CRITICAL ISSUES IN CORPORATE TAXATION

Report
Saturday, 23rd June, 2012
ICAI Bhawan
Baroda
Pradip N. Kapasi
Chartered Accountant
1

Tax in the hands of shareholders or recipients
◦ Bhaumik Colour, 120 TTJ 865 (Mum.) (SB)
◦ Universal Medicare, 237 CTR 147 (Bom.)
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Registered & Beneficial Owner
◦ Hotel Hilltop, 217 CTR 527 (Raj.)
◦ Ankitech (P) Ltd., 242 CTR 129 (Del.)
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Where partnership is a recipient
◦ National Travel Service, 202 Taxman 327 (Del.)
◦ Chandmull Batia, 115 ITR 388 (Cal.)
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Where beneficiary; HUF, Trust, AOP, BOI, Company
Pradip N. Kapasi
Chartered Accountant
2
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Book Entry or no economic benefit
◦ Swati Energy & Projects Pvt. Ltd., 11 ITR (Trib.) 705 (Mum.)
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Loan to a debenture holder
◦ Anilkumar Agarwal, 132 ITD 314 (Mum.)
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Loan form one subsidiary for advance to another
◦ Farida Holdings Ltd., 51 SOT 452 (Chennai)
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Two or more persons with substantial interest
◦ None. Anyone. Proration
Pradip N. Kapasi
Chartered Accountant
3
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Priority of credit u/s 115JAA over SC & EC
◦ Classic Shares & Securities (Mum.), ITA No. 5869/Mum/2007
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Withdrawal from reserves
◦ Indo Rama Synthetics Ltd. 2011-TIOL-01-SC
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Capital Gains credited to Reserves
◦ Akshay Textile Trading, 304 ITR 401 (Bom.)
◦ Kopran Pharmaceuticals, 309 ITR 146 (AT) (Mum.)
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Deduction u/s 80HHC
◦ Al Kabeer Exports Ltd. 32274 of 2010 (SC)
◦ Bhari Infotech Systems 328 ITR 380 (Mad.)
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FA 2011 Amendment
Pradip N. Kapasi
Chartered Accountant
4
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Depreciation at different rates
◦ Malayala Manorama Ltd, 300 ITR 251 (SC)
◦ Dynamic Orthopedics, 321 ITR 300 (SC)
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Loss on reduction in share capital
◦ Sumi Motherson, 2010-TIOL-756-Delhi
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Finance Act, 2012 Amendments.
◦ Compulsory credit( addition) to Book Profit
 Revaluation reserve on retirement or disposal of asset
 Year of debit
◦ ‘S.211(2) Proviso company’ – special P&L Account
 Banking, Insurance, Electricity companies
Pradip N. Kapasi
Chartered Accountant
5
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S.47(vii) and s.2(19AA)
◦ W.e.f. 01.04.2013, A.Y. 2013-14
◦ Saving from allotment of shares in consideration
◦ Where concerned company a shareholder
◦ Prospective application, only
Set-off of losses of amalgamated company- Reverse merger
◦ Wrigley India (P) Ltd., 142 TTJ 23 (Del.)
Pradip N. Kapasi
Chartered Accountant
6
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Tuticorin Alkali, 227 ITR 172 (SC)-Interest
Bokaro Steel, 236 ITR 315 (SC)-Rent
Neha Proteins Ltd, 306 ITR 102 (Raj.)- Set-off
Winsome Dyeing, 10 DTR 207 (HP) -Taxable
L.G. Electronics, 309 ITR 265 (Del.)-Set-off
Pradip N. Kapasi
Chartered Accountant
7
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Amendment of Finance Act, 2012 for STT
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Sale of promoters shares
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Private deal – SPA
Price Difference
Subsequent Listing on recognised Stock Exchange
Difficulty for s. 10(38) exemption up to A.Y. 2012-13
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◦ Bulk window & Block deal mechanism
◦ SEBI circular, MRD/SE-7 dt. 14.01.2004
◦ Guidelines
◦ Possible tax implications
◦ Cost of controlling interest
Pradip N. Kapasi
Chartered Accountant
8
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Receipt of shares of a non s. 2(18) company
By ‘firm’ and ‘company’ recipients
◦ s. 2(18) company excluded
◦ LLP included
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With/out consideration > Rs. 50,000, whole
FMV as per Rule 11UA
By or From –Resident or not
Substantive not clarificatory
Shares
◦ Preference shares included – CD not included
◦ Rights not included - Shares of subsidiaries
Pradip N. Kapasi
Chartered Accountant
9
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Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii)
◦ Amalgamation, demerger, co-op. bank succession
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No exclusions
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Similar to s. 56(2)(vii) – Relative, etc.
For stock-in-trade
For shares of foreign companies
For other exempted transfers
For deemed transfers
Adjustment in purchase cost
W.e.f. 01.06.2010
Pradip N. Kapasi
Chartered Accountant
10
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COA in hands of recipient – s.49(4)
o
o
o
o
o
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‘Subjected to tax’ u/s 56(2)(vii) & (viia)
Value that is ‘taken into account’
COA in cases where FMV < Rs. 50,000
S. 49(4) and s. 49(1)
Period of holding and s. 2(42A)
Business receipts
Receipts on distribution
On credit by payer
Deductions admissible
Pradip N. Kapasi
Chartered Accountant
11
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Issue of shares by closely held company, A.Y. 2013-14
◦ Receipt’ by a ‘CHC’ from a ‘resident’
◦ Consideration for ‘issue’ of ‘shares’
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Where exceeds face value

