Stocks
Nifty, Sensex may try to bounce back from around 8,500 – Thursday closing report
We had mentioned in Monday’s closing report that Sensex, Nifty were lacking direction. The major indices of the Indian stock markets suffered a sharp correction on Thursday and closed more than 1.50% lower than Monday’s close. The markets had been closed for trading for two days. On Thursday, trading volumes were high confirming that the correction in indices was for real. The trends of the major indices in the course of the Thursday’s trading are given in the table below:
 
 
The Indian equity markets on Thursday plunged as investors were spooked ahead of the release of inflation macro-data and upcoming key quarterly results. Global cues such as increased chances of a US rate hike, disappointing China trade data and renewed fears of an early exit of Britain from the European Union (Brexit), too, dragged the key indices to end lower by more than 1.50% each. On the NSE, there were 349 advances, 1,290 declines and 57 unchanged. On the BSE there were 887 advances, 1,977 declines and 116 unchanged.
 
The benchmark indices opened on a negative note in sync with their Asian peers. The Asian, domestic and European markets plunged due to increased chances of US Federal Reserve (US Fed) going in for a rate hike in December. The September meeting minutes of the Federal Open Market Committee (FOMC) revealed that most members were in favour of a rate hike in the later part of the calendar year.  A rate hike can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India, and is also expected to dent business margins as access to capital from the US will become expensive. In addition, sentiments were dampened by disappointing factory output data released on Monday and anxiety over the upcoming release of key quarterly results. India's factory output remained subdued for the second consecutive month -- decelerating by (-)0.7% in August from a decline of (-)2.49% in July and a 6.3% rise in the corresponding month of last year.
 
Global software major Tata Consultancy Services (TCS) on Thursday reported Rs6,586 crore net profit for second quarter (July-September) of 2016-17 fiscal, registering 8.8% year-on-year (YoY) growth of Rs6,055 crore. In a regulatory filing to the stock exchanges, the Indian IT major said revenue for the quarter under review (Q2) increased to Rs29,284 crore from Rs27,166 crore in same period year ago, posting 7.8% YoY growth. In dollar terms, net income grew 6.3% YoY to $984 million in Q2 from $926 million, while gross income increased by 5.2% to $4.4 billion from $4.2 billion in the same period a year ago, under the International Financial Reporting Standard (IFRS). The operating profit for the quarter was Rs7,617 crore and operating margin 26%, added the filing. TCS shares closed at Rs2,328.50, down 2.17% on BSE.
 
India's annual retail inflation eased last month to 4.31% from 5.05% in August and 4.41% reported during the corresponding period of last year, official data showed on Thursday.
 
The Indian rupee weakened by 41 paise to 66.93-94 against a US dollar from its previous close of 66.53 to a greenback.
 
In terms of investments, provisional data with exchanges showed that the foreign institutional investors (FIIs) sold stocks worth Rs911.53 crore, whereas the DIIs bought scrip worth Rs679.49 crore.
 
Sector-wise, only the S&P BSE IT index remained afloat. It inched up by 18.30 points.
 
The central parity rate of the Chinese currency renminbi, or the yuan, weakened 38 basis points to 6.7296 against the US dollar on Thursday, according to the China Foreign Exchange Trading System.
 
US Federal Reserve was closer to moving up interest rate, minutes of the Fed's latest monetary policy meeting showed on Wednesday. "Several (Federal Open Market Committee) members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfounded about as the Committee expected," the minutes of the Fed's September 20-21 meeting showed. "It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labour market and inflation," said the minutes. The Fed kept its federal funds rate unchanged in its September meeting amid recent weak economic data and tepid inflation, but strongly signalled that the central bank could have one rate hike by the end of this year.
 
The minutes showed that policymakers still divided over their judgments about labour markets conditions. "Participants generally expected the unemployment rate to run somewhat below their estimates of its longer-run normal rate over the next couple of years, but they offered differing views about the extent of slack that currently remained in the labour market," said the minutes. Some policymakers held there was limited or no slack in the labour market, while some others saw room for further improvement. Some cautioned that a further delay in raising interest rate would increase the risk of the unemployment rate falling markedly below its longer-run normal level, thus calling for rapid rate increases which could dampen economic expansion. According to the minutes, many policymakers noted that there were few signs of emerging inflationary pressures. The US central bank is expected to hold its next policy meeting on November 1 and 2, just a few days ahead of the US general election.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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If an ‘informer’ is helping I-T dept on tax evasion through RTI, it is not ‘misuse’ of information
2016: Recently, a CIC decision (featured in 4th October issue of Moneylife) turned down Rakesh Kumar Gupta’s appeal for information on income tax assessments of 100 odd income tax officials in various cities. 
 
