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Sec 56(2)(vii)(b)(ii): Addition on account of difference between stamp duty value and purchase consideration for agricultural land made under a provision which was introduced subsequently – AO could not apply amended provision retrospectively – Further, payment of actual consideration duly established – Addition unsustainable.

27 [2025] 122 ITR(T) 312 (Lucknow- Trib.)

Smt. Vimla Tripathi vs. ITO

ITA NO.: 310 (LKW.) OF 2023

A.Y.: 2013-14 DATE: 31.12.2024

Sec 56(2)(vii)(b)(ii): Addition on account of difference between stamp duty value and purchase consideration for agricultural land made under a provision which was introduced subsequently – AO could not apply amended provision retrospectively – Further, payment of actual consideration duly established – Addition unsustainable.

FACTS:

The assessee filed her return of income for the AY 2013-14. Subsequently, based on third-party information, the Assessing Officer noticed that the assessee, jointly with another person, had purchased an agricultural land on 01.08.2012 for a declared consideration of ₹12,00,000.

The AO observed that the market value of the land for stamp duty purposes was ₹71,30,000. Upon response from the assessee to notices u/s 142(1), she provided documentary evidence showing details and modes of payment, copies of bank statements and the sale deed.

Finding a discrepancy of ₹59,30,000 between the stamp duty value and actual consideration paid, the AO treated 50% of such difference (i.e., ₹29.65 lakhs) as income of the assessee under section 56(2)(vii)(b)(ii), since the property was jointly purchased.

The assessee contended that the transaction took place on 01.08.2012 and provision of section 56(2)(vii)(b)(ii) was introduced by Finance Act, 2013 and came into effect only from 01.04.2014 (A.Y. 2014-15). Therefore, the said provision could not be applied to a transaction undertaken in A.Y. 2013-14.

Despite these submissions, the NFAC dismissed the appeal, upholding the addition made by the AO.

HELD:

ITAT observed that the transaction was carried out in F.Y. 2012-13. The provision under section 56(2)(vii)(b)(ii), which sought to tax the difference between stamp duty value and actual consideration for property purchases, was introduced w.e.f. 01.04.2014 and was applicable only from A.Y. 2014-15 onwards. Therefore, it could not be applied retrospectively to a transaction of A.Y. 2013-14.

The Tribunal noted that the CIT(A)’s observation that the transaction was “without consideration” was factually incorrect. The assessee had placed on record the bank statements and the sale deed evidencing payment of ₹6 lakhs (her share of the total ₹12 lakhs consideration). Hence, the transaction involved actual consideration and was not a gift or zero-value transfer.

ITAT further held that, the assessee also raised a valid legal argument that agricultural land is not treated as a “capital asset” under section 2(14) and thus not subject to the deeming provisions of section 56(2)(vii)(b)(ii), which apply only to capital assets.

Accordingly, the Tribunal found merit in the assessee’s arguments, quashed the order of the CIT(A),  and directed the Assessing Officer to delete the addition of ₹29.65 lakhs made under section 56(2)(vii)(b)(ii).

Sec 145 – Percentage Completion Method (PCM) – Rejection of consistently followed method of accounting without any defects or inconsistencies – Addition of entire actual sale value led to double addition as income had already been recognised on accrual basis under PCM in earlier years – Not permissible – Once accepted, accounting method cannot be altered without just cause.

26 [2025] 122 ITR(T) 154 (Ahmedabad – Trib.)

ITO vs. Sainath Land Developers

ITA NO.: 441 (AHD.) OF 2020

A.Y.: 2015-16 DATE: 31.12.2024

Sec 145 – Percentage Completion Method (PCM) – Rejection of consistently followed method of accounting without any defects or inconsistencies – Addition of entire actual sale value led to double addition as income had already been recognised on accrual basis under PCM in earlier years – Not permissible – Once accepted, accounting method cannot be altered without just cause.

FACTS

The assessee, a partnership firm was engaged in real estate development. The return was selected for limited scrutiny under CASS. During the course of assessment, the Assessing Officer noted that the assessee had shown opening work-in-progress (WIP) of ₹6.47 crores and had sold flats and shops worth ₹4.20 crores during the year. However, the sales reported in the profit and loss account amounted to only ₹55.70 lakhs.

The assessee explained that it had been consistently following the Percentage Completion Method (PCM) of revenue recognition since A.Y. 2012-13, which had been accepted by the Department in earlier assessments.

The AO concluded that the difference between the stock sold (₹4.20 crores) and the sales disclosed (₹55.70 lakhs) represented undisclosed sales and made an addition of the entire ₹4.20 crores to the assessee’s income.

Aggrieved, the assessee filed an appeal before the CIT(A), who deleted the entire addition. The Revenue preferred further appeal before the Tribunal.

HELD

ITAT observed that the assessee had consistently followed PCM, which is a recognised method of accounting as per the Accounting Standards issued by the ICAI. The Revenue had accepted this method in earlier years without raising any objection. And AO failed to point out any defects or discrepancies in the books of accounts maintained by the assessee.

ITAT observed that the addition made by the AO resulted in double taxation of the same profits – first when revenue was recognised under PCM in earlier years and again when full actual sales were considered in the current year.

ITAT held that once a method of accounting has been accepted by the Department and regularly followed by the assessee, it cannot be rejected in subsequent years unless a material change in facts is demonstrated. In the present case, no such change or deviation was shown by the AO.

Thus, the ITAT held that the method of accounting consistently and correctly followed by the assessee under the Percentage Completion Method could not be rejected in the absence of any defect or inconsistency, and the addition of ₹4.20 crores was rightly deleted by the CIT(A).

S. 54F – Capital gain arising out of surrender of tenancy rights is eligible for exemption under section 54F if the developer-builder has allotted a residential flat without any consideration against such surrender by executing Permanent Alternate Accommodation Agreement. S. 56 – Once an income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.

25 (2025) 174 taxmann.com 1015 (Mum Trib)

Vasant Nagorao Barabde vs. DCIT

ITA No.: 5372 (Mum) of 2024

A.Y.: 2018-19 Dated: 22.05.2025

S. 54F – Capital gain arising out of surrender of tenancy rights is eligible for exemption under section 54F if the developer-builder has allotted a residential flat without any consideration against such surrender by executing Permanent Alternate Accommodation Agreement.

S. 56 – Once an income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.

FACTS

The assessee and his daughter entered into agreement for Permanent Alternate Accommodation (PAA) dated 21.9.2017 with the developer whereby the tenancy rights in respect of residential premises in building “SS” in Mumbai were surrendered. The developer agreed to provide and allot on ownership basis, without any consideration, one flat in the new building proposed to be constructed on the said property. The stamp value of the said property was ₹2,88,85,600. The assessee filed his return of income on 15.08.2018 reporting total income at ₹61,34,820.

Case of the assessee was selected for limited scrutiny for the reason that purchase value of property was less than stamp value. Since no explanation came from the assessee, the AO completed the assessment under section 143(3) making an addition of ₹2,88,85,600, being the stamp duty value for which no consideration was paid by applying section 56(2)(x)(b)(B).

Against this, assessee went in appeal before CIT(A). Before the CIT(A), the assessee filed detailed explanations and additional evidence under rule 46A. However, the CIT(A) dismissed the appeal of the assessee.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) It was an undisputed fact that both the assessee and his daughter were tenants in the registered agreement for PAA dated 21.09.2017 under which flat in the new building had been allotted by the developer against surrender of tenancy rights. Existence of tenancy was not in dispute.
(b) It was important to note that there was a surrender of tenancy rights against which a new flat had been allotted for which a registered deed was executed. Once there is a surrender of tenancy rights, the factual position which emerges was that tenancy right (which is a capital asset) was transferred and was liable to be taxed under section 45 read with section 48.

(c) The moot point that arose was as to in whose hands this capital gain was to be taxed depending upon who owned the tenancy rights and who transferred the same to the builder against which the new flat was allotted. In present set of facts, it could be either the assessee or his daughter. In either case, deduction under section 54F was available against the capital gain so computed since there was an investment in residential flat allotted by the builder by way of PAA of equivalent stamp duty value of ₹2,88,85,600. Thus, in either hands, the capital gain so computed was eligible for deduction under section 54F in toto.

(d) Once an income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. Thus, applicability of section 56(2)(x)(b)(B) was ruled out.

(e) Claim of the assessee for deduction under section 54F against the capital gain on the impugned transaction was an allowable claim by taking into account the observation of Supreme Court in the case of Goetze (India) Ltd. whereby Court held that “nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee.”

Accordingly, the appeal of the assessee was allowed.

S. 70 – Short-term capital loss (on which STT was paid) can be set off against short-term capital gains (on which STT was not paid) as per section 70(2).

24  (2025) 174 taxmann.com 932 (Mum Trib)

Teacher Retirement System of Texas vs. ACIT

ITA No.: 1371 (Mum) of 2025

A.Y.: 2022-23 Dated: 23.05.2025

S. 70 – Short-term capital loss (on which STT was paid) can be set off against short-term capital gains (on which STT was not paid) as per section 70(2).

FACTS

The assessee was a resident of the United States of America, and was registered as a Foreign Portfolio Investor with the Securities and Exchange Board of India. For AY 2022-23, the assessee filed its return of income on 26.07.2022, declaring a total income of ₹1,392,97,42,630. The return filed by the assessee was selected for scrutiny.

During the assessment proceedings, it was observed that the assessee computed the net short-term capital gains amounting to ₹312,17,86,831, after set off the short-term capital loss [on which securities transaction tax (STT) was paid], which is taxable at 15% under section 111A, against the short-term capital gains (on which STT was not paid), which is taxable at 30% under section 115AD. Thereafter, the assessee set-off the balance loss against the short-term capital gains earned on the transaction of sale of share subjected to STT. The AO held that section 111A and 115AD provide different rate of taxes and the assessee’s manner of setting-off its short-term capital loss, taxable at 15%, first against the short-term capital gains taxable at 30%, and the balance set off against the short-term capital gains taxable at 15% was disallowed. Accordingly, vide draft assessment order dated 14.3.2024, he computed the short term capital gain by first setting off 15% loss against 15% gains, and thereafter, set off with other gains.
Dispute Resolution Panel (DRP) rejected the objections filed by the assessee and upheld the computation of capital gains made by the AO vide draft assessment order.

Aggrieved, the assessee filed an appeal before ITAT

HELD

The sole issue before the Tribunal was whether the short-term capital loss (on which STT was paid) can be set off against short-term capital gains (on which STT was not paid)

Following the decisions of co-ordinate bench in a number of cases, the Tribunal observed that as per the provisions of section 70(2), the short-term capital loss can be set off against gain from any other capital asset. Section 70(2) does not make any further classification between the transactions where STT was paid and the transactions where STT was not paid and the term “similar computation” in section 70(2) only refers to the computation as provided under sections 48 to 55.

Accordingly, the Tribunal directed the AO to accept the methodology adopted by the assessee for the computation of capital gains.

In the result, the appeal of the assessee was allowed on this ground.

S. 56 – The term “immovable property” in section 56(2)(x) includes agricultural land. S. 56 – Where the assessee disputes the stamp duty value, the Assessing Officer is required to refer the matter to District Valuation Officer (DVO).

23 (2025) 174 taxmann.com 1111 (Ahd Trib)

Clayking Minerals LLP vs. ITO

ITA No.: 82 (Ahd) of 2025

A.Y.: 2018-19 Dated: 27.05.2025

S. 56 – The term “immovable property” in section 56(2)(x) includes agricultural land.

S. 56 – Where the assessee disputes the stamp duty value, the Assessing Officer is required to refer the matter to District Valuation Officer (DVO).

FACTS

The assessee filed its income tax return on 30.08.2018, declaring a loss of ₹1,24,010 for AY 2018-19. Subsequently, the case was selected for limited scrutiny to examine whether the purchase value of a property was less than the value determined by the stamp valuation authority under section 56(2)(x). During the course of assessment proceedings, the AO noted that the assessee purchased a property for ₹42,72,000 having stamp duty value of ₹1,15,62,880. The assessee contended that since the property was agricultural land at the time of purchase, it did not qualify as a “capital asset” as per section 2(14), and therefore, section 56(2)(x) was not applicable. The AO held that section 56(2)(x) was attracted and taxed the difference of ₹72,90,880 between the purchase consideration and the stamp duty value under the head “income from other sources”.

CIT(A) affirmed the addition of the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) On a plain reading, it is seen that section 56(2)(x) mentions the term “any immovable property”. The term “immovable property” has not been defined in section 56(2)(x) or in any other section in the Income Tax Act. This renders the word to be interpreted in general parlance. In general understanding of the term, the word “immovable property” means an asset which cannot be moved without destroying or altering it. Going by the general definition, “immovable property” would include any rural agricultural land, in absence of any specific exclusion in section 56(2)(x).

(b) Notably, section 56(2)(x) does not use the word “capital asset”. The sale of rural agricultural land is exempt in the hands of the seller since the word “capital asset” has been specifically defined to exclude agricultural land in rural areas under section 2(14). Thus, sale of rural agricultural land shall not give rise to any capital gains in the hands of the seller as it is not considered as a capital asset itself. However, from the point of view of the “purchaser” of immovable property, section 56(2)(x) mentions “any immovable property” which going by the plain words of the statute, does not specifically exclude “agricultural land”.

(c) However, since the assessee had disputed the stamp duty value, the AO was required to make a reference to the DVO for the purpose of valuing the same as per third proviso to section 56(2)(x).

Accordingly, the matter was referred to the file of the AO with a direction to refer the valuation to DVO as requested by the assessee.

Editor’s Note: Please refer detailed analysis of this judgement in the Controversy Column of this issue on page 60

The expression “on the occasion of marriage” used in proviso to section 56(2)(vii) cannot be given restricted meaning. When the gift is associated with the event of marriage, the immediate reason or cause for the gift is the marriage of the recipient, it would be covered by the said expression and the relationship between the gift and the marriage is the relevant factor and not the time of making the gift.

22 Dhruv Sanjay Gupta vs. JCIT

ITA No. 5749/Mum./2024

A.Y.: 2013-14 Date of Order : 20.6.2025

Section : 56(2)(vii)

The expression “on the occasion of marriage” used in proviso to section 56(2)(vii) cannot be given restricted meaning. When the gift is associated with the event of marriage, the immediate reason or cause for the gift is the marriage of the recipient, it would be covered by the said expression and the relationship between the gift and the marriage is the relevant factor and not the time of making the gift.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee claimed to have received gifts of ₹2,11,35,523 which he claimed to have been received on the occasion of his marriage. The assessee got married on 8.12.2012. The amounts of gifts received on occasion of marriage comprised of a sum of ₹2 crore received from Shri Anil Kumar Goel and balance ₹11,35,523 from Siddharth Jatia.

Anil Kumar Goel is the first cousin from paternal grandfather. The cheque from Anil Kumar Goel was dated 8.12.2012 and the Memorandum of Gift dated 8.12.2012 was also executed for the said gift. The cheque got cleared and credited to the bank account of the assessee on 18.12.2012 i.e. 10 days after the date of marriage. As regards second gift of ₹11,35,523 it was submitted that Siddharth Jatia is a family friend from Singapore and has gifted USD 21,000 vide cheque dated 4.12.2012 which has been gifted vide Gift Deed dated 4.12.2012. This cheque was cleared on 2.1.2013.

The Assessing Officer (AO) held that the amounts claimed by the assessee to be gifts on the occasion of marriage were received by the assessee after the occasion of the marriage, based on dates of clearing of cheques and amount getting credited to the bank account of the assessee. He thus, held that these transactions of gift received by the assessee are sham transactions wherein assessee has been used as a benami to build up his capital.

While treating the transaction of gift as sham transaction, AO observed in his order that there was a meagre balance in the bank account of the donor, Shri Anil Kumar Goel as on 13.12.2012 at ₹7,523. Also, on 16.12.2012, the balance was only ₹8,39,201. It was only on 17.12.2012 that the donor received ₹1.40 Crores from one, Shri Pinku Bagmar and ₹50 lakhs from grandfather of the assessee, i.e., Shri Devki Nandan Gupta. It was out of these funds that the cheque of gift given to the assessee was encashed and funds got transferred to the bank account of the assessee. According to the AO, the funds got transferred much after the date of marriage which occurred on 08.12.2012.

The AO took a view that no person can give a gift of money on a particular day which he does not possess or does not actually have. On the date of cheque i.e. 08.12.2012, Shri Anil Kumar Goel did not have sufficient balance in his bank account to give the gift of ₹2 Crores which was actually transferred to the assessee on 18.12.2012 after the receipt of moneys from Shri Pinku Bagmar and Shri Devki Nandan Gupta. Thus, he concluded that the amounts received by the assessee as gifts are not covered under the proviso to section 56(2)(vii), since the same were not received on the occasion of marriage but much later after the marriage. The AO also made an observation that gift received by the assessee was transferred back to Shri Devki Nandan Gupta on 19.12.2012. According to the AO, if assessee has received the gift for his marriage, then what was the need for him to transfer the same on the next day to Shri Devki Nandan Gupta. Based on these observations, AO concluded that transaction of gift is a sham transaction and assessee has been used as benami in the transactions between Shri Anil Kumar Goel and Shri Devki Nandan Gupta for building up of capital without incidence of tax.

In respect of the second gift from Shri Siddharth Jatia, the AO enquired from the bank by issuing notice u/s.133(6) about the said transaction. Based on this enquiry, AO noted that the said credit of amount of ₹11,35,523 mentioned by the bank is against export advance proceeds USD 4,779.85 by Manish Export. Based on this fact, AO concluded that it is not a gift received on the occasion of marriage but a sum received by the assessee without any consideration and therefore chargeable to tax.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where further documentary evidences were submitted to substantiate creditworthiness of Shri Anil Kumar Goel and also of Devki Nandan Gupta. As regards certificate given by the Bank it was submitted that the Bank had inadvertently given a wrong certificate. Foreign Inward Remittance Certificate in Form 10H was produced to demonstrate that the amount received was gift.

HELD

The Tribunal held that the AO has taken a microscopic view of the term used in proviso to section 56(2)(vii) relating to “on the occasion of marriage”. The expression “on the occasion of marriage” used in proviso to section 56(2)(vii) cannot be given restricted meaning. When the gift is associated with the event of marriage, the immediate reason or cause for the gift is the marriage of the recipient, it would be covered by the said expression and the relationship between the gift and the marriage is the relevant factor and not the time of making the gift. Clause (b) of the proviso to section 56(2)(vii) mentions that the provisions of clause (vii) shall not apply to any sum of money or any property received “on the occasion of marriage of an individual”.

The Tribunal held that the observations made by the authorities below to be more of surmises and conjectures in nature rather than those made by bringing any cogent material on record to disprove the documents and the explanations furnished by the assessee. The Tribunal having taken into account all the documentary evidences and explanations, found that the gifts received by the assessee on the occasion of his marriage, though the amount were credited at a later date, which is 10 days after the date of marriage in the case of gift received from Shri Anil Kumar Goel and 15 days in the case of gift received from Shri Siddharth Jatia, i.e., on 02.01.2013 since the cheque was issued from the Singapore branch of the bank of the donor, are covered by the proviso to section 56(2)(vii) as the same are received by the assessee on the occasion of his marriage. Microscopic view taken by the AO of the expression “on the occasion of marriage” to receive a gift on the day of marriage as well as to get the account credited on the same date was held to be devoid of real-life situations.

The Tribunal deleted the addition made by the AO.

Where assessee is otherwise eligible to claim deduction and has submitted computation, mere typographical error in claiming deduction under section 54 instead of section 54F does not disentitle the assessee from getting relief under section 54F. Limitation of allowing deduction only if claimed in the return of income applies only to the AO and not to the Appellate Authority which can allow correct claim if facts on record support the claim being made.

21 Seema Srivastava vs. ITO

[2025] 175 taxmann.com 374 (Patna – Trib.)]

A.Y.: 2017-18 Date of Order : 6.6.2025

Sections : 54, 54F

Where assessee is otherwise eligible to claim deduction and has submitted computation, mere typographical error in claiming deduction under section 54 instead of section 54F does not disentitle the assessee from getting relief under section 54F. Limitation of allowing deduction only if claimed in the return of income applies only to the AO and not to the Appellate Authority which can allow correct claim if facts on record support the claim being made.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee in her return of income declared capital gains arising on sale of immovable property and claimed deduction under section 54. During the course of assessment proceedings, the Assessing Officer (AO) disallowed the claim of deduction made under section 54 on the ground that the asset sold was not a residential house. Although section 54F could have applied, the AO held that assessee had not claimed deduction under section 54F nor submitted the requisite details.

Aggrieved, assessee preferred an appeal to the CIT(A) and contended that she was eligible to claim deduction under section 54F but had inadvertently claimed it under section 54 and this was a clerical error which should have been ignored and the rightful claim under section 54F should have been allowed. The CIT(A) rejected the ground of appeal and held that the eligibility of claim under section 54F was not substantiated.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal considered the rival submission and having gone through the order of the Supreme Court in the case of Goetze India Ltd. vs. CIT [(2006) 284 ITR 323] agreed with the contention of the assessee that the limitation for allowing the deduction by filing a revised return is applicable only to the AO and not to the Appellate Authority. Accordingly, the CIT(A) ought to have allowed the deduction u/s 54F of the Act. It held that since this is a purely legal issue and the mistake occurred at the level of the AO and on behalf of the assessee, it was submitted that the matter may be sent back to the AO as he has disallowed the claim without specifying the fact that section 54F of the Act was not applicable.

The Tribunal held that since the assessee had purchased a residential house and was eligible for deduction u/s 54F of the Act, the order of the CIT(A) was to be set aside and the matter was remitted to the AO to allow the claim u/s 54F of the Act on the basis of evidence filed by the assessee. In case any further evidence is required, the same may also be furnished by the assessee before the AO. The action of the Tribunal was in light of the settled judicial principle that the claim under a wrong section does not bar the assessee from making the claim under the correct section, if the assessee is otherwise eligible. Even though the deduction has to be claimed in the return of income for being allowed by the AO, however, this limitation is only for the Assessing Authority and the Appellate Authority can grant the exemption/deduction claimed if the facts on record convey so. ,

 

Non-filing of Form 68 is only a technical or venial breach which should not snatch away the substantive right to claim immunity from levy of penalty, which assessee got vested with on fulfilment of substantive conditions mandated in Clause (a) & (b) of sub-section (1) of section u/s. 270AA of the Act.

20 New Dawath Traders vs. ITO

TS-119-ITAT-2025 (Mum.)

A.Y.: 2017-18 Date of Order : 14.2.2025

Sections: 270A, 270AA

Non-filing of Form 68 is only a technical or venial breach which should not snatch away the substantive right to claim immunity from levy of penalty, which assessee got vested with on fulfilment of substantive conditions mandated in Clause (a) & (b) of sub-section (1) of section u/s. 270AA of the Act.

FACTS

The assessee firm engaged in the business of wholesale rice trade in the name and style of M/s. Dawath Traders filed its return of income for AY 2017-18, on 30.10.2017, disclosing total income at ₹6,52,740. Later, the premises of the assessee was surveyed u/s.133A of the Act on 17.03.2017 and based on the survey findings, the return was selected for scrutiny and the AO assessed total income at ₹55,46,812 and since, the assessee has offered ₹30 lakhs under PMGKY Scheme, net-assessed income came down to ₹25,46,812.

Pursuant to the assessment order dated 30.12.2019, assessee remitted the tax computed at ₹8,70,297 within 30 days of the demand, and didn’t file any appeal against the assessment order dated 30.12.2019. Thus, assessee claimed that it was eligible/entitled for immunity from imposition of penalty u/s.270AA of the Act. However, the AO didn’t agree, because assessee didn’t file Form 68 before him, within the period stipulated under sub-section (2) of section 270AA of the Act. Accordingly, he issued notice u/s.270A of the Act, despite having taken note of the assessee’s assertion that it had paid tax & interest as per the assessment order u/s.143(3) of the Act dated 30.12.2019 [within the period specified in the notice of demand] and not having preferred an appeal against the assessment order.

The AO levied penalty u/s.270A of the Act, alleging assessee’s failure to explain on merits against disallowance/addition made in the assessment order and imposed penalty u/s.270A of the Act for under-reporting of income by levying penalty of ₹2,72,549 @ 50% of the amount of tax payable on under-reported income.

Aggrieved, assessee preferred an appeal to the CIT(A) who confirmed the action of the AO by observing that immunity [from levy of penalty u/s.270A of the Act] could have been granted only if the assessee had filed Form 68 within one month from the end of the month in which the assessment order has been received. In the absence of filing of such form, he rejected the claim of immunity and also observed that the assessee didn’t bring any evidence to show that the assessee’s case would fall under Rule 6DD of the Income Tax Rules, 1962 to exclude the transaction from violation of sec.40A(3) of the Act, which led to the disallowance of Rs.47,64,072.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the assessee-firm has fulfilled conditions prescribed u/s.270AA of the Act for claiming immunity from imposition of penalty u/s.270A of the Act by duly remitting the tax & interest as per the order of the assessment as well as not filing any appeal against the assessment order dated 30.12.2019. Thus, it is noted that the assessee has fulfilled the conditions under Clause (a) & Clause (b) of sub-section (1) of section 270AA of the Act. However, the assessee didn’t file before the AO the application for immunity in Form 68 as prescribed by sub-section (2) of section 270AA of the Act. In case, if the assessee had filed Form 68 within the prescribed period stated in subsection (2), [i.e. within one month from the end of the month in which the assessment order was received by assessee] then the AO should have granted immunity from imposition of penalty u/s.270A of the Act. Having fulfilled both the conditions for grant of immunity as stipulated under clause (a) & (b) of sub-section (1) of section 270AA of the Act, which are substantive in nature except not filing Form 68 before AO, the assessee, in substance assessee was entitled for claiming immunity from imposition of penalty u/s.270A of the Act.

The Tribunal observed that courts are meant to do substantial justice between the parties, and that technical rules or procedure should not be given precedence over doing substantial justice. Undoubtedly, justice according to the law, doesn’t merely mean technical justice, but means that law is to be administered to advance justice [refer the decision dated 30.10.2017 of the Supreme Court in the case of Pankaj Bhai Rameshbhai Zalavadiya vs. Jethabhai Kalabhai Zalavadiya in Civil Appeal No.155549 of 2017].

In the given factual background, according to the Tribunal, non-filing of Form 68 was only a technical or venial breach which should not snatch away the substantive right to claim immunity from levy of penalty, which assessee got vested with on fulfilment of substantive conditions mandated in Clause (a) & (b) of sub-section (1) of section u/s.270AA of the Act. The Tribunal noted that it has been further brought to its notice that assessee has filed Form 68 [a copy of which is found placed at Page Nos.1-3 of the Paper Book which has been uploaded in the IT portal].

Considering the overall facts, the Tribunal held that no penalty ought to have been levied u/s.270A of the Act for under-reporting of income. It directed deletion of the penalty levied.

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You have options to access it on your browser, use it as a desktop app, or even download it as an app on your iPhone or Android phone.

The free version allows you to do unlimited basic searches, 3 Pro searches per day and upload 3 files per day for summaries and / or analysis. The Pro version unlocks the full capabilities of Perplexity and enjoy new perks as they are added.

Try it today, you may never need to look at any other AI tool for a while.

https://www.perplexity.ai/

Action Notch: Touch The Notch

Transform your camera hole cutout or notch into a powerful shortcut button! With Action Notch, enjoy features inspired by Assistive Touch and Dynamic Island, allowing you to perform tasks using gestures like single tap, double tap, long press, or swipe. Simplify your daily interactions, protect physical buttons, and enhance multitasking with this must-have app!
You can record audio / videos on recorder or Front/ Back camera instantly without opening the relevant app. Take screenshots, toggle flashlight, lock your screen or open any of your favourite apps. You can also control your brightness, ringer mode, music and much more with just a tap.

All you need to do is configure your favourites to respond to various pre-set gestures and you are done!

Using Action Notch protects your phone’s physical buttons from wear and tear. It is fully customizable to fit your needs and simplifies multitasking for a seamless experience.

Android : https://bit.ly/4ksioyt

Your News

This app keeps you updated with the news that matters to you! With Your News, you are in full control of your content, including RSS feeds, YouTube channels, and Reddit posts. Read updates directly in the app or continue from your home screen with customizable RSS widgets. Enjoy the best content without distractions—only the news you care about, all in one place.

It does not require a sign-up, no cloud access and no hassles. You can quickly add your favourite RSS feeds, YouTube Channels, Reddit feeds with dedicated buttons, making it simple to tailor your personalised news aggregator experience. You can even use the search button to find feeds by website name or explore new content in the Discover Section.

If you want to stay focused only on the content that interests you, you may apply custom keyword filters to show or hide articles based on specific topics or keywords.

Get started with Your News today and enjoy the most personalissed, private, and convenient news reading experience!

Android : https://bit.ly/45K0lPP

Spot Scam Mobile / Email / Website / Apps

These days, we come across multiple scams where lay users are driven to suspicious websites or apps and tricked into revealing their personal details, leading to financial loss.

The Government of India has now come up with a suspicious list of Mobile nos., Email ids, Website URLs and Apps to warn users before they transact with them.
So, if you are asked to go to a particular site or app or communicate with a Mobile no. or email id, you may visit https://cybercrime.gov.in/, go to the Report & Check Suspect Tab, and look up the relevant telephone no., address or website. If the target is suspicious and/or flagged, the website will let you know the problem. The same tab can be used to report a suspicious Site or phone number or email id or website.

And, unfortunately, if you have been scammed, do not panic – just dial 1930 from anywhere in India and report the incident with full details and the Cybercrime experts will help you trace the suspect and your money as soon as possible.

 

A similar service is also available at the Global Level. Just visit https://www.scamadviser.com/ and check out the suspicious target at the international level. This site has a huge repository of scams at the international level and provides valuable guidance when visiting unknown websites, rating them and even giving reasons for the rating, so that you can be cautious when dealing with them.

Better be safe than sorry – prevention is better than cure!

Learning Events at BCAS

1. 19th Residential Study Course on GST @ Kolkata

The Indirect Tax Committee organised its 19th Residential Study Course at The Westin, Rajarhat, Kolkata, between 12th – 15thJune 2025, exclusively on Goods & Service Tax. More than 310 delegates attended the program from over 60 towns and cities in India.

The Study Course started with Shree Ganesh Vandana and the lighting of lamp. Later, it was inaugurated by Shri Shrawan Kumar, Chief Commissioner of Central GST & Central Excise, Kolkata Zone, who spoke on the 8 years of GST and the way forward. Shri Ranjit Kumar Agarwal, immediate Past President of the Institute of Chartered Accountants of India, was the guest of honour. Chairman CA Govind Goyal welcomed all the participants, and Past Chairman CA Deepak Shah spoke about various activities of BCAS.

The first technical session on day 1 was a presentation paper by CA. Mandar Telang on the topic – “Addressing the deficiencies in Returns, Forms & Portal through effective documentation & strategic preventive steps”. The session takeaways primarily covered the facts that inadvertent mistakes are not akin to fraud, and for proper facts, justice is received even though it might be delayed. Committee member CA. Vikram Mehta chaired the session.

