All citizens of India..pls take a look at this excel spreadsheet.. Its something none of us can afford to ignore. The sheet shows the progress made by our Indian banks (both public and private sector) in competing with each other to lend to real estate developers. The trends in real estate developer lending has seen robust growth whereas the amount lent to housing loan borrowers has shown a sizeable decline year on year. All the data has been collected from RBI's website..What does this data tell us?
E:\real estate shocker.mht
1. Real estate developers with poor fundamentals are financing their
working capital requirements through bank funding whereas the
needy section of our population (which is u and me)that needs
affordable housing is being declined bank loans.
2. A company like HDIL and a few other real estate companies have
increased their top management remuneration by 200% yoy in a
recessionary period like 2008-09 despite poor operating and
financial performance. Why do these companies need bank funding?
They get to have the cake and eat it too.
Remember it is your money that goes into the bank as a deposit that get lent to real estate developers. This explains the reason why real estate prices will always remain high in India. When these developers, through political nexus or some other means obtain easy loans from banks, there would be no need for them to bring down prices and make homes affordable. The needy segment and the large masses living in slums will never get housing loans to buy their dream of owning a piece of real estate.
Given this background, I would request every bank deposit account holder to enquire with your branch manager as to what is their exposure to real estate loans. We have the right to question them, since its our money they are lending out happily. Only when awareness amongst the public at large increases, will a malpractice of this magnitude end, to ensure proper allocation of funds borrowed from us by banks to the needy sections of the economy.
Else India will remain a slumdog economy:(
About Me
- dharma
- I believe in "Baptism by fire" that will transform me from an average joe to a true blue bee's knees in corporate finance and investment banking
Tuesday, October 27, 2009
Saturday, September 05, 2009
Contrarian Investing : Contrary to normal thought
Contrarian Investing, an offshoot of value investing concept has hardly failed anyone in recent history. The stocks we are going to discuss have been the biggest outperformers in the last one and half years and all of them have been contrarian investing calls. What is contrarian investing? It is about buying businesses with sound fundamentals when it reaches a price far below its worth on account of panic selling or carnage in the market or in that particular stock counter. Investors rarely act in a rational manner, engulfed in greed and emotions most of the time. In a bull market, they fail to protect their profits and in a bear market, they fail to buy fundamentally strong businesses at low valuations. Contrarian investing is about "detachment" from the herd mentality and thinking out of the box to grab a Rs.1000 currency note by just paying Rs.100. Lets see a few examples. Take Satyam computers now acquired by mahindra and renamed "Mahindra Satyam". The stock, soon after the scandal broke out, fell to never before seen junk levels of Rs.6 before rebounding to Rs.120 now all in a matter of 9 months. The value creation and compounding has been mindboggling for a 9 m tenure. Its been a multibagger generating 20 times wealth from its lows. I missed buying it and i regret it to this day. There was no guarantee when the stock fell to Rs.6 that the business would survive but i should have also known that they had 50000employees whose lives were at stake plus India's reputation as an IT destination. The country had its neck on the line and could not have afforded a catostrophe in its sunrise sector. And hey at Rs.6, my downside risk was minimal, the stock could atmost go to zero- we dont deal with integers in the stock market. So I missed the lifetime opportunity and so did many others of my ilk.
There are so many other "good" companies in the Indian market which suffered decimation at the hands of a few punters due to some bad news related to the sector or company specific negative news flow. It is at these vital moments that as investors we need to sit back for a minute and evaluate these considerations:
1. Why is the stock getting whacked out of shape? How bad is the news for the
company, what is the impact on revenues and the bottomline ?
2. What is the valuation now and how cheap does the stock look compared to its
historic valuations. Compare the PE (price earnings ratio over say 10 years) and
see how close are the valuations to the historic lows. Is the market overreacting
to bad news as was the case in Wockhardt, United Spirits, Glenmark, Orchid
pharmaceuticals etc
3. Finally when u find a stock getting decimated, just answer this one important
question. Will the business survive and the company remain a going concern. This
is the most important query the investor will have to rationalise and once he
finds the answer to be "Yes", u should just go out, take a position in the stock
and wait for the markets to reward you. Was a united spirits (UB group)going
to fail as it was saddled with huge debt?(were people gonna stop drinking- never-
there was an answer). Was Satyam going to fail ? Not a single client of theirs
had thrown the towel in even after the accounting scandal broke out. Was Glenmark
or a ranbaxy gonna go bust? they were producing vital drugs and medicines for the
world market. Will Kingfisher or Jet airways go to pieces? These are business
class airlines and people are not going to stop flying.Was Unitech going to pop
up? They have been in the real estate field for 30 years and have executed World
class projects in the NCR region. Their execution skills have been remarkable.