The CIC bench comprising Basant Seth and Prof M Sridhar Acharyulu stated in their order that, “Most important factor to be noticed is that appellant is ‘informer’, which means he earns money at the rate of 10% of the tax amount recovered from the taxpayers because of the information given. The question to be considered is, if he is using RTI route to collect information and verify whether assessee has suppressed income and provides that information to the I-T office. If his tip off results in recovery, he would get 10% as incentive. Whether RTI can be used to advance income interest of individual becoming ‘informer’, or whether ‘informer’ has right to such information that could fetch him income?”
 
2009: In stark contrast, the same RTI applicant, that is Rakesh Gupta sought information on proved tax evasions by Escorts Heart Institute in Chandigarh, its Research Centre in Delhi and Dr Naresh Trehan. The Public Information Officer (PIO) and First Appellate Authority (FAA) refused information by clinging on to various sub-sections of Section 8 of the RTI Act, and the third party, in this case, Dr Trehan apprehending threats to him, if the information is revealed. The then CIC, Shailesh Gandhi, putting the onus on the PIO to prove that denial of information is justified, concluded that although not necessary, this information indeed comes under ‘larger public interest’ and allowed dissemination of information sought by the applicant.
 
In his order, Mr Gandhi had stated, “The Commission concludes that no case has been made showing that any of the exemption clauses apply to the information sought by the appellant. The onus to prove that a denial of information was justified is on the PIO as per Section 19(5) of the RTI Act. Though it is not necessary, the appellant has also shown that a larger public interest of increasing public revenue and reducing corruption may be served by disclosure of the information, which would outweigh any harm to any protected interest.”
 
2016: The CIC bench defended the income tax officials who were under the radar of the RTI applicant. Their order stated, “Applicant being an ‘informer’ he is interested in his incentive which is per cent of recovered tax amount from tax evaders if based on information given by the informer. There are instances ‘informer’ claimed crores of rupees as incentive which resulted in capping of incentive at Rs2.5 lakh in 2015. This appellant wanted entire files of assets of 101 officers mentioned and hundreds of others covered in vague reference. If given, anyone can open an office­-cum­-workshop, probe individual officers along with their officers, assess tax evasion and give information about tax evasion to the department so that he will earn his share. He claims that because he is a citizen he has right to information for this purpose, he is serving nation’s interest and hence there is public interest.”
 
2009: In sharp contrast, Mr Gandhi’s order had stated, “It has been statutorily provided that informers to the Income tax Department would be rewarded. Hence, the State has recognized that the informer who gives information about tax evasion is valued and needs to be rewarded to motivate and recognise the contribution of the informer. Therefore, if the Appellant is assisting the Department by bringing instances of tax evasion to its notice, and if he is using information that he has received through RTI applications for this purpose, it cannot be considered to be misuse of information in any way, nor can it be considered to be an unwarranted invasion of privacy of the assessee. In that case, even if any of the exemption clauses of Section 8 (1) were applicable it certainly serves a larger public interest, if tax evasion is curbed. It is the stated objective of the Act - as spelt out in its preamble -  to curb corruption and it is widely accepted that evasion of taxes is facilitated because of large scale corruption in Government offices.”
 
Mr Gandhi thwarted Dr Trehan’s contention that the RTI application reeks of malice and upholds ‘public interest’: “Hence, the arguments raised by Dr Trehan that the RTI application is motivated by ill will and malice, with the motive to harass and blackmail the assessee are unfounded because as stated above a public interest is served if tax evasion is curbed. Further, no harm can be caused to the privacy of Dr Trehan in this case because the assessing authority in this case has already confirmed that in some cases tax has been evaded. The contention that the Appellant is likely to misuse the information and could endanger the life and property of the assessee also cannot be accepted. Denying information under the RTI Act on the mere apprehension that there is likelihood that the information sought can be misused would defeat the very objective of the RTI Act, which seeks to ensure the information is freely accessed. Thus if an informer is using RTI to get information which could help him to claim a reward by showing that tax has been evaded, it cannot be denied that a large public interest is being served of getting the public’s due taxes and curbing corruption.”
 
2016 - the bench sees no ‘public interest’ as can be seen in this part of the order: “How can taking information from the IT department, to give it back to the same office and making money be considered as ‘public interest’. In fact, this speaks of ‘system’ of the IT department or their efficiency. If their information could be analysed and used for enhancing recovery by an individual outsider, why not the department itself do that job? On this logic, it cannot be considered to be in public interest.”
 
 
2016: The Supreme Court order that CIC bench referred to…
 
“It is relevant to refer to what the Supreme Court in CBSE vs. Aditya Bandopadhyay, (2011) 8 SCC 497: Indiscriminate and impractical demands or directions under the RTI Act for disclosure of all and sundry information (unrelated to transparency and accountability in the functioning of public authorities and eradication of corruption) would be counterproductive as it will adversely affect the efficiency of the administration and result in the executive getting bogged down with the non­-productive work of collecting and furnishing information. The Act should not be allowed to be misused or abused, to become a tool to obstruct the national development and integration, or to destroy the peace, tranquillity and harmony among its citizens. Nor should it be converted into a tool of oppression or intimidation of honest officials striving to do their duty... The nation does not want a scenario where 75% of the staff of public authorities spends 75% of their time in collecting and furnishing information to applicants instead of discharging their regular duties. The threat of penalties under the RTI Act and the pressure of the authorities under the RTI Act should not lead to employees of a public authorities prioritising “information furnishing”, at the cost of their normal and regular duties.”
 