On day 2, the participants deliberated on the case studies in the group discussion format on the Panel Discussion paper on the topic “Real Estate Transactions”. The participants were divided into seven groups, each group led by 2 group leaders. As an innovative approach, the role of group leaders in each group was divided into “pro-revenue and pro-taxpayer” so that the participants get an understanding of the likely stand that can be taken by the department also. This format of GD was appreciated by the delegates.

After the GD session, the delegates gathered for the 2nd technical session by Adv. (CA) Ankit Kanodia. It was a presentation session on the topic of “Penalties under GST”. Committee Member CA. Jayesh Gogri chaired the session.

The 3rd technical session was the replies to the Panel Discussion paper on the topic “Real Estate Transactions”. The panel comprised of CA. A R Krishnan, as Moderator, CA. Sunil Gabhawalla & CA. A. Jatin Christopher as panelists. CA. Sunil Gabhawalla’s replies were from the taxpayer’s perspective, while CA. A. Jatin Christopher’s replies were from the Department’s perspective. Past President CA. Govind Goyal chaired the session.

On day 3, the participants deliberated on various case studies involved in the Group Discussion paper on the topic “Assorted Issues in GST”. This was followed by the 4th technical session – “T-20 capsules”. This is the continuous 4th year wherein selected delegates are invited to submit a detailed research paper on the assigned topic and further make a 20 minutes brief presentation on the technical topic at the RSC, thus providing them a forum to express their views on technical topics in just 20 minutes, i.e. in T20 Format. Committee Member CA. Prashant Deshpande chaired the session.

The sightseeing arrangements were made for the delegates, and they were delighted to visit the Victoria Memorial, Belur Math and Dakshineshwar Kali Temple. The delegates enjoyed the outing.

On the concluding day, i.e., day 4, the 5th technical session was the replies on the Group Discussion Paper by CA. S S Gupta. The session was chaired by the Vice President, CA. Zubin Billimoria.

The RSC concluded with acknowledgements and thanks to all those who had worked towards making the event a success, especially the Paper Writers, Group Leaders, Mentors, Panelists, Article contributors to the paper book and others who had worked tirelessly to deliver a seamless experience. Last but not least, thanks were expressed to the participants, without whom the sessions would not have been so interactive. Overall, it was an enriching experience and was appreciated by all the participants. This 4-day Residential Study Course at Kolkata (the city of joy) concluded with sincere appreciation for the tremendous efforts put in by the conveners CA Dushyant Bhatt, CA Gaurav Save and CA Parth Shah.

2. BCAS Town Hall Meeting @ Kolkata

The Bombay Chartered Accountants’ Society (BCAS) successfully conducted a Town Hall Meeting in Kolkata on 14th June 2025, on the sideline of the 19th Residential Study Course on GST. Organised with the support of CA Sanjay Poddar, CA Arup Das Gupta, and CA Abhishek Agarwal, the event brought together members for an open dialogue on professional development, Society initiatives, and future opportunities in the region.

The meeting featured key inputs from BCAS leadership:

  •  CA Zubin Billimoria, Hon. Vice President, provided an overview of the Society’s structure, committee ecosystem, and the contributions of its 250+ core group members.
  •  CA Mandar Telang, Hon. Treasurer, outlined recent initiatives, stressed the importance of local study circles, and expressed BCAS’s enthusiasm for future events in Kolkata, supported by active member involvement with the help of other sister organisations and local representatives.
  •  CA Gaurav Save offered insights into the efforts behind the GST RRC and shared how online Indirect Tax Study Circles have broadened access to national subject matter experts.

The event also featured active participation from attending members, who shared their expectations and ideas. Office bearers engaged constructively, addressed the queries raised and assured members of continued support in tailoring future programs to local needs.

Esteemed professionals, including CA Sushil Kumar Goyal, Past Central Council Member, ICAI, graced the occasion, making it a memorable and impactful exchange of ideas.

This Town Hall reaffirmed BCAS’s focus on regional inclusivity and its resolve to co-create meaningful platforms for professional excellence.

3. Webinar on Opportunities for CAs in Oman held on Tuesday, 10th June 2025@ Virtual

The webinar organised by the Seminar, Membership & Public Relations Committee enhanced the audience’s understanding of the opportunities present in Oman concerning practice, employment, and business. Around 200 participants registered for the event – drawn from across the country and mainly holding senior positions.

India and Oman are on the verge of signing a Comprehensive Economic Partnership Agreement (CEPA), which is expected to create new prospects in accounting, taxation, and transfer pricing for Chartered Accountants.

The Guest of Honour, Ms. Juhaina Al Balushi from the Ministry of Commerce, Industry, and Investment Promotion, addressed the participants regarding the investment climate in Oman and the tax incentives available for newly established businesses.

Dr. Yousuf Hamed Al Balushi, a respected thought leader and former employee of the Central Bank of Oman, provided valuable insights into the mining, renewable energy, and financial services sectors.

CA Jay Duseja discussed the employment opportunities in Oman, along with the practical considerations for relocating to the country. Additionally, CA Abhishek Vaishya outlined the necessary steps to establish an auditing or consultancy firm in Oman.

The webinar concluded with a Q&A session with participants sharing their questions and seeking clarifications.

Youtube link: https://www.youtube.com/watch?v=Jlt6aUSQxig

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4. International Economics Study Group – In the context of the Trade war, what are the Strengths, Weaknesses & Threats to China, and what are the opportunities for India vis-a-vis China held on Monday, 9th June 2025 @ Virtual

The meeting was led by CA Harshad Shah & CA Vijay Maniar and presented the following:

Strength of China: World’s 2nd Largest Economy, Manufacturing Powerhouse, Large Domestic Market, Largest Foreign Reserves, Infrastructure Development, Technological & Innovation, Major Trading Partner to Many Large Economies, Over-Reliance on Many Sectors, Products, & Critical Minerals in many countries, Large, Competent Labor Pool with Unmatched Productivity, World’s Largest Military etc.

China’s Weaknesses: Authoritarian & Police State, Systemic Issues in Governance, Corruption, Chinese Demographic Disaster, Rising Unemployment in Youths, Real Estate Market Collapse, Very High Debt Levels, Export Dependency, Overcapacity, Untested Military (5+ Decades) etc.

Opportunities for India: Manufacturing & Supply Chain Diversification, Export Growth to the U.S. Market, Attracting Foreign Investment, Aviation and Aerospace Opportunities, etc.

Threats to China: Shutdown of Industries reliant on the US Market, Unemployment from Industrial Shutdowns, Disruption of Supply Chains, Infrastructure Overexpansion, Risk of Recession, Risk of Technological Decoupling & Containment, Currency, Financial & Stock Market Volatility, Stress on China’s Fragile Banking System, Potential for Protests and Civil Unrest etc.

5. Four-Day Study Course on Foreign Exchange Management Act (FEMA) held on 30th to 31st May 2025 & 6th to 7th June 2025 @ Virtual (except the last day in Hybrid Mode at BCAS)

Four Day Study Course on Foreign Exchange Management Act, 1999 (FEMA) – on Day 4, it was planned as FEMA Focus – Advanced Perspectives on Foreign Exchange Laws

The first three days of the course were online and Day 4 was in hybrid mode. Many participants (including some from outside Mumbai) were present at the BCAS office and appreciated the personal interaction with speakers and networking opportunities with peers. The course was attended by nearly 300 participants.

This course covered the basic concepts of FEMA. The objective was to simplify extremely complex provisions for the participants. The course was comprehensive, and all key aspects of FEMA were covered. The speakers shared their vast experience with the participants and covered concepts as well as their practical applications. The examples and insight into real-life scenarios deeply enriched the participants.

After 3 days of covering basics, the last day focused on advanced level discussions and participants who were interested only in that day’s proceedings enrolled separately for the seminar “FEMA Focus – Advanced Perspectives on Foreign Exchange Laws”.

Day 4 began with an address by Dr. Aditya Gaiha, Chief General Manager, Foreign Exchange Department, Reserve Bank of India – who shared the regulator’s perspective and shed light on certain developments that are likely to take place over the next few months. It is worthwhile to note that he spoke at a professional forum after a long time and his session was greatly appreciated by the participants.

Other sessions on Day 4 covered advanced concepts and practical insights on succession in cross-border scenarios and cross-border restructuring.

The final session was a panel discussion with esteemed members of the profession. Interesting case studies were discussed during the panel discussion, and panelists shared divergent views on various issues.

Overall, the course was very enriching for the participants in terms of conceptual understanding as well as practical insights on FEMA.

6. Direct & Indirect Tax – Concept & Intricacies of Joint Development Agreements held on Friday, 6th June 2025@ Hyderabad.

The Bombay Chartered Accountants’ Society (BCAS) organised an engaged its first Sherpa Event in Hyderabad on 6th June 2025 at the G. P. Birla Auditorium. The Sherpa Initiative is BCAS’s national reach-out project aimed at deepening relationships with members and the wider community by appointing dedicated BCAS representatives (‘Sherpas’) in various towns and cities across India. These Sherpas act as a vital bridge between BCAS and local Chartered Accountant communities, helping plan and execute high-quality professional development programs while upholding the society’s strong ethical standards.

The session focused on the ‘Concept and Intricacies in Direct & Indirect Tax related to Joint Development Agreements’, featuring insightful presentations by CA Jagdish Punjabi (Direct Tax) and CA Mandar Telang (Indirect Tax). A highlight of the session was an interactive Q&A round lasting over an hour, addressing practical issues and real-world challenges faced by professionals.

The event was efficiently organised by Hyderabad’s Sherpa – CA Siddharth Mantri, whose efforts ensured smooth conduct and meaningful interaction. It saw an overwhelming response with 125+ Chartered Accountants in attendance, including 60+ non-members, reflecting BCAS’s growing reach and relevance. Additionally, an open dialogue led by Past President CA Narayan Pasari and CA Kinjal Bhuta provided participants with a deeper understanding of BCAS’s vision, the Sherpa Initiative, and the society’s ongoing activities and opportunities for members and aspiring professionals alike.

The evening concluded with a lively networking meet and dinner, fostering connections and camaraderie among the participants.

7. Supply Chain – A Gold-mine for Internal Auditors held on Friday, 6th June 2025@ Vile Parle.

The Internal Audit Committee hosted a full-day seminar, “Supply Chain – A Gold Mine for Internal Auditors,” on 6th June 2025, at the Ginger Hotel in Vile Parle. This event brought together over 60 participants eager to learn from distinguished supply chain experts from both industry and consulting practice.

Esteemed speakers included Mr Amit Kumar Baveja, Mr Vineet Jajodia, Mr Venkatadri Ranganathan, Mr Pankaj Raut, Mr Kaushal Mehta, Mr Chetan Thakkar, and Mr Govind Purohit. They generously shared their wealth of experience and insights with an engaged audience.
The seminar delved into the complexities of the supply chain, emphasising how internal auditors can play a pivotal role in helping organisations manage risks and disruptions. Key topics explored during the sessions included:

  •  The dynamics of supply chains amid the rise of AI, automation, sustainability initiatives, and the current geopolitical landscape.
  •  Technologies employed by companies to mitigate supply chain disruptions.
  •  Fraud detection and prevention in supply chain audits.
  •  The digital transformation of supply chains, sustainability, and ESG reporting, particularly within the B2C sector.
  •  Practical case studies on supplier risk management.

This seminar provided valuable knowledge and strategies for internal auditors, helping them enhance their contributions to the ever-evolving field of supply chain management.

9. Lecture Meeting on Recent Judicial Pronouncements under GST held on Wednesday, 21st May 2025 @ Virtual.

BCAS hosted a virtual lecture meeting on recent jurisprudence in GST, which was delivered by Senior Advocate Mr Vikram Nankani. The session covered over ten significant court rulings, with Mr. Nankani providing clear and insightful explanations that helped demystify complex legal concepts.

Attendees greatly appreciated the depth of his knowledge and the structured manner in which he presented the evolving legal landscape under GST. His perspectives offered valuable guidance for professionals in the field.

The session concluded with a formal vote of thanks, expressing gratitude for Mr. Nankani’s time and contribution. More than 300 Participants acknowledged the enriching nature of the lecture with a round of virtual applause.

Youtube link: https://www.youtube.com/watch?v=QF4ZFe70lGc

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9. Direct Tax Home Refresher Course – 6 held from 17th May 2025 to 31st May 2025 @ Virtual.

Taxation Committee of the Bombay Chartered Accountants’ Society, in collaboration with the Association of Chartered Accountants, Chennai, Chartered Accountants Association, Ahmedabad, CA Association of Jalandhar, The Chartered Accountants Study Circle, Chennai, Hyderabad Chartered Accountants Society, Karnataka State Chartered Accountants’ Association and Lucknow Chartered Accountants’ Society, Maharashtra Tax Practitioners Association, Pune, Chartered Accountants Association, Surat and All India Federation of Tax Practitioners (West Zone), organized its flagship online course known as Direct Tax Home Refresher Course – 6.

The course again this year got a good response from the participants and more than 480 total registrations were received for the course. There were 14 sessions, where 14 speakers from different
cities across India covered 14 important topics on direct tax.

Session 1 CA Narendra Jain delved into an overview of Section 536 of the New Income Tax Bill and its impact on the scope and charge of income. He covered the issues which can emerge during this transition from the current Income Tax Act to the New Income Tax bill.

Session 2 was taken by CA T G Suresh, where he gave a detailed presentation on Capital Gains including recent amendments and issues emerging out of that.

Session 3 was on the subject of Transfer Pricing, where CA Vijay Iyer discussed the recent developments and jurisprudence in Transfer Pricing. He also shared his insights on the APA Program and the benefits of the Safe Harbour Rule.

Session 4 was GAAR, TRC and PE, wherein CA Amrish Shah delved deep into the concepts and even explained the recent jurisprudence on all three topics.

Session 5 was on GIFT City and its framework, where CA Jaiman Patel gave a bird’s eye view of the entire framework and explained the regulations of the same under various Laws.

Session 6 was addressed by CA Pradip Kapasi on the topic of the Interplay of Benami and Income tax and other Economic Laws w.s.r.t.s 68 to 69D, SAAR and GAAR provisions. He beautifully explained the critical points that one needs to be aware of while dealing with the relevant provisions of those Acts.

Session 7 was on the subject of Related Party Definitions under various Laws vis-à-vis the Income Tax Act. CA Dr. Anup Shah dealt with the topic holistically and explained the interplay and the differences between those definitions.

Session 8 was addressed by Mr Purshottam, ITO CPC TDS Ghaziabad, wherein he explained the entire TDS/TCS Framework and the recent changes made under the same.

Session 9 was on the topic of Foreign Assets and Overseas Income and its reporting under the Income Tax Act, which was taken up by CA Rutvik Sanghvi in detail. His presentation covered each and every aspect, including the implications under the Black Money Act and various case studies on the same.

Session 10 was on the new age topic of AI and in Legal, Tax and Ethical Issues, which was beautifully explained by Huzefa Tavawalla and Ipsita Agarwalla.

Session 11 was taken up by CA E Chaitanya on the topic of ITR Forms for AY 2025-26 wherein he explained the forms and the changes made this year. He also explained the precautions to be taken while filing tax returns.

Session 12 was on Tax Audit changes for FY 24-25, addressed by CA K Gururaj Acharya wherein he explained the process of tax audit and the Forms and the points one has to be mindful of while conducting a Tax Audit.

Session 13 was addressed by Sr. Advocate Tushar Hemani on the subject of Appeal before CIT(A) & ITAT – Practical Tips – covering the Importance of cross-objections / Additional grounds/etiquette/drafting grounds, etc., which was very detailed and practical. He also addressed some of the common issues which practitioners need to be aware of.

In the last session, 14, CA Ishraq Contractor dealt with features and the recent changes of the Faceless Assessments. He also discussed the challenges faced by the department and assesses possible resolutions for the same.

The course was overall well-received by the participants.

10. Suburban Study Circle Meeting on 360 Degree of TDS held on Friday, 16th May 2025 @ S H B A & CO LLP.

The Suburban Study Circle hosted an insightful session on “360 Degree of TDS” led by CA Ravi Soni.

CA Ravi Soni delivered a practical and comprehensive presentation covering the entire spectrum of TDS—from foundational provisions to the latest amendments introduced by the Finance Act 2024. His expertise and clarity helped demystify common issues related to TRACES, default rectification, and complex sections such as 194Q, 206AB, and the newly introduced 194T (TDS on payments to partners).

Key Takeaways

Concept and Purpose: TDS as a mechanism to ensure regular tax collection and expand the tax base.

Amendments Covered: Several threshold increases and per-transaction applicability across Sections 194, 194A, 194C, 194H, 194M, etc.

Compliance Challenges: Common defaults, interest implications, and correction processes were explained with real-time illustrations.

TRACES Utility: A walkthrough of functionalities like downloading Form 16/16A, correction statements, and justification reports.

Latest Changes: New section introductions and amendments effective from October 2024 and April 2025 were discussed in detail.

The session concluded with an engaging Q&A, where participants discussed practical challenges in monthly filings, reporting, and reconciliations. The speaker also shared compliance checklists and tools to simplify TDS obligations for deductors and firms alike.

11. ITF Study Circle Meeting on Provisions of the New Income Tax Bill 2025 related to International Tax – Part 2 held on Thursday, 15thMay 2025 @ Virtual.

The International Tax and Finance Study Circle organised a meeting (online mode) on 15 May 2025 to discuss the provisions of the Income Tax Bill 2025 related to International Tax. The agenda covered corresponding provisions of Section 44B to 44DA and 92 to 92F of the Income-tax Act, 1961

  •  CA Siddharth Parekh covered Sections 92 to 92F (the transfer pricing provisions). At the outset, he shared insights on the Income Tax Bill 2025 and various rules for interpretation.
  •  He then discussed the subtle differences between the language in the current provisions and the provisions in the Income Tax Bill 2025.
  •  There was a lively discussion on the potential implications of these subtle differences, and divergent views were expressed.
  •  The group agreed that there will be uncertainty for the initial years when the Income Tax Bill 2025 is implemented.
  •  Adv Gunjan Kakkad took the group through the provisions of Section 44B to 44DA and the corresponding provisions of the Income Tax Bill 2025.
  •  He pointed out that there weren’t many differences between the language of the existing provisions
    and the corresponding provisions of the Income Tax Bill 2025.
  •  He further pointed out that the provisions in the Income Tax Bill 2025 were more structured with easy to understand tables as compared with the current provisions and took the group through the new provisions.

II. BCAS QUOTED IN NEWS & MEDIA

BCAS was quoted in 18 news and media platforms between May 2025 and June 2025. This coverage reflect our thought leadership and commitment to the profession. For details

Link: https://bcasonline.org/bcas-in-news/

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Redefining IPO Frameworks: A Detailed Exploration of SEBI’S March 2025 ICDR Amendment

THE EVOLUTION OF THE ICDR FRAMEWORK

Over the past two decades, India’s equity capital markets have undergone a dramatic transformation, characterised by a progressive shift to a sophisticated, disclosure-based regulatory framework. At the core of this journey lies the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘Regulations’) first introduced in 2009 and later revamped in 2018 to consolidate and modernisze multiple prior issuances.

The ICDR framework has since served as the statutory compass for every issuer seeking to access public capital, dictating the eligibility, disclosure, and procedural architecture for initial public offerings (IPOs), follow-on public offerings (FPOs), rights issues, and preferential allotments. With the deepening of capital markets and diversification of issuer profiles spanning traditional industrial giants, digital-first startups, and MSMEs, SEBI has regularly amended these regulations to balance investor protection with ease of capital formation.

The latest amendment, notified in March 2025, builds on this philosophy, it opts for precision over a sweeping overhaul: nuanced modifications intended to simplify compliance, improve disclosure symmetry, enhance inclusivity for smaller issuers, and rationalize expectations around employee incentives and post-issue governance. Its significance lies not in revolutionising the IPO framework, but in refining it to reflect the practical realities of an evolved and maturing market. The key changes have been explained as under:

• Subtle Codification of Evolving Corporate Practices: SARs and Promoter Contributions

One of the most quietly consequential developments has been the formal incorporation of Stock Appreciation Rights (SARs) into the recognised universe of employee incentive instruments for unlisted companies approaching IPOs. While SARs have long been favoured by unlisted, innovation-driven enterprises for their performance-linked structure and non-dilutive character, their treatment under the Regulations, was hitherto undefined particularly in relation to promoter contribution and pre-issue lock-in.

The amendment resolves this uncertainty by expressly recognizing equity shares allotted pursuant to SARs under a scheme compliant with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. A new proviso to Regulation 14(1) provides that such shares, if allotted prior to the filing of the draft offer document, shall be eligible to be included in the minimum promoter contribution. Simultaneously, the proviso to Regulation 16(1)(a) exempts these shares from the customary one-year lock-in applicable to other pre-issue capital, provided the allotment is made under a compliant SAR scheme.

These clarifications enhance regulatory predictability and align SEBI’s norms with global IPO practices involving employee incentives and promoter structuring.

  •  Expanding the Boundaries of Financial Transparency: Optional Disclosure of Sub-Material Transactions

The amended regulatory framework allows voluntary disclosure of financial information including audited or Chartered Accountant-certified pro forma financials pertaining to acquisitions, divestitures, or business combinations that do not meet the prescribed materiality thresholds under Regulation 2(1)(r) and associated guidance.

Additionally, disclosures related to working capital utilization must now give reference to the audited standalone financials, if restated consolidated figures significantly impact them. This move bridges disclosure asymmetry, ensuring investors access a coherent financial picture even when standalone restatements are not legally mandated.

This calibrated flexibility reflects an evolved understanding of contemporary business strategy, particularly within sectors such as technology, digital services, and life sciences, where smaller acquisitions though quantitatively immaterial may yield significant qualitative transformation in capabilities, market reach, or intellectual capital.

By enabling such disclosures at the issuer’s discretion, the amendment supports greater narrative continuity in the offer document, especially for entities pursuing inorganic expansion. It mitigates information asymmetries without imposing blanket disclosure burdens, thereby preserving proportionality in regulatory compliance.

The revised framework also inherently enhances the role of statutory auditors and professional certifiers, embedding their opinion into a broader context of strategic disclosures. It signifies a regulatory shift from minimum compliance toward facilitated transparency, empowering issuers to shape more nuanced and investor-informative public offer documents.

  •  Reintroducing Agility into Shareholder-Centric Capital Raising

Rights issues, historically a dominant mechanism for equity capital raising in India, had witnessed declining adoption in recent years due to procedural rigidity and cost-intensive regulatory intermediation. A significant shift in this landscape is witnessed by rationalising the compliance requirements and re-establishing rights issues as a viable, efficient, and shareholder-centric fundraising route.

Key regulatory relaxations are embedded in Regulation 3 and Regulation 60 of the Regulations. Under the amended Regulation 60(1)(c), issuers making a rights issue not exceeding ₹50 crore are no longer required to appoint a lead manager, thus reducing intermediary costs. Additionally, Regulation 3 proviso now exempts specified categories of rights issues from the requirement of submitting the draft letter of offer to SEBI for prior review, subject to compliance with prescribed eligibility conditions.
Meanwhile, Regulation 8A introduces caps on Offer-for-Sale (OFS) quantities based on pre-issue shareholding. Shareholders holding ≥20% can now only offer up to 50% of that holding in an IPO, while those below 20% are limited to 10%. These percentages are to be calculated as of the draft offer document filing date and include any pre-IPO secondary transfers, ensuring alignment with updated ownership structures and preventing excessive secondary dilution.

Complementing these changes is the introduction of a simplified disclosure framework under Schedule VI, which mandates a standardized, template-based disclosure regime. This significantly enhances clarity and reduces documentation complexity for mid-cap and promoter-driven companies, while ensuring consistency in investor communication.

Collectively, these reforms democratize access to the capital markets by lowering entry barriers and facilitating faster execution. The amendments are calibrated to maintain regulatory oversight without compromising procedural efficiency, thereby enabling a broader base of listed entities to pursue rights issues as a credible capital augmentation strategy.

  •  Institutionalising Governance in SME Listings: Raising the Bar Without Raising Barriers

These amendments, notified in March 2025, are aimed at strengthening investor protection and elevating the credibility of SME listings, while preserving access for genuine capital seekers.

Under the revised Regulation 229, issuers seeking to list on SME platforms must now satisfy specified quantitative eligibility criteria, including profitability thresholds and a defined operational track record post-conversion from partnership or proprietorship entities. This enhancement reflects a refined risk-based regulatory posture that seeks to elevate the qualitative profile of listed SMEs and attract long-term institutional participation.

Further, the threshold for mandatory monitoring of issue proceeds has been lowered from ₹100 crore to ₹50 crore. Issues above this threshold are now subject to monitoring by a credit rating agency, while issues below must comply with a statutory auditor certification requirement through quarterly financial disclosures. These provisions enhance transparency in fund deployment without disproportionately burdening smaller issuers.

Further, Regulation 281A introduces an exit mechanism for dissenting shareholders if post-IPO changes are made to the use of proceeds or core business terms. This provision elevates issuer accountability and reinforces investor protection without imposing disproportionate compliance costs on small-cap issuers.

Collectively, these reforms embed greater discipline, integrity, and investor confidence into the SME listing framework. The emphasis on governance-led eligibility, deployment oversight, and post-listing accountability strengthens the structural foundation of India’s SME capital market architecture, fostering a more predictable and responsible market environment.

  •  Convergence and Coherence: Harmonizing Disparate Regulatory Standards

Perhaps the most quietly impactful facet of the amendment lies in its harmonization of definitions, interpretations, and compliance expectations across SEBI’s broader regulatory universe. In recent years, inconsistencies between the ICDR Regulations, LODR norms, and other SEBI codes have bred interpretive uncertainty—especially in transitional situations like promoter reclassification, subsidiary disclosures, and related party governance.

By reconciling these definitions and aligning procedural interpretations across its regulatory framework, SEBI has reduced friction not just for issuers, but also for advisors, auditors, and regulators themselves. The legal and compliance machinery surrounding an IPO is now better equipped to deliver consistent, defensible interpretations—minimising last-minute escalations and interpretive disputes.

  •  Refining Post-Listing Governance: Calibrated Expectations from Anchor Investors and Monitoring Agencies

The IPO lifecycle does not conclude at listing. Increasingly, regulatory attention has turned toward the post-offer environment, particularly the stabilisation of shareholding structures and the integrity of fund utilisation. Within this context, two quiet but meaningful refinements have emerged.

First, the revised framework grants issuers greater discretion in capping the number of Anchor Investors, eliminating the erstwhile ceiling of 15 per category. This minor change, on the surface, unlocks deeper flexibility in constructing the pre-listing institutional book — especially in sectors where investor specialisation matters more than scale. For instance, new-age tech companies may prefer sector-focused funds with domain knowledge over larger, generalized institutional investors. The ability to curate a more tailored anchor cohort enhances both signaling and stability.

Second, with the reduction of the threshold for mandatory appointment of Monitoring Agencies (from ₹100 crore to ₹50 crore of fresh issue proceeds), SEBI signals a renewed commitment to post-issue fund discipline. While the mechanics of monitoring are not novel, the expansion of its application reflects regulatory concern over potential misalignments between disclosed intentions and actual deployment — a theme particularly relevant in IPOs driven by aggressive valuation narratives. From a compliance standpoint, it places renewed responsibility on merchant bankers and independent auditors to enforce a continuous feedback loop post-listing.

CONCLUDING INSIGHT: A REGULATORY ARCHITECTURE IN QUIET MATURITY

The 2025 amendments to the Regulations represent not disruption, but distillation. Rather than reinventing the playbook, they refine it harmonizing legacy provisions with contemporary issuer behavior, clarifying interpretive uncertainties, and enabling capital market access to evolve without compromising integrity. Navigating India’s capital markets in 2025 and beyond will demand not just knowledge of the law, but an ability to engage with its spirit. These reforms are a reminder that regulation, at its best, is not a constraint but a combination of trust and accountability.

Beyond the issuers and investors, this round of reforms recalibrates the professional ecosystem supporting IPOs and other public issues. The optional financial disclosures for non-material transactions place greater emphasis on judgment and credibility, especially where Chartered Accountants are called upon to certify supplemental data. Similarly, relaxed rights issue requirements reduce the procedural load on lead managers, instead reorienting their role towards strategic guidance and investor alignment.

In its true sense, professionals are no longer just process facilitators; they are becoming capital market interpreters, navigating clients through a disclosure and eligibility regime increasingly focused on maturity over mere legality.

Regulatory Referencer

I. DIRECT TAX : SPOTLIGHT

1. Valid returns of income filed electronically on or before 31 March 2024 pursuant to condonation of delay u/s 119(2)(b) of the Act by the competent authority, for which date of sending intimation under sub-section (1) of section 143 of the Act has lapsed, shall be processed by 31 March 2026 – Circular No. 7/2025 dated 25 June 2025

2. Form ITR-U amended – Income-tax (Nineteenth Amendment) Rules, 2025 – Notification No. 49/2025 dated 19 May 2025

3. Protocol amending the Agreement between the Republic of India and the Sultanate of Oman for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, was signed at Muscat on 27 January, 2025. Central Government notifies that all the provisions of said Agreement and Protocol, as annexed hereto, shall be given effect to in the Union of India from 25 June 2025 – Notification No. 69/2025 dated 25 June 2025.

II. FEMA

1. RBI grants grace period for Investment Vehicles to file Form InVI for partly paid units without LSF

The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 requires Investment Vehicles (IVs), which have issued units to persons resident outside India, to file Form InVI within 30 days from the date of issue of such units. A relaxation has now been provided whereby IVs which have issued partly paid units before 23rd May 2025 (date of issuance of the circular), shall report such issuances of partly paid units within 180 days from 23rd May 2025. No late submission fees will be levied for reporting within this period. However, partly paid units issued after 23rd May 2025 shall be reported within 30 days itself.

[A.P. (DIR Series 2025-26) Circular No. 6, dated 23rd May 2025]

2. Govt. amends NDI Rules – Indian Cos. may issue bonus shares in FDI-prohibited sectors if foreign shareholding doesn’t change

Earlier, the Department for Promotion of Industry and Internal Trade (DPIIT), vide Press Note No. 2 dated April 7, 2025, clarified that an Indian company engaged in an FDI-prohibited sector may issue bonus shares to its pre-existing non-resident shareholders provided that the shareholding pattern of non-resident shareholders does not change after the issuance of such bonus shares. The Central Government has now amended the NDI Rules, 2019 by introducing Rule 7(2) to notify this clarification.

[Notification No. S.O. 2549(E) dated 11th June 2025]

3. RBI allows advance remittance up to USD 50M for vessel imports without BG or unconditional, irrevocable SBLC

RBI has decided to permit importers to make advance remittance up to USD 50 million for import of shipping vessels without requiring a bank guarantee (BG) or an unconditional, irrevocable standby letter of credit (SBLC). This relaxation is subject to conditions under Para C.1.3.3 of the Master Direction on Import of Goods and Services (MD-Imports), dated January 1, 2016.

