Objective:

To evaluate the existing process at Factory for storage, handling & dispatch of material (AAC Blocks), to identify & report gaps along with possible solutions to optimize cost.

Process and Result:

Kreston SGCO team visited the factory during Aug`20 & observed closely the process of material handling & dispatch on the field. Proper steps were followed for dispatches as required as per sales orders, however, noted storage of AAC blocks in open area due to which during rainy season it is getting wet. Total approximately 1800 pallets (36,000 MT material) were in open area due to scarcity of space. Order-based Finished Goods being dispatched shortly after production. Noted excess weight due to rain-water absorption leading to higher freight & loading charges (additional cost) but rightly there was no addition on sales value since it was (billed on Cubic Meter)

Logistics In-charge was not ready to accept that there will be any major difference in weight of Finished Goods even if the stock is stored in covered areas to avoid absorption of rainwater. We explained that if water goes from top of pallet it will affect all internal blocks. However, if plastic sheet is placed covering the top blocks, water will not reach internal blocks and only outer blocks will be affected. This solution could save freight & loading cost with negligible expense. This was the best solution recommended depending on the availability of storage & at the same time being economical.

Despite negative response, Kreston SGCO staff was determined to challenge existing approach & arranged to “Separately Keep & monitor 2 identical pallets (1 covered on top with plastic and another kept open) and recorded weight gain due to rain water for 6 days. Total weight gain in uncovered lot was 9.71% compared to covered lot 6.19% i.e. 50% higher within 6 days. Kreston SGCO staff stood firm and escalated the situation to “Plant Head” who discussed the matter with the warehouse & logistics team to immediately implement the recommendation.

Action Taken by Client:

Client recognized & agreed on the efforts of Kreston SGCO team leading to “potential savings” of approximately INR 0.60 Million in freight and loading cost.

Client immediately acted upon & arranged plastic covers to mitigate the risk during monsoon.

Further, client is evaluating “permanent structure” for storing inventory during rainy seasons to eliminate the cause completely.

Case background & Objective:

A Private limited Company along with its partnership firms is in the business of development of units in Special Economic Zones (SEZ). They have entered into Joint Development Agreement (JDA) with another entity to develop certain part of land available with our client as a project. However, due to certain regulatory issues, the area of underlying land was neither properly transferred to JDA partner nor properly accounted in the books of our client.

Our client needs expert advice on the following:

• Efficient structures for Phase I (Undeveloped Land) and / or Phase II (Constructed Premises) for fund raising

• Suitable Structure for Partnership firms to raise funds

• Cost effective structure of the project.

• Overall efficiency in pre- and post-implementation of the project.

Process followed:

We at Kreston SGCO has obtained all the required information about our client and firms under JDA along with their financial position right from the commencement of project till date, accounting entries, area Share, etc. We have evaluated options after taking into consideration implications under SEZ Regulations, the tax laws, corporate laws including Limited Liability Partnership Act and Karnataka Stamp Act.

The following was considered for evaluating the assignment:

• accounting in the books of our client upon completion of construction and incidence of tax,

• circumstances under which area of land can be shared between the Parties under JDA and transition be considered as complete,

• definition of an “Undertaking” under the Income Tax Act,

• desired shareholding and delinking the developed and undeveloped projects,

• upstreaming of profits to the shareholders.

Result & Benefits to Client:

Based on our advice, our client had potential cost savings of around INR. 500 Million (net of all the costs including stamp duty upon demerger) over next ten years and specifically benefiting the client to:

1. Availing tax exemption of the Income Tax Act

2. Deferment of tax on the income only upon actual transfer

3. Tax neutral demerger and conversion

4. Achieving desired shareholding

Objective & Facts:

Our engagement was to represent the client before Income Tax & Police Department for TDS defaults. Police department has registered FIR in the name of Directors of the client Company based on the complaint made by Income Tax department. Our client was accused of manipulating TAN by filing numerous TDS returns with malafide intentions.

The facts of the case are as under:

Our client had appointed consultants to file their TDS & Income Tax Returns. The consultant originally filed TDS returns giving TDS credit to genuine recipient, however later filed revised TDS returns giving TDS credit to PAN of non-genuine recipients. The consultant also filed income tax returns for those non genuine recipients and have claimed refund for the TDS credited to their accounts. These non-genuine recipients were consultants’ relatives to whom tax refund was credited to their Bank accounts & later withdrawn by consultant.

Process Adopted/Followed:

We had discussion with the client and have understood that the consultant had manipulated the TDS returns. We started our process by gathering evidence from the revised return of non-genuine recipients and presented the case before Income Tax and Police department. We became part of the investigation carried out by the police department and visited various Income Tax Departments for collecting PAN, address & Bank account details of non-genuine recipients.

Challenges Faced & Remedies:

We have faced various challenges during our engagement as under:

• Preconceived notion of Income Tax & Police Department that our client had defrauded by not paying TDS amounting to INR 0.70 Million.

• Police Department proceeded on FIR thinking that the client has deducted the TDS but not deposited in government treasury.

• We become part of the police criminal proceedings under which no solicitor was appointed & was difficult for us to understand Indian Penal Code.

• Moreover, explaining the nature of fraud with collaborative evidence was a bigger challenge.

• PAN for non-genuine recipients were from different jurisdiction belonging to different places in Maharashtra, viz, Raigad, Palghar, Thane, Mumbai. Reaching to different Jurisdiction & timely obtaining details of bank accounts of non-genuine recipients was major challenge.

Result/Outcome:

Based on the FIR & Income Tax notice, our client was prime accused, however due to our investigation, representation to Income tax & Police Department, we have proved the innocence of our client. The client’s directors name was removed from the charge sheet resulting in saving Tax of INR. 0.70 Million. Moreover, the Directors was relived from the police criminal proceedings and future career hardship.