The debt that they had piled up had become a serious problem resulting in the
stock falling to Rs.25 last year when their yet to be launched telecom business
alone was worth Rs.15 per share. You were getting the core real estate business
for almost free at Rs.10. That was grossly absurd and many meatheads like me
missed buying it to only see the stock reach 105 yeterday. A mere regulatory
hassle or one source of revenue disappearing is not going to affect a diverse
business stream except maybe in the short run, which is when, the markets do
react irrationally giving investors the perfect opportunity to cash in on the
price advantage. Its in a crisis time when opportunity beholds itself with the
risk reward ratio perfectly in favour of the "intelligent" contrarian
investor.Remember, the markets are a voting machine in the short run but a
weighing machine in the long run.
Always remember that wherever the core business of the company is still running
strong at full steam, generating sizeable cash flows, that company shall come out
of a balance sheet or debt crisis pretty easily through various deleveraging
options. Both "timing the market" and "time in the market" matter a lot in
investing. I have learnt my lessons, have you?
There are so many other "good" companies in the Indian market which suffered decimation at the hands of a few punters due to some bad news related to the sector or company specific negative news flow. It is at these vital moments that as investors we need to sit back for a minute and evaluate these considerations:
1. Why is the stock getting whacked out of shape? How bad is the news for the
company, what is the impact on revenues and the bottomline ?
2. What is the valuation now and how cheap does the stock look compared to its
historic valuations. Compare the PE (price earnings ratio over say 10 years) and
see how close are the valuations to the historic lows. Is the market overreacting
to bad news as was the case in Wockhardt, United Spirits, Glenmark, Orchid
pharmaceuticals etc
3. Finally when u find a stock getting decimated, just answer this one important
question. Will the business survive and the company remain a going concern. This
is the most important query the investor will have to rationalise and once he
finds the answer to be "Yes", u should just go out, take a position in the stock
and wait for the markets to reward you. Was a united spirits (UB group)going
to fail as it was saddled with huge debt?(were people gonna stop drinking- never-
there was an answer). Was Satyam going to fail ? Not a single client of theirs
had thrown the towel in even after the accounting scandal broke out. Was Glenmark
or a ranbaxy gonna go bust? they were producing vital drugs and medicines for the
world market. Will Kingfisher or Jet airways go to pieces? These are business
class airlines and people are not going to stop flying.Was Unitech going to pop
up? They have been in the real estate field for 30 years and have executed World
class projects in the NCR region. Their execution skills have been remarkable.
The debt that they had piled up had become a serious problem resulting in the
stock falling to Rs.25 last year when their yet to be launched telecom business
alone was worth Rs.15 per share. You were getting the core real estate business
for almost free at Rs.10. That was grossly absurd and many meatheads like me
missed buying it to only see the stock reach 105 yeterday. A mere regulatory
hassle or one source of revenue disappearing is not going to affect a diverse
business stream except maybe in the short run, which is when, the markets do
react irrationally giving investors the perfect opportunity to cash in on the
price advantage. Its in a crisis time when opportunity beholds itself with the
risk reward ratio perfectly in favour of the "intelligent" contrarian
investor.Remember, the markets are a voting machine in the short run but a
weighing machine in the long run.
Always remember that wherever the core business of the company is still running
strong at full steam, generating sizeable cash flows, that company shall come out
of a balance sheet or debt crisis pretty easily through various deleveraging
options. Both "timing the market" and "time in the market" matter a lot in
investing. I have learnt my lessons, have you?