[AP (DIR Series 2025-26) Circular No. 7 dated 13th June 2025]

III. IFSCA

1. IFSCA issues framework to facilitate Co-investment by Venture Capital Scheme and Restricted Scheme

Regulations 29(1) and 41(1) of IFSCA’s Fund Management Regulations enable a Venture Capital Scheme and Restricted Scheme to co-invest in permissible investments through SPV; and for such SPV to undertake leverage as disclosed in the placement memorandum. It has now issued by way of a Framework a ‘Special Scheme’ to provide mechanism and manner for facilitating this co-investment and then for such Special Scheme to undertake leverage.

[Circular No. IFSCA-AIF/6/2025-Capital Markets, dated 21st May 2025]

2. IFSCA extends the timeline for appointment of Custodian under Fund Management Regulations, 2025

As per Regulation 132 of IFSCA (Fund Management) Regulations, 2025, an FME is required to appoint an independent custodian for Retail schemes, Open ended restricted schemes and all other schemes managing AUM above USD 70 million. The custodian appointed shall be based in IFSC unless local jurisdiction requires otherwise. For schemes where custodian was not based in IFSC before FM Regulations came into effect, a transition period of 12 months was provided to comply with the regulations. This period has now been further extended by 6 months. FMEs shall make necessary arrangements to ensure compliance with the above regulation.

[Circular No. IFSCA-IF-10PR/7/2024-Capital Markets, dated 24th May 2025]

3. IFSCA mandates prior approval for PSPs in overseas payment systems tied to IFSC transactions

IFSCA has laid down certain policies for Payment Service Providers (PSPs) participating in international payment systems including seeking prior approval before participating or becoming members of international payment systems with regard to cross-border transactions. Further, international payment systems that permit PSPs to make or receive payments among themselves or among other financial institutions in IFSC, thereby affecting domestic (within IFSC) transactions, will require authorisation under the Payment and Settlement Systems Act, 2007 (“PSS Act”). PSPs can only then participate or be members of such international payment systems for making or receiving payments with other PSPs or to or from other financial institutions in IFSC. IFSCA has directed each PSP to review its participation in light of these policies and intimate about its compliance to the Department of Banking Supervision within 30 days from the date of this circular as also share with the IFSCA a list of all the international payment systems in which the PSP was participant.

[Circular IFSCA-FMPP0BR/3/2023-Banking dated 6th June 2025]

Recent Developments in GST

A. CIRCULARS

(i) Clarifications – DIN is not required for GST Portal Communications – Circular no.249/06/2025-GST dated 9th June, 2025.

By the above Circular, it has been clarified that Document Identification Number (DIN) is not required to be quoted on communications generated through the GST common portal, as these documents are assigned a Reference Number (RFN) that can be verified online.

B. ADVISORY

i) Vide GSTN dated 14.5.2025, the information relating to appeal withdrawal with respect to Waiver Scheme is provided.

ii) Vide GSTN dated 16.5.2025, the information relating to reporting values in Table 3.2 of GSTR-3B is provided.

iii) Vide GSTN dated 7.6.2025, the information regarding non-editability of auto-populated liability in GSTR-3B is provided.

iv) Vide GSTN dated 7.6.2025, the information about time barring of GST Return on expiry of three years is provided.

v) Vide GSTN dated 10.6.2025, the information about system Validation for filing of Refund Applications on GST Portal for QRMP Taxpayers is provided.

vi) Vide GSTIN dated 11.6.2025, the information about filing of Amnesty applications under section 128A of the CGST Act is provided.

vii) Vide GSTN dated 12.6.2025, the information about filing of SPL-01/SPL-02, where payment made through GSTR 3B and other cases, is provided.

C. ADVANCE RULINGS

ITC vis-à-vis blocking of ITC u/s.17(5)(b)

Sikka Ports & Terminals Ltd.

(AAAR Order No. GUJ/GAAAR/APPEAL/2024/05 (in Appl. No. Advance Ruling/SGST&CGST/2021/AR/29) dated: 30th December, 2024) (Guj)

The present appeal was filed by the department i.e. Assistant Commissioner, Central GST & Excise, (hereinafter referred to as ‘appellant’) against the Advance Ruling No. Guj/GAAR/R/57/2021 dated 29.10.2021 – 2021-VIL- 437-AAR, passed by the Gujarat Authority for Advance Ruling [GAAR].

The brief facts are that M/s. Sikka Ports & Terminal Ltd. (hereinafter referred to as the ‘respondent’) is engaged in the activity of operating a port and terminal handling facility at Sikka Port for receipt of crude oil and other feedstock as well as for evacuation of various finished products of the crude oil refinery set up by Reliance Industries Limited (‘RIL’) at Jamnagar.

It was their case that they provide port and terminal handling services which include loading and unloading of cargo, transportation of cargo from the vessels berthed in the sea to the port, berthing facilities to the vessel, storage facilities etc., which should be treated as a composite supply of ‘Port and waterway operation services (excluding cargo handling) such as operation services of ports, docks, light houses, light ships etc.’ classifiable under heading 996751.

It was further case of Respondent that Very Large Crude Carriers (‘VICCs’), which transport crude oil and other feedstock need a very deep draught to drop anchor, hence, VLCCs berth in mid-sea and discharge their liquid cargo there. Sub-sea pipelines are laid to transport the discharged cargo to bring it in storage near the shore. It was submitted that VLCC tanks are required to be connected to the sub-sea pipelines for which expert divers have to be employed to connect the discharge pipes of the vessel to the sub-sea pipelines. These divers and their diving equipments are stationed on the Diving Support Vessel (DSV), which are required to be manned, operated and maintained by third party contractors, who are specialists in this field. Further, to guard the port facilities, particularly the SPMs, MTFs and subsea pipelines, all of which are located mid-sea, the respondent is also required to have a robust security and patrolling mechanism for which they employ Security Patrol Vessels (SPVs) which not only perform the function of providing security but also enable the respondent to comply with its obligations under the environmental laws.

Based on above facts, AR was sought on following questions:

“1. Whether M/s. Sikka Ports & Terminals Limited, is entitled to avail Input Tax Credit (‘ITC’) on services procured for the operation and maintenance of Diving Support Vehicle owned by them and used by it for supplying port and terminal handling services?

2. Whether the M/s. Sikka Ports & Terminals Limited, is entitled to avail Input Tax Credit (‘ITC’) on services procured for hiring, and for operation and maintenance of Security Patrol Vessel used by it for supplying port and terminal handling services?”

AAR, vide its impugned order dated 29th October, 2021, answered the aforementioned questions as under:

“i. M/s Sikka is entitled to avail ITC on the services procured for the operation and maintenance of DSVs: Relsagar & Reldarshan.

ii. M/s Sikka is entitled to avail ITC on the services procured for the operation and maintenance of SPVs: Eagle, Chetak, Calypso fortune & ML Noorani.”

The department has filed this appeal against above ruling. In appeal, the department sought to prove that the conclusion arrived at by AAR is incorrect in many ways.

The ld. AAAR referred to relevant provisions of section 17(5) and reproduced the same in order. The ld. AAAR observed that the ruling sought was specifically on eligibility of ITC in respect of [a] hiring services of SPV, and [b] services procured for operation and maintenance of DSV and SPV for rendering port and terminal handling services.
On analysis of provision of section 17(5)(ab), the ld. AAAR held that the AAR/AAAR being creature of statute cannot stretch the statute and held that ITC for repairs and maintenance of DSV and SPV would not be available to the respondent, since the vessels per se are not used for transportation of goods.

In respect of ITC of hiring services of SPV, the ld. AAAR observed that the SPV is not used for further supply of such vessel. In other words, it is neither used for transportation of passenger nor for imparting training on navigating such vessels. The contention of respondent that they are used for transportation of goods was not approved by the AAAR as it was only meant for security patrolling services and not for transportation.

The ld. AAAR held that the SPV is not being used for given purposes in section 17(5)(b)(i) read with clause (aa). Accordingly, the ld. AAAR held that the ITC in respect of hiring of vessel (SPV) is blocked under section 17(5).

In effect, the ld. AAAR reversed the AR making the respondent ineligible to ITC in respect of both the above items.

Excess – Pure Service to Government

Ravindra Navnath Satpute (Dewoo Engineers)

(AAR Order No. GST-ARA-15/2024-25/B-158 dated: 27th March, 2025) (Mah)

The applicant jointly owns property at C.S. no.690 5, Plot no.24, Balikashram Road, Ahmednagar- 414001. Said Property is provided on rental basis for 36 months to Sant Sakhubai Government Girls Hostel Ahmednagar, a hostel run by the Department of Social Justice & Special Assistance Department of Maharashtra Government. Said hostel is registered under GST as TDS Deductor, vide GSTIN 27PNES19339F1DZ. Based on above facts, the applicant has raised following questions for ruling by the ld. AAR.

“1. Whether such service is taxable or exempt?

2. If the service is taxable, then what will be the time of supply?

3. If the service is taxable, then whether Tax is payable under Reveries charge or under Forward charge mechanism?

4. As both owners are registered under GST, separately, is it appropriate to disclose all receipts on applicants’ registration number?

5. Whether separate registration Under GST is required by joint name?”

The applicant submitted that GST is not applicable on above transaction as being covered by Entry No.12 of the Exemption Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 relating to residential property.

By additional submission, exemption was claimed vide entry 3 in Notification no.12/2017-Central Tax (Rate) dated 28th June,2017 on the ground that Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution, are exempt from GST. It was submitted that in the present case, the State Government is taking the property on rent for welfare of under-privileged section of the society and in particular, girls and therefore services provided to “Sant Sakhubai Government Girls Hostel Ahmednagar”, will be covered under the functions entrusted under Article 243W and / or 243G and accordingly exempt. Argument was also advanced in relation to other questions.

The ld. AAR referred to entry at sl.no.3 of the Notification No.12/2017-C.T. (Rate) dated 28th June, 2017 and reproduced the same as under:

The ld. AAR observed that the services provided by applicant are renting of immovable property services and do not involve any supply of goods and hence pure service. It is further observed that since the services are provided to Social Justice and Special Assistance Department of Maharashtra Government, the services are Provided to the State Government.

The ld. AAR referred to articles 243G and 243W of the Constitution of India. From rent agreement, the ld. AAR observed that the Government has taken said property on rent for accommodation of girls from Backward Classes.

The ld. AAR, on examining article 243G and 243W, observed as under:

“5.8 We observe that the Articles 243G and 243W of the Indian Constitution along with the eleventh and twelfth Schedule to the Constitution, entrust panchayats and municipalities with the responsibilities of planning and implementation of the various schemes for ensuring social justice and development of the weaker sections of the society, which clearly includes the girls and women from, the Backward classes/Scheduled Tribes. Thus, any welfare measure undertaken by the panchayats and municipalities for the social development of the girls belonging to the backward classes/Scheduled Tribes, including the residential accommodation of the girls or women, will definitely come within the ambit of the functions entrusted to a Panchayat under article 243G or to a municipality under article 243W of the Constitution of India”

In view of above, the ld. AAR held that the renting out of immovable property to the State Government, is an activity in relation to the function entrusted to a Panchayat under article 243G of the Constitution, or in relation to the function entrusted to a Municipality under article 243W of the Constitution, thereby, eligible for exemption from GST in terms of the exemption entry at Sl. No. 3 of the Notification No. 12/2017-C.T. (Rate) dated 28th June, 2017.

The ld. AAR also held that since activity is held to be exempt from the levy of GST, there is no question of application of the TDS provisions under Section 51 of CGST Act, 2017.

Accordingly, the ld. AAR decided questions in favour of the applicant.

Classification – Baby Car Seat used in Motor Cars
Artsana India Pvt. Ltd.
(AAR Order No. GST-ARA-47/2024-25/B-203 dated: 28th April, 2025) (Mah)

The applicant sought an advance ruling in respect of the following questions.

“1. Whether the product namely baby car seat is correctly classified under 94018000?

2. If the above question is negative, then,

a. whether the product can be classified as baby carriage and the HSN 87150010 OR

b. Whether the product can be considered as Safety Equipment under accessory of vehicle and can be classified under the HSN Chapter 87089900?

3. Whether the entry 210A of Notification No 5/2024- Central Tax (Rate) dated 8th October, 2024, applicable on applicant?”

The facts are that the applicant is a wholesaler/trader of baby and child-care products. The products of applicant are designed to support the health and well-being of infants and children. The applicant also supplies toys, baby carriages, baby chairs etc.

One of the products supplied by the applicant is a baby chair used in cars for the safety of children while driving. This baby chair can be affixed with the help of a clip on the main seat of the car without making any structural change in the design of the car seat. It is also not permanently fixed in cars, but as an attachment over and above the main seat of the car which can be fastened easily as and when required.

It was submitted that the baby chair can be used for babies only and there is no additional use of the said chair, other than the safety and comfort of the child in the car while travelling.

The applicant was importing the baby chair from Italy under the HSN code 94018000.

The questions as above, were posed as the applicant came to know that such kind of baby chair may be treated as safety equipment for cars and the HSN used by applicant may not be correct.

The applicant justified its classification with reference to analysis of relevant HSN i.e. HSN 94018000.

The applicant also gave its submission in respect of applicability of alternative HSN i.e. HSN 87150010 or 87089900.

The department also submitted its written submission. The ld. AAR, after referring to classification method under GST, referred to the First Schedule to the Customs Tariff Act, 1975 in order to find out the correct classification of the given product.

After going through HSN 9401, the AAR observed that though chairs are designed specifically for use in a motor vehicle, they cannot be classified under 94012000 as seats of a kind used for motor vehicles because these seats are not used for motor vehicles but are used in addition to the normal seats which are attached to a motor vehicle. Such seats are attached on to the already existing seats of a motor vehicle, whereas heading 94012000 covers the basic seats which are used for a motor vehicle whereas this chair is an additional special attachment affixed to the seat of a motor vehicle for safe carriage of the baby, while driving the vehicle.

The ld. AAR observed that as per HSN Explanatory Notes, baby seats, as referred to by the applicant, is covered under Chapter 9401.80. The ld. AAR held that the baby safety seats supplied by the applicant is correctly classifiable under Chapter 94018000 and not in 94012000.

Regarding alternate argument of being covered by as baby carriage under 878089900 or as a safety equipment under accessory of vehicle.

The ld. AAR confirmed the classification under 94018000.

Supply of Service vis-à-vis Liquidated Damages

GSPC (JPDA) LTD.

(AAAR Order No. GST/GAAAR/APPEAL/2025/02 (in Appl. No. Advance Ruling/SGST & CGST/2021/AR/25) dated: 22nd January, 2025) (Guj)

The present appeal arose out of Advance Ruling No. GUJ/GAAR/R/50/2021 dated 6th September, 2021 – 2021-VIL-376-AAR.

The facts are that appellant, along with other six concessionaries entered into a Production Sharing Contract [PSC] with Timor Sea Designated Authority for undertaking exploration activities in Block JPDA 06-103 in the Joint Petroleum Development Area [JPDA].

JPDA is an area of Timor-Leste & Australia & the petroleum existing within JPDA is a resource exploited jointly by Governments of Timor-Leste and Australia.
Timor-Leste Government, initiated arbitration proceedings against Government of Australia to have certain Maritime Agreements in Timor Sea Treaty to be declared as void-ab-initio which will also result in termination of contract entered into by appellant. Therefore, appellant requested ANP ([Autoridade Nacional do Petroleo E Minerals] is Timor-Leste’s regulatory authority for oil, gas and mineral related activities; that this institution is vested with administrative and financial autonomy) for termination of the PSC by mutual agreement. ANP, issued a notice of intention to terminate PSC to the operator. ANP, thereafter, terminated the PSC with a demand of payment of estimated cost of exploration not carried out & damages for breach of its local content obligations in terms of article 4.5(a)(iii) of PSC.

The appellant has to pay proportionate sum, along with other concessionaries, to ANP.

In view of the foregoing facts, the appellant sought Advance Ruling on the following question, viz;

“Whether payment of settlement fees against demand made by ANP vide letter dated 15th July, 2015 attract levy of GST under GST regulations.”

The ld. AAR held that the transaction was liable to GST on RCM basis, considering it as import of Services from ANP of ‘tolerating an act’.

Before ld. AAAR, appellant showed fallacy in the above ruling, on following counts.

“*the payment to ANP is on account of breach of condition of production sharing contract;

* that the production sharing contract is for a block in JPDA which is in non-taxable territory;

* that the amount payable by the appellant to ANP is for a period prior to GST regime;

* that the production sharing contract is not akin to a service contract.”

Before arriving at a decision, the ld. AAAR referred to terms in contract and background in detail and also circular 178/10/2022-GST dated 3rd August, 2022.

The ld. AAAR observed as under:

“20. As is evident in this case liquidated damages are paid only to compensate for loss due to breach of PSC in terms of clause 4.5(a)(iii). We have not been in a position to pinpoint any agreement, express or implied between ANP and the six concessionaire that on receiving the liquidated damages, ANP will refrain from or tolerate an act or do an act for the concessionaires [including the appellant] paying the liquidated damages. This being the factual matrix, the liquidated damages, in terms of the aforementioned circular are merely a flow of money and such payments do not constitute consideration for a supply and hence, are not taxable. On going through the documents produced before us, it is difficult to establish that the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. Nonetheless, we also find that the impugned ruling dated 6th September, 2021 erred in holding that the settlement amount [liquidated damages] is not due to breach in PSC but due to ANPs obligation to supply services to the appellant.”

In view of above, the ld. AAAR allowed the appeal, thereby reversing the AR.

Goods And Services Tax

SUPREME COURT

24 (2025) 27 Centax 14 (S.C.)Union of India vs. Shantanu Sanjay Hundekari dated 24.01.2025

SCN issued under section 74, demanding penalty under section 122 and seeking prosecution under section 137, to an employee of a company for retaining the benefit from evasion of tax is not tenable as he is neither directly involved in the conduct of business, nor he is taxable person as well, as due to lack of jurisdiction.

FACTS

M/s. Maersk Line India Pvt. Ltd. was appointed as a steamer agent of a Denmark based company named Maersk A/s for handling the shipping business across the globe. Petitioner was a Taxation Manager of M/s. Maersk Line India Pvt. Ltd. and entrusted with assisting in tax compliances and representing Maersk A/s before tax authorities. Accordingly, an inquiry was carried out by DGGI, where it was found that Maersk A/s had wrongly utiliszed ITC amounting to Rs.₹1,561 crores. Further, petitioner was issued SCN under section 74 of CGST Act, 2017 imposing penalty amounting to Rs.₹3,731 crores under section 122(1A) and section 137 of CGST Act alleging that petitioner had assisted Maersk A/s in evading tax by incorrect utiliszation of ITC and retained the benefit arising thereof. Petitioner preferred a writ petition before Bombay High Court which was allowed in favour of petitioner. Being aggrieved, Respondent filed this Special Leave Petition (SLP) before the Apex Court.

HELD

The Hon’ble Supreme Court had dismissed the Special Leave Petition without interfering with the decision of the High Court where it held that Respondent has no jurisdiction to invoke section 122(1A) since it would only apply to a taxable or a registered person under GST whereas, petitioner was merely an employee would not fall within the ambit of CGST Act to retain the benefit of transaction involving evasion of tax. It was further held that proceedings under section 137 cannot be initiated under section 74 of CGST Act, 2017. Accordingly, the SLP filed by Respondent was dismissed.

HIGH COURT

25 (2025) 28 Centax 93 (Bom.) S.K. Age Exports vs. State of Maharashtra dated 31.01.2025

Where multiple bank accounts were provisionally attached, defreezing of two bank accounts for conducting of genuine business operations was allowed.

FACTS

Petitioner was engaged in the business of pharmaceuticals and auto spare parts. Respondent investigated the business activities where it was found that the petitioner had fraudulently availed and claimed refund of ITC pertaining to transactions with its group company. Accordingly, Respondent had passed orders of provisional attachment under section 83 of the CGST/MGST Act attaching seven bank accounts of the petitioner. Being aggrieved, the petitioner filed a writ petition before the Hon’ble Bombay High Court and requested de-freezing of one bank account and partial de-freezing of another to the extent of ₹70 lakhs for day-to-day business operations.

HELD

The Hon’ble Bombay High Court directed full de-freezing of one HDFC Bank account and partial de-freezing of one SBI account to the extent of Rs.₹70 lakhs, strictly for the petitioner’s business operations with a restriction on withdrawal from such bank account by partner or any other person. The Court further stated that proceedings challenging validity of provisional attachment under Rule 159(5) of CGST Rules, 2017 should be heard and decided on merits without being influenced by anything stated in this order.

26 (2025) 29 Centax 369 (Cal.) Javed Ahmed Khan vs. Deputy Commissioner of Revenue dated 25.03.2025

Transitional credit cannot be denied solely on the ground of new registration taken under GST on the direction of the department due to technical migration issues.

FACTS

Petitioner had approached the CBEC helpdesk on 27th June 2017, requesting reissuance of the provisional ID for GST migration. A screenshot of ST-2 was duly submitted to highlight the technical issue faced during the migration process. In response, the helpdesk, by email dated 16th August 2017, advised the petitioner to apply for a fresh registration through the GST Common Portal. Pursuant to this advice, the petitioner applied for new registration on 23rd August 2017, which was approved on 8th November 2017. Petitioner’s claim for transitional credit in Form TRAN-1 amounting to ₹35,59,064/- was rejected by the respondent on the ground of new GST registration was obtained voluntarily and had not filed GSTR-3B for July 2017. The petitioner challenged the rejection order dated 7th February 2023 by filing a writ petition before the Hon’ble High Court.

HELD

The Hon’ble Calcutta High Court observed that the petitioner’s application for new GST registration was not a voluntary act but was made pursuant to directions issued by the CBEC helpdesk due to technical difficulties in obtaining the provisional ID. Since the petitioner acted based on respondent’s advice, the rejection of transitional credit solely on the ground of having taken new registration under GST law could not be sustained. Accordingly, the impugned order was set aside.

27 (2025) 26 Centax 69 (Del.) Siemens Ltd vs. Sales tax officer dated 22.11.2024

Two conflicting orders passed for the same tax period on identical issues by the same Authority can neither survive nor be acted upon. The later order is to be quashed whereas appropriate remedies may be pursued in respect of the earlier order.

FACTS

Petitioner received two separate orders on 27.04.2024 for F.Y. 2018-19 from the same Respondent. The first order was based on four grounds: difference in output tax liability between GSTR-1 and GSTR-9, difference in outward supplies between GSTR-1 and e-way bills, excess ITC claimed under reverse charge in GSTR-3B and ITC availed on invoices where the supplier’s GSTIN was cancelled. In the second order, the respondent dropped the first three grounds and confirmed demand only on the fourth ground, with a variation of ₹70,733/- in the tax amount. Aggrieved by these conflicting orders, the petitioner filed the present writ petition before the Hon’ble High Court.

HELD

The Hon’ble High Court held that two competing or conflicting orders cannot be sustained for the same tax period. Since both orders were issued by the same officer on identical issues, the later order was quashed. The Court observed that the petitioner may pursue appropriate remedies in respect of the earlier order. It was further clarified that the petitioner retains the right to file an appeal against the demand related to ITC availed on invoices where the supplier’s GSTIN was subsequently cancelled.

28 (2025) 29 Centax 15 (Kar.) Sri. Nandi Studio and Colour Lab vs. Asst. Commissioner of Central Tax dated 19.02.2025

Pre-deposit made within the limitation period for filing appeal under section 107 shall be treated as valid compliance even when it was made subsequently after to filing of appeal.

FACTS

Petitioner filed an appeal under section 107 of the CGST Act, 2017 against the order passed by respondent on 02.12.2021 and made 10% pre-deposit on 07.12.2021,. within the statutory limitation period prescribed under section 107(1). However, the respondent rejected the appeal solely on the ground that the pre-deposit was not made along with the appeal. Aggrieved by this, the petitioner challenged the order of the respondent before the High Court.

HELD

The Hon’ble High Court held that a liberal interpretation should be given to section 107(6)(b) of the CGST Act, 2017 where 10% pre-deposit made within the limitation period prescribed for filing an appeal, it should be treated as being made “along with” the appeal. It was further highlighted that dismissing the appeal on a hyper-technical ground would certainly defeat the intent of legislature. The Court quashed the impugned order and directed the respondent to consider the appeal on merits.

29 (2025) 30 Centax 317 (All.) BKP Media Vision Pvt. Ltd. vs. Union of India dated 02.05.2025.

Transfer of leasehold rights by the lessee to a third party falls outside the ambit of ‘supply’ and is not leviable to GST.

FACTS

Petitioner was granted a 99-year lease of industrial land by NOIDA authority. Petitioner transferred all the leasehold rights to a third party with the approval of NOIDA authority after paying the requisite stamp duty. Subsequently, proceedings were initiated under section 74 of the CGST Act, 2017, alleging suppression and non-payment of GST on a lease transaction. Aggrieved by the initiation of proceedings under section 74 of CGST Act, the petitioner filed a writ before the Hon’ble High Court.

HELD

The Hon’ble High Court held that the transfer of leasehold rights after execution of the lease deed does not amount to ‘supply’ under section 7(1)(a) of the CGST Act, 2017 by squarely relying upon the judgement of Gujarat Chamber of Commerce and Industry vs. Union of India 2025 (94) G.S.T.L. 113. It further distinguished the decision relied upon by Respondent in the case of Builders Association of Navi Mumbai vs. Union of India 2018 (12) G.S.T.L. 232 (Bom) which was upheld by Apex Court stating that it was related to the initial grant of lease and was not applicable to the present transaction. Accordingly, the recovery pursuant to the impugned order was stayed until further orders.

30 [2025] 175 taxmann.com 371 (SIKKIM) SICPA India (P.) Ltd. vs. Union of India dated 10-06-2025

Refund of unutilised ITC permissible upon closure of business in absence of statutory bar under CGST Act, as statute also does not provide for retention of tax without the authority of law.

FACTS

The petitioners, engaged in manufacturing security inks and solutions, discontinued operations in Sikkim and sold their plant and machinery. Upon sale, they reversed the Input Tax Credit (ITC) in accordance with applicable GST provisions. Subsequently, they sought a refund of the remaining unutilised ITC under section 49(6) of the CGST Act, read with section 54. The department, however, denied the claim, stating that current provisions do not permit refund of unutilised ITC solely on account of business closure.

HELD

The Hon’ble High Court identified the issue before it as whether the refund of ITC under section 49(6) of the CGST Act is only limited to companies carved out under section 54(3) of the CGST Act or does every registered company have a right to refund of ITC in case of discontinuance of business. It relied upon the decision in the case of Union of India vs. Slovak India Trading Co. (P.) Ltd. [2006] 5 STT 332 (Karnataka) and held that there is no express prohibition in section 49(6) read with section 54 and 54(3) of the CGST Act, for claiming a refund of ITC on closure of unit. Although, section 54(3) of the CGST Act deals only with two circumstances where refunds can be made, however the statute also does not provide for retention of tax without the authority of law. Consequently, the Hon’ble Court held that the petitioners are entitled to the refund of unutilised ITC claimed by them and ordered accordingly..

31 [2025] 175 taxmann.com 176 (Gauhati) Mahabir Tiwari vs. Union of India dated 02-06-2025

Extension of time limit under section 73(10) vide Notification No.56/2023-Central Tax, dated 28.12.2023 is held ultra vires as the same was extended without recommendation of GST Council.

FACTS

The petitioner has challenged the legality of Notification No. 56/2023-Central Tax dated 28.12.2023, along with the Demand-cum-Show Cause Notice dated 30.05.2024 and Order-in-Original dated 29.08.2024, in respect of financial year 2019-20, both issued beyond the original due date prescribed by section 73 of the CGST Act, 2017. CBIC vide Notification No. 09/2023 dated 31.03.2023, extended the time limit prescribed under section 73 of the CGST Act, 2017 till 31.03.2024, without there being any force majeure as required under section 168A of the CGST Act, 2017, which was further extended up to 31.08.2024, vide Notification No. 56/2023-Central Tax, dated 28.12.2023, without there being any recommendation of the GST Council and on the strength of such extension, the respondent passed the impugned order dated 29.08.2024.

HELD

The Hon’ble Court relied upon the decision in the case of Barkataki Print And Media Services vs. Union Of India 2024 (90) G.S.T.L. 162 (Gau) dated.19-09-2024 and held that Notification No.56/2023-Central Tax, dated 28.12.2023 would not be sustainable. Accordingly, the Hon’ble Court quashed the same along with Demand-cum-Show Cause Notice, dated 30.05.2024 and the Order-in-Original dated 29.08.2024.

The Hon’ble High Court held that wherever the provisions of the Central Act or the State Act stipulates that an act is required to be done on the recommendation of the GST Council, the act can be done only when there is a recommendation. The meaning of the word ‘recommend’ applicable to the interpretation of section 168A would mean “giving of a favourable report opposed to an unfavourable one” by the GST Council for exercise of power under Article 168A. It further held that the power under section 168A of the CGST Act, conferred jointly under the Central and State Acts, must be exercised in line with the parent statute, including the requirement for GST Council recommendations. In the present case, despite the absence of such a recommendation, an admitted fact is that the Central Government issued Notification No. 56/2023-C.T. citing Council approval. This misrepresentation renders the notification a colourable exercise of power and therefore legally unsustainable. The Court also noted that in the 49th Meeting of the GST Council, it was clearly recorded that there shall be no further extension beyond the three months in the interest of the taxpayers. Despite this, the Notification No. 56/2023-C.T. was issued. A natural corollary thereof is that the GST Council had no occasion to consider existence of force majeure as warranted under section 168A, in as much as the same was never placed before the GST Council before issuance of the same. Therefore, the Notification No. 56/2023-C.T., if construed from that angle, also would be a notification issued without the force majeure condition being not considered in accordance with law.

Note: In Barhonia Engicon Pvt. Ltd. vs. State of Bihar, 2025 (93) G.S.T.L. 4 (Pat), the Patna High Court declined to follow the view of the Gauhati High Court in Barkataki Print (see para 29). It held that the Supreme Court’s direction to exclude the period from 15.03.2020 to 28.02.2022 applies equally to assessees and authorities. The Court observed that the GST Council’s recommendation and the corresponding notification were issued out of abundant caution. It concluded that the limitation stands extended for the exempted period per the Supreme Court’s order; however, the effective extension for the relevant years would be limited to the period notified by the respective Governments.

32 [2025] 175 taxmann.com 182 (Allahabad) Bharat Mint & Allied Chemicals vs. State of U.P. dated 30-05-2025.

Due to paucity of time, issues undecided under section 73 cannot be reopened under section 74 if such notices lacks the ingredients of section 74, such an action is liable to be quashed.