 
Mr Gandhi contests this. He says, “I am surprised and pained at the Commission enthusiastically quoting one of the most retrograde statements from the Supreme Court. The Act should not be allowed to be misused or abused, to become a tool to obstruct the national development and integration, or to destroy the peace, tranquillity and harmony among its citizens. Nor should it be converted into a tool of oppression or intimidation of honest officials striving to do their duty."  If this statement had been made with reference to terrorists, it would make sense. But to use this in describing citizens exercising their fundamental right is really condemnable.”
 
Unarguably, Mr Gandhi’s CIC order has merit in its interpretation of how Section 8 cannot be a hurdle if information is for a larger public interest. RTI activist Vijay Kumbhar says, “There is no clause in the RTI Act wherein information can be denied because of the ‘profession’ of the RTI applicant. Also, there is no rule that you cannot use information sought under RTI, for personal use. In this case, the applicant was doing a favour to the Income Tax department by assisting it to recover tax evasions.”
 
(Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)

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Does IDS 2016 give power to I-T officers to open decades-old files?
The recently concluded Income Declaration Scheme (IDS) 2016, while was successful in garnering hidden money of about Rs65,000 crore, also opened a window of opportunity for tax officials to open or re-open old cases or that is what the taxmen believes. A circular (No27 of 2016) issued by the Central Board of Direct Taxes (CBDT), clearly says the provisions of IDS would prevail over the provisions of earlier laws, especially time limit (of six years) allowed to re-open cases for scrutiny under section 149 of the Income-Tax (I-T) Act, 1961. Several tax professionals, including Chartered Accounts (CAs) and their representative bodies have expressed concern with this blanket prevalence before the Ministry of Finance and CBDT. 
 
CA Ameet Patel, who is former president of the Bombay Chartered Accountants Society (BCAS), says, "Till last year, there was a limit beyond which I-T department could not reopen your past assessments. However, under the IDS 2016, the tax department has done away with time limits and the taxman can go back to any number of years. Therefore, we need to save our important documents for posterity!"
 
As per Clause (c) of section 197 of the Finance Act, 2016, 
 
“where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme,—
1. such income shall be deemed to have accrued, arisen or received, as the case may be; or
2. the value of the asset acquired out of such income shall be deemed to have been acquired or made,
 
in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly.” 
 
A plain reading of the Clause suggest that the person participating in the IDS 2016 should make declarations of all undisclosed income or assets acquired in any year before commencement of the Scheme. In other words, all years beyond the six year limit. 
 
As per section 149 of the I-T Act, income escaping assessment can be brought to tax by re-opening the assessment for maximum six-seven previous years. In case there is any undisclosed income detected by the department, beyond that then such income cannot be brought to tax since there is no power with the I-T department to re-open and assess or reassess such income of the assessee. 
 
However, by incorporating Clause C under Section 197, the tax authorities are being handed over powers to assess or re-assess cases beyond the six-year time limit. For example, if the I-T Officer (ITO) detects some undeclared income of the assessee during assessment year 2017-18 (FY2016-17) and issues notices under Section 142, 143(2), 153(A) and 153 (C), then the undisclosed income relating to any AY before six years, would be deemed income of the assesses for AY2017-18 (since notice was issued in this year) and would be assessed as income of the assessee as per normal provisions of the I-T Act.
 
In an article published at Mondaq, two writers, Asim Choudhury and Rohan Poddar of Khaitan & Co, says, the provisions in IDS goes against the basic tenets of the I-T Act and may be unconstitutional as under Article 265 of the Constitution of India. "...even if for the sake of argument if we consider that section 197(c) in actuality supersedes the law of limitation it cannot under any circumstances render null and void the entire basis of charge of tax under Section 4 and Section 5 of the I-T Act. Section 4 of the I-T Act lays down that income is charged in respect of total income of previous year which has been defined under Section 3 of the Act. Section 5 talks about scope of total income of any previous year. Therefore, total income is always calculated with respect to 'previous year', which means the financial year immediately preceding the assessment year. Section 197(c) of IDS peculiarly contemplates the situation where income shall be deemed to have accrued arisen or received in a year in which notice under section 142/ 143(2) /148 /153A /153C of the Act is issued and the provisions to apply accordingly."
 
"...in the case of Black Money Act, which has a similar provision, the law of limitation not applying is understandable because of criminalisation of the act of evading tax in relation to foreign income. However, non-disclosure and consequent non-payment in case of domestic income remains a civil liability and as such dispensing with limitation is not warranted. Enacting a provision disregarding settled limitation principles is grossly unjust and only leads to incongruity," the article says.

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