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Tax on excess over FMV of shares -Rs.50,000
Exemption for issue by VCC, VCF and VCU

FMV as per prescribed method or satisfaction of A.O.
◦ Non resident, R&NOR
◦ Preference shares
◦ Income of the company
Pradip N. Kapasi
Chartered Accountant
12
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Expenditure allowance
Set-off of loss
Rate of taxation
Objective behind amendment
Application of s.68
Bonus/Right entitlement/Right/CD
ESOP/ESOS
Pradip N. Kapasi
Chartered Accountant
13
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W.e.f. 01.04.2013-A.Y. 2013-14
Scope of Venture Capital Undertaking expanded
◦ Sectoral restriction of the specified business removed
◦ VCU approved under SEBI Regulation of 1996 governing VCF

Scope of s. 115U amended
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“Income received” to “income accruing or arising to or received”
“Income paid” to “income paid or credited”
Investor to be taxed on entitlementIrrespective of credit in the books- deemed credit on the last day
Advanced taxation
Expl. 2 w.e.f. 01.07.2012 inserted to remove double taxation
Pradip N. Kapasi
Chartered Accountant
14
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W.e.f. 01.07.2012
One cascading effect of DDT on Dividend relaxed
Distribution by recipient domestic company eligible for relief
◦ Need not be an ultimate holding company
◦ May be subsidiary of another upstream company
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Concession only for group companies
Pradip N. Kapasi
Chartered Accountant
15
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COA of asset in the hands of shareholder
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FMV on the date of distribution
Not to be reduced by Deemed dividend
S. 49 (1)(iii)(c) and s. 55(2)(b)(iii) - applicability
T.R.Srinivasan, 133 TTJ 49(Chennai)
Piecemeal taxation and deduction of COA
◦ Cable and Wireless Ltd., 90 ITR 84 (Bom)
◦ Inland Agencies (P) Ltd., 143 ITR 186 (Mad)
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Benefit of reinvestment
◦ Ruby Trading Co. P. Ltd., 259 ITR 54 (Raj)
◦ Brahmi Investment P. Ltd., 48 TTJ 326(Ahd.)
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Exemption – distribution of qualifying asset
◦ ‘Purchase’ or not for s. 54F
Pradip N. Kapasi
Chartered Accountant
16
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Distribution of stock - ‘other asset’
◦ Taxability of capital gains
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Receipt of an agricultural land
◦ N. Bagavathy Ammal, 259 ITR 678 (SC)
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Where shares were held as stock-in-trade
◦ G. Rajam & Anr., 64 CTR (Mad) 256
◦ Taxable as capital gains
◦ COA indexation and POH on subsequent sale
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Applicability of s. 50C
DTC effect and period of holding
Pradip N. Kapasi
Chartered Accountant
17
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Loss & Profit
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Application to a Broker
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Relevance of legislative intent
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Excl. of speculation loss for deciding applicability
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Set-off of Explanation loss and amendment of 2006
◦ Samba Trading& Investment, 58 TTJ 360(Mum)
◦ Priyasha Mever Finance P.Ltd., 5 ITR 441 (Mum)(Trib.)
◦ AMP Spg. & Wvg. Mills (P) Ltd., 101 TTJ 1113 (Ahd.)(SB)
◦ Paramount Info. Systems P.Ltd., 42-A BCAJ 169(Mum),
◦ Virendrakumar Jain, 42-A BCAJ 169(Mum.)
Pradip N. Kapasi
Chartered Accountant
18
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Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14
Law of cash creditors upto A.Y. 2012-13
◦ Provisions. Essentials. Case Laws. Rate