FACTS:

The petitioner was initially served a notice under section 73 of the Act, outlining ten issues. A detailed reply was submitted addressing all points. In the order passed under section 73(9), the authority accepted the petitioner’s response on all but four issues—Points 1, 6, 8, and 10—stating that further investigation was required and fresh proceedings would follow. Thereafter, a notice under section 74 of the Act was issued in respect of the same.

HELD:

The Hon’ble Court, relying on the decision in M/s. Vadilal Enterprises Ltd. vs. State of U.P. [2025], held that the essential elements for invoking section 74 were absent in the notice, rendering the jurisdictional basis for such invocation invalid. Consequently, the notice issued under section 74 was quashed.

33 [2025] 175 taxmann.com 211 (Delhi) Lala Shivnath Rai Sumerchand Confectioner (P.) Ltd. vs. Additional Commissioner, CGST Delhi-West dated 30-05-2025.

The Court adjusted the amount of pre-deposit with a direction to approach the appellate authority where it noted that the impugned order was raising double demands viz. demand for ineligible ITC availed and demand towards its utilisation.

FACTS:

The petitioner, operating a combined sweetmeat shop and restaurant, received a show cause notice alleging wrongful availment of Input Tax Credit (ITC) on restaurant service, which attracts 5% GST without ITC benefit. The petitioner contended that the ITC pertained solely to the sweetmeat shop, which is eligible for ITC, thereby rendering the notice untenable. It was further argued that the impugned order created a duplicative demand, first by adjusting the availed ITC and again by denying the same ITC thus effectively resulting in a double recovery for the same amount.

HELD:

The Hon’ble Court held that prima facie, there would be duplication of two demands as demand qua reversal of availed ITC and demand qua utilisation of ITC would be one and the same thing. It noted that in the impugned order, both have been separately demanded. Accordingly, in the peculiar facts of the case, the Court relegated petitioner to the Appellate Authority by lowering the amount of pre-deposit to adjust the effect of duplication.

34 [2025] 175 taxmann.com 324 (Himachal Pradesh) Himalaya Communication (P.) Ltd vs. Union of India dated 06-06-2025.

The ITC credit cannot be denied to the recipient without checking genuineness of the transaction and solely on the ground that the GST Registration of the supplier is cancelled retrospectively.

FACTS AND HELD:

The Hon’ble Court noted that the denial of Input Tax Credit (ITC) was solely based on the retrospective cancellation of the supplier’s GST registration. It observed that neither the Assessing Officer nor the Appellate authority evaluated the genuineness of the underlying transaction and proceeded directly under section 16(2) of the CGST Act. The Court held that such action required prior examination of all relevant documents to assess the genuineness of the transaction. Accordingly, the impugned order was set aside and the matter was remanded for reconsideration.

यदल्पमपि तद्बहु ! (A little gain is also abundant)

Apparently, a strange thought! But if we understand the complete verse, it has a deep meaning contained in it. It has a great righteous implication. The text reads like this: –

अकृत्वा परसंतापम् Without causing harm to others

अगत्वा खलमंदिरम् !         Without approaching a bad or wicked person (for favours)

अक्लेशयित्वा चात्मानम्      Without straining yourself

यदल्पमपि तद्बहु !               Whatever little you get is to be considered as plentiful!

Very difficult to digest in modern times – i.e. in the present kaliyug.

अकृत्वा परसंतापम्

One can cause damage to others in many, many ways – by cheating, stealing, depriving others of opportunity, exploiting, harassing, blackmailing, taking undue advantage, misleading, giving false promises or hopes, physically beating or causing injury, mentally torturing, unfair conduct …. etc.

If we introspect, knowingly or unknowingly, directly or indirectly, we may be causing harm to many people for our gain, even to our family members, our staff or our friends/relatives. We may not even realise it.

अगत्वा खलमंदिरम् !

We need to often approach some bad person for some favours! A professional, for getting results, may have to directly or indirectly approach a corrupt person in power or authority! Or we may have to seek help from a politician who adopts unfair means, muscle power, or money power. The favours could be admission to a school or college, or a job in a company, getting something in times of scarcity, obtaining travel bookings, buying accommodation, getting positive results in litigation, obtaining certain things quickly without waiting in a ‘queue’; even for getting a seat / berth in a train!

अक्लेशयित्वा चात्मानम्

It could be a petty thing; but it makes us compromise on ethics. One may get a feeling that without this, we cannot survive! It may be true. However, if everybody adopts the principles enshrined in this verse, there can be a level playing field.

Today’s work culture has totally changed. People keep on slogging for hefty pay packages. They leave from home early, slog day and night, and return late at night.

All work and no play! No family life, no social or cultural life, no exercise, no entertainment. Physically and mentally, they get exhausted. That is a struggle for survival in a competitive world, they say! Loans, EMIs, unaffordable luxuries, showmanship, imitation effect, pretending to be too busy – so much so that they don’t find time even to have food! They sacrifice sleep. Thus, they sacrifice health to acquire wealth and, finally, end up spending that wealth to ‘maintain’ the so called ‘health’ in advanced age!

A simple, unambitious man may not resort to any such thing. However, the shloka does not advocate ‘complacency’. You may be ambitious but try to fulfil your ambition by righteous means.

If everybody follows the rules of the game (first three lines), then the real talent will succeed – meaning deserving persons do not get deprived of rightful things.

Readers will appreciate the truth and beauty of this philosophy, if they ponder on it peacefully!

Miscellanea

1. SPORTS

#Benefits of sports go beyond whether you make the pros or not, says Sports For Amateur Athletes founder Maurice Barnett

Many see sports as a means to an end, teaching life lessons to athletes. If a player is skilled enough, their love of their sport can become an eventual professional career. On the other hand, for most youth, their identity is wrapped around their sports performance, and excelling is a validation of their self-worth. Becoming a professional athlete becomes a source of pride, as it proves that they are among the best in the country in their respective sports.

Furthermore, for more popular sports, such as football, basketball, and baseball, making it to the pros could mean a six- to seven-figure income and a chance to lift themselves and their families out of poverty.

However, the reality is that very few people who pick up a sport are good enough to become a professional. According to Maurice Barnett, a parent, coach, entrepreneur, and founder of The Sports Portal and non-profit organisation Sports for Amateur Athletes (SAA), the pathway to the pros is a huge funnel. It’s huge at the top and anyone can enter, but it gets narrower and narrower, and almost everyone ends up dropping out at some point. Some people see not making it through the funnel as failure, so many don’t even try or avoid sports altogether.

Barnett disagrees with this kind of thinking, arguing that many of the lessons and skills athletes learn through sports can help them become a good doctor, lawyer, engineer, or any other profession someday. This is the mission of Sports for Amateur Athletes – to help every athlete, regardless of their background or circumstances, have the opportunity to engage in sports that inspire them.

“We believe that sport has a transformational power on individuals and their development,” Barnett says. “Participating in sports builds not only athletic skills but also character, resilience, and a sense of community, and making the pros isn’t the be-all and end-all of sports. The personal and development growth is not like the opportunity of making 1 of the 30 teams, everyone has the opportunity to benefit. All over the world, there is a need for more doctors, teachers, or engineers. Here, the funnel is inverted, and sports can help the youth navigate life’s challenges in other areas of their life. This is why, when young people do enter into the sports funnel, we need coaches, program directors and other caretakers who ensure that they stay inspired and accomplish whatever they choose to accomplish. That’s SAA’s main goal.”

As a 501(c)(3) non-profit, SAA finds organisations that have good sports programs and coaching but are in need of resources, then helping them raise funds so they can keep their programs going. Aside from monetary donations, SAA also helps these programs obtain equipment such as balls, shoes, and uniforms, as well as assistance for transportation and accommodations when playing in another city. To ensure transparency and increase its fundraising capabilities, SAA is building out a larger team as well as adding more board members.

According to Barnett, SAA also seeks to help promising athletes who are struggling with their development due to potential off-court circumstances. For example, it partners with non-profits that provide literacy programs, helping the athletes catch up with their academics and ensure that they can properly balance their time between studies and sports.

“We believe that building partnerships and networks is important to magnify the impact of our charitable efforts. Partnering with multiple other non-profits will allow us to help more young athletes, versus going at it alone and only being able to help one. With our partnership programs, we’ve been able to open doors for athletes and their families, allowing them to experience being part of these national circuits, which they would otherwise not be able to participate in without financial help.”

(Source: International Business Times – By Karcy Noonan – 8 June 2024)

2. ENVIRONMENTAL

# 35 billion trees, just ₹100 each: The hidden value of India’s forest boom

India has successfully increased its forest cover, ranking among the top ten countries with forest growth.

India, renowned for its diverse ecosystems and landscapes, has recently been acknowledged as one of the few nations globally to have successfully augmented its forest cover. This accomplishment, as reported by an SBI Research, positions India among the top ten countries where forest cover has seen a significant rise over the years.

The report discloses that India’s forest cover remained unchanged from 1991 to 2011, but has seen a steady increase since then. This growth is attributed to the U-shaped relationship between urbanisation and forest cover. In the initial stages of urbanisation, deforestation is a common phenomenon. However, as urbanisation advances, policies such as urban greening, forest conservation programs, and sustainable land-use planning are implemented, leading to an eventual recovery of forest cover.

India is a country that is urbanising at a swift pace. As per the 2011 Census, 31.1% of the total population resided in urban areas. This percentage is projected to rise to 35-37% by the 2024 Census.

The report suggests that once the urbanisation rate crosses 40%, the impact on forest cover becomes positive. This is where initiatives like the Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) play a crucial role. These programs aim to integrate green infrastructure and enhance urban ecological resilience.

The current assessment reveals that the total forest cover in India’s mega cities is 511.81 km2, accounting for 10.26% of the total geographical area of these cities. Delhi leads the pack with the largest forest cover, followed by Mumbai and Bengaluru. Interestingly, the maximum gain in forest cover from 2021 to 2023 is seen in Ahmedabad, followed by Bengaluru. On the other hand, Chennai and Hyderabad have witnessed the maximum loss in forest cover.

The forestry sector contributes approximately 1.3-1.6% to India’s Gross Value Added (GVA), supporting industries such as furniture, construction, and paper manufacturing. With an estimated 35 billion trees, the GVA per tree in India is only ₹100.

However, the report also highlights that India’s forest cover is asymmetric. States like Odisha, Mizoram, and Jharkhand have seen an increase in forest cover. North-East and hilly states like Uttarakhand and Himachal Pradesh have a larger geographical area under forest cover. Whereas, states like Uttar Pradesh, Bihar, Rajasthan, Haryana, Punjab, etc., have less than 10% of their geographical area under forest cover.

To enhance forest sustainability, the report suggests expanding biodiversity hotspots and incentivising private sector participation. Investment in afforestation projects through Corporate Social Responsibility (CSR) and carbon offset markets can enhance conservation funding. Strengthening enforcement against encroachment through satellite monitoring and digital databases can protect critical forest areas.

The government has undertaken various initiatives, such as the Smart Cities Mission and AMRUT, to integrate green infrastructure and enhance urban ecological resilience. These initiatives align with the postulated U-shaped hypothesis, leading to better institutional capacity that supports both urban growth and environmental conservation.

(Source: International Business Times – By Sheezan Naseer – 15 May 2025)

3. HEALTH

# Could Non-Invasive Tools be the future of early Oral Cancer Detection?

Dr. Hiren Patadiya said early detection not only reduces treatment costs but also significantly improves the patient’s quality of life. Oral cancer remains a significant global health concern, with early diagnosis playing a crucial role in reducing mortality rates and improving patient outcomes. Experts in the field emphasize that the challenge lies not only in the lack of awareness among healthcare professionals but also in the invasive nature of conventional diagnostic methods. However, innovative approaches are reportedly paving the way for more accessible and non-invasive screening tools.

Dr. Hiren Patadiya, a distinguished expert in Oral Medicine, has been at the forefront of developing cutting-edge diagnostic tools aimed at facilitating early detection of oral cancer. With three design patents to his credit, his contributions are reshaping how clinicians approach oral lesion analysis. “Early detection is paramount in reducing morbidity and mortality rates associated with oral cancer. My goal has been to bridge the gap between diagnostic accuracy and accessibility,” Dr. Patadiya stated. His patents include Caviscan, an Automated Oral Lesion Analysis Tool designed to enhance clinical assessments; Biocheck, a non-invasive tool for detecting oral cancerous lesions, offering a patient-friendly alternative to traditional biopsy; and a Biosensor-Based Oral Cancer Detection Device, a novel technology aimed at providing precise diagnostic capabilities with minimal discomfort.

Experts suggest that one of the major limitations in diagnosing oral cancer lies in the inadequate knowledge of clinical features and the lack of training among healthcare providers to perform biopsies. Dr. Patadiya underscores this challenge, stating, “Many clinicians struggle to differentiate between benign and malignant oral lesions. This not only leads to missed diagnoses but also delays critical interventions.” To tackle this issue, he has also authored a book, “Oral Potentially Malignant Disorders,” which extensively discusses clinical signs and symptoms, equipping practitioners with the knowledge needed to enhance diagnostic accuracy. “Your eyes can only see what your brain knows. Comprehensive knowledge of oral lesions is fundamental in ensuring timely and accurate diagnosis,” he emphasised.

The rampant nature of oral cancers reportedly places a substantial financial burden on healthcare systems. According to experts, late-stage cancer treatments are considerably more expensive and resource-intensive than early interventions. “Early detection not only reduces treatment costs but also significantly improves the patient’s quality of life,” Dr. Patadiya noted. Moreover, integrating non-invasive diagnostic tools into routine screenings can lead to a marked reduction in delayed diagnoses. Statistically, early-stage detection has been linked to higher survival rates and less aggressive treatment requirements.

Looking ahead, researchers and clinicians alike are advocating for widespread adoption of non-invasive diagnostic methods. “We need to shift our focus from reactive treatment to proactive screening. With advancements in technology, tools like Caviscan and Biocheck have the potential to revolutionize early cancer detection,” Dr. Patadiya commented. As the medical community continues to innovate, the emphasis remains on equipping healthcare professionals with both the knowledge and the tools necessary to detect oral cancer at its
earliest stages. With pioneering efforts like those led by Dr. Patadiya, the future of oral cancer diagnosis is poised for transformation, making early detection more accessible and effective than ever before.

(Source: International Business Times – By Karcy Noonan – 4 June 2025)

“Mera Naya Article Clerk Ek Algorithm Hai” (By A CA Who Misses Paper Vouchers But Loves AI Sarcasm)

When our office WhatsApp group lit up with the message “We are going digital!”, I thought we were finally done printing 148-page audit reports just to courier them two buildings away. Little did I know this digital leap meant I’d be sharing my cabin with a machine that doesn’t drink chai, doesn’t gossip, and finishes bank reconciliations faster than I can find my spectacles.

Ladies and Gentlemen, meet RoboCFO – my new article assistant. Technically, HR wants us to call him “AI Assistant (Beta),” but if it balances a trial balance in less time than it takes my human article to log into Traces, it gets a name. Period.

THE ARRIVAL OF THE MACHINE: AAPKA IT ASSISTANT ONLINE HAI

Now, I’ve worked with all kinds of articles—hardworking ones, sleepy ones, the ones who vanish mysteriously at 1:03 PM daily, and of course, the ones who “go on study leave” right before audit season and resurface only after Diwali sweets arrive. But nothing prepared me for RoboCFO.

First day on the job, I asked it to vouch 4,000 purchase invoices.

TIME TAKEN: 4 MINUTES, 18 SECONDS.

Human article Raj watched in horror—like a calculator seeing Excel for the first time.

“Sir,” he whispered, “yeh mera kaam le lega kya?”

“Sirf tab,” I replied, “jab yeh client se bank statement timely mangwana seekh le.”

He calmed down instantly.

TAX ASSIGNMENTS: ROBOCFO IN SCRUTINY MODE

During income tax season, RoboCFO became my right hand. It drafted replies to notices, prepared submission indexes, and even generated sarcastic comments for clients who failed to deduct TDS for the fifth quarter in a row.

(“Paanchwa quarter? Haan ji, ab TDS bhi lunar calendar se chalega.”)

One client asked, “Can I claim honeymoon expenses as business promotion?”

RoboCFO replied, “Sir, agar Shaadi mein 200 GST officers invite kiye the, toh zaroor!”

I had tears in my eyes. Not from laughter—from respect.

AUDIT ASSIGNMENTS: MAY THE BOTS BE WITH YOU

If tax season was a trailer, audit season was the blockbuster. RoboCFO took over bank reconciliations, vouching, TDS ageing, Form 26AS–AIS matching, GSTR-2B reconciliation and even tried to perform physical verification of fixed assets—remotely.

It once flagged a mismatch of ₹3.21 in depreciation.

“Sir, as per Schedule II, this asset should’ve been fully depreciated in FY 2020-21.”

I didn’t know whether to say “well done” or throw my calculator at it.

And when it questioned my chai bill: “Tea expense exceeds historical mean by 42%. Possible non-business expenditure?”

Et tu, RoboCFO?

CLIENT MEETINGS WILL NEVER BE THE SAME AGAIN

Took RoboCFO into a Zoom meeting once—just for fun. Client says, “We’d like to project next quarter’s cash flow.”

Before I could unmute myself, RoboCFO shared a working, generated charts and added:

“Suggest reducing office snacks. Your P&L will thank you.”

Client: “Fantastic insight!”

Me: Beta tu toh gaya.

After the meeting, I confronted him. “You’re getting too smart.”

It responded, “I learn from the best.”

Flattery. Great. Now the robot is also sarcastic.

ROBOT VS RAJU: THE GREAT INDIAN SHOWDOWN

Raju, our beloved peon, was not impressed. He’s the man who could locate any file, even if it was saved as “Final_Final_USETHIS_v3(Reviewed)_DONOTDELETE.xls”.

“Sir,” he said, “yeh machine na rest leta hai, na chai peeta hai, aur na paper staple karta hai. Kaise kaam karega?”

To reassure him, I gave RoboCFO the task of reading IT circulars from 1974.

Update: It’s still stuck on Para 2.3 of Circular No. 14. Possibly reconsidering its life choices.

THINGS GOT WEIRD: THE AI GOT AMBITIOUS

Last week, RoboCFO tried to generate a UDIN.

I panicked. I haven’t felt that kind of fear since I signed a balance sheet on March 31st at 11:58 PM.

Turned out, it was just preparing a draft audit report with:

  •  Emphasis of Matter
  •  Note on Going Concern
  •  Footnote quoting AS-29 (like a boss)

At this point, my senior article began prepping for UPSC. “Sir, CA toh AI ban gaya. Main IAS try karta hoon.”

WILL AI REPLACE CHARTERED ACCOUNTANTS?

Let’s be clear. RoboCFO is great. It can:

√ Match ledgers

√ Read scanned invoices

√ Generate 3D cash flow forecasts

√ Flag “non-business” tea expenses

But can it:

⊗ Convince a PSU bank to accept scanned balance sheets “just this once”?

⊗ Handle a client who says, “Sir, cash mein transaction kiya hai, par tension mat lo, sab white hai.”

⊗ E-file returns at 11:59 PM with a hanging server and a prayer to St. FinMin?

ABSOLUTELY NOT.

That, my friends, still needs a human CA—with caffeine in his veins, sarcasm in his soul, and a backup dongle in his bag.

FINAL ASSESSMENT REPORT

AI in a CA office is like GST:

Confusing at first. Occasionally misused.

But once you crack it—transformational.

Sure, RoboCFO doesn’t know the joy of finding a file saved as “USE_THIS_FINAL_FINAL_REVISED(FINAL2).xls”, but it does know Section 43B better than my senior partner.

And no, it doesn’t replace us. It just makes us work faster, better, and with less Excel-induced rage.

So here’s to our new intern, punching bag, co-worker, and unofficial audit partner—RoboCFO.

As for Raju? He’s now our official “AI Trainer.” He proudly claims:

“Maine hi isko sikhaya GSTN ka error kaise solve karte hai.”

And honestly? We believe him.

Disclaimer: No human articles were harmed in the making of this story. But one did consider switching to law after watching RoboCFO complete an entire GST audit while sipping digital chai. The content is AI-generated with human intervention / guidance for understanding future scenarios in a lighter way.

Letter to the Editor

The Editor

BCAJ

Mumbai

Dear Sir

I express my sincere appreciation for the insightful article named “शीलं परमं भूषणम्” in “NAMASKAAR” section published in the recent issue of the BCAS Journal.

The article is “thought-provoking”. A great deal of effort and expertise went into this piece, and it truly enriches the content of the BCAS Journal. Thank you for sharing your timeless wisdom and contributing to the knowledge within our community.

I look forward to reading more of your work in future issues.

Warm Regards,

CA Manish M. Toshniwal

 

The Editor

BCAJ

Mumbai

Sir,

Re: Your Editorial in the June 2025 issue of the BCAJ

1. This editorial crafts a potent, vision of India weaving together themes of national pride, decisive military action, economic optimism, and a collective call to national development. It’s a striking piece designed to evoke strong patriotic sentiment and project a narrative of a resurgent India.

2. The name “Operation Sindoor,” laden with cultural symbolism of auspiciousness and protection, underscores this new chapter. The narrative of its success, coupled with unified political support, is crafted to instil confidence in India’s defence capabilities and governmental resolve.

3. Seamlessly, the editorial pivots from military might to economic prowess, presenting the latter as a “silver lining” and a cornerstone of India’s rising global stature.

4. The tone throughout is optimistic, assertive, and deeply nationalistic, aiming to inspire readers by celebrating perceived military and economic victories.

Thank you Dr. Nayak for making us proud by effectively narrating our achievements.

Regards,

Adv. R. K. Sinha

IRS and Ex – DIT

Guardianship of Persons with Intellectual Disabilities

INTRODUCTION

Guardianship of Persons with intellectual disabilities or mentally challenged persons and their estate is a specialised subject. However, while India has multiple legislations dealing with this sensitive issue, it does not have a holistic Law that addresses all concerns. Unlike a person suffering from a physical disability, a person with an intellectual disability cannot easily take care of his own property/estate and hence, it becomes very essential to understand who can be the guardian and what such a guardian can do.

MULTIPLE LEGISLATIONS

In India, this subject is specifically addressed by three main Laws:

(a) The National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (“National Trust Act”) – an Act to provide for the constitution of a body at the National level for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities and for matters connected therewith or incidental thereto;

(b) The Rights of Persons with Disabilities Act, 2016 (“Disabilities Act”) – an Act to empower persons with disabilities; and

(c) The Mental Healthcare Act, 2017 (“MHCA”) – an Act to provide for mental healthcare and services for persons with mental illness and to protect, promote and fulfil the rights of such persons during the delivery of mental healthcare and services.

In addition, guardianship of minors is generally regulated by the following Acts:

(a) Guardians and Wards Act, 1890

(b) Hindu Minority and Guardianship Act, 1956

Let us examine these different Legislations in more detail.

NATIONAL TRUST ACT

Under this Act, the Central Government has constituted an authority known as the National Trust for the welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities. The National Trust functions through various Local Committees. One of its objectives is to evolve the procedure for the appointment of guardians and trustees for persons with disability requiring such protection.

The phrase “persons with disability” has been defined to mean a person suffering from any of the conditions relating to autism, cerebral palsy, mental retardation or a combination of any two or more of such conditions and includes a person suffering from severe multiple disabilities. The Act also defines these intellectual disabilities as follows:

(a) “Autism” means a condition of uneven skill development primarily affecting the communication and social abilities of a person, marked by repetitive and ritualistic behaviour;

(b) “Cerebral palsy” means a group of non-progressive conditions of a person characterised by abnormal motor control and posture resulting from brain insult or injuries occurring in the pre-natal, perinatal or infant period of development;

(c) “Mental retardation” means a condition of arrested or incomplete development of mind of a person which is specially characterised by sub-normality of intelligence;

(d) “Multiple disabilities” means a combination of two or more disabilities as defined in the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. This Act has been since repealed by the Disabilities Act.

The Act provides that the parent of a person with disability or his relative may make an application to the local level committee for the appointment of any person of his choice to act as a guardian of the person with disability. The Act gives a very expansive meaning to the term relative as including any person related to the person with disability by blood, marriage or adoption. Thus, all possible types of relatives are included within this phrase. Any registered organisation (i.e., an association of persons with disability or an association of parents of persons with disability or a voluntary organisation) may also make an application in the prescribed form to the local level committee for the appointment of a guardian for a person with disability. The local committee would then consider whether or not such a person should be appointed as a guardian. While taking a decision on the appointment of a guardian, the local level committee shall ensure that the person whose name has been suggested for appointment as guardian is:

(a) a citizen of India – the Delhi High Court in Sunil Podar vs. the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities, 2023/DHC/000987 has upheld the provision requiring only Indian citizens to be appointed as guardians.

(b) is not of unsound mind or is currently undergoing treatment for mental illness;

(c) does not have a history of criminal conviction;

(d) is not a destitute and dependent on others for his own living; and

(e) has not been declared insolvent or bankrupt.

Every person appointed as a guardian under the Act shall, wherever required, either have the care of such person of disability and his property or be responsible for the maintenance of the person with disability. The guardian shall, within 6 months from the date of his appointment, deliver to the authority which appointed him, an inventory of immovable property belonging to the person with disability and all assets and other movable property received on behalf of the person with disability, together with a statement of all claims due to and all debts and liabilities due by such person with disability.

The Act also provides for the removal of the guardian. If a parent or a relative of a person with disability or a registered organisation finds that the guardian is (a) abusing or neglecting a person with disability; or (b) misappropriating or neglecting the property, it may in accordance with the prescribed procedure apply to the committee for the removal of such guardian. The National Trust Rules, 2000 define what constitutes an act of neglect or abuse on the part of the guardian.

DISABILITIES ACT

This Act seeks to empower persons with disabilities. It deals with all sorts of disabilities and defines a person with disability to mean a person with long term physical, mental, intellectual or sensory impairment which, in interaction with barriers, hinders his full and effective participation in society equally with others. The Act defines certain disabilities as follows:

(a) Intellectual disability is defined as a condition characterised by significant limitation both in intellectual functioning (reasoning, learning, problem solving) and in adaptive behaviour which covers a range of everyday, social and practical skills, including —

(i) “Specific learning disabilities” which means a heterogeneous group of conditions wherein there is a deficit in processing language, spoken or written, that may manifest itself as a difficulty to comprehend, speak, read, write, spell, or to do mathematical calculations and includes such conditions as perceptual disabilities, dyslexia, dysgraphia, dyscalculia, dyspraxia and developmental aphasia;

(ii) “Autism spectrum disorder” means a neuro-developmental condition typically appearing in the first 3 years of life that significantly affects a person’s ability to communicate, understand relationships and relate to others, and is frequently associated with unusual or stereotypical rituals or behaviours.

(b) “Mental Illness” means a substantial disorder of thinking, mood, perception, orientation or memory that grossly impairs judgment, behaviour, capacity to recognise reality or ability to meet the ordinary demands of life, but does not include retardation which is a condition of arrested or incomplete development of mind of a person, specially characterised by subnormality of intelligence.

The Act overrides anything contained in any other law for the time being in force. If a District Court or any Designated State Authority, finds that a person with disability, who had been provided adequate and appropriate support but is unable to take legally binding decisions, then he may be provided further support of a limited guardian to take legally binding decisions on his behalf in consultation with such person.

The Act introduces the concept of limited guardianship. This means a system of joint decision which operates on mutual understanding and trust between the guardian and the person with disability, which shall be limited to a specific period and for specific decision and situation and shall operate in accordance with the will of the person with disability. Every guardian appointed under any provision of any other law for the time being in force, for a person with disability shall be deemed to function as a limited guardian.

MHC ACT

The Mental Healthcare Act is the most recent Law on this subject and repeals the erstwhile Indian Lunacy Act, 1912. The Act provides that Mental illness shall be determined in accordance with such nationally or internationally accepted medical standards (including the latest edition of the International Classification of Disease of the World Health Organisation) as may be notified by the Central Government. It defines “mental illness” to mean a substantial disorder of thinking, mood, perception, orientation or memory that grossly impairs judgment, behaviour, capacity to recognise reality or ability to meet the ordinary demands of life, mental conditions associated with the abuse of alcohol and drugs, but does not include mental retardation which is a condition of arrested or incomplete development of mind of a person, specially characterised by subnormality of intelligence.

Every person, including a person with mental illness shall be deemed to have capacity to make decisions regarding his mental healthcare or treatment if such person has ability to—

(a) understand the information that is relevant to take a decision on the treatment or admission or personal assistance; or

(b) appreciate any reasonably foreseeable consequence of a decision or lack of decision on the treatment or admission or personal assistance; or

(c) communicate decisions by means of speech, expression, gesture or any other means.

The Act also introduces the concept of an advance directive. Every major individual has a right to make an advance directive in writing, specifying (a) the way he wishes to be cared for and treated for a mental illness; (b) the way he wishes not to be cared for and treated for a mental illness; (c) the individuals, he wants to appoint as his nominated representative.

The Act introduces an important concept of a nominated representative. Every major individual has a right to appoint a nominated representative. The person appointed as the nominated representative must be competent to discharge the duties or perform the functions assigned to him under this Act and give his consent in writing to the mental health professional to discharge his duties and perform the functions assigned to him under this Act.

Where a nominated representative is not appointed, the following persons for the purposes of this Act in the order of precedence shall be deemed to be the nominated representative of a person with mental illness, namely:

(a) The individual appointed as the nominated representative in the advance directive; or

(b) a relative (i.e., any person related to the person with mental illness by blood, marriage or adoption), or

(c) a care-giver (i.e., a person who resides with a person with mental illness and is responsible for providing care to that person and includes a relative or any other person who performs this function, either free or with remuneration), or if not available or not willing to be the nominated representative of such person; or

(d) a suitable person appointed as such by the Mental Health Review Board appointed under the Act; or

(e) if no such person is available to be appointed as a nominated representative, the Board shall appoint the Director, Department of Social Welfare, or his designated representative, as the nominated representative of the person with mental illness:

However, in case of minors, the legal guardian shall be their nominated representative.

The nominated representative has various duties, including, providing support to the person with mental illness in making treatment decisions.

The Act also lays down various rights of persons with mental illness, such as right to equality and non-discrimination, right to access mental healthcare, etc.

GUARDIANS AND WARDS ACT, 1890 (“G&W ACT”)

In addition to the above specific legislations, there is the generic Guardians and Wards Act, 1890 that deals with guardians in respect of all minors. This Act applies to all minors. A guardian under this Act means a person having the care of the person of a minor or of his property, or of both and a ward means a minor for whose person or property, or both, there is a guardian.

A Court on being satisfied that it is for the welfare of a minor may make an order — (a) appointing a guardian of his person or property, or both, or (b) declaring a person to be such a guardian.

An application for being appointed as a guardian may be made by (a) the person desirous of being, or claiming to be, the guardian of the minor, or (b) any relative or friend of the minor, or (c) the Collector of the district or other local area within which the minor ordinarily resides or in which he has property, or (d) the Collector having authority with respect to the class to which the minor belongs.

