an international transaction or not and it can annul the computations proposed on the basis of the TPO’s order. However, the TPO has no jurisdiction to decide the validity of any such reference and his task is only to determine the ALP. On facts, as the parties were closely related and the assessee had accepted in the preceding year that the transactions were subject to transfer pricing, the AO’s reference could not be interfered in writ proceedings.
S. 72 (1) allows brought forward business loss to be set-off against the “profits & gains of any business or profession” of the subsequent year. The expression “profits & gains of business” means income earned out of business carried on by the assessee and not just income connected in some way to the business or profession carried on by the assessee. The land & building were fixed & capital assets used by the assessee for its business purposes. The gains arising there from were assessable as capital gains and were not eligible for set-off against the brought forward business loss u/s 72 (Express Newspapers 53 ITR 250 (SC) followed; Cocanada Radhaswami Bank 55 ITR 17(SC) distinguished; Steelcon Industries reversed)
Rule 10B(e)(iii) provides that “the profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market“. While the “differences” are not specified, it covers “any differences” which could materially affect the amount of net profit margin. The litmus test to be applied is if the ‘difference, if any, is capable of affecting the NPM in open market? If yes, then the TPO is under statutory obligation to eliminate such differences. The revenue cannot say that difference is likely to exist in all accounts and so the demands of the assessee should be ignored. The revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO/TPO/DRP to minimize/eliminate the difference which is likely to materially affect the price. It is the settled proposition that ‘working capital’ adjustment is an adjustment that is required to be made in TNMM. The revenue’s contention that the ‘differences’ specified should refer to only (i) the factor of demand and supply; (ii) existence of marketable intangibles i.e. brand name etc; (iii) geographical location and the like is not acceptable. Further, as the difference in the Arm’s length Operating Margin of the Comparables before and after making the adjustment for working capital was up to 3.77%, it was “material” and had to be eliminated (Mentor Graphics 109 ITD 101 (Del), E-gain Communication 118 ITD 243 (Pune) Sony India 114 ITD 448 (Del) & TNT India followed)
Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.
Led by Japan’s $3 trillion and the US’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.
Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. The International Monetary Fund cut its forecast for growth this year to four per cent from a prior estimate of 4.5 per cent as Europe’s debt crisis spreads, the US struggles to reduce a budget deficit exceeding $1 trillion and China’s property market cools.
“The weight of supply may be a concern,” Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd, which oversees $121 billion, said in a December 28 telephone interview. “Rather than the start of the year being the problem, it’s the middle part of the year that becomes the problem. That’s when we see the slowdown in the global economy having its biggest impact.”
Competition for buyers
The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the US’s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.
“It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that’s one of the biggest problems,” Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands, part of the world’s biggest agricultural lender, said in an interview on December 27.
While most of the world’s biggest debtors had little trouble financing their debt load in 2011, with Bank of America Merrill Lynch’s Global Sovereign Broad Market Plus Index gaining 6.1 per cent, the most since 2008, that may change.
Italy auctioned 7 billion euros ($9.1 billion) of debt on December 29, less than the 8.5 billion euros targeted. With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government must refinance about $428 billion of securities coming due this year, the third-most, with another $70 billion in interest payments, data compiled by Bloomberg show.
Borrowing costs for G7 nations will rise as much as 39 per cent in 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys. China’s 10-year yields may remain little changed, while India’s are projected to fall to 8.02 per cent from about 8.39 per cent. The survey doesn’t include estimates for Russia and Brazil.
After Italy, France has the most amount of debt coming due, at $367 billion, followed by Germany at $285 billion. Canada has $221 billion, while Brazil has $169 billion, the U.K. has $165 billion, China has $121 billion and India $57 billion. Russia has the least maturing, or $13 billion. CARRYING THE BURDEN
Bond and bill redemptions and interestpayments in 2012 for G7 countries, Brazil, China, India and Russia
Country 2012 bond, bill redemptions- Interestpayments
Japan 3,000 117
United States 2,783 212
Italy 428 72
France 367 54
Germany 285 45
Canada 221 14
Brazil 169 31
United Kingdom 165 67
China 121 41
India 57 39
Russia 13 9
Figures in US$ billion Source: Bloomberg
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