Expanding and extending onus for certain receipts
◦ Share capital. Share premium. Like receipts
◦ From resident- VCC & VCF excluded
◦ Closely held company
Pradip N. Kapasi
Chartered Accountant
19
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Onus to explain sources of source of receipt
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Payer to offer explanation- nature & source
Satisfaction of AO
On notice by AO to Payer
Relevance of satisfaction of Payer’s AO
Consequence
◦ Income of CHC
◦ Tax at 30% u/s 115BBE
◦ Absence of discretion
Pradip N. Kapasi
Chartered Accountant
20
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Lovely Exports (P) Ltd., 216 CTR 195 (SC)
◦ Shareholders name & address
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Steller Investment Ltd., 115 Taxman 99 (SC)
◦ Non- genuine (Owners of Funds)
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Divine Leasing, 158 Taxman 440 (Del.)
◦ Non- genuine (Owners of Funds)
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Onus shifts to AO to examine capacity
Pradip N. Kapasi
Chartered Accountant
21
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S. Hastimal, 49 ITR 273 (Mad.)
Tolaram Daga, 59 ITR 632 (Assam)
Sarogi Credit Corpn., 103 ITR 344 (Pat.)
Pradip N. Kapasi
Chartered Accountant
22
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Receipt of such amount by whatever name called
◦ Preference Shares. CD. Mergers.
◦ Para IX. Rights. Sweat-Equity
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R& NOR, change of status
Conversion of loan into equity
Expenditure for issue of capital
Set-off of losses
Pradip N. Kapasi
Chartered Accountant
23
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Motivation of payer
Dual taxation
Year of taxation
Credit in share capital account
Pradip N. Kapasi
Chartered Accountant
24
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Interest free and investment in shares commercial
expediency
◦ S.A. Builders, 288 ITR 1 (SC)
◦ Tulip star Hotels Ltd. (SC)
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Effect of s.14A on investment in shares
Pradip N. Kapasi
Chartered Accountant
25
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Date of offer or grant or allotment
◦ Dr. Dhurjati Gupta, 127 TTJ 356 (Hyd.)
◦ Pramod H. Lele, 143 TTJ 721 (Mum.)
Pradip N. Kapasi
Chartered Accountant
26
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S.209 of Companies Act
Cash system of accounting
◦ Stup Consultants Pvt. Ltd., 13 ITR (Trib) 468 (Mum.)
Pradip N. Kapasi
Chartered Accountant
27
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Scheme to be in accordance with Rule 2BA
Implication of non-compliance
◦ Warner Lambert, 143 TTJ 571 (Mum.)
◦ Sony India Ltd., 141 TTJ 432 (Del.)
Pradip N. Kapasi
Chartered Accountant
28
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Time for issue of shares
◦ Prakash Electric Co., 118 TTJ 539 (Bang.)
◦ Sanjay Singh., (2012) 19 taxmann.com 88 (Del.)
Pradip N. Kapasi
Chartered Accountant
29
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Adequacy of owned funds
◦ Reliance Utilities Ltd., 313 ITR 340 (Bom.)
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Position u/s 14A for owned funds
◦ Bunge Agribusiness Ltd., 142 TTJ 817 (Mum.)
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Applicability to MAT
◦ Goetze (India) Ltd., 32 SOT 101 (Del.)
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Rule 8D and Stock-in-trade
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CCI Ltd., ITA no. 359 of 2011 (Karnataka)
Catholic Syrian Bank, 237 CTR 164 (Ker.)
Maxopp Investment, 203 Taxman 364 (Del.)
Leena Ramachandran, 235 CTR 512 (Ker.)