A guardian stands in a fiduciary relation to his ward, and, save as provided by the will or other instrument, if any, by which he was appointed, or by this Act, he must not make any profit out of his office. A guardian of the person of a ward is charged with the custody of the ward and must look to his support, health and education, and such other matters as the law to which the ward as subject requires. A guardian of the property of a ward is bound to deal therewith as carefully as a man of ordinary prudence would deal with it if it were his own, and he may do all acts which are reasonable and proper for the realisation, protection or benefit of the property. However, one of the important restrictions on the power of the guardian is that he shall not, without the previous permission of the Court

(a) mortgage or charge, or transfer by sale, gift, exchange or otherwise, any part of the immovable property of his ward, or

(b) lease any part of that property for a term exceeding 5 years or for any term extending more than one year beyond the date on which the ward will cease to be a minor.

HINDU MINORITY AND GUARDIANSHIP ACT, 1956 (“HMG ACT”)

In addition, the Hindu Minority and Guardianship Act, 1956 applies to Hindu minors. This Act is in addition to, and not, save as expressly provided, in derogation of, the Guardians and Wards Act, 1890. It provides that in case of a Hindu minor, the natural guardians in respect of the minor’s person as well as in respect of the minor’s property are:

(a) in the case of a boy or an unmarried girl—the father, and after him, the mother. However, that the custody of a minor who has not completed the age of 5 years shall ordinarily be with the mother. In Surinder Kaur Sandhu vs. Harbax Singh Sandhu, (1984) 3 SCC 698 the Court held that the Act constitutes father as a natural guardian of a minor son but that provision cannot supersede the paramount consideration as to what is conducive to the welfare of the minor.

(b) in the case of an illegitimate boy or an illegitimate unmarried girl – the mother, and after her, the father;

(c) in the case of a married girl – the husband:

The natural guardianship of an adopted son who is a minor, passes on adoption, to the adoptive father and after him to the adoptive mother.

A Hindu father who is entitled to act as the natural guardian of his minor legitimate children may, by his Will appoint a guardian for any of them in respect of the minor’s person or in respect of the minor’s property or in respect of both. A Hindu mother entitled to act as the natural guardian of her minor illegitimate children may, by her Will, appoint a guardian for any of them in respect of the minor’s person or in respect of the minor’s property or in respect of both.

The Act also provides that where a minor has an undivided interest in HUF property and the property is under the management of an adult member of the family, no guardian shall be appointed for the minor in respect of such undivided interest. However, the High Court has powers to appoint a guardian even in respect of such undivided interest.

In Gaurav Nagpal vs. Sumedha Nagpal, AIR 2009 SC 557, the Court held that it is not the welfare of the father, nor the welfare of the mother that is the paramount consideration for the Court. It is the welfare of the minor and the minor alone which is the paramount consideration.

GUARDIANSHIP UNDER

DIFFERENT LAWS

While the different laws explained above do not specifically refer to each other and many of them appear contradictory, one may adopt the following approach while making an application for being appointed as a guardian of a person with intellectual disability / who is mentally challenged:

(a) If the person with disabilities is a minor – for Hindus the HMG Act will be the main law while for other communities the G&W Act will be the main law. The National Trust Act also provides for the appointment of a guardian but only for those minors who have specified mental disabilities. The Disabilities Act only permits a limited guardian to be appointed whereas the MHC Act only allows a nominated representative.

(b) If the person with disabilities is a major – The National Trust Act would be the main statute as it provides for appointment of a guardian but only for those minors who have specified mental disabilities. The Disabilities Act only permits a limited guardian to be appointed whereas the MHC Act only allows a nominated representative.

SUCCESSION TO PROPERTY

It may be noted that a person suffering from mental disabilities may not be able to make a Will for his property/estate. This is because one of the main conditions under the Indian Succession Act, 1925 for making a Will is that the testator must be of sound mind. A person who is ordinarily insane may make a Will during the interval in which he is of sound mind. The Indian Contract Act, 1872 defines a person to be of sound mind if at the time of making a contract he is capable of understanding it and of forming a rational judgment as to its effects. The Kerala High Court in Natarajan vs. Sree Narayana Dharma Sanghom Trust, A.S.No.203 of 1988, Order dated 27-10-1995 has held that the question of sound disposing mind is a question of fact and degree of mental capacity in each case. Mental weakness to constitute testamentary incapacity must be qua the Will itself. A testator ought to be capable of making his Will with an understanding of the nature of the document he is purporting to create, a recollection of the property he means to dispose of, of the persons who are the objects of his bounty, and the manner in which it is to be distributed between them. The testator’s age, disease and mental weakness are all important considerations in determining the soundness of the mind of the testator at the time of the execution of the Will.

In case a person with mental disability is not treated as being of sound mind and hence, not capable of making a Will, then such a person would die an intestate and the succession to his property would be as provided under the personal law applicable to him. Thus, in the case of a Hindu/Jain/Buddhist/Sikh intestate, the Hindu Succession Act, 1956 would apply; in the case of a Muslim intestate the Shariyat Law would apply, and in the case of a Parsi/Christian/Jewish intestate, the Indian Succession Act, 1925 would apply.

TAX DEDUCTION

S. 80DD of the Income-tax Act, 1961 allows a deduction of ₹75,000 per year to an Individual / HUF assessee who incurs expenditure on medical treatment / nursing / training / rehabilitation of a dependent who has a specified disability. The deduction is also available for paying any sum to an approved Scheme framed by any insurance company for the maintenance of such a dependent. Dependent in the case of an individual means his spouse, children, parents, siblings and in the case of an HUF means any of its members. The specified disabilities include the intellectual disability mentioned in the Disabilities Act, 2016 as well as autism and cerebral palsy referred to in the National Trust Act.

CONCLUSION

It is quite unfortunate that we have multiple laws dealing with the same subject, but no single unified law that weaves all these diverse provisions together. Guardianship is a very sensitive subject and more so in the case of persons with intellectual disability. It is high time that we deal with this issue in a more comprehensive and holistic manner!

Artificial Intelligence (AI) and the Future of Chartered Accountancy

 

“I DON’T BELIEVE AI WILL REPLACE CHARTERED ACCOUNTANTS, BUT I DO FIRMLY BELIEVE THAT THOSE WHO UNDERSTAND AND LEVERAGE AI WILL REPLACE THOSE WHO DON’T.”

Some perceive AI as a big threat to the profession, while others perceive it as a big opportunity. Is it like seeing a glass half full or half empty, or does it have some deep nuances? What is in store for the CA Profession with the advent of AI? Can we ignore it, or do we have to embrace it? CA Ninad Karpe answers these and several other questions in an interview with BCAS.

Ninad Karpe is the Founder of Karpe Diem Ventures, which invests in early stage startups in India. He is also the Founder & Partner at 100X.VC, India’s pioneering early-stage VC firm that has invested in 180 startups through the innovative iSAFE note model. Widely known as a “startup whisperer” for his sharp insights and no-nonsense advice, Karpe earlier served as MD & CEO of Aptech Ltd. and as MD of CA Technologies India. Karpe has authored the business strategy book “BOND to BABA” and served as Chairman of CII Western Region (2017-18). Passionate about storytelling and creativity, he has also produced four Marathi plays, seamlessly blending boardroom strategy with the magic of the stage.

Being a lead technology person from the CA Fraternity, his insights on the AI revolution impacting the CA Profession carry weight. Considering his time constraints, BCAJ sent him questions to receive written answers from him. We hope this interview will enrich readers.

Q. Mr. Karpe, thank you for sparing your valuable time. Let’s begin by discussing the future. How do you see the role of a chartered accountant evolving over the next five years, especially given the rise of AI?

A. Ninad Karpe: Thank you, it’s a pleasure to discuss AI. We are currently witnessing a profound shift in the accounting profession. I don’t believe AI will replace chartered accountants, but I do firmly believe that those who understand and leverage AI will replace those who don’t.

In five years from now, the CA’s role will move away from being execution-heavy and compliance-focused toward something far more strategic and analytical. Much of the routine work, like data entry, reconciliation, standard reporting, etc., will be completely automated. But that only opens up space for CAs to deliver real value through insights, interpretation, and decision-support. Human judgment won’t become irrelevant. In fact, it will become more important, because it will be applied to higher-order problems. The AI-assisted CA will be the norm, not the exception.

Q. That’s a powerful vision. In your view, what’s the most underrated opportunity that AI presents to accounting professionals right now?

A. Ninad Karpe: That would be the ability of AI to make sense of unstructured data.

CAs are used to working with structured ledgers and financial statements. But what about the mountains of unstructured data, like emails, WhatsApp chats, handwritten notes, scanned invoices, or boardroom transcripts? AI can now process, analyse, and even summarise such data. That’s a goldmine.

Most firms are just scratching the surface by using AI for automating data entry or filling out forms. But the real breakthrough lies in using AI for strategic insights like flagging hidden risks, spotting patterns, and even predicting client behaviour. This capacity to derive intelligence from chaos is what can transform how CAs add value.

Q. Which AI tools do you find most effective for day-to-day accounting tasks? And how safe is it to use free versions of these tools?

A. Ninad Karpe: For everyday use, tools like ChatGPT, Microsoft 365 Copilot, and AI-enhanced Google Sheets are quite useful. You can use them for summarising tax policies, preparing checklists, analysing trends, or even drafting emails and reports.

That said, I must stress that data sensitivity is paramount. For anything involving client data, free versions should be avoided. Use enterprise-grade tools that offer robust security, encryption, and compliance controls. Experimentation is great, and free tools are ideal for learning and prototyping. But when it comes to real-world applications, especially involving confidential financial information, always prioritise data privacy.

Q. How should mid-sized firms approach AI adoption? Should they prioritise investing in technology or focus on building talent?

A. Ninad Karpe: Definitely start with talent.

Technology can be bought, but talent needs to be nurtured. I always recommend identifying an “AI Champion” within the firm; someone who is naturally curious, digitally savvy, and willing to experiment. They don’t need to be a coder or a data scientist. But they do need to be open-minded and passionate about exploring new tools.

Start with one small use case, like automating invoice classification or generating audit checklists. Allocate a modest budget, say ₹5–7 lakhs, annually. That’s more than enough for a pilot program that could yield 10x returns in productivity and insights. The key is to build a culture of experimentation. Begin small, learn fast, and scale confidently.

Q. Can AI ever replace human judgment in complex areas like auditing or tax planning?

A. Ninad Karpe: AI can assist, but not replace human judgement.

It can definitely highlight inconsistencies, flag outliers, and run complex simulations. But when it comes to interpretation, especially in areas like tax law or regulatory compliance, human experience is irreplaceable. A CA understands nuance, ethics, and business context, all of which are beyond the capabilities of even the most sophisticated AI models today.

AI might be able to tell you what can be done. But only a human can determine what should be done. The “why” behind a financial recommendation, or the strategic judgment behind audit materiality, still lies in the human domain.

Q. That brings us to a critical concern. What are the biggest risks of placing blind trust in AI?

A. Ninad Karpe: One word. Hallucinations.

AI tools sometimes generate answers that are completely wrong, but sound perfectly plausible. That’s incredibly dangerous in our field, where accuracy is non-negotiable. If those hallucinated results make their way into a tax filing or an audit report, it’s not the AI that is held responsible; it’s the CA who signed off.

Another risk is outdated or irrelevant data. Many AI models are trained on publicly available data, which may not be current or jurisdiction-specific. So yes, AI is a wonderful assistant. But it needs constant supervision, especially in high-stakes accounting environments.

Q. How should firms maintain client trust while increasingly using AI in their advisory processes?

A. Ninad Karpe: Be transparent. Always.

Tell your clients how you’re using AI. Let them know it’s being used to support, not to replace, your professional judgment. For example, explain that the AI tool is helping cross-verify financial entries, scan for anomalies, or summarise reports, but the final call is always yours.

Clients appreciate honesty. When they see that AI enables better, faster, and more accurate service from you, they consider it a value addition. But if they suspect that you’re hiding behind the technology, that’s when trust breaks down. Transparency is not just ethical, it is strategic.

Q. Could you share a real-world example where AI truly made a difference?

A. Ninad Karpe: Absolutely. There’s a retail business I know of that was using an AI-based GST reconciliation tool. This tool flagged a recurring mismatch in filing entries, a pattern that manual checks had missed for months.

Because of that early detection, the company avoided a ₹15 lakh penalty. That one instance alone justified their investment in the tool several times over. It wasn’t just about speed, it was about precision, and about averting a regulatory crisis. That’s the real power of AI, when it turns data into actionable insight.

Q. Before implementing an AI tool, how should a firm assess whether the tool is reliable?

A. Ninad Karpe: Start with internal testing. Feed the AI dummy data and evaluate its outputs. Ask yourself: Do the results make sense? Are they consistent with domain knowledge? More importantly, can the AI explain how it arrived at those conclusions?

Any model that functions like a black box, where you can’t understand or trace the logic, is a red flag. In accounting and auditing, transparency is everything. Reliable AI doesn’t just give you answers, it gives you justifications. That’s what you want to look for.

Q. Is AI adoption creating a divide in the profession between tech-savvy CAs and traditional practitioners?

A. Ninad Karpe: Yes. And that divide is growing. But let me clarify, it’s not an age issue. It’s an attitude issue.

I’ve seen 50-year-old senior partners embrace AI with more enthusiasm than 25-year-old associates. The real difference is mindset. Those who see AI as a threat will struggle. Those who see it as a tool will thrive.

Being tech-fluent is no longer optional. Just like knowing Tally was essential 20 years ago, understanding AI tools is now part of the core skill set. If you’re not learning, you’re lagging.

Q. From a policy standpoint, what framework do you believe India should adopt to ensure ethical AI in finance?

A. Ninad Karpe: We need a national “Finance-AI Code of Conduct.” And this should be co-created by ICAI, regulatory authorities, industry leaders, and clients.

This framework should rest on four key pillars:

  1.  Data Protection: Client information must be encrypted and access-controlled.
  2.  Transparent Algorithms: Firms should understand and disclose the logic behind AI decisions.
  3.  Usage Disclosure: Clients should be aware of how AI tools are used in service delivery.
  4.  Audit Trails: Every AI-assisted output must be traceable and verifiable.

As AI advances, so must our ethical standards. We can’t afford to be reactive – we must be proactive in shaping responsible adoption.

Q. Finally, if you were a young CA starting your career today, how would you prepare for this AI-powered future?

A. Ninad Karpe: I would double down on two things: strong financial acumen and digital fluency.

Master the fundamentals of accounting standards, tax laws, and regulatory frameworks. That’s your core. But alongside that, become proficient with AI tools. Learn to prompt effectively, analyse outputs critically, and integrate these tools into your daily workflow.

Think of yourself as an “augmented accountant”, which is a blend of strategist, analyst, and tech interpreter. That’s not a futuristic fantasy. That’s the reality already unfolding around us. And those who are ready will lead the profession into its most exciting era.

Q. Any final concluding thoughts?

A. Ninad Karpe: As Chartered Accountants, embracing AI isn’t optional — it’s essential. But what sets us apart isn’t the ability to crunch numbers faster — it’s our judgment, ethics, and human context. AI may offer intelligence, but we offer wisdom.

So, the next time your audit file closes at the speed of light, just remember — behind every great AI is a greater CA… quietly debugging the logic, one ledger at a time.

Q. Mr. Karpe, thank you for this insightful and inspiring knowledge sharing. Your perspectives provide a roadmap for firms and professionals navigating the AI transition.

A. Ninad Karpe: Thank you. It’s been a pleasure to connect with BCAS Readers and share these thoughts. The future is not just coming. It is already here. Let’s embrace it.

Accounting of Sale of Fertilizers and Related Subsidy

Rourkela Core Fertilizers Ltd (RCF), a fertilizer manufacturing company, sells fertilizers to dealers, who in turn sell to farmers. Under the Direct Benefit Transfer (DBT) scheme, the Government of India provides a fertilizer subsidy to RCF. This subsidy is disbursed based on actual sales made by dealers to the end-users—the farmers, for whom the subsidy is actually directed towards. These transactions are validated using Point-of-Sale (POS) devices at dealer location and authenticated through farmer identification, such as Aadhaar, Voter ID, or Kisan Credit Card.

The subsidy rates are notified by the government and are subject to periodic revisions, either retroactively or prospectively. RCF receives the subsidy upon submission of a valid claim supported by appropriate evidence.

There exists an inherent time lag between the sale of fertilizers by RCF to dealers and the subsequent sale by dealers to farmers. Subsidy entitlement is governed by the law in force at the time the dealer sells the fertilizers to the farmer. RCF recognizes revenue from sales when control of goods is transferred to dealers in accordance with Ind AS 115 – Revenue from Contracts with Customers. Based on the contractual terms and interpretation of Ind AS 115, RCF considers the point of dispatch to dealers as the moment of transfer of control and hence a trigger for revenue recognition. Accordingly, RCF recognizes revenue when goods are dispatched to the dealers.

RCF is evaluating appropriate timing for recognition of subsidy income, and is considering the following three alternative approaches. This note discusses the accounting treatment, excluding presentation aspects of the subsidy income.

View 1: Recognize the revenue when goods are dispatched to the customer at which time control is transferred in accordance with Ind AS 115. The subsidy is recognized as a variable consideration in accordance with Ind AS 115.

View 2: Recognise the revenue when goods are dispatched to the customer at which time control is transferred in accordance with Ind AS 115. The subsidy is recognised in accordance with the principles laid out in Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance. RCF interprets this to mean that the subsidy will be recognised only when the dealer sells the goods to the farmers, which will therefore not coincide with the timing for recognition of revenue on sale of good.

View 3: Recognise the revenue when goods are dispatched to the customer at which time control is transferred in accordance with Ind AS 115. The subsidy is recognised as a grant income in accordance with Ind AS 20. RCF interprets this to mean that the subsidy will be recognized at the time of recognition of the revenue, basis best estimate, which will then be trued up/down in subsequent period if necessary (for e.g., if the subsidy rate is revised).

Accounting Standard References

Ind AS 115 Revenue from Contracts with Customers

“31 An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.”

“47 An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.”

“50 If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.”

“87 After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services.”

“98 An entity shall recognise the following costs as expenses when incurred: (a)…(b)…….. (c) costs that relate to satisfied performance obligations (or partially satisfied performance obligations) in the contract (i.e. costs that relate to past performance); and (d) costs for which an entity cannot distinguish whether the cost relate to unsatisfied performance obligations or to satisfied performance obligations (or partially satisfied performance obligations).”

Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance

“3. Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity”.

“7 Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received.”

“12 Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.”

Ind AS 2 Inventories

“9 Inventories shall be measured at the lower of cost and net realisable value.

Cost of Inventories

10 The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.”

“34 When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.”

Discussion

View 1: Recognise the revenue when goods are dispatched to the customer at which time control is transferred as per Ind AS 115. The subsidy is recognised as a variable consideration in accordance with Ind AS 115 and its estimated value is included in the transaction price.

Supporting Rationale:

a) Revenue is recognised on transfer of control of the underlying goods (fertilizers) at the time of dispatch in accordance with the contract with the dealers (para 31).

b) The subsidy received by RCF is a subsidy not to RCF but to the farmers. The subsidy received by RCF is a payment by the government on behalf of the farmers. In other words, RCF receives the consideration largely from the farmers (through the dealers) and partly from the government on behalf of the farmers (see para 47).

c) Since the amount to be received from the government may fluctuate, the provisions relating to variable consideration under Ind AS 115 will kick in. On this basis, variable consideration will be estimated using either the expected value method or the most likely amount method under Ind AS 115 whichever the entity expects to better predict the amount of consideration to which it will be entitled. The entity will constraint the amount determined to an extent that it is highly probable that significant reversal of revenue will not happen in subsequent period. In subsequent period, the variable consideration will be trued up basis the amount received from the government (see para 50 and 87).
d) In addition to the subsidy for which variable consideration is to be applied, variable consideration will also be applied for likely goods that may be returned by the dealers. A simple consequence of this is that the subsidy amount is also not recognized on estimated goods that may be returned by the dealers (see para 50 and 87).

e) This view will allow subsidy income on an estimated basis to be recognized in the same period it transfers control of the underlying goods (fertilizers). However, it is likely to require significant estimates which will get updated in subsequent periods. It is possible that this view would result in significant volatility in margins for each reporting period. Additionally, depending on extent of changes in subsidy rate, the matching principle may not be met in its entirety, as the entire cost of manufacture of fertilizers is booked in one period, while a specific portion of the revenue (resulting from changes in subsidy rates on channel stock, which is happening more frequently) is recognized in another period.

Dissenting opinion

The counter view in the extant case is that there is contract between RCF and the dealer, who is the customer. The ultimate customer is the farmer, who is the customer of the dealer and not of RCF. Apparently, neither the contract between RCF and the dealer nor the contract between the dealer and the farmer specifies that any portion of the consideration is payable to RCF by the government (on behalf of the farmer).

Transaction price under Ind AS 115 is defined as consideration that is paid by a customer to the vendor. Since the subsidy is received from the government who is not the customer of RCF, the fertilizer subsidy does not form part of the variable consideration element of the transaction price and is outside the scope of Ind AS 115.

Consequently, view 1 is not acceptable.

View 2: Recognise the revenue when goods are dispatched to the customer at which time control is transferred in accordance with Ind AS 115. The subsidy is recognized in accordance with the principles laid out in Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance. RCF interprets this to mean that the subsidy will be recognized only when the dealer sells the goods to the farmers, which will therefore not coincide with the timing for recognition of revenue on sale of good. Further, the cost of inventories will be allocated proportionately to the main revenue component and the subsidy element. Since the subsidy revenue is to be recognized in later periods, the proportionate cost of inventories will be carried forward as an asset, and adjusted against the subsidy revenue in subsequent periods.

Supporting Rationale

a) Basis paragraph 3 of Ind AS 20, in the case of RCF, the subsidy received on sale of fertilizers qualifies as a transfer of resources to an entity and hence is a grant under Ind AS 20.

b) The purpose of fertilizer subsidy is to ensure availability of fertilizer at an affordable rate to farmers. Under DBT regime, the Government decides subsidy rate for each season depending on trending of few products like DAP, Urea, MOP and Sulphur which are not having any direct link with cost of production of companies. However, the Government assumes that if above mentioned products are imported today and sold at certain prices, then, the companies require the difference as subsidy to sustain operations. Paragraph 4 of Ind AS 20 reads as, Government assistance takes many forms varying both in the nature of the assistance given and in the conditions which are usually attached to it. The purpose of the assistance may be to encourage an entity to embark on a course of action which it would not normally have taken if the assistance was not provided.

c) DBT regime requires accounting practice which is more aligned to subsidy entitlement under DBT, unlike the earlier scheme where the condition to receive the subsidy was tied to RCF selling the goods, rather than when the goods were ultimately purchased by the farmer. Under DBT regime, subsidy entitlement is final when material is sold to farmer.

d) The volatility on margins would be minimised and matching principle would also be met.

Dissenting View

a) The costs of producing inventories of fertilizers are costs incurred in fulfilling the contract with the customers i.e., dealers, which should be accounted for in accordance with Ind AS 2 and not in accordance with Ind AS 115 (para 9, 10, 34 or Ind AS 2). When such inventories are sold to the dealers, the carrying amount of the same should be expensed in the period in which the related revenue is recognised. No amounts can be recognised or carried forward to be adjusted against subsidy income in future periods.

b) The recognition of subsidy receivable with concurrent recognition of the subsidy income in profit or loss at the time of sale to farmers by the dealers would generally not be appropriate, since the reasonable assurance condition prescribed in paragraph 7 of Ind AS 20 is met when the goods are sold to the dealers, unless proved otherwise. The government is unlikely to renege on its promises and therefore the subsidy income recognition criterion is met at the point in time when the sale to dealers is recognised.

c) Even assuming the reasonable assurance condition that the grant will be received is not met, at the time of sale to dealers, the proportionate cost related to the subsidy cannot be separately treated as an asset. A portion of inventories on goods sold cannot be carried forward (to be adjusted against subsidy income in subsequent periods) and is neither permitted under Ind AS 2 (as discussed above) or Ind AS 20 (see para 12). Neither does Ind AS 115 (see para 98) allows such a cost to be carried forward.

Final recommendation

The correct accounting treatment is set out in View 3 below.

View 3: Recognise the revenue when goods are dispatched to the customer at which time control is transferred in accordance with Ind AS 115. The subsidy is recognized as a grant income in accordance with Ind AS 20. RCF interprets this to mean that the subsidy will be recognised at the time of recognition of the revenue (sale to dealers), basis best estimate, which will then be trued up in subsequent period if necessary (for e.g., if the subsidy rate is revised).

Consequently, the correct accounting treatment is summarised below:
a) Ind AS 115 will apply to sale of fertilizers to dealers and Ind AS 20 (para 3) will apply to subsidy income.

b) The Ind AS 115 revenues will be recognised at the time of transfer of control (see para 31 of Ind AS 115) along with entire cost of inventories (see para 34 of Ind AS 2).

c) The subsidy meets the definition of grant under Ind AS 20 since there is transfer of resources (cash subsidy) from the government to RCF in return for past compliance with a condition i.e., sale of fertilizers to the ultimate customer (viz., farmer) at the rate notified by the government and the grant is a revenue related grant (see para 3 of Ind AS 20).

d) RCF should assess, in its own circumstances, the point of time at which the reasonable assurance condition is met, having regard to factors such as, quantity of non-moving channel stock, if any, past experience in receipt of subsidy etc. In the extant case, the subsidy is intended to either reimburse to RCF a portion of cost of production of goods sold or to compensate RCF for loss of revenue arising on account of sales to the dealers at rates not commensurate with the cost of production. In both the situations, the periods in which the subsidy income should be recognised in profit or loss on a systematic basis will be the periods of sale to the dealers, provided the reasonable assurance condition prescribed in paragraph 7 of Ind AS 20 is met.

View 3 offers the most suitable accounting treatment. It establishes a consistent method for recognising revenue and the corresponding subsidy in line with the relevant Indian Accounting Standards, while also requiring adjustments (either upward or downward) to subsidy income when the government announces revised subsidy rates. Although these future subsidy true-ups may introduce volatility, such fluctuations are appropriate as they accurately reflect changes in government subsidy rates in subsequent periods.

Section 144C(5): Document Identification Number [‘DIN’] – Circular No.19/2019 [F.No.225/95/2019-ITA II] dated 14.08.2019 – DIN has to be generated for DRP proceedings :

8 Commissioner of Income Tax, International Taxation vs. M/s. Laserwords US Inc.,

[T.C.A. No. 46 OF 2025 and CMP Nos. 5208 and 5211 of 2025 Dated: 10/06/2025, (Madras) (HC).]

[ Arising out of ITAT: “D” Bench, Chennai, dated 22.12.2023 passed in IT (TP) A.No.44/CHNY/2021 for the AY 2015-16.]

Section 144C(5): Document Identification Number [‘DIN’] – Circular No.19/2019 [F.No.225/95/2019-ITA II] dated 14.08.2019 – DIN has to be generated for DRP proceedings :

The ITAT by impugned order held that the direction issued by the Dispute Resolution Panel [‘DRP‘] under Section 144C(5) of the Act did not contain a Document Identification Number [‘DIN’] as mandated by the Central Board of Direct Taxes by its Circular No.19/2019 [F.No.225/95/2019-ITA II] dated 14.08.2019. The subsequent communication intimating the DIN for DRP proceedings did not satisfy the conditions prescribed in paragraph No.3 of the said circular. Accordingly, the said directions were invalid in law and as a sequitur, the assessment order which was impugned before the ITAT was liable to be quashed. In the instant case, the assessment order also did not contain a DIN.

The counsel for appellant/revenue, submitted that the DRP proceedings had a valid DIN and the DIN was also subsequently communicated to the assessee by another communication. Accordingly, the requirement under the circular has been complied with; and that in any case, the assessee had not challenged the directions issued by DRP. Hence, the impugned assessment order ought not to have been quashed.

The counsel for respondent/assessee submitted that apart from the fact that a DIN was not generated electronically for DRP proceedings, the subsequent communication does not satisfy the requirement in paragraph No.3 of the circular, i.e., to state the reasons in the prescribed format for not generating the DIN. In the instant case, the assessment order also does not contain a DIN; and that therefore, the impugned order by ITAT does not call for any interference.

The Hon. Court observed that it is well-settled that circulars issued by CBDT in exercise of its powers under Section 119 of the Act are binding on the revenue. The consequences of not following the directions issued in the circular are also provided in the circular.

The Court further observed that Paragraph No.4 of the circular makes it clear that any communication which is not in conformity with paragraph No. 2 and 3 of the circular, shall be treated as invalid and shall be deemed to have never been issued.

Further, paragraph No.3 of the circular provides for exceptional circumstances where the mandatory requirement may not be adhered to, but requires that if an order/communication is issued without a DIN, it could be done after recording reasons in writing in the file and with prior written approval of the Chief Commissioner / Director General of Income Tax. Paragraph No.3 also states that if DIN is not generated and quoted in the body of the communication, then reasons for not generating and quoting DIN should be mentioned in a specific format set out in paragraph No.3 of the circular. The argument of the appellant/revenue that, even if the directions of the DRP did not contain a valid DIN, it would not render the said DRP directions invalid because the proceedings of the DRP do not result in an order requiring the generation of DIN as per the circular, cannot hold water.

The Court observed that it is the case of appellant that there was a DIN generated and it was written in hand in the proceedings of DRP and subsequently, communicated to assessee on the same day, i.e., on 12.02.2021. Therefore, appellant conceded that DIN has to be generated for DRP proceedings.

Secondly, the issue was no longer res integra. Relying on a decision of Division Bench of Bombay High Court in Ashok Commercial Enterprises vs. Assistant Commissioner of Income Taxation [2023] 154 taxmann.com 144 (Bombay) it was observed that even a satisfaction note would fall within the scope of paragraph No.2 of the circular. Accordingly, in the view of the Hon. Court, there cannot be any doubt that the directions of the DRP (which consists of a collegium of three Income Tax Commissioners) also would fall within the scope of paragraph No.2 of the circular.

Apart from the fact that the DRP proceedings did not contain a valid DIN and was invalid for the reasons stated above, the assessment order also in this case did not contain a DIN. There was no explanation offered by the appellant for not generating the DIN in the assessment order. Therefore, the Appeal was dismissed.