Tuesday, June 23, 2009
Direct taxes :Interesting case laws
For Sec 41 of income tax act and its deeming provisions to apply, there must be a deduction of expenditure, loss or a trading liability in a previous year. The deduction for the loss, expenditure or trading liability should have been duly allowed by the assessing authorities. In the year where there is any recovery of such deduction in the form of recovery of loss or expenditure or where there is a remission of trading liability, the same shall be brought to tax as deemed profits u/s 41.
Treatment of expenses in relation to issue of bonus shares:
When Bonus shares are issued, they are just capitalisation of reserves and do not involve fresh issue of capital or dilution of equity base. They do not create any enduring benefit for the assessee. Therefore under the given cirucmstances, there is no way that expenses related to issue of bonus shares can be treated as capital expenditure. They are revenue expenses deductible from business income
Treatment of expenses incurred on behalf of sister concerns
The same will be allowed as business expenditure if proved to the satisfaction of the Assessing officer that the sister concerns are vital business interests of the assessee and incidental to its operations.
Additional grounds of appeal can be raised even at the tribunal stage even if not raised before the first appellate authority provided there are reasonable grounds for raising the appeal at a later stage and the intitial omission was not wilful with an intent to deceive.
Scientific research expenditure incurred need not be related to the assessee's business for availing the deduction u/s 35.
Amount paid to retiring partner of a firm out of accumulated profits will be considered distribution of accumulated capital of the firm and Sec 45(4) shall come into force as this transaction will be treated as a transfer u/s 2(47). Though it is intended to assume control over the firm, the payment is capital in nature
Holding company receives assets on voluntary liquidation of the 100% subsidiary , the transaction will not be treated as transfer by virtue of Sec 47 which deals with transactions not regarded as transfer. Sec 47 specifically provides that Where there is a transfer of a capital asset from 100% subsidiary to holding and holding company is an indian company, the transaction shall not be liable to tax.
Where a judgement for enhanced compensation has been appealed against by the IT authorities, the same shall not accrue or be taxed in the hands of the assessee until the finality of judgement in the high court.
Mere extension of an old building will not be construed as construction of a new house for purposes of claiming exemption u/s 54F
Distribution of capital asset on dissolution of a firm to ex partners to repay the debts owed to them in the form of capital contributed by them in the past will not be covered under the mischief rule of interpreting 45(4). In the above case, yes there is distribution of capital asset on dissolution but when the same is made to ex partners, the same shall not be considered transfer that would attract capital gains.
Even where a firm is dissolved and assets are distributed and thereby taken over by a partner for his own business, the transaction will be regarded a transfer and capital gains will be attracted in the hands of the firm u/s 45(4)
where a person is a partner in a firm as a karta in representative capacity of the HUF and where his wife is a partner in the firm, he cannot be considered to be holding substantial interest in the firm based on his representative capacity and therefore salary paid to his wife will not be clubbed in his hands.
Income is accumulated in a trust on behalf of the beneficiary who is a minor and will accrue to him only upon attaining majority age..therefore until then income does not accrue to the minor. The same shall not be clubbed as it is not ready to use by minor.
What is manufacturing is a moot question u/s 80IB,,A new identifiable product must emerge from the same to render a process as manufacture
For purposes of Sec 80P, godowns and warehouses form part of cold storage and such incomes from cold storage would be exempt.
The powers to transfer cases are contained under sec 127 of the IT act. The DGCC or commissioner will have the power to transfer cases from one assessing officer to another. The assessee will be given the opportunity to be heard but cannot demand that a particular officer or a particular area be the jurisdiction for assessment. The authority effecting the transfer will go ahead with the same if it is to his satisfaction that the area where cases are being transferred has some business connection with the assessee.
As far as Sec 147 reassessment proceedings are concerned, the same can be initiated only when the assessing authority has enough reason to believe and not mere reason to suspect that income has escaped assessment. The books of accounts of the previous year were found to be defective and best judgement assessment was carried out but the same cannot be a reason for assuming that income would have escaped assessment in the previous years. There should be material evidence in posession of the authority to prove that income has escaped assessment for a particular year
If the assessee has failed to claim a particular deduction in the original return, he may claim the same by filing a revised return within the stipulated time period. A question of law can also be raised in the presence of the ITAT provided it has an impact on the income tax liability of the assessee. This was a landmark judgement where for the first time a question of law was raised in front of the apellate tribunal instead of the courts in goetze India vs CIT
Where the assessee had made certain notings in his private diary and the same was not fully disclosed in the books of account, in respect of a sale transaction of a land, such diary if seized by IT authorities will tantamount to the difference being treated as undisclosed income liable to tax. The income shall be treated as income escaping assessment and notice shall be issued u/s148 as there is sufficient material in posession and reason to believe income has escaped assessment.