Pradip N. Kapasi
Chartered Accountant
30
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Interest (net or gross)
◦ Morgan Stanley P. Ltd., 3077/M/2005
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Higher interest income
◦ Trade Apartment Ltd., 1277/Kol/2011
◦ Gillette Group, 267/Del/2012
◦ Lakshmi Ring Travellers, 2083/Chen/2011
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Administration Expenses @ 0.5%
◦ Philips Carbon Black, 566/Kol/2009
Pradip N. Kapasi
Chartered Accountant
31
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Membership of stock exchanges
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Business & Commercial rights
◦ Techno Shares & Stocks, 327 ITR 323 (SC)
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Osram India (P) Ltd., 51 DTR 297 (Del.)
Areva T&D, 315 of 2010 (Del.) - Customers
ONGC Videsh, 37 SOT 97 (Del.) - Prospection
Ashoka Info, 123 TTJ 77 (Pune) - Toll collection
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License
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Brand on amalgamation
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Goodwill
◦ Piem Hotels, 135 TTJ 228 (Mum.)
◦ KEC International Ltd., 41 SOT 43 (Mum.)
Pradip N. Kapasi
Chartered Accountant
32
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Currency translations – year end
◦ Maruti Udyog Ltd., 320 ITR 729 (SC)
◦ Woodward Governor , 312 ITR 254 (SC)
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Loss on refund of advance received
◦ Loksons Pvt. Ltd., 11 DTR 206 (Bom)
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Rollover premium and S. 36(1)(iii), 43A
◦ Elecon Eng. Ltd., 322 ITR 20 (SC)
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Loss on advance against sales
◦ Taiko CNCPL, 311 ITR 475(Delhi)
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Forex forward contracts
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Open ended
Nature of loss
Accounting
Taxation
Pradip Kapasi & Co.
33
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Payer’s perspective
◦ Revenue or capital
◦ Depreciation- tangible or intangible
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Payee’s perspective
◦ Capital receipts- capital gains, s. 55(2)
◦ Business income s.28(va)
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Guffic Chem Ltd., 332 ITR 602 (SC)
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Late Dr. B.V. Raju, 14 ITR (Trib.) 387 (Hyd.)
Tecumseh Ltd., 127 ITD 1 (Del.) (SB)
Ramesh D. Tainwala, 48 SOT 324 (Mum.)
Savita N. Mandhana, 3900/M/2010
Hami Aspi Balsara, 30 DTR 576 (Mum.)
Pitney Bowes (P) Ltd., 204 Taxman 333 (Del.)
Pradip N. Kapasi
Chartered Accountant
34
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‘Paid’ and ‘Payment’
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Short withholding, rate or section
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◦ Merilyn Shipping,146 TTJ 1 (Vizag) (SB)
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Bunge Agribusiness Ltd., 142 TTJ 817 (Mum.)
Chandabhoy & Jassobhoy, 49 SOT 448 (Mum.)
Beekaylon Synthetics, 6506/M/2008 (Mum.)
S.K. Tekriwal, 1135/Kol/2010 (Kol.)
Second proviso and retrospectability
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Bharati Shipyard, 132 ITD 53 (Mum.) (SB)
Virgin Creations, ITA No. 302 of 2011 (Cal.)
Rajamahendri Shipping, 51 SOT 242 (Vizag)
Kotak Securities Ltd., 340 ITR333 (Bom.)
DICGC Ltd., 14 ITR (Trib) 194 (Mum.)
Dynamic Vertical Software, 332 ITR 222 (Del.)
FA, 2012 Amendment
◦
Relief
Pradip N. Kapasi
Chartered Accountant
35
THANK YOU
Pradip N. Kapasi
Chartered Accountant
36

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