Section 2(15): Charitable activity – commercial activity – violation of section 13(2) – ITAT is the last fact-finding authority: [section 260A]

7 Commissioner of Income Tax (Exemption) Mumbai vs. Kutchi Sarvodaya Nagar

[ITXA No. 1887 OF 2018, Dated: 11/06/2025; A.Y. 2011-12 (Bom) (HC)]

Section 2(15): Charitable activity – commercial activity – violation of section 13(2) – ITAT is the last fact-finding authority: [section 260A]

The Assessee is a Trust registered with Director of Income Tax (Exemption), Mumbai under Section 12A of the Act. The Assessee filed its Return of Income declaring a total income of ₹NIL. The Assessee, Trust was constructing houses for its members and this was the only activity of the Trust for the last 50 years. The construction of these houses was for deserving vegetarians. For the purpose of construction, the Assessee Trust acquired 51,000 Sq. yards of land from Shri. V. K. Chedda at ₹2.75 Per Sq. yard. 352 persons came forward to participate and contributed ₹501/- as a membership fee and accordingly a sum of ₹1,76,352/- was collected and from that amount the said plot was purchased in the year 1962. It was also observed from the Income and Expenditure Account and the Balance-sheet that the Assessee had collected ₹48.68 crores from its members as instalments, till date, towards construction of flats. Transfer fees to the tune of ₹6.35 crores was also collected by the Assessee till date. For the year under consideration i.e. A.Y. 2011-12, the Assessing Officer observed that the Assessee had collected ₹1.15 crores as transfer fees from new members and the Assessee – Trust was also in receipt of interest on investment amounting to ₹1,07,67,876/-. The Assessing Officer was, therefore, of the view that the Assessee was engaged in a commercial activity by constructing houses on the property of the Assessee Trust and was selling the same to the members. The members and the Assessee Trust were alienating the flat along with the membership, and for this alienation, the Trust had collected a sum of ₹6.35 crores as transfer fees from its members till date. Therefore, the Assessing Officer found that the activity of the Trust was not found charitable in nature and was found commercial in nature. Since the officials of the Assessee Trust were getting the flats for their residence, the activity of the Trust was also found contrary to the provisions of Section 13(2) of the Act and hence, the proposal for cancellation of registration of the Assessee Trust, as a Charitable Trust, was sent to the DIT(E), Mumbai. The activity of the Trust was also not found to be covered under the concept of mutuality. In short, the Assessing Officer, found that the Assessee Trust was not entitled to the exemption as contemplated under Section 11 of the Act.

The CIT(A), after examining the facts and circumstances of the case, inter alia came to the conclusion that in fact, there was no sale of houses to any members, and except for defaulter – members who have nominated / substituted their membership, there was no instance of admitting new members in general. Even though the nominated members had to fulfil the criteria of membership and, therefore, as such no transfer of any asset had taken place in terms of sale/purchase/trading/commerce. The CIT(A) also came to the conclusion that the finding of the Assessing Officer that the ‘activity of the Assessee Trust was a commercial activity’ was arrived at from the error that members are not fixed, that flats were sold for consideration which was received by the old member and which is not known to the Trust. The CIT(A) came to a factual finding that there is no case of sale consideration, or sale of houses in the market, and there is no transaction of sale or purchase in the admission of the new member in place of the defaulting member, who is admitted only after specifying the eligibility conditions in that behalf and confirming the Deed of the Trust and its objects. The CIT(A) also found that admittedly the Assessee Trust is not a party to any transaction between two inter se members and, therefore, the proviso to Section 2(15) of the Act was also not attracted. The CIT(A), therefore, partly allowed the Appeal filed by the Assessee.

The Revenue carried the matter in Appeal before the ITAT. The ITAT too, after examining the facts in detail, came to the conclusion that the CIT(A) had passed the order judiciously and correctly, which required no interference at the appellate stage.

The Hon. High Court observed that the entire case has been decided purely on facts. The ITAT is the last fact-finding authority which had come to the conclusion that the Assessee Trust is not carrying on any commercial activity and, therefore, is entitled to the exemption under Section 11 of the Act. This finding of the ITAT is purely based on the facts of the case, which were also analysed by the CIT(A) before he partly allowed the Appeal of the Assessee Trust.

In these circumstances, as the decision of the ITAT is purely based on facts, the Appeal was accordingly dismissed.

Reassessment — International transactions — Arm’s length price — Condition precedent — Notice after four years — Failure to disclose material facts necessary for assessment — Unless assessee shown to be aware of facts, it cannot be said to have failed to disclose them — Nothing to show assessee was aware of third party prices — Transfer pricing study of assessee accepted by Transfer Pricing Officer and assessment completed on basis thereof — Presumption that query raised was considered in assessment — Assessment on basis of change of opinion — Notice not valid:

23 Sanofi India Ltd. vs. Dy. CIT:

(2025) 474 ITR 114 (Bom):

A. Y. 2007-08: Date of order 29 February 2024:

Ss. 92CA, 143(3) 147 and 148 of ITA 1961:

Reassessment — International transactions — Arm’s length price — Condition precedent — Notice after four years — Failure to disclose material facts necessary for assessment — Unless assessee shown to be aware of facts, it cannot be said to have failed to disclose them — Nothing to show assessee was aware of third party prices — Transfer pricing study of assessee accepted by Transfer Pricing Officer and assessment completed on basis thereof — Presumption that query raised was considered in assessment — Assessment on basis of change of opinion — Notice not valid:

The assessee petitioner filed its return of income for the A. Y. 2007-2008 on October 30, 2007 declaring a total income of ₹2,33,67,08,748. Subsequently, a revised return was filed on March 25, 2009 wherein a claim of additional tax deducted at source of ₹19,86,957 was made. The case was selected for scrutiny and assessment u/s. 143(3) of the Income-tax Act, 1961 was made on December 28, 2010 determining a total income of ₹240,48,78,390.

Subsequently, the petitioner received a notice dated November 11, 2013 u/s. 148 of the Act for the A. Y. 2007-2008, has escaped assessment. By a communication dated December 16, 2013, the petitioner also received the reasons recorded for reopening of the assessment. The petitioner objected to the reopening and the petitioner’s objections were rejected by an order dated March 31, 2015.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) The revenue contended that the reopening was based on the transfer pricing study of the subsequent assessment year, which is the A. Ys. 2008-2009 and 2009-2010. In our view, that would still not help the Assessing Officer to overcome the condition to reopen, namely, failure to truly and fully disclose material facts.

ii) As held by the apex court in Calcutta Discount Co. Ltd. vs. ITO [(1961) 41 ITR 191 (SC); 1960 SCC OnLine SC 10.] , the duty of an assessee does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the assessing authority, it requires no further assistance by way of disclosure. It is for the Assessing Officer to decide what inferences of facts can reasonably be drawn and what legal inferences have ultimately to be drawn. The duty of the assessee, the court held, is to disclose fully and truly all primary relevant facts, it does not extend beyond that.

iii) In N.D. Bhatt, Inspecting Assistant Commissioner vs. I.B.M. World Trade Corporation [(1995) 216 ITR 811 (Bom); 1993 SCC OnLine Bom 243.], the Division Bench of this court relying on Indian Oil Corporation vs. ITO [(1986) 159 ITR 956 (SC); (1986) 3 SCC 409; 1986 SCC (Tax) 552; 1986 SCC OnLine SC 161.] observed that the assessee is under an obligation to disclose only all basic facts and the assessee cannot be expected to draw any inference or to disclose any inference to be made from these basic facts. The court also observed that the assessee must be aware of those facts, which are not disclosed before it can be said that there is any omission or failure on his part to disclose the same. In this case, there is not even an allegation that the assessee was aware of the prices at which the third-party companies had imported glimepride and analgin. Reasons also do not record how the assessee must have been aware of those facts. The fact is, a transfer pricing study was submitted by the assessee and the Transfer Pricing Officer has accepted it. Based on the order under sub-section (3) of section 92CA of the Act from the Transfer Pricing Officer, the Assessing Officer has proceeded to compute the total income of the assessee under sub-section (4) of section 92C of the Act in conformity with the arm’s length price as determined by the Transfer Pricing Officer.

iv) In the circumstances, there is nothing to indicate that there was any failure on the part of the assessee to truly and fully disclose any material fact. It has also to be noted that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was subject of consideration of the Assessing Officer while completing the assessment. From the reasons recorded, it is rather obvious that reopening of the assessment by the impugned notice is merely on the basis of “change of opinion” and that “change of opinion” does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.

v) In the circumstances, rule that was granted on May 8, 2015 is made absolute in terms of prayer clause (a), and the notice dated November 11, 2013 issued under section 148 of the Act to reopen the assessment for the assessment year 2007-2008 together with the order dated March 31, 2015 dealing with the petitioner’s objections, are quashed and set aside.”

Reassessment — Validity — Undisclosed income — Evidentiary value of photocopy of document — Addition on basis of photocopy of sale agreement received by way of complaint for which original document not produced — Burden to prove authenticity of evidence on AO — No evidence of undisclosed income except photocopy of alleged sale agreement of property — Held, addition to income unsustainable and assessment order invalid:

22 Principal CIT vs. Rashmi Rajiv Mehta:

(2025) 474 ITR 97 (Del):

A. Y. 2010-11: Date of order 4 March 2024:

Ss. 69, 143(3) and 147 of ITA 1961:

Reassessment — Validity — Undisclosed income — Evidentiary value of photocopy of document — Addition on basis of photocopy of sale agreement received by way of complaint for which original document not produced — Burden to prove authenticity of evidence on AO — No evidence of undisclosed income except photocopy of alleged sale agreement of property — Held, addition to income unsustainable and assessment order invalid:

The instant appeals relate to the A. Y. 2010-2011. The genesis of the case pertains to receipt of information by the Assessing Officer in the form of a photocopy of an alleged agreement to sell dated March 5, 2010. The said photocopy of the agreement to sell indicated that the land in Ghittorni, Delhi, was to be purchased against a total consideration of ₹11,00,00,000, wherein, the assessee was described to be a co-purchaser. It has been alleged that the assessee paid a sum of ₹2,75,00,000 as advance for purchase of the said land, which amounted to 25 per cent. of the total consideration. Out of the said amount, a sum of ₹1,38,00,000 was stated to have been paid by way of a cheque and the remaining amount, i.e., ₹1,37,00,000 was allegedly paid in the form of cash at the time of the execution of the said agreement to sell.

In view of the above, a notice u/s. 148 of the Income-tax Act, 1961 was issued to the assessee on September 26, 2014. The assessee appears filed the return on November 7, 2014, declaring a total income of ₹44,676 for the A. Y. 2010-2011. Consequently, proceedings u/s. 143(3) read with section 147 of the Act were initiated against the assessee. The Assessing Officer, while relying on the photocopy of the said agreement to sell vide assessment order dated March 28, 2016, inter alia, made an addition of ₹9,00,00,000 to the income of the assessee on account of purchase of the said land from undisclosed sources.

The Commissioner(Appeals) vide order dated December 15, 2017, restricted the addition of ₹9,00,00,000 to ₹1,37,00,000, on the ground that it is only the aforesaid amount which can be attributed to the income of the assessee for the relevant assessment year. However, the veracity of the photocopy of the alleged agreement to sell was not doubted by the Commissioner (Appeals). On cross appeals by the Revenue and the assessee both the Tribunal vide common order dated May 28, 2019 dismissed the appeal preferred by the Revenue and the appeal of the assessee was allowed.

On appeal by the Revenue the Delhi High Court framed the following substantial question of law for consideration.

“A. Whether the photocopy of a document, some part of information/facts recorded on it found to be correct in verification, could be treated as a valid document or not in the absence of the original?”

The High Court confirmed the order of the Tribunal and held as under:

“i) The entire foundation for addition is laid on the basis of the photocopy of the alleged agreement to sell dated March 5, 2010. The original copy of the said document has not seen the light of the day. Further, there is no other evidence to support the veracity of the recitals made in the aforesaid alleged agreement. Therefore, under the facts of the present case, the same cannot be construed to be a sustainable ground for making addition to the income of the assessee.

ii) We, thus, find that these appeals do not raise any substantial question of law. The Income-tax Appellate Tribunal has rightly opined that under the facts of the present cases, sustaining an addition on the basis of photocopy of alleged agreement to sell would be completely unwarranted and unjustifiable. The appeals are, therefore, dismissed.”

Reassessment — Procedure for initiation of proceedings — Objections of assessee for re-opening to be disposed of in separate order — Assessing Officer passing consolidated order disposing of objections and completing re-assessment simultaneously — Violation of principles of natural justice — No reasonable opportunity given to assessee to challenge rejection of objections — Writ petition maintainable — Held, notice and order without jurisdiction and hence quashed:

21 Kesar Terminals and Infrastructure Ltd. vs. DCIT:

[2025] 474 ITR 498 (Bom.):

A. Y. 2011-12: Date of order 7 January 2025:

Ss. 147 and 148 of ITA 1961:

Reassessment — Procedure for initiation of proceedings — Objections of assessee for re-opening to be disposed of in separate order — Assessing Officer passing consolidated order disposing of objections and completing re-assessment simultaneously — Violation of principles of natural justice — No reasonable opportunity given to assessee to challenge rejection of objections — Writ petition maintainable — Held, notice and order without jurisdiction and hence quashed:

The Assessee’s return of income for AY 2011-12 was selected for scrutiny and assessment u/s. 143(3) of the Income-tax Act, 1961 was completed after revising the claim u/s. 80-IA of the Act. Subsequently, notice u/s. 148 of the Act was issued on 30.03.2021 proposing to re-open the assessment. In response to the said notice, the Assessee filed return of income 7.04.2021 and on 12.05.2021 requested for reasons for re-opening the assessment. On 6.07.2021, the reasons were furnished to the Assessee. Against the reasons recorded for re-opening of assessment, the Assessee filed objections on 04.08.2021. Thereafter, a notice dated 22.11.2021 was issued u/s. 142(1) of the Act directing the Assessee to justify its claim u/s. 80-IA of the Act. However, the order disposing objections was not passed by the Assessing Officer and directly notice was issued u/s. 142(1) of the Act. In response to the said notice, the Assessee filed its reply requesting the Assessing Officer to dispose of the objections before proceeding further. However, the Assessee’s objections were not disposed of and a consolidated re-assessment order dated 31.03.2022 was passed wherein the objections filed by the Assessee were also disposed.

On writ petition filed by the Assessee against the said order, the Bombay High Court allowed the petition and held as follows:

“i) An Assessing Officer cannot pass a combined or consolidated order simultaneously disposing of objections to reopening of the assessment u/s. 147 of the Income-tax Act, 1961 and completing the reassessment, as it violates principles of natural justice and mandated procedure. The assessee must be given reasonable opportunity to challenge rejection of objections before assessment is completed.

ii) Since the consolidated order warranted interference due to non-compliance with jurisdictional parameters, relegating the assessee to the alternate remedy would not be appropriate. This court has interfered with consolidated orders in identical circumstances, making assessments and disposing of objections. Therefore, the Department’s objection based on exhaustion of alternate remedy was unsustainable. The assessee had clarified that it had instituted a statutory appeal u/s. 246A after the filing of the writ petition only to protect from the bar of limitation. Its statement to withdraw the appeal was accepted. The notice and the consolidated order were set aside, stating that apart from the fact that the making of such consolidated or combined orders was not approved in decided cases, such a procedure involved breaching the principles of natural justice and fair play.

iii) For all the above reasons, we allow this petition and make the rule absolute in terms of prayer clause (a) and quash, cancel and set aside the impugned notice dated March 30, 2021 and impugned order dated March 31, 2022”.

Penalty — Share Application Money — Share application money otherwise than by account payee cheque or bank draft — Neither loan nor deposit but for participation in capital of company — Share application money is neither repayable after notice nor repayable after a period of time — Provisions of s. 269SS or s. 269T or consequential penalty provisions u/s. 271D or s. 271E not applicable:

20 CIT vs.Vamshi Chemicals Ltd:

[2025] 474 ITR 422 (Cal.):

A. Ys. 2004-05 to 2007-08: Date of order 6 May 2024:

Ss. 269SS, 269T, 271D and 271E of ITA 1961

Penalty — Share Application Money — Share application money otherwise than by account payee cheque or bank draft — Neither loan nor deposit but for participation in capital of company — Share application money is neither repayable after notice nor repayable after a period of time — Provisions of s. 269SS or s. 269T or consequential penalty provisions u/s. 271D or s. 271E not applicable:

During the assessment years under appeal, the assessee received share application money for issue of preference shares amounting to ₹20,000 or more from persons otherwise than by an account payee cheque or account payee bank draft. The Assessing Officer issued a show cause notice for penalty u/s. 271D / 271E of the Income-tax Act, 1961 on the ground that the Assessee violated the provisions of section 269SS. The Additional Commissioner imposed penalty u/s. 217D for A.Y.s 2005-06, 2006-07 and 2007-08 and imposed penalty u/s/ 271E for A.Y.s 2004-05, 2005-06, 2006-07 and 2007-08.

The Tribunal held that share application money or its repayment is neither a loan nor a deposit and as such provisions of section 269SS or 269T were not attracted and consequently no penalty could be imposed u/s. 271D or 271E of the Act.

The Calcutta High Court dismissed the appeal of the Department and held as follows:

“i) The words “loan or deposit” has been defined in Explanation (iii) to section 269T of the Income-tax Act, 1961 which is not an expansive definition. It provides that “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in case of a person other than a company including loan or deposit of any nature. Share application money is neither repayable after notice nor repayable after a period. It is for participation in the capital of the company. Share application money is for participation in capital of a company which is neither a loan nor a deposit. Therefore, neither under the definition of the words “loan or deposit” as given in Explanation (iii) to section 269T of the Act, 1961 nor in ordinary sense, share application money can be said to be a loan or deposit. Once share application money is neither loan nor deposit, then neither section 269SS nor section 269T shall attract. Consequently, no penalty either u/s. 271D or u/s. 271E could be imposed.

ii) Looking into the objects and purpose of sections 269SS and 269T read with Explanation defining the words “loan and deposit”, the share application money received could neither be said to be loan nor a deposit, and was for participation in capital of the assessee which was neither a loan nor a deposit and, therefore, the provisions of these sections would not be attracted. Consequently, no penalty u/s. 271D or section 271E could be imposed.

iii) Hence, there was no illegality in the order of the Tribunal holding that the receipt of share application money or its repayment was neither a loan nor a deposit and as such, the provisions of section 269SS or 269T were not attracted and consequently no penalty could be imposed u/s. 271D or section 271E.”

Income — Interest — Capital or revenue receipt — Precedents — Purchase of property in auction paying full consideration — Auction subsequently nullified by Court order — Interest received on amount by direction of Court not compensation — Amount Bonafide receipt by Assessee as successful auction bidder and not as compensation from order of Court — Held, interest receipt capital in nature and not assessable as income from other sources:

19 Pr. CIT vs. INS Finance and Investment Pvt. Ltd.:

[2025] 475 ITR 83 (Del):

A. Y. 2011-12: Date of order 30 May 2024:

S. 56(2)(viii) of ITA 1961:

Income — Interest — Capital or revenue receipt — Precedents — Purchase of property in auction paying full consideration — Auction subsequently nullified by Court order — Interest received on amount by direction of Court not compensation — Amount Bonafide receipt by Assessee as successful auction bidder and not as compensation from order of Court — Held, interest receipt capital in nature and not assessable as income from other sources:

The Assessee had acquired a right to purchase a property through an auction carried out by Punjab National Bank (PNB) and thereafter paid the entire purchase price. However, subsequently, the auction came to be annulled and the Punjab and Haryana High Court, vide order dated 21 September 2010 directed for refund of the whole amount deposited by the Assessee along with interest accrued thereon.

The Assessee added an amount of ₹3,19,07,676 to the Capital Reserve in the Balance Sheet. The Assessee also claimed TDS credit of ₹54,41,122. In the scrutiny assessment for AY 2011-12, the Assessing Officer was of the view that the interest so received along with the refund of amount deposited by the Assessee was not a capital receipt and thus made addition of ₹3,19,07,676 to the total income of the Assessee.

The CIT(A) affirmed the order of the Assessing Officer. However, for the purpose of computation, the CIT(A) directed that ₹3,19,07,676 should be offered as income by dispersing it over a period concerning other relevant AYs. Against this order of the CIT(A), both the Assessee as well as the Assessing Officer filed rectification application u/s. 154 of the Act. The Assessee contended that the amount should be considered as capital receipt and the Assessing Officer contended that the apportionment of the amount over the other AYs was contrary to the provisions of section 145A(b) and therefore should not be apportioned. However, the CIT(A) allowed the application of the Assessee and modified its earlier order and held that the amount received was in the nature of a capital receipt not chargeable to tax. The Tribunal held that the interest received by the Assessee was capital receipt not chargeable to tax.

The Delhi High Court, dismissed the appeal filed by the Department and held as follows:

“i) It is crystal clear that the interest accrued on the compensation received herein can be termed as a capital receipt and thus, the same is not chargeable to tax. In the present case, the amount in question was received due to the order passed by the Punjab and Haryana High Court in CWP No. 1470/2010 on account of cancellation of the auction.

ii) The Tribunal had appropriately characterised the interest on the amount received by the assessee under the court order as capital receipt and rightly held that it was not chargeable to tax. It was ex facie evident from the order of the Tribunal that it had considered the aspect that the amount received by the assessee was not in the nature of debt but was received on account of cancellation of the auction of the property.

iii) However, it is pertinent to point out that this amount cannot be characterised as compensation granted by the Court on account of cancellation of the auction. Rather, such an amount was a bonafide amount of the successful auction bidder, which he had deposited against the purchase of the land. The amount so received by the assessee was the entitlement of the successful bidder which was given back to the assessee vide an order of the Court. Thus, when the amount in question was not in the nature of compensation, then, as a natural corollary, the interest accrued on the said amount cannot tantamount to revenue receipts and hence, the same cannot be subjected to tax as per Section 56(2)(viii) of the Act.”

Income — Valuation of shares — Shares allotted as part of employee stock purchase scheme — Lock-in period during which shares could not be transferred — Valuation of shares taking into account restrictive condition:

18 Ravi Kumar Sinha vs. CIT:

[2025] 474 ITR 594 (Del.):

A.Ys.: 1997-98 to 1999-00: Date of order 14 August 2024:

S. 17 of ITA 1961

Income — Valuation of shares — Shares allotted as part of employee stock purchase scheme — Lock-in period during which shares could not be transferred — Valuation of shares taking into account restrictive condition:

The Assessee was allotted 11,50,500 shares at ₹15 per share under the Employees Stock Purchase Scheme (ESPS). Out of these, 25% of the shares were subject to lock-in period of 12 months and the balance 75% of the shares were subject to lock in period of 18 months. During the previous financial year, the Assessee paid only ₹10.50 per share against the issue price of ₹15 per share. The employer company obtained independent valuation report in respect of the shares in question, the value of which was determined at ₹22.50 per share. In the return of income filed by the Assessee, the Assessee took the position that due to lock-in period, the shares were not marketable and therefore the Fair Market Value (FMV) of the shares could not exceed the face value of the shares. Thus, the Assessee did not offer any income in respect of the shares. The Assessing Officer held that the market price of the shares was ₹49.45 per share and the Assessee was allotted shares at a concessional rate of ₹15 per share and therefore the difference of ₹34.45 was liable to be taxed as perquisite u/s. 17(2)(iiia) of the Act. Accordingly, the Assessing Officer made an addition of ₹3,96,34,725.

The CIT(A) held that since the shares were subject to a lock-in and therefore not available for trade, it would be inappropriate to take the quoted price appearing on the Stock Exchange for the purpose of determining FMV. However, keeping in mind the valuation report, the CIT(A) held that the FMV should be taken at ₹22.50 per share. Against the said order of the CIT(A), both the Assessee as well as the Department filed appeals before the Tribunal. The Tribunal upheld the order of the CIT(A).

The Delhi High Court allowed the appeal filed by the Assessee, and held as follows:

“i) In DY. CGT vs. BPL LTD. [2022] 448 ITR 739 (SC); 2022 SCC OnLine SC 1405 , the Supreme Court observed that equity shares which are quoted and transferable in the stock exchange are to be valued on the basis of the current transactions and quotations in the open market. The market quotations would reflect the market value of the equity shares that are transferable in a stock exchange, but this market price would not reflect the true and correct market price of shares suffering restrictions and bar on their transferability. It is a fact that the market price fluctuates, and the share prices can move up and down. Share prices do not remain static. Equally, the restriction or bar on transferability has an effect on the value/price of the shares. Easy and unrestricted marketability are important considerations that would normally impact valuation/price of a share. The expression “if sold in the open market” does not alter the nature of the property. What the expression postulates is to permit the assessee or the authorities to assume a sale in the open market, which is to limit the property to be valued at the price that a person would be prepared to pay in the open market with all rights and obligations. The value would not exceed the sum, which a willing purchaser would pay, given the fact that the right to purchase is restricted or barred. This does not imply that the valuation of the shares can be made artificially and by ignoring the restrictions on the property. Valuation cannot ignore the limitations attached to the shares.

ii) The shares in question would become transferable post the lock-in-period. In the light of the restriction with respect to marketability and tradeability of the stock in question, the fair market value could not have been recognised to exceed the face value of the shares and thus the determinative being ₹15. The valuation report was at best a medium adopted by the employer in order to broadly ascertain its obligations for the purposes of withholding tax. It could not have consequently been taken into consideration for the purposes of determining the fair market value. The face value alone would be conclusive for purposes of taxation.

iii) Well-settled position in law is that the Act does not contemplate a tax being levied on notional income.”

ICAI and Its Members

Editor’s Note:

We are pleased to restart this Feature w.e.f. July 2025, after a long break, to keep our readers abreast of the latest developments at the ICAI and important announcements of the ICAI for its members. In the past, this Feature was contributed by the past presidents of the BCAS, Late CA P. N. Shah and CA Harish Motiwala. We are happy to inform you that CA Paras Savla has agreed to contribute this Feature. We thank CA Paras Savla and wish you a happy reading.

I OPINION

Accounting treatment of salary paid to the Company Secretary of the Company having a single unit project under construction, under the Ind AS framework.

Summary

The EAC opinion evaluates the appropriate accounting treatment for salary payments made to the Company Secretary during the construction phase of a single-unit project, in accordance with Indian Accounting Standards (Ind AS). The focus is on determining whether such costs should be capitalised as part of the project cost or recognised as an expense in the period in which they are incurred.

Context and Facts of the Case

  •  Nature of the Company:

The company is currently in the project development phase, with a single unit under construction, which has not yet commenced commercial operations.

  •  Status of the Project:

The ongoing project qualifies as a “Qualifying Asset” under the provisions of Ind AS 16 (Property, Plant and Equipment) and potentially under Ind AS 23 (Borrowing Costs).

  •  Role of the Company Secretary (CS):

The Company Secretary is employed on a full-time basis during the construction phase, primarily undertaking:

♦ Statutory and compliance-related duties (e.g., Board meetings, ROC filings, maintaining statutory registers).

♦ Project-related legal and governance tasks are necessary for operational readiness.

  •  Cost Consideration:

The company incurs regular salary payments to the CS. However, there is no systematic time allocation maintained to segregate time spent between project-specific activities and routine corporate compliance functions.

  •  Financial Reporting Framework:

The company prepares its financial statements under the Indian Accounting Standards (Ind AS) framework.

Technical Query:

Is the company’s practice of capitalising the salary paid to the Company Secretary, considering it has a single-unit project (where tariff is determined based on the approved project cost), in line with the requirements of Ind AS? If not, what is the correct accounting treatment?

Key Observations & Technical Analysis

1. Principles of Capitalisation – Ind AS 16

  •  As per Para 16(b) of Ind AS 16, “directly attributable costs” necessary to bring an asset to the location and condition for it to be capable of operating as intended should be capitalised.
  •  However, Para 19 specifically excludes general administrative and overhead costs from capitalisation unless they are directly attributable to the construction or acquisition of the asset.

2. Role of Company Secretary – Nature of Duties

  •  The CS primarily undertakes:

♦ Statutory compliance

♦ Board governance

♦ Regulatory filings

These are entity-level governance functions and are not directly linked to the physical construction or technical development of the asset.

  •  In the absence of a clear, auditable time allocation, it is impractical to distinguish any portion of the salary as being directly attributable to the project.

3. Tariff Linked to Project Cost – Not a Determinant

  •  While the tariff determination may be based on the approved project cost (common in regulated sectors such as power, infrastructure, etc.), the accounting principles under Ind AS take precedence over regulatory pricing mechanisms.
  •  Regulatory approvals of cost do not override the recognition and measurement criteria prescribed under Ind AS. Only costs that meet the test of “directly attributable” under Ind AS 16 are eligible for capitalisation.

Conclusion and EAC’s Viewpoint

The salary paid to the Company Secretary does not qualify for capitalisation under Ind AS 16, since the duties performed are not directly attributable to the construction or physical development of the asset. Accordingly, this expense should be charged to the Statement of Profit and Loss in the period in which it is incurred.

(Refer to Pages 1631-1635 of C.A. Journal-June, 2025)

II CPE HOURS OF MEMBERS – CONSEQUENCES OF NON-COMPLIANCE

The ICAI has notified that members who failed to complete their mandatory CPE hours for the calendar year 2024 are being granted a final opportunity to complete them by June 30, 2025.

This falls under Level I of the Consequential Provisions, which is part of the disciplinary/monitoring framework for non-compliance with Continuing Professional Education (CPE) requirements.

Who is Affected:

  •  Members in Practice and Industry who have not completed the minimum CPE hours for 2024.

Implications of Non-Compliance of CPE for 2024:

  •  Members who do not comply by June 30, 2025,
    may face:
    ♦ Further consequences under Level II or III, or IV
    ♦ Ineligibility for certain ICAI positions or panels,
    ♦ Public disclosure of non-compliance in records.

 

  •  Level II Consequences (1-07-2025 to 31-12-2025) – From 1st July 2025, the non-compliance status for the year 2024 of the member would be displayed on the CPE Portal of the ICAI under his login till he has complied with the CPE requirement of twice the shortfall of CPE hours for that year.
  • Level III Consequences (1-01-2026 to 30-06-2026)- From 1st January 2026, a Member holding Certificate of Practice (COP) is required to disclose the status of non-compliance of CPE hours requirement for the year 2024 in Multipurpose Empanelment Form (MEF) of ICAI (+) List of non-compliant members shall also be provided to Professional Development Committee (PDC) of the ICAI by CPE Committee of ICAI.
  •  Level IV Consequences (1-07-2026 to 31-12-2026) – if the individual or the firm is otherwise eligible for the issuance of a Peer Review Certificate, only a Provisional Peer Review Certificate would be issued to such Individual, if he has not complied with the CPE requirement for the year 2024. Level – IV 1st July 2026 to 31st December 2026 Firm, if any partner has not complied with the CPE requirement for the year 2024.
  •  Final consequences 1-01-2027 – If the member has not complied with CPE requirement for the year 2024 by 31st December 2026, then the CPE Committee may refer the matter to the Disciplinary Directorate for action as deemed fit for the violation of these guidelines. (Refer to Page 1639 of C.A. Journal-June, 2025)

III EXPOSURE DRAFT ON PROPOSED GUIDELINES FOR OVERSEAS NETWORK FOR PUBLIC COMMENTS

ICAI Seeks Public Comments on Draft Guidelines for Overseas Networks

The Institute of Chartered Accountants of India (ICAI) has taken a significant step towards modernising the regulatory framework for Chartered Accountant firms through the establishment of the Committee for Aggregation of CA Firms (CACAF) in 2024-25. This specialised committee has been tasked with undertaking comprehensive studies, reviews, and revisions of various guidelines pertaining to CA firms, marking a crucial development in the profession’s regulatory landscape.

