TIOL-DDT 1141 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1141</font><br> 26.06.2009<br> Friday</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Computer Assisted Audit Programme (CAAP) – Auditing In An Electronic Environment</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Salient Features:</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The Departmental Audit under CAAP will involve examination and analysis of business (private) records that are maintained electronically. Under CAAP, all or a part of audit could be completed using electronic records. Trained in auditing electronic records, the Central Excise Officers who shall conduct Computer Assisted Audit shall use commercial and custom software on secure departmental computers for this purpose.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Computer Assisted Audit saves time both for the assessee and department as it takes much shorter time than manual audits as most of the records are made available to the auditor in an electronic format which are examined using a secure departmental computer. It also saves paper as an electronic audit reduces the amount of paper normally needed, produced or photocopied during an audit. The auditors spend less time at assessee's premises.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) The procedure followed in the Computer Assisted Audit is that Computer Assisted Audit starts with a meeting between the CAAP Auditor and assessee's Accounting/Systems staff. During the meeting, the CAAP Auditor would request for several information to determine the feasibility of a Computer Assisted Audit. The questions are part of a Computer Assisted audit feasibility survey and include information about –</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Hardware and Peripherals</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) Operating System used by the assessee's computer system</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) Accounting Software used by the assessee</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) Accounting Information – like chart of accounts</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) Details of information in the assessee's electronic records</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(f) Back-up and Data retention methods used by the assessee</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) Data export options supported by the assessee's systems</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(h) Conversion of the assessee's data to a format readable by departmental computers</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) The CAAP Auditor would identify specific computer files and records he/she requires for the audit and ask the assessee to provide a copy of those records on a disk or a Compact Disc (CD). He/She might also have to ask the assessee to convert the data to a format that is not proprietary and readable by departmental computers. The assessee can make a second copy of the same records provided to the CAAP Auditors.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) The auditor would next copy these records to a secure departmental computer and analyze/verify them using a combination of commercial and custom software. The assessee's data is not altered during the examination. Rather, the auditor reviews these, validates that all of the records are included in the data, summarizes them, and extracts a copy of selected records of interest to a number of reports.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) The assessee's records are handled with extreme care and are encrypted during transfer and storage. Such records obtained from the assessee are accessible by only the authorised Central Excise Officers. Upon completion of an audit or upon conclusion of any appeal or judicial review, the records provided are securely erased and CDs are destroyed. The assessee may advise the CAAP Auditors in case he (the assessee) wishes to have his CD returned. The Computer Assisted Audit in no way causes any risk to the assessee's computer or electronic records. The CAAP auditor would only ask the assessee to make a copy of the assessee records.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vii) In short, Computer Assisted Audit works by analysing a copy of assessee's electronically stored records that are provided to the CAAP auditor on a disk of Compact Disk (CD). The original records of the assessee are not “touched” or altered in any ways. The assessee's original records are not altered in any manner during the Computer Assisted Audit process. In fact, the commercial software used by the CAAP auditor is designed specifically to never alter any audit records.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/trichytradenotice.htm" target="_blank">Central Excise, Trichy Trade Notice No. 5/2009 dated June 22, 2009</a></strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">CBI case against Dy. Commissioner, Central Excise and Customs (Retd) for cheating the Govt. to the tune of Rs. 12.05 Crores</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A charge sheet was filed against a Deputy Commissioner of Central Excise and Customs (Retd) and others in the Sessions Court, Mumbai u/s 120-B r/w 420, 467, 468, 471 IPC and 13(2) r/w 13(1)(d) of PC Act 1988 and substantive offences.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The accused: </strong> the then Dy. Commissioner, Central Excise & Customs, Nanded; the then Asstt Commissioner, Central Excise & Customs Ahmednagar; the then Supdt. Central Excise and Customs, Latur ; the then Inspector (Technical), Central Excise & Customs, Naded; five Private persons.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Charge:</strong></font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Prepared fake and fabricated documents and thereby cheated govt. of India and caused wrongful loss to the tune of Rs. 12.05 crores to the Central Excise and Customs Department and thus corresponding wrongful gain to themselves.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Got the letter of permission (LOP) issued to one of the accused as 100% Export Oriented Unit (EOU) from the office of Development Commissioner Special Economic Export Promotion Zone (SEEPZ), Special Economic Zone, Mumbai and thereafter illegally sold the same to two private persons.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. got executed a forged B-17 Bond</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Issued eight Certificates (CT-3) forms for obtaining duly free Polyster Yarn despite the fact that the unit was totally non functional.</font></p> </blockquote> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">IRS </font></strong><font color="#006600"><strong> – the thug collection agency</strong></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Chuck Norris says:-</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today the IRS is the No. 1 enemy of your pocketbook. It is the government's financial mafia, the thug collection agency for government's intimidation, control, extravagant spending, corporate bailouts and national debt. It can't be overhauled or even reformed. (Congress' attempts have failed.) Who doesn't fear an IRS audit? It's the only federal agency before which you are considered guilty until proven innocent.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I have a better definition for the abbreviation "IRS": Internal Rip-off Service.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Of all the present fallacies in the American system, the IRS must be the one that causes America's Founding Fathers to roll in their graves the most. Not only is its control and power unconstitutional but also its outrageous taxations strike at the core of the very reason for America's secession from Great Britain. The Founders would be horrified by the power of the IRS and its plethora of taxes we now have to pay: income taxes, employment taxes, capital gains taxes, estate taxes, corporate taxes, property taxes, Social Security taxes, gas taxes, etc.<br> <br> The Founders were opposed to domestic taxes. They regarded high taxes and aggressive tax collectors as tyrannical and always to be guarded against. Patrick Henry warned: "Excise men may come in multitudes, for the limitation of their numbers no man knows. They may, unless the general government be restrained by a bill of rights or some similar restriction, go into your cellars and rooms and search, ransack and measure everything you eat, drink and wear."</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>When government fears its citizens, you have freedom. When citizens fear their government, you have tyranny.</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Larger Bench vs Division Bench – What if Larger Bench decision stayed by High Court?</font> </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently the ITAT, Pune had a peculiar problem. Two decisions of the Tribunal were cited before it by the two opposing parties – one that of a Special Bench of Five Members and the other of a Division Bench of two members. Normally there would have been no problem – the Tribunal should have followed the Larger Special Bench. But the Division Bench had full knowledge of the Special Bench decision and yet decided not to follow it. Now which decision is the Tribunal to follow?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal observed,</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are in a difficult situation in which both these contradictory decisions are cited before us and it is also pointed out to us that the Division Bench was fully aware of the Special Bench decision and yet, based on its independent analysis, came to a conclusion other than the conclusion drawn by the Special Bench. It is only elementary that a judicial forum's approach to disregard a binding precedent from a superior judicial forum, including by larger benches of the same judicial institution, is contrary to the first principles of the theory of judicial precedence. This legal position in this regard is very elaborately set out in a number of judgments by the Hon'ble High Courts and Hon'ble Supreme Court, including by Hon'ble Andhra Pradesh High Court's full bench judgment in the case of CIT Vs B R Constructions Pvt Ltd (202 ITR 222) and Hon'ble Supreme Court's judgment in the case of <em>Union of India Vs Paras Laminates Pvt Ltd (186 ITR 722) </em> = <strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=26&filename=legal/sc/2002/2002-TIOL-48-SC-CUS.htm" target="_blank"><font size="1">2002-TIOL-48-SC-CUS</font></a>)</strong>. As a matter of fact, a Division Bench cannot even disregard decision of another Division Bench of equal strength, leave aside a larger bench. The fact that this a conscious decision not to follow the larger bench does not make things better. When the law mandates that a Division Bench cannot disregard another Division Bench, and here is a Division Bench decision which is directly contrary to a larger bench decision, the order so disregarding the larger bench cannot be said to have any binding force. A decision does not have binding precedence value because the reasoning of the decision is undisputable or because the matter is not capable for another view being taken, even if that be so, but the decision is binding because it is delivered by a higher judicial forum and the elementary principles of judicial discipline warrant that superior wisdom of the tier below has to give way to the higher wisdom of the tier above. It is in this backdrop, we are unable to follow the decision of the Bangalore Division Bench in <em>Phillips Software's </em> case (supra), so far as the question of applicability of transfer pricing provisions in a case in which assessee is eligible for tax exemption under section 10 A is concerned, and we respectfully follow the Five Member Special Bench decision in the case of <em>Aztech Software Technology </em> (supra), and adopt the reasoning of the said decision.”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A very wise decision indeed – but here is the catch. The Larger Bench decision was stayed by the High Court in <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2009/2009-TIOL-170-HC-KAR-IT.htm" target="_blank"><font size="1">2009-TIOL-170-HC- KAR -IT</font></a> </strong> and so the decision does not exist at all. The Tribunal was right in following the Larger Bench decision – perfect judicial discipline, but unfortunately the ITAT was not informed that the Larger Special Bench decision was stayed. So the decision that survives is the decision of the Division Bench and that should have been followed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Moral of the story for Advocates and Consultants: </strong> Read <a href="http://www.taxindiaonline.com">www.taxindiaonline.com </a> for the latest decisions! If the ITAT was informed that the Larger Bench decision was stayed by the High Court, the Tribunal's decision would have been totally different.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You will have to wait till Monday for this interesting ITAT order.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">–Monday's cases</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399">Income Tax</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Reopening of assessment - It is not responsibility of assessee to advise AO with regard to inference which he should draw from primary facts – mere change of opinion, no justification - sales tax collected is to be deemed to have been paid once such sales tax deferred is converted into a loan liability: ITAT </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SALES</strong> tax collected is to be deemed to have been paid once such sales tax deferred is converted into a loan liability- From the Circular of the Board as well as from the provisions of Bombay Sales Tax Act, it is clear that the sales tax collected is to be deemed to have been paid once such sales tax deferred is converted into a loan liability. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Service Tax</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Section 80 of Finance Act, 1994 is a unique provision not found in other statutes - If discretion is there not to impose penalty under section 80 ibid, discretion is as well there to impose lesser penalty: CESTAT</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ONCE</strong> it is found that the CENVAT Credit was irregularly availed by the appellants, by implication, to that extent the Service Tax on the Output service was short paid, and it had to be recovered under Rule 14 of the CENVAT Credit Rules, 2004 - the show cause notice for invoking the provisions of Rule 14 of the CENVAT Credit Rules, 2004 read with section 11A of the Central Excise Act, 1944 and section 73 of the Finance Act, 1994 and read with section 11AB of the Central Excise Act, 1944 and section 75 of the Finance Act, 1994 for recovery of irregularly availed CENVAT credit and demanding interest respectively is perfectly in order and is within the framework of law.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">See our columns Monday for the judgements</font></strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend. </font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p> </body> </html>