Where a method of accounting has been followed regularly by the assessee year on year consistently and the same has been accepted by the tribunal, the latter cannot disallow deductions by taking a contrary stand in a fresh assessment year
Failure to furnish audit report within prescribed time as required by sec 44AB will result in penalty proceedings being initiated by AO u/s 271B. The assessee will be given an opportunity of being heard and if his reply is not convincing penal provisions will have effect. But if AO does not initiate action against the assessee then the order can be considered prejudicial to revenue and Sec 263 revisionary powers of the commissioner shall have effect.
Where penalty has been levied under Sec 271 C for not deducting tax at source, the same cannot be levied again for non payment and non filing of return as where no tax has been deducted, the question of payment and filing of TDS returns do not arise. Its a matter of substance over form. Penalty can be levied only once in respect of a particular offence. There can be no levy of penalty for an offence arising as a consequence to the offence for which penalty has already been levied.
Before the assessing officer embarks on a search mission u/s 132, if the Assessee discloses his income he can escape levy of penalty for concealment
Once a revised return has been accepted by the assessing officer or the department, the same cannot be acted upon for levy of penalty. A revised return is filed to rectify a defect in the original return and hence the same cannot be proceeded against with penal proceedings post filing of the same.
Sec 194 H does not apply to stamp vendors whereby stamp papers are sold at a discount to such vendors by the treasury. These stamp vendors are not considered agents of the treasury and no tax shall be deductible at source. These are just buyers and they are not rendering any service for them to charge commission. They are merely buying and selling and thats not service
For sec 194C to apply whats relevant is a contract for work and not a contract for sale. A contract for sale will not attract TDS provisions.
Sec 195 provisions shall apply to any payment in the nature or which carries the character of income
U/s 206C, TDS on liour price will be deducted inclusive of excise duty and relevant taxes as purchase price includes all of that
Treatment of expenses in relation to issue of bonus shares:
When Bonus shares are issued, they are just capitalisation of reserves and do not involve fresh issue of capital or dilution of equity base. They do not create any enduring benefit for the assessee. Therefore under the given cirucmstances, there is no way that expenses related to issue of bonus shares can be treated as capital expenditure. They are revenue expenses deductible from business income
Treatment of expenses incurred on behalf of sister concerns
The same will be allowed as business expenditure if proved to the satisfaction of the Assessing officer that the sister concerns are vital business interests of the assessee and incidental to its operations.
Additional grounds of appeal can be raised even at the tribunal stage even if not raised before the first appellate authority provided there are reasonable grounds for raising the appeal at a later stage and the intitial omission was not wilful with an intent to deceive.
Scientific research expenditure incurred need not be related to the assessee's business for availing the deduction u/s 35.
Amount paid to retiring partner of a firm out of accumulated profits will be considered distribution of accumulated capital of the firm and Sec 45(4) shall come into force as this transaction will be treated as a transfer u/s 2(47). Though it is intended to assume control over the firm, the payment is capital in nature
Holding company receives assets on voluntary liquidation of the 100% subsidiary , the transaction will not be treated as transfer by virtue of Sec 47 which deals with transactions not regarded as transfer. Sec 47 specifically provides that Where there is a transfer of a capital asset from 100% subsidiary to holding and holding company is an indian company, the transaction shall not be liable to tax.
Where a judgement for enhanced compensation has been appealed against by the IT authorities, the same shall not accrue or be taxed in the hands of the assessee until the finality of judgement in the high court.
Mere extension of an old building will not be construed as construction of a new house for purposes of claiming exemption u/s 54F
Distribution of capital asset on dissolution of a firm to ex partners to repay the debts owed to them in the form of capital contributed by them in the past will not be covered under the mischief rule of interpreting 45(4). In the above case, yes there is distribution of capital asset on dissolution but when the same is made to ex partners, the same shall not be considered transfer that would attract capital gains.
Even where a firm is dissolved and assets are distributed and thereby taken over by a partner for his own business, the transaction will be regarded a transfer and capital gains will be attracted in the hands of the firm u/s 45(4)
where a person is a partner in a firm as a karta in representative capacity of the HUF and where his wife is a partner in the firm, he cannot be considered to be holding substantial interest in the firm based on his representative capacity and therefore salary paid to his wife will not be clubbed in his hands.
Income is accumulated in a trust on behalf of the beneficiary who is a minor and will accrue to him only upon attaining majority age..therefore until then income does not accrue to the minor. The same shall not be clubbed as it is not ready to use by minor.
What is manufacturing is a moot question u/s 80IB,,A new identifiable product must emerge from the same to render a process as manufacture
For purposes of Sec 80P, godowns and warehouses form part of cold storage and such incomes from cold storage would be exempt.
The powers to transfer cases are contained under sec 127 of the IT act. The DGCC or commissioner will have the power to transfer cases from one assessing officer to another. The assessee will be given the opportunity to be heard but cannot demand that a particular officer or a particular area be the jurisdiction for assessment. The authority effecting the transfer will go ahead with the same if it is to his satisfaction that the area where cases are being transferred has some business connection with the assessee.
As far as Sec 147 reassessment proceedings are concerned, the same can be initiated only when the assessing authority has enough reason to believe and not mere reason to suspect that income has escaped assessment. The books of accounts of the previous year were found to be defective and best judgement assessment was carried out but the same cannot be a reason for assuming that income would have escaped assessment in the previous years. There should be material evidence in posession of the authority to prove that income has escaped assessment for a particular year
If the assessee has failed to claim a particular deduction in the original return, he may claim the same by filing a revised return within the stipulated time period. A question of law can also be raised in the presence of the ITAT provided it has an impact on the income tax liability of the assessee. This was a landmark judgement where for the first time a question of law was raised in front of the apellate tribunal instead of the courts in goetze India vs CIT
Where the assessee had made certain notings in his private diary and the same was not fully disclosed in the books of account, in respect of a sale transaction of a land, such diary if seized by IT authorities will tantamount to the difference being treated as undisclosed income liable to tax. The income shall be treated as income escaping assessment and notice shall be issued u/s148 as there is sufficient material in posession and reason to believe income has escaped assessment.
Where a method of accounting has been followed regularly by the assessee year on year consistently and the same has been accepted by the tribunal, the latter cannot disallow deductions by taking a contrary stand in a fresh assessment year
Failure to furnish audit report within prescribed time as required by sec 44AB will result in penalty proceedings being initiated by AO u/s 271B. The assessee will be given an opportunity of being heard and if his reply is not convincing penal provisions will have effect. But if AO does not initiate action against the assessee then the order can be considered prejudicial to revenue and Sec 263 revisionary powers of the commissioner shall have effect.
Where penalty has been levied under Sec 271 C for not deducting tax at source, the same cannot be levied again for non payment and non filing of return as where no tax has been deducted, the question of payment and filing of TDS returns do not arise. Its a matter of substance over form. Penalty can be levied only once in respect of a particular offence. There can be no levy of penalty for an offence arising as a consequence to the offence for which penalty has already been levied.
Before the assessing officer embarks on a search mission u/s 132, if the Assessee discloses his income he can escape levy of penalty for concealment
Once a revised return has been accepted by the assessing officer or the department, the same cannot be acted upon for levy of penalty. A revised return is filed to rectify a defect in the original return and hence the same cannot be proceeded against with penal proceedings post filing of the same.
Sec 194 H does not apply to stamp vendors whereby stamp papers are sold at a discount to such vendors by the treasury. These stamp vendors are not considered agents of the treasury and no tax shall be deductible at source. These are just buyers and they are not rendering any service for them to charge commission. They are merely buying and selling and thats not service
For sec 194C to apply whats relevant is a contract for work and not a contract for sale. A contract for sale will not attract TDS provisions.
Sec 195 provisions shall apply to any payment in the nature or which carries the character of income
U/s 206C, TDS on liour price will be deducted inclusive of excise duty and relevant taxes as purchase price includes all of that
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