Background and Context

The formation of CACAF represents ICAI’s commitment to enhancing the operational framework for CA firms in an increasingly globalised business environment. As Indian businesses expand their international presence and foreign entities seek professional services from Indian CA firms, the need for clear, comprehensive guidelines governing overseas networks has become paramount.

The committee’s mandate encompasses a broad spectrum of activities aimed at strengthening the CA profession’s infrastructure, with particular emphasis on facilitating effective collaboration and maintaining professional standards across borders.

Key Development: Draft Guidelines for Overseas Networks

Following extensive deliberations and research, CACAF has developed draft Guidelines for Overseas Networks, which were presented to the ICAI Council during its 442nd meeting. Recognising the importance of stakeholder input in the regulatory process, the Council has approved the exposure of these guidelines for public consultation.

The draft guidelines address critical aspects of overseas network operations, including:

  •  Regulatory compliance requirements for international collaborations
  •  Professional standards and quality control measures
  •  Risk management frameworks for cross-border operations
  •  Ethical considerations in overseas network arrangements
  • Documentation and reporting requirements

Public Consultation Process

ICAI has initiated a comprehensive public consultation process to ensure that the final guidelines reflect the diverse perspectives and practical insights of the profession’s stakeholders. The institute has made the exposure draft readily accessible to all interested parties.

Document Access: The complete Exposure Draft is available for download at: https://resource.cdn.icai.org/86376ed-cacaf-dgon.pdf

Submission Deadline: Recognising the importance of thorough stakeholder engagement, ICAI has extended the deadline for submitting comments to July 16, 2025 (Wednesday).

Multiple Submission Channels

To ensure maximum accessibility and convenience, ICAI has established multiple channels for submitting comments:

1. Online Submission: The most convenient option is through the dedicated Google Form available at: https://forms.gle/aNbDXFYJJWZ11Q8K7

2. Email Submission: Comments can be sent directly to the committee’s dedicated email address: cacaf@icai.in

3. Postal Submission: For those preferring traditional correspondence, written comments can be mailed to:

Secretary, Committee for Aggregation of CA Firms

The Institute of Chartered Accountants of India

ICAI Bhawan, Post Box No. 7100

Indraprastha Marg, New Delhi 110 002

IV INVITATION FOR EMPANELMENT AS EXAMINERS FOR CHARTERED ACCOUNTANTS EXAMINATIONS

Who Can Apply

  •  Chartered Accountants: Minimum 5 years in practice or service.
  •  University Lecturers/Professors: Minimum 5 years of teaching experience.
  •  Must not exceed 65 years of age.
  •  Not eligible: those in CA coaching currently (5-year cooling-off period applicable), visually impaired, or previously rejected without serving the waiting period.

How to Apply

  1.  Online submission via ICAI’s examiners panel portal.
  2.  Print, sign & attach photo, then post with required documents to:
  • CA Anand Kumar Chaturvedi, Joint Secretary (Exams), ICAI Bhawan, New Delhi

Selection Process

  •  Must pass a Computer-Based Qualifying Test:

♦ Part A: 25 MCQs in 30 minutes
♦ Part B: Evaluation of 5 sample answers in 2½ hours

Remuneration

  •  Foundation Papers 1 & 2: ₹160 per answer book
  •  Intermediate Papers: ₹200 each (for Paper 1,2,4,5)
  •  Final Papers: ₹250 per answer book
    (Refer to Page 1641 of C.A. Journal-June, 2025)

V DISCIPLINARY CASES OF THE BOARD OF DISCIPLINE

1) Board of Discipline Case No. BOD/692/2023 dated 10-Feb-2025

Background:

  •  The complainant, owner of M/s M (later converted to a Section 8 company), accused CA of colluding with the Trust Secretary, leading to alleged misappropriation of over ₹18 crore.
  •  Allegations included failure to comply with Income Tax and ROC filings, causing penalties and disqualification of directors; ₹1.3 crore transferred to CA XYZ from the Trust Secretary’s account on the day of an alleged ₹7 crore theft from the Trust, CA allegedly issued a cheque for ₹3.7 crore as a settlement for misappropriated funds.

Board’s Observations:

  •  The complainant failed to provide credible evidence to prove theft or fraud.
  •  ₹1.3 crore received by the Respondent was explained as legitimate dues for professional services, supported by documents.
  •  The cheque for ₹3.7 crore was neither encashed nor supported by evidence suggesting it was related to fraud; the Respondent claimed it was issued under coercion.
  •  Several FIRs filed by the complainant against the CA were quashed or stayed by the High Court, citing them as baseless or filed under political pressure.
  •  Investigations by the Enforcement Directorate (ED) and other authorities revealed that the claim of theft itself was false and misleading.

Conclusion:

  •  The Board of Discipline (ICAI) held that CA is NOT GUILTY of other misconduct under Item (2) of Part IV of the First Schedule of the Chartered Accountants Act, 1949.

2) Case No.: BOD/655/2022 Date of Order: 10th February 2025

Background:

This case arose from a complaint filed by A against CA, the former auditor of M/s B. The allegation centered around the Respondent’s refusal to issue a No Objection Certificate (NOC) to the incoming auditor, allegedly causing hardship to the company in appointing a new auditor. The complainant alleged that the Respondent acted with mala fide intent and deliberately delayed or denied the NOC, which was unethical and unprofessional.

Board’s Observations:

  •  The Complainant lacked locus standi, as he was neither a director nor an authorised officer of the company. The authorisation provided was incomplete and not supported by proper board resolutions.
  •  The dispute arose solely between two professionals (the Respondent and the incoming auditor) regarding procedural compliance for auditor change and pending audit fees.
  •  The Respondent cited non-payment of his legitimate audit fees as the reason for withholding the NOC initially. The NOC was subsequently issued after payment.
  •  The Board noted that the Complainant failed to appear before it, despite being served notice.

Conclusion:

  •  The Board of Discipline held the Respondent ‘Not Guilty’ of ‘Other Misconduct’ under Item (2) of Part IV of the First Schedule of the Chartered Accountants Act, 1949.

3) Case No.: BOD/317/2017 | Date of Order: February 10 2025

Background:

This case was in connection with the widely publicised 2G Spectrum Case. The case was initiated based on CBI press releases, charge sheets, and media reports from 2011 alleging involvement in financial structuring and fund transfers aimed at circumventing Department of Telecommunications (DoT) regulations regarding license eligibility.

Key Allegations:

  •  Colluding with other accused persons, to structure companies in a manner that misrepresented the ownership of S to secure telecom licenses.
  •  Facilitating fund transfers of ₹95.51 crore and ₹3 crore to associated companies, allegedly to conceal the controlling interests.
  • Supplying false information to the DoT regarding shareholding patterns to misrepresent eligibility.

Board’s Observations:

  •  The Board noted that the Special CBI Court (2G Spectrum Cases) had thoroughly adjudicated the matter and acquitted all accused, including the Respondent, citing a complete lack of evidence.
  •  The Special Court highlighted that the charge sheet was based on misreading, selective reading, and out-of-context interpretation of official records.
  • The Court categorically stated that there was no evidence of criminality, no manipulation of policies, and no fraudulent intent proven.
  •  The Board recognised that the funding structures through debt instruments (like preference shares and debentures) did not violate DoT guidelines, which only restricted equity cross-holdings beyond 10%.
  •  The Board found that the Respondent acted within his professional role as an employee of the company, and no evidence substantiated any professional misconduct.

Conclusion:

The Board of Discipline held the Respondent ‘Not Guilty’ of ‘Other Misconduct’ under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949, read with Section 22. Accordingly, the case was ordered to be closed under Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007

Glimpses of Supreme Court Rulings

4 Shital Fibers Limited vs. Commissioner of Income Tax

[2025] 174 Taxmann.com 807 – SC

Industrial Undertaking – Special Deduction – Sub-section (9) of Section 80-IA, does not provide that when a deduction is allowed under Section 80-IA, while considering the claim for deduction under any of the provision under heading ‘C’, the deduction allowed under Section 80-IA should be deducted from the gross total income – The restriction under Sub-section (9) of Section 80-IA is not on computing the total gross income.

A group of appeals / petitions had been referred to a Bench of three Judges in view of the Order dated 10th December, 2015 in Assistant Commissioner of Income Tax, Bangalore vs. Micro Labs Limited (2015) 17 SCC 96 [(2015) 64 Taxmann.com 199-SC] which recorded the difference of opinion between two Hon’ble Judges of the Supreme Court.

For the sake of convenience, the Supreme Court referred to the facts of the case in Civil Appeal No. 14318 of 2015.

The Appellant was a company which filed a return declaring net taxable income at ₹46,99,293 for the Assessment Year 2002-03. The Appellant claimed deductions under Section 80-HHC and 80-IA of the Income Tax Act, 1961 (for short ‘the IT Act’). The return was accepted on 31st October, 2002.

Reassessment proceedings under Section 147 of the IT Act were initiated in respect of the said Assessment Year by a notice dated 10th December 2008 by the Assistant Commissioner of Income-Tax, Range II, Jalandhar, based on the judgment dated 17th July, 2008 of the jurisdictional ITAT, in ITA Nos. 320 and 321, Amritsar Bench in respect of Appellant’s case for the assessment year 2003-04 and 2004-05. In the said notice dated 10th December, 2008, under Section 147 of the IT Act, it was observed that a deduction of ₹90,43,347 was claimed by the Appellant under Section 80-IB on the total profit of ₹4,19,40,609. The Appellant claimed a deduction of ₹1,76,90,799 under Section 80-HHC. Reliance was placed by the Revenue on the decision of Income Tax Appellate Tribunal (for short ‘ITAT’), Chennai (Special Bench) in the case of ACIT vs. Rogini Garments 108 ITD 49.

In the case of ACIT vs. Rogini Garments (supra), ITAT held that in order to prevent the taxpayers from taking undue advantage of existing provisions of the IT Act by claiming repeated deductions in respect of the same amount of eligible income, in-built restriction was introduced by enacting sub-section (9) of Section 80-IA with effect from 1st April, 1999.

The Appellant filed response to the notice under Section 143(2). The Appellant relied upon the decision of Madras High Court in the case of SCM Creations vs. ACIT 304 ITR 319 wherein it was held that sub-section (9) of Section 80-IA does not bar computation of deductions provided under different provisions of the IT Act. But, it merely restricts the allowability of deductions to the extent of profits and gains of business. However, by the Order dated 12th March, 2009, Additional Commissioner of the Income Tax rejected the argument of the Appellant and deductions claimed by the Appellant under Section 80-IA and 80-HHC were disallowed.

The appeal preferred by the Appellant against the said Order was dismissed by Commissioner of Income Tax (Appeals). In appeal preferred by the Appellant before the ITAT, the Appellant was unsuccessful.

Thereafter, an appeal was preferred before the Punjab and Haryana High Court which came to be dismissed by the impugned judgement and order. The High Court relied upon its own decision in the case of Friends Casting (P) Ltd. vs. Commissioner of Income Tax (2011) 50 DTR Judgments 61. The High Court took the view that sub-section (9) of Section 80-IA bars claim for deduction under any other provision of Chapter VI-A, if deduction under Section 80-IA has been allowed. In fact, a decision of Bombay High Court in the case of Associated Capsules (P) Ltd. vs. Deputy Commissioner of Income Tax and Anr. (2011) 332 ITR 42 (Bom) was also referred. However, the High Court did not agree with the view taken by Bombay High Court. In addition, the High Court relied upon a decision of Delhi High Court in the case of Great Eastern Exports vs. Commissioner of Income Tax (2011) 332 ITR 14 (Del).

The Supreme Court noted that section 80-HHC provides for a deduction in respect of profits retained for export business. The provision is applicable to a company or a person engaged in business of export out of India of any goods or mercantile to which the Section applies. In computing the total income, the Assessee is entitled to deduction to the extent of percentage of profits set out in Sub-section (1B) of Section 80-HHC.

Section 80-IA deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Sub-section (1) provides that when the gross total income of an Assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in Sub-section (4), in computing total income, the Assessee will be entitled to deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive years.

Section 80-IB deals with deductions in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. The deduction under said provision is applicable when gross total income of an Assessee includes any profit or gain derived from any business mentioned in various Sub-sections of Section 80-IB. An Assessee is entitled to a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in the Section.

According to the Supreme Court, the provision of Sub-section (9) of Section 80-IA must be considered, in this context. The Supreme Court upon analysis of sub-section (9) observed that, it is applicable where any amount of profits and gains of an undertaking or enterprise is claimed and allowed under Section 80-IA. The deduction is to the extent of percentage of profits and gains derived from certain category of businesses. Sub-section (9) of Section 80-IA provides that the deduction to the extent of profit or gain shall not be allowed under any other provisions under heading ‘C’ of Chapter VI-A. It is further provided in Sub-section (9) that in no case, the deduction allowed under any other provision of Chapter VI-A under the heading ‘C’ shall exceed profits and gains of such eligible business of undertakings or enterprises, as the case may be.

Therefore, on plain reading of Sub-section (9) of Section 80-IA, the Supreme Court held that if a deduction of profits and gains under Section 80-IA is claimed and allowed, the deduction to the extent of such profits and gains in any other provision under the heading ‘C’ is not allowed. The deduction to the extent allowed under Section 80-IA cannot be allowed under any other provision under heading ‘C’. Therefore, if deduction to the extent of ‘X’ is claimed and allowed out of gross total income of ‘Y’ under Section 80-IA and the Assessee wants to claim deduction under any other provision under the heading ‘C’, though he may be entitled to deduction ‘Y’ under the said provision, he will get deduction under the other provisions to the extent of (Y-X) and in no case total deductions under heading ‘C’ can exceed the profits and gains of such eligible business of undertaking or enterprise.

Sub-section (9) of Section 80-IA, on its plain reading, does not provide that when a deduction is allowed under Section 80-IA, while considering the claim for deduction under any of the provision under heading ‘C’, the deduction allowed under Section 80-IA should be deducted from the gross total income. The restriction under Sub-section (9) of Section 80-IA is not on computing the total gross income. It restricts deduction under any other provision under heading ‘C’ to the extent of the deduction claimed under Section 80-IA.

According to the Supreme Court, the view taken by the Bombay High Court, in the case of Associated Capsules (P) Ltd. vs. Deputy Commissioner of Income Tax and Anr. (supra) was correct.

The Supreme Court further noted that Shri Dipak Misra, J (as he then was), in paragraphs 47 and 48 of the decision in the case of Assistant Commissioner of Income Tax, Bangalore vs. Micro Labs Limited (2015) 17 SCC 96 had approved the view taken by Bombay High Court. The Supreme Court referred to the following relevant paras –

“Paragraphs 47 and 48 read thus:

47. It is in the context of Section 80-HHC that Sub-section (9) of Section 80-I has come up for interpretation. There is no dispute that Sub-section (9) of Section 80-I would be applicable as the Assessee would be entitled to deduction Under Section 80-IA as well as under Section 80-HHC. The contention of the Revenue is that the said sub-section mandates that deduction under Section 80-HHC has to be computed not only on the profits of business as reduced by the amounts specified in Clause (baa) and Sub-section (4-B) of Section 80-HHC but by also reducing the amount of profit and gains allowed as a deduction under Section 80-IA(1) of the Act. In other words, the gross total income eligible for deduction under Section 80-HHC would be less or reduced by the deduction already allowed under Section 80-IA. Thus, the gross total income eligible for deduction would not be the gross total income as defined in Sub-section (5) of Section 80-B read with Section 80-B, but would be the gross total income computed under Sub-section (5) of Section 80-B read with Section 80-AB less the deduction Under Section 80-IA. An example will make the position clear. Supposing an Assessee has gross total income of ₹1000 and is entitled to deduction under Sections 80-IA and 80-HHC and the deduction under Section 80-IA is ₹300, then the gross total income of which deduction under Section 80-HHC is to be computed would be ₹700, and not ₹1000.

48. On the other hand, the case of the Assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80-HHC. The two deductions will be computed separately, without the deduction allowed under Section 80-IA being reduced from the gross total income for computing the deduction under Section 80-HHC. The reason being that Sub-section (9) of Section 80-IA does not affect computation of deduction under Section 80-HHC, but postulates that the deduction computed under Section 80-HHC so aggregated with the deduction under Section 80-IA does not exceed the profits of the business.

In paragraphs 53 and 54 of the same decision, it is held thus:

53. The first part of Sub-section (9) of Section 80-IA refers to the computation of profits and gains of an undertaking or enterprise allowed under Section 80-IA in any assessment year and the amount so calculated shall not be allowed as a deduction under any other provisions of this Chapter. It is in this context that the Bombay High Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub-section (9) of Section 80-IA does not bar or prohibit the deduction allowed under Section 80-IA from being included in the gross total income, when deduction under Section 80-HHC(3) of the Act is computed. In this context it has been held that the expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed in computing deduction”. The effect thereof would be that while computing deduction under Section 80-HHC, the gross total income would mean the gross total income before allowing any deduction Under Section 80-IA or other Sections of Part C of Chapter VI-A of the Act. But once the deduction Under Section 80-HHC has been calculated, it will be allowed, ensuring that the deduction Under Sections 80-HHC and 80-IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.

54. As I find, the legislature has used the expression “shall not qualify” in Sections 80-HHB(5) and 80-HHD(7), but the said expression has not been used in Sub-section (9) of Section 80-IA. The formula prescribed in Sub-section (3) of Section 80-HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantiles and goods. It has reference to total turnover, turnover from exports in proportion to profits and gains from business in Clause (a) and so forth under Clauses (b) and (c) of Section 80-HHC(3) of the Act. In case the gross total income is reduced or modified taking into account the deduction allowed under Section 80-IA, it would lead to absurd and unintended consequences. It would render the formula under Sub-section (3) of Section 80-HHC ineffective and unworkable as highlighted in para 30 of the decision in Associated Capsules (P) Ltd. [Associated Capsules (P) Ltd. vs. CIT, (2011) 332 ITR 42 (Bom)] with reference to Clause (b) of Section 80-HHC(3). Even when I apply Clause (a) and calculate eligible deduction under Section 80-HHC, it would give an odd and anomalous figure. To illustrate, I would like to expound on the earlier example after recording that the gross total income of ₹1000 was on assumed total turnover of ₹10,000 which includes export turnover of ₹5000 and the deduction allowable under Section 80-IA was 30% and the deduction allowable under Section 80-HHC was 80% of the eligible profits as computed under Section 80-HHC(3). The stand of the Revenue is that without alteration or modification of the figures of total turnover and the export turnover, the gross total income would undergo a reduction from ₹1000 to ₹ 700 as ₹300 has been allowed as a deduction under Section 80-IA. This would result in anomaly for the said figure would not be the actual and true figure or the true gross total income or profit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result. There is no logic or rationale for making the calculation in the said impracticable and unintelligible manner.”

The Supreme Court accordingly, answered the reference and directed the Registry to place the appeals / petitions before appropriate Bench.

From The President

July, the seventh month of the year named after Julius Caesar, is on average the warmest month in the northern hemisphere and the coldest month in most parts of the southern hemisphere. This month holds significant importance for our profession and our Society. We commemorate CA Day in July and also celebrate the founding day of our Society during this month.

It also signifies the beginning of the busy assurance and compliance season, as well as the transition of BCAS leadership with the commencement of the new academic year at our Society. The BCAS leadership model functions similarly to a ‘relay marathon’, where each year the leadership baton is passed forward to continue to expand the scope, reach, depth and prestige of BCAS.

It is my honour to announce CA Zubin Billimoria as the President and CA Kinjal Shah as the Vice President of our Society for the academic year 2025-26. Zubinbhai, a seasoned professional who has been associated with BCAS for many years, brings immense energy, leadership, and meticulousness to our Society. Kinjalbhai, a technology-savvy administrator and detail-oriented professional, has volunteered at BCAS for over two decades, contributing fresh ideas and initiatives.

Alongside them, CA Mandar Telang, CA Kinjal Bhuta, and CA Mrinal Mehta form a well-rounded team of office-bearers who are prepared to continue advancing the ‘1st 5-year Strategic Plan’ into its third year of implementation.

Over the past year, whilst we consistently propagated high-quality learning, advocacy and professional development, our Society has undertaken various new initiatives aligned with the six pillars under the 1st 5-year Strategic Plan, aimed at addressing the needs of our community and fostering professional development.

1. Reach

  •  Membership growth: Your Society has significantly enhanced its reach by increasing its membership and subscribership to an all-time high of 11,650 members and subscribers, thanks to Project ‘Mount 11,000’ and other membership-focused initiatives.
  • Audience expansion: Non-member participation in events, access to self-paced online courses, and social media followers hit record highs: 70,000+ followers, 800+ YouTube videos crossing 1.1 million views.
  •  Media presence: 200+ mentions across print, radio, television, podcasts, and articles—boosting BCAS’s visibility and engagement.
  • Local engagement: Enhanced reach with strengthening of the ‘Sherpa’ initiative by conducting events and town halls outside Bombay (Coimbatore, Kolkata and Hyderabad).
  • Global outreach: First joint webinar with the American Accounting Association on ESG, webinar with Oman officials and UN Tax Cooperation conference participation.
  • WhatsApp engagement: WhatsApp chatbot and WhatsApp channel launched with 2,200+ subscribers, enabling non-intrusive yet quick dissemination of information and updates.
  • Publications distribution through flipkart.com: BCAS secured ISBNs for all its publications and began distributing through Flipkart.com.

2. Professional Development

  •  Member survey: Started the academic year with a membership survey, which guided focus for this year’s programming based on this member feedback.
  • Lecture series: Held 16 (sixteen) open-access lectures, resulting in 50,000+ additional YouTube views.
  • Publications: Released new/updated editions (‘Laws & Business, ‘Gita for Professionals’, ‘Thought-Mailer compilation’, etc.) in addition to BCAS Referencer, BCAS Diary and BCA Journal.
  • BCAS Academy: Launched a digital learning and networking platform offering courses, journals, forums, and resources. BCAS Academy promises to change the way our community consumes BCAS content and can go a long way in enhancing the breadth and reach of our Society.
  • Innovative pedagogy: Introduced contemporary topics such as AIFs, AI, ESG, supply-chain, geopolitics and more; DTAA course celebrated its 25th year.
  • Journal reach: Expanded BCAS Journal’s audience significantly through targeted efforts, adding many new subscribers.
  • Digital credentials: Introduced e-certification for BCAS certificate courses with verifiable digital badges.
  • Podcast & self-paced content: Conducted various Podcasts, self-paced content-series like ‘Are You Aware,’ ‘GST Bytes,’ and ‘Tax Gurucool’.
  • Guest lectures & training for managing committee and staff: Hosted experts and organised staff workshops on AI, yoga, management, etc. for the managing committee and BCAS staff.
  • Communication improvements: Standardised BCAS namestyle and bi-monthly updates through ‘BCAS Broadcast newsletter; office premises branding refurbished.

3. Networking

  •  MOU with IIM-M: During the year, we entered into a research-focussed MoU with IIM-M to enhance the academia-professional engagement.
  •  MOU with NISM: During the year, we entered into a capability-development MoU with NISM to build enhanced skill-sets on avenues connected with securities markets.
  •  MOU with BIA: We entered into an industry-professional MOU with Bombay Industries Association and further built-upon our existing arrangements with IMC, CTC, WIRC, GSTPAM, MCTC and others.
  •  CA Thon marathon: BCAS powered India’s first “run for cause” CA marathon with 1,600+ participants; supported women’s economic empowerment.
  •  Cricket tournament: First BCAS Turf Cricket Tournament in January 2025 with wide CA participation.

4. Advocacy

  •  Research: Published blue-sky research paper on ‘group taxation’ in collaboration with IIM Mumbai; to be shared with policymakers.
  • Regulatory engagement: Interacted with multiple regulators, including NFRA, ICAI, RBI, SEBI, CBEC, IFSCA, IBBI, CBDT and others.
  • Representations: Provided feedback on various regulatory changes, e.g. Budget 2024, ITR utility, FEMA drafts, SA 600 revisions, fraud reporting guidelines, overseas networking guidelines, etc.
  • Parliamentary input: Presented recommendations on the Income Tax Bill, 2025, to the Parliamentary Select Committee.
  • Policy roundtables: Hosted “Viksit Bharat” and “Profession @ 2047” discussions; curated a SEBI AIF white paper to be presented to the securities market regulator.
  • Niti Aayog collaboration: Partnered to perform a focused research on tax policy reforms with Niti Aayog through its Consultative Group on Tax Policy.

5. Yuva Shakti

  • Younger members: Notable increase from under 35 members; BCAS managing committee average age is 42 years.
  • Student platform: A for-by-of Students platform, aka, ‘BCAS Nxt’ launched with bootcamps conducted for CA students.
  • Tarang 2025: Student festival with ~350 participants, showcasing diverse skills concluded with zeal, enthusiasm and camaraderie.
  • Mentoring programs: CAMBA and आDaan Daan mentoring expanded across 20+ locations, including reverse mentoring.
  • Endowment fund: Shri P. N. Shah CA Students’ Endowment Fund established a ₹5 million corpus for financial aid to needy CA students.

6. Chartereds for Change

  •  Environmental projects: Planted 200+ native saplings in Mumbai (Miyawaki Forest) with BCAS Foundation partners.
  • Educational support: Modernised MM High School in Gujarat with e-classrooms, labs, library, and upcoming sports infrastructure.
  •  Inspirational publications: Released 4 (four) books, including Gita for Professionals 7th Edition and a Thought Mailers compilation.
  •  BCAS Foundation initiatives: Carried out e-learning, blood drives, tree-planting, sewing-machine donations, and collaborated on social causes.
  •  Solar support: Installed solar power at Vraj Hostel via Sparsh Foundation for sustainable benefit.

Year after year, our Society has flourished and expanded its influence and contributions due to its strong ethical foundation and the dedicated efforts of its selfless volunteers. I would like to take this opportunity to express my heartfelt gratitude to the selfless volunteers of the BCAS Core Group, who uphold the values and principles of BCAS with utmost integrity. I also express our sincere gratitude and appreciation to Dr. CA Mayur Nayak, editor of the BCAJ, for his invaluable contribution to the BCAJ and our community over the last many years.

To celebrate our founding legacy, we will have the privilege of hearing valuable insights from our distinguished guests: (i) Shri Tuhin Kanta Pandey, Chairperson of SEBI, and (ii) Shri Nithin Kamath, Founder and CEO of Zerodha.

As we end another year of selfless contribution, a reflection of true ‘success’ in the words of Ralph Waldo Emerson guides us:

“To laugh often and much: To win the respect of intelligent people and the affection of children, to earn the appreciation of honest critics and endure the betrayal of false friends; to appreciate beauty, to find the best in others, to leave the world a bit better whether by a healthy child, a garden patch, or a redeemed social condition; to know even one life has breathed easier because you lived. This is to have succeeded”

Thank you for allowing me an opportunity to serve you and our community.

CA Anand Bathiya

President

From Published Accounts

COMPILER’S NOTE

In the last few weeks, a large bank in India was in the news for several accounting lapses resulting in a discrepancy in its derivatives portfolio, interest income and other matters. The regulators were also actively monitoring the developments for the same. Given below are the relevant disclosures in the financial results of the Bank for the quarter and year ended 31st March, 2025.

INDUSIND BANK LIMITED

From Independent Auditors’ Report on Standalone Financial Results pursuant to Regulation 33 and Regulation 52 of SEBI (LODR) (extracts)

Emphasis of Matters

4. We draw attention to Notes 12 to 16 to the Statement, which explain that the Board commissioned an investigation/review into the alleged discrepancies, covering the following significant matters:

a. Internal Trades Derivative Accounting under the head “Other Assets” amounting to ₹1,959.98 crores being accumulated notional profits since FY 2015-16 have been written off as a prior period item in the current financial year.

b. Incorrect accounting and subsequent reversal of cumulative interest income of ₹673.82 crore and Fee Income of ₹172.58 crores within the current financial year.

c. Certain incorrect Manual Entries posted in the “Other Assets” and “Other Liabilities” pertaining to prior years amounting to ₹595 crores has been set off during the current financial year.

The resultant findings from the investigation / reviews reports, in summary, revealed an involvement of senior Bank officials, including former Key Management Personnel (KMP), in overriding key internal controls across the aforesaid functions/areas, and a concealment from the Board and the statutory auditors of the wrongful accounting practices adopted, over such period of time, as indicated in the respective investigation/ review reports.

Basis our evaluation of the findings in the above reports, in particular the likely involvement of senior management in the above matters, we have reason to believe that suspected offences involving fraud may have been committed and thereby we have reported these to the Central Government under Section 143 (12) of the Companies Act, 2013 read with Companies (Audit and Auditors Rules), 2014.

5. We draw attention to Note 18 to the Statement, which explains that in light of the findings and adjustments noted above, in particular the override of management controls by KMPs, the Board of Directors initiated an internal review of material financial statement account captions and directed the Management and the Internal Audit Department to perform additional procedures such as reconciliations of system reports and listings with balances reflected in general ledger, test checks over such items in the listing and certain digital procedures over and above. Based on the above review, rectifications/ reclassifications including those relating to prior-period items were made to the accompanying Statement.

6. We draw attention to Notes 17 and 18 to the Statement which states that the Bank is currently in the process of determining the accountability of the persons involved in the discrepancies and irregularities mentioned in paragraph 4 above and assessing the resultant legal or penal implications, if any, that may arise thereon.

Our opinion on the Statement is not modified with respect to these matters.

From Notes to Standalone Financial results (extracts)

12. On March 10, 2025, the Bank filed a disclosure under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 stating that it had, during an internal review of process relating to other assets and other liabilities of derivative portfolio, noted discrepancies in these account balances and that an external firm appointed by the management
was carried out an independent review to validate its internal findings.

On March 20, 2025, the Board decided to appoint another independent professional firm to conduct a comprehensive investigation amongst others to identify the root causes of discrepancies, assess correctness and impact of accounting treatment, identify any lapses and establish accountability of persons involved.

The Bank has since received reports from both the firms. The investigation indicated that from FY 2016 to FY 2024, the Bank entered into several derivative transactions referred to as internal trades wherein the accounting followed was improper and not in consonance with the accounting guidelines. This incorrect accounting resulted in recognition of notional income in the Profit and Loss Account with corresponding balance in assets account over the years till FY 2023-2024.

Based on quantification of accounting discrepancies that were identified and confirmed in investigation report, other assets amounting to ₹1,959.98 crores being accumulated notional profits since FY2016 have been written-off as prior period item in the current financial year.

13. During the review of other assets and liabilities by the Internal Audit Department (IAD), it was noted that certain incorrect manual entries resulted in an unsubstantiated increase in other assets and other liabilities amounting to ₹595.00 crores. The Bank has determined that these assets need to be set off against corresponding other liabilities. The rectification of these have been carried out. This has no impact on the results of the Bank for the year ended March 31, 2025.

14. In conducting a review of the Bank’s microfinance portfolio for the period ended December 31, 2024, the IAD of the Bank noted incorrect recording of cumulative interest income of ₹673.82 crores and fee income of ₹172.58 crores. Reversal of this incorrect recording (net of an interim provision of ₹322.43 crores and actual interest income for this period of ₹101.41 crores) has resulted in an adverse impact of ₹422.56 crores during the quarter ended March 31, 2025.

In respect of the above matters mentioned in note 12, 13 and 14 above, the joint auditors have filed letter u/s 143(12) of the Companies Act, 2013 for suspected offense involving fraud.

15. The Bank during its internal review noted misclassification of certain microfinance loans as ‘standard assets’ along with accrual of interest income. The Bank corrected this classification resulting in an additional recognition of Non-Performing Advances aggregating to ₹1,885.19 crores. The Bank provided for these at a rate of 95% aggregating to ₹1,791.08 crores. This provision together with a reversal of interest income of ₹178.12 crores resulted in an adverse impact of ₹1,969.20 crores to the Profit and Loss Account of the Bank for the quarter and year ended March 31, 2025.

16. Through its internal financial review, the Bank also identified other instances of incorrect accounting that required rectification and have been rectified during the quarter and year ended March 31, 2025. These include the following:

  •  Interest payment of ₹99.97 crores on certain borrowing instruments was not recognised in the Profit & Loss Account in earlier years.
  •  A provision of ₹133.25 crores in respect of balances in Other Assets that are not expected to be realised.
  •  Prior period operating expenses of ₹206.00 crores and income of ₹126.75 crores.

The Bank reviewed groupings and classification of the Profit & Loss items to assess compliance with prevailing guidelines. Based on the review, the Bank reclassified the following for the financial year ended March 31, 2025.

  •  ₹760.82 crores from interest income to other income.
  •  ₹157.90 crores from Provision (other than tax) & Contingencies to Other Operating Expense.

17. As a result of the above matters mentioned in note 12 to 16, any financial implications arising from past inaccurate regulatory submissions, including those to SEBI, Income Tax authorities, and the RBI, are currently unascertainable.

18. The Board of Directors has taken necessary steps in addressing all the areas of concerns and disclosing transparently at the appropriate stage. The Board of Directors initiated a comprehensive internal financial review of all the material financial statement balances. In this regard, the Bank has received recommendations from various internal and external agencies involved. These recommendations include strengthening policy and procedures, preparation and approval of accounting analysis, control and discipline over reconciliations, minimising manual accounting entries, automating processes, addressing manual overrides of control, etc. These shall be reviewed and implemented under oversight of the Board.

Also, the Bank is in the process of taking necessary steps to assess roles and responsibilities and fix accountability for persons involved in any of these lapses. The Bank is fully committed towards
taking these matters to their conclusion under applicable laws.

19. As per regulation 33(3)(i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the aggregate effect of material adjustments made for the quarter and year ended March 31, 2025 which pertains to earlier periods, amounted to ₹2,601.94 crores.

Editorial – One Last Time… ADIEU.. SAYONARA.. PHIR MILENGE..

The month of June 2025 has been quite eventful. There were numerous global upheavals. The tragic plane crash at Ahmedabad left us dumbstruck and disconsolate. This incident raised serious concerns about safety in the aviation industry. The 12 day Israel-Iran conflict and ongoing Russia-Ukraine war along with other developments have had a severe impact on the world trade and economy.

THEME OF THE SPECIAL ISSUE – JULY 2025

The use of Artificial Intelligence (AI) is the order of the day. Machines are taking over human tasks faster than we thought. The use and success of AI in recent wars and various areas of life have not only proven its utility but also its essentiality. The CA profession is no exception to the impact of AI. My recent certification course on AI revealed that it is enthralling, empowering, engrossing, and encompassing, yet also scary and overwhelming. Considering its importance and essentiality, this year’s special issue of BCAJ is based on the theme – “ARTIFICIAL INTELLIGENCE – ITS IMPACT ON CA PROFESSION.”

The issue features an interview with CA Ninad Karpe and five articles covering various aspects of AI’s impact on the CA profession. The issue also carries a poem by CA Divya Jokhakar on AI titled “Humanity in the Machines”, two cartoons on AI by Anirudh Parthasarathy and also the column of CA C.N. Vaze on “Light Elements” assisted by AI.

We hope readers will appreciate and enjoy reading them. However, the real crux of AI lies in its implementation, not merely in reading. So, readers are well advised to adopt and implement AI in their practice.

THE END OF THE JOURNEY

I have mixed emotions as I write my last Editorial. On the one hand, I have the satisfaction of completing three years of my tenure and doing my duty diligently, whereas on the other hand, the sadness of no longer being able to communicate with all of you through this medium. All good things must come to an end, and this is also true so far as my association with the BCAJ as editor is concerned. When I took over from Raman, I had the daunting task of maintaining the quality and reputation of this great journal, which it has had for decades, thanks to the tremendous contributions and hard work of my predecessors. Raman did a stupendous job during his tenure and elevated the journal to new heights. He had the privilege of heading it in its 50th year.

When I took over the baton from him in 2022, India was celebrating its 75th year of independence, and two years later, BCAS celebrated its 75th year. God has been very kind in blessing me with the role of Editor of this prestigious journal during these two important years of its illustrious 56-year history. In a couple of issues, we published QR Codes of articles with an option to listen to them as a podcast.

My association with BCAJ dates back to my student and articleship days, when I would read BCAJ to stay updated on Direct Tax Case Laws, as there was limited or no internet access in the late 1980s. At that time, I had never imagined that one day, I would head this prestigious journal. My esteem for the journal has increased by the day, as I have witnessed numerous individuals selflessly contribute and share their knowledge. It is indeed a privilege to serve the profession through a knowledge-enriched publication. I thank God and my Gurus for this honour.

I am grateful to CA Ninad Karpe, who invited me to serve as the Editor of Touch Down India Magazine in the 1990s. This gave me exposure and experience in heading a professional Journal quite early in my life.

I am lucky to have been born to a journalist father, the late Dr. Bhanukumar Nayak. I believe I have inherited some of my father’s qualities as a journalist. My PhD studies further developed my academic skills and qualities. I express my gratitude and thanks to the seniors in the BCAS for entrusting me to head this prestigious publication. Not only that, but they also continuously supported, guided, and contributed to the journal. This makes BCAS a unique and distinct organisation.

Like many of my predecessors, I also faced my share of challenges during my three-year stint. Working past midnight to meet deadlines, finalising and editing during travel at odd hours and in odd places is perhaps a common challenge to all editors. Meeting the postal deadline while facing challenges at the printer’s end is also equally daunting.

However, such challenges test our strength and help us grow. Fortunately, the support of the Editorial Board members comes to the rescue of the editor at BCAS. But when one sees his fellow members and colleagues benefited and enriched, then one has the satisfaction that all that trouble and effort was worth it. Some readers express their gratitude through e-mails; others silently appreciate it. I thank all of you who have thanked BCAJ expressly or silently.

Writing an Editorial is a growth journey. It is challenging and, at times, overwhelming. Selecting a topic, conducting research, and articulating it to meet readers’ expectations (without AI’s help) is a herculean task for any Editor. However, it is equally satisfying when readers appreciate Editorials. I had the fortune of communicating with you through my Editorials month after month, which I shall be truly missing. I was fortunate to have received valuable contributions to my Editorials from CA Gautam Nayak, CA Tarun Kumar Singhal, CA Anil Doshi, CA Raman Jokhakar, Adv. R.K. Sinha, IRS and Ex-DIT, and many others. I am grateful to all of them.

My sincere thanks to all authors, contributors, feature writers, advertisers and readers for their continuous support, encouragement, and contributions in making BCAJ a world-class publication. I thank many luminaries who readily gave interviews and shared their valuable insights on important topics, their life journeys and gave tips to succeed in life. This year, we organised a successful Writers’ Workshop, and we had some enthusiastic writers as well. I appeal to all budding writers to write for BCAJ, as writing is a means of expressing oneself.

I thank CA Mihir Sheth, CA Chirag Doshi, and CA Anand Bathiya for inviting me to join their team as Chairman of the Journal Committee and other Office Bearers for their support in this role. I thank every member of the Editorial Board, the Journal Committee, Ms. Navina Perarasan and my convenors, CA Jagdish Punjabi, CA Abbas Jaorawala, CA Rohit Jethani, and CA Vinayak Pai, for their support and valuable contributions. I thank Mr. Davar of Spenta Multimedia, his entire team and various coordinators for their support and help. I thank my family for their sacrifices in many ways and for their encouragement to accomplish my tasks. My thanks to CA Uday Padia, my partner, and the other staff members of my firm who assisted me in various ways. My special thanks to my co-chairman, CA Raman Jokhakar and CA Gautam Nayak for their solid support and for being my sounding boards in various matters. Thanks to Raman for giving me one month’s break during my daughter’s wedding.

I am happy to hand over the baton of the BCAJ to my able colleague and a dear friend, CA Sunil Gabhawala, an accomplished professional, author, speaker, and writer. I am sure BCAJ will scale new heights in his tenure. I wish him good luck.

In Gujarati, we don’t say goodbye, we say Aavjo…આવજો (Means do come next time). In Marathi, it is said, Bara Yeu Me… बरं येऊ मी (Meaning I will come back). In Hindi it is said, Phir Milenge… फिर मिलेंगे.

I prefer to say goodbye in local languages, which expresses a hope to meet again, perhaps in a different role, at a different place, for a different purpose.

Let me end by saying…

धन्यवाद दिल से अदा करता हूं

अब मैं आपसे विदा लेता हूं

लेकिन प्यार भरा यह संदेश भूल न जाना

आपसे फिर कभी मिलने का वादा करता हूं!

Best Regards,

 

Dr CA Mayur Nayak,

Editor

To ERR Is Human, To Forgive Divine

Despite automation in GST, errors in tax filing have been a norm for business enterprises. They arise from voluminous data, manual interventions, technical intricacies and frequent amendments. The errors are noticed during internal reviews, statutory audits, annual filings or eventually through departmental actions.

The Goods and Services Tax Network (GSTN) system is founded on a complex fiscal architecture involving multiple stake holders whose compliance is unified on a single platform and settlement system. Errors may have an impact on the inter-government settlement of revenue. Taking cognizance of this, the GST law has not permitted rectification of previously filed returns as it would lead to frequent disturbance in such settlements.

Though many errors were addressed at early stages, some disputed cases reached higher legal fora. The judiciary played a pivotal role in clarifying the statutory framework governing such errors, while balancing the need for tax certainty with fairness to taxpayers. In this article, we highlight the array of errors committed in the prominent forms, with legal resolutions provided by the Courts. Specific focus would be made on the errors committed in Forms GSTR-1/3B in the later part of the article.

TRANSITION RETURNS – SUPREME COURT’S INTERVENTION

One of the most prominent judicial interventions concerned the transition returns, where taxpayers’ errors triggered a torrent of litigation. During trial-and-error phase of GST development, taxpayers committed bona-fide errors due to requirement of complex data inputs. Being a one-time exercise and lack of prior experience, many taxpayers failed to report required supporting data resulting in legal disputes over credit entitlement. Moreover, the said return had the peculiarity of the original due date coinciding with the revised return date, leaving the taxpayer perplexed. High Courts were flooded with grievance over errors committed by taxpayers. Grievance redressal committees were formed by the tax administration which addressed case-specific issues. Acknowledging the procedural confusion and inexperience, the Supreme Court (in Filco Trade Centre’s case1) directed reopening of transition return filings for a limited period, enabling taxpayers to correct their mistakes. This intervention was conditional – the CBIC issued circulars and guidelines, mandating officer verification before any credit could be recorded in the Electronic Credit Ledger. Genuine claimants ultimately received their credits, though only after enduring lengthy litigation and verification procedures (Article published in January 2021 may be referred).

1 2022 (63) G.S.T.L. 162 (S.C.)

E-WAY BILL – PROPORTIONALITY AND INTENT

E-way bills were generally backed by supporting invoices which ensured that the taxes due on the consignment would be duly paid. Though E-way bills were documents for movements, many officers placed excessive importance and treated it on par with a tax-invoice. For example, despite the tax invoice reporting the correct data and tax liability, incorrect reporting of delivery address in e-way bill was treated as a ‘contravention’ resulting in potential tax loss. A tug of war took place between the taxpayer and intercepting officers with the former generally relenting due to commercial compulsions. Simple bona-fide errors faced harsh penalties along with demurrages and damage to goods. Courts have emphasized that mere technical mistakes — such as an incorrect vehicle number or typographical errors — should not automatically trigger hefty penalties or confiscation of goods, provided there is no evasion of tax. The judiciary2 has consistently ruled that the presence of tax evasion is a necessary precondition for imposing such harsh penalties (Article published in January 2021 may be referred).

2  2022 (57) G.S.T.L. 97 (S.C.) Asst. Comm. vs. Satyam Shivam Papers Pvt. Ltd.

EXPORT DOCUMENTATION – ADMINISTRATIVE APATHY

Integration of customs and GSTN system for export refunds raised multiple data entry discrepancies forcing the Government to issue Circulars3 on the type of errors and the manual redressal by Customs officers (such as incorrect shipping bill number in GSTR-1, IGST amount paid on exports in GSTR-3B and not matching with customs data, exports not appropriately reported in GSTR-1/3B though rectified in GSTR-9, etc). Errors which were rectified in subsequent returns were also not being auto-populated for matching with customs data. In many cases, the errors could not be addressed on account of the limited purview of customs officials and lack of coordination with GST authorities. Obviously, courts frowned upon the revenue’s plea that the IT systems did not permit them to resolve the errors.4 High Courts compelled tax authorities to consider genuine representations on merits, rather than hide behind the limitations of IT systems. The judiciary’s stance was clear: administrative shortcomings should not defeat the substantive rights of taxpayers.

3  Circular 42/2017-Cus., dated 7-11-2017 , No. 5/2018-Cus., dated 23-2-2018, etc

4  [2023] 152 taxmann.com 247 (Bombay) Sunlight Cable Industries vs. 
Commissioner of Customs; 2024 (91) G.S.T.L. 145 (Guj.) BAJAJ HERBALS PVT. LTD. vs.
 Dy. Comm. of Customs, etc

REFUND APPLICATION – UNDERCLAIMING REFUNDS

The complexities of the GST framework also extended to the domain of refund applications, where procedural missteps and inadvertent omissions have often resulted in taxpayers underclaiming their rightful refunds. Given the intricate eligibility computations and the voluminous data required — from invoice-wise details to correlation with returns and shipping documents — errors are not uncommon. Applicants have found themselves short-claiming refund amounts due to misreporting of figures, incorrect selection of tax periods, or failure to include all eligible invoices or export documents. Moreover, in the absence of a mechanism for filing an additional refund claim in the same category, taxpayers resorted to filing refund in the residual ‘any other category’. Authorities claimed that having filed a refund claim for ITC once, another/supplementary application for differential amount of refund could not be filed. Judicial forums5 in numerous instances, directed authorities to permit rectification or additional refund claims—provided the error did not result in unjust enrichment or affect revenue interests. Where the portal’s technical limitations prevented additional claims, the judiciary has emphasised that substantive rights should not be defeated on mere technicalities, and that taxpayers should be allowed to present supporting documentation to substantiate their claims.

5 2023 (78) G.S.T.L. 324 (Guj.) SHREE RENUKA SUGARS LTD.vs. STATE OF GUJARAT

DRC-03 ERRORS – NAIL IN THE COFFIN

This simple document was also not immune to errors and inconsistencies. Taxpayers, while attempting to voluntarily discharge additional tax liabilities or rectify inadvertent errors through DRC-03 filings, often encountered further complications. Instances abounded where the particulars entered in DRC-03 were incorrectly mapped to the wrong tax period, tax head, or nature of liability—sometimes as a result of system’s rigid architecture or human oversight. Such mistakes led to confusion and, in several cases, double payments or misallocation of credits. Taxpayers faced arduous processes in seeking rectification before the Courts, as the GST portal does not provide for amending DRC-03 submissions6. As a result, what was intended as a means of self-compliance frequently became a source of technical and administrative frustration, occasionally culminating in protracted disputes. Such issue will also crop up when taxpayers would attempt mapping the DRC-03 with the electronic liability register through submission of DRC-03A forms.

6  (2024) 16 Centax 156 (Bom.) Rajesh Real Estate Developers Pvt. Ltd. vs. UOI

GSTR1/3B – OPPORTUNITY FOR CORRECTION

GST law envisioned a self-correcting system of GSTR-1, 2 and 3, where any data error at the supplier’s end could be identified and communicated at an invoice level by the recipient through GSTR-1A/2A. The adjustments/ rectifications were tabulated separately in GSTR-3 and necessary tax impact could be provided. Unfortunately, this two-way system was not operationalised and ultimately abandoned by the Government. As an alternative, a partial system of GSTR-1 and GSTR3B was introduced wherein the recipient was a mute spectator to the data uploaded and had to communicate through offline channels. Unless the supplier rectified the data in subsequent returns, the error persisted on the common portal.

Typically, errors involve incorrect reporting under appropriate heads – such as ITC under reverse charge / import of goods incorrectly reported as ‘All other ITC’; exempt values reported along with taxable supplies, outward supplies reported as B2C or with incorrect GSTIN, incorrect tax-type, incorrect POS for supplies, export transactions missed to be reported, credit notes reported as input tax credit, etc. Even-though net tax payable by the taxpayer was correct these errors caused significant confusion during assessments. The adjustments in subsequent returns were clubbed/netted with the respective tax period data. Since the GST form did not contain a separate tab or attachment for reporting tax adjustments of prior period errors, it was an onerous task for the taxpayers to explain these errors and equally challenging for the officer to verify them from the books of accounts.

STATUTORY PROVISIONS ON ERRORS IN GSTR1/3B

Section 37(4) (GSTR-1) and 39(9) (GSTR-3B) deal with such errors (omission or furnishing of incorrect particulars) in the GSTR returns. It specifically provides for appropriate adjustments in subsequent returns, subject to certain timelines. But there is a fine distinction between section 37(4) and 39(9) which leads to an interesting analysis.

Section 37(4) provides for adjustment of errors in GSTR-1 before 30th November of the relevant financial year to which the details ‘pertain’. On the other hand, section 39(9) states that a person who discovers any omission or incorrect particulars (other than as a result of scrutiny, audit, inspection or enforcement activity) would be permitted to rectify the same in the return in which such error is ‘noticed’. The said section originally contained a proviso which permitted rectification in the return of September following the end of the financial year. What was the ‘relevant financial year’ (year of committing the error or noticing error) was unclear from the proviso. While the provisions for GSTR-1 specifically linked the amendment to the year to which such details pertain, the provisions for GSTR-3B were silent over it.

Conjoined reading of the proviso and section 39(9) indicates that since rectification is to be performed in the return in which it is noticed, the relevant financial year would be the one in which such error was noticed. Subtly this gives ample liberty to the taxpayer to rectify the data with an open-ended time frame (subject to departmental action) by claiming that he/she noticed such error in a particular month and not before. To address this lacuna, the proviso was amended vide CGST (Amendment) Act, 2018 by specifically linking the financial year to the month to which the details pertain. This amendment implies that the taxpayer is obliged to rectify the error latest by 30th November following the financial year in which such error was committed. However, the said amendment has not seen the light of day as it is yet to be notified and hence does not have legal force.

Interestingly, the proviso which places a restriction on the adjustment has not fixed the outer time limit for such amendment (specifically the relevant financial year). This table will amplify the lacuna in section 39(9):

7 Substituted vide Finance Act, 2022 w.e.f. 01-10-2022 before it was read as, "the due date for furnishing of return for the month of September or second quarter

The ambiguity which was present in the original section continues to persist despite the legislation of this provision. Even during 2022, where the due date was shifted to 30th November of the financial year, the proviso failed to specify the relevant base year to decide the outer time limit for rectification of errors. Yet as a matter of practice both taxpayers and administration have limited themselves to rectifying errors latest by 30th November following the financial year in which the error was committed. Certainly, courts would take notice of the difference in wording in section 37(4) and the amended (but unnotified) wordings to arrive at the true purport of the section.

CIRCULARS ON ERROR HANDLING

Under the GSTR-1/2/3 system, the Board issued Circular No. 7/7/2017-GST, dated 1-9-2017 during the introductory phase of GST. Recognising that GSTR-3B has been introduced as a stop-gap measure, the Circular provided for recording the adjustments in liabilities (short ‘payment of output’ or ‘claim of input’, excess ‘claim of input’ or ‘payment of output’) between GSTR-1/2 and 3B into the final reconciliation table of GSTR-3. Essentially, the amendments at invoice level in GSTR-1/2 poured into GSTR-3 leading into the net tax liability. But on account of suspension of GSTR2/3, another Circular 26/26/2017-GST, dated 29-12-2017 was issued directing adjustments in GSTR3B (on net basis) and removing references to GSTR-3. The underlying philosophy was to discharge the net-short payment of tax or claim the excess payment of tax in subsequent GSTR-3B returns. But nowhere did the provisions provide for rectification of the original return itself.

BHARTI AIRTEL’S CASE

The above issue was taken by the Supreme Court in the famous Bharti Airtel’s case8, wherein the taxpayer had made an excess payment of INR 934 crores (in cash) on account of short availment of ITC in GSTR-3B. The Delhi High court observed that the said short claim of ITC was on account of non-operationalisation of GSTR-2A restricting the taxpayer from knowing the actual ITC. The Court read down the Circular and permitted taxpayer to rectify the original return by availing the said credit. Consequentially it would result in excess payment of output and a refund of excess cash paid. On appeal to Supreme Court, revenue argued that under a self-assessment scheme, the taxpayer is under a duty to examine its accounting records and need not await the implementation of GSTR-2A for availment of credit. The Court concluded that self-assessment should be performed based on the accounting records and GSTR data on the portal is only a facilitator. The express provisions of section 39(9) clearly direct adjustments of errors in the month in which it is noticed and hence the circular is in consonance with the said prescription. Since any rectification of original return would have cascading effect on revenue settlements, the provisions of section 39(9) directing adjustment in subsequent periods should be enforced completely. This judgement gave a thrust to the Government to enforce adjustment in subsequent returns rather than seeking correction in the original return.

8. Union of India vs. Bharti Airtel Ltd - 2021 (54) G.S.T.L.257(S.C.)
 reversing 2020 (38) G.S.T.L.145(Del)

ABERDARE TECHNOLOGIES’ CASE

In the meanwhile, the Bombay High Court in Star Engineers (I) Pvt. Ltd9 permitted the taxpayer to amend the GSTIN incorrectly reported in GSTR-1 on the premise of being a bona-fide error without revenue impact. The court held that if any rectification is not permitted it would amount to accepting incorrect particulars leading to an incorrect cascading impact.

But there were adverse rulings on this subject as well. In Bar Code India Ltd10 taxpayer’s plea for amendment in POS/ GSTN of recipient was rejected despite reference to the said decision. It held that a taxpayer should be aware of his legal responsibilities and merely because a loss is caused to its customer it cannot be resolved by seeking a rectification in GST return. In another decision in Yokohama India private Limited11, the Telangana High Court rejected the plea of rectification after statutory timelines on account of the specific verdict in Bharti Airtel’s case.

9  2024 (81) G.S.T.L. 460 (Bom.)

10  2025 (93) G.S.T.L. 56 (P & H) BAR CODE INDIA LTD. v UOI

11   [2022] 145 taxmann.com 130/[2023] 108 GSTR 115 (Telangana)

In a twist of events, in another decision of Bombay High Court in Aberdare Technologies12, the taxpayer sought rectification of the returns after the statutory deadline. The court directed the revenue to open the portal to rectify/amend the return data or alternatively permit a manual return. At the Supreme Court, the revenue’s SLP was dismissed with an observation that the right to rectify an error is embedded in the right to doing business. Accordingly, a taxpayer cannot be deprived of such right in terms of Article 14 of the Constitution. Denial of the right to rectify would cause double payment by taxpayer and hence the Court directed the CBIC to examine a more realistic timeline for correcting bona-fide errors. Despite being rendered at SLP stage, the reasoning providing in the decision would have the effect of a declaration of law in terms of Article 141 of Indian Constitution (extracted below):

“Right to correct mistakes in the nature of clerical or arithmetical error is a right that flows from right to do business and should not be denied unless there is a good justification and reason to deny benefit of correction. Software limitation itself cannot be a good justification, as software are meant ease compliance and can be configured. Therefore, we exercise our discretion and dismiss the special leave petition.”

12  2024 (89) G.S.T.L. 6 (Bom.) SLP dismissed in [2025] 172 taxmann.com 724 (SC)

RECONCILIATION OF BOTH DECISIONS13

Bharti Airtel’s case pertained to an error committed in GSTR-3B and the Aberdare Technologies’ case pertained to an error committed in GSTR-1. Though both contain similar provisions, the answer seems to be patently different. On the one hand, in Bharti Airtel’s case the plea for rectification (swapping of payment between electronic cash ledger with electronic credit ledger) was rejected u/s 39(9) as the section only permitted subsequent period adjustments (in the month the error is noticed), but on the other hand in Aberdare’s case, a rectification of the original GSTR-1 was directed on account of the error being revenue neutral. How do we reconcile these decisions?

13 Both decisions will fall under consideration in Brij Systems Ltd [2025] 
172 taxmann.com 722 (SC) case where an Amicus Curie has been appointed.  
But we have attempted to reconcile both decisions pending the Court’s verdict

On a finer reading, it appears that Bharti Airtel’s case is a declaration u/s 39(9) for cases where the taxpayer wishes to alter its self-assessment right (despite being revenue neutral). The tax payable under GSTR-3B was sought to be swapped from electronic cash ledger with electronic credit ledger. This was held as being impermissible u/s 39(9). Whereas the decision of Aberdare Technologies involved amendment of the details furnished in GSTR-1 (without alteration of the tax payable in GSTR-3B). There was no alteration of any legal right but merely a substitution of incorrect data fed into the GSTR-1. This difference leads us to the following classification and analysis:

  •  Errors leading to alteration of legal rights (Legal errors) : such as replacement of cash payment with credit, reporting of credit notes under the head input tax credit, etc. These are errors can be said under exercise of a legal right and permitted only way of adjustment within due date prescribed in section 39(9), in terms of the Bharti Airtel’s case.
  •  Errors of mere disclosure (Disclosure errors): such as incorrect reporting of GSTIN/POS, reporting of export sales under domestic tab, incorrect reporting of B2B as B2C supplies, etc. Such errors are merely incorrect data entry. Such errors fall under the domain of a fundamental right to do business in terms of Article 14 of the Constitution and permissible to be performed at any stage, in terms of Aberdare’s case.

SAMPLE CASE STUDY

Let’s take a case study to further appreciate the difference between the said errors. Mr A classifies a transaction as an inter-state supply and reports the same as IGST in the invoice/ GSTR-1 and the GSTR-3B. On noticing that that the said transaction is correctly classifiable as an intra-state supply, the taxpayer would be permitted to adjust this excess payment of IGST and the short payment of CGST/SGST accordingly in their subsequent period GSTR-1/3B. This would be legal error which has arisen from the exercise of a legal right which was subsequently overturned. Bharti Airtel’s case would operate in such a situation and the time-limits specified in section 39(9) would be applicable for such adjustments. The taxpayer would not be permitted to have the return reopened for this rectification.

Whereas, lets also take a slightly contrasting case where Mr A correctly classifies the transaction as intra-state supply in its invoice and GSTR-1, but inadvertently reports the same as inter-state supply in its 3B resulting in incorrect discharge of tax. Going by Aberdare’s case, this is a pure disclosure error which should be permitted to be rectified as its fundamental right to do business and not be governed by strict time limitations. No legal right was incorrectly exercised in such a situation and hence the Bharti Airtel’s case should not apply. A step further, the taxpayer should in fact be permitted to have the Form GSTR-3B reopened and replace the same with the appropriate tax entries and accordingly redrawn. Certainly, there would be technical challenges for the GSTN to implement, but such challenges should not hamper the fundamental right of the taxpayer to report the correct figures on the portal.

The Karnataka High Court in Orient Traders14 case stated that an incorrect reporting of the ITC in a wrong head cannot be subject to the rigours of section 39(9) and distinguished the Bharti Airtel case. Being a disclosure error, the court ultimately directed rectification of the GSTR-3B return through online or physical mode. Though the court stated that this decision does not have precedential value, it underpins the thought process of the judiciary over fundamental taxpayer rights.

14  WRIT PETITION No.2911 OF 2022 (T-RES)

ERROR VS. TECHNICAL LIMITATIONS

Many a times the vivid line between an ‘inadvertent error’ and a ‘technical limitation’ seems to be blurred by the tax officers. In a case involving transition credit15, the taxpayer originally reported the transitional credit claim under a wrong head of TRAN-1 and consequently was unable to file the TRAN-2. Despite the direction of the Supreme Court in Filco’s Trade Centre to reopen the portal, the taxpayer was unable to file TRAN-2 in the reopened form as well and filed grievances before the relevant authorities. Now in this case, the entire thrust of the argument of the revenue was that claim of transition credit under 140(3) – Table 7A is different from the credit under Table 7B. Accordingly, the claim is inadmissible. The High Court took consideration of the technical limitation even in the re-opened form and directed the officer to permit the claim of refund.

15  2024 (88) G.S.T.L. 166 (Guj.) NIKHIL NAVINCHANDRA MEHTA vs. UOI

Similar would be a case where a taxpayer issued a credit note in a particular month and did not have sufficient positive turnover as output for adjustment. The taxpayer crossed the time limit specified u/s 39(9) for adjustment of the credit note. But what needs to be delved into is whether this credit note adjustment arises on account of a ‘technical limitation’ or a ‘human error’. CBIC Circular No. 26/26/2017 (supra) acknowledged that since the GSTR-3B is not equipped to record negative entries, the adjustments in output tax should be performed in subsequent months and wherever this is not feasible a refund may be sought. If the adjustment is arising from a technical limitation to report a negative liability in GSTR-3B, it would be incorrect to classify this as an ‘omission’ or ‘incorrect particular’ as specified in section 39(9). Consequently, the provisions of section 39(9) and its time limitations would not apply for adjustment of credit notes arising on account of negative entries. Advance adjustments which are not permitted to be reported in GSTR-3B on account of negative entries may also be treated accordingly. These adjustments should be permitted as part of fundamental rights of the taxpayer.

WAY FORWARD – BALANCING EQUITY AND TAX CERTAINTY

Courts have granted relief where taxpayers demonstrated bona fide intent and sought to rectify mistakes within the timelines prescribed by law. Judicial scrutiny in such cases often revolves around whether the taxpayer acted in good faith and whether the error resulted in any real loss to the revenue. High Courts frowned upon revenue masquerading behind technical limitations on the reasoning that the portal is only a facilitator and not the driver of the GST law. Accordingly, revenue has been directed to allow corrections either online or manually for assessment purposes.

Ultimately, legal principles in this domain revolve around distinguishing between legal errors (exercise of legal rights) and disclosure errors (data entry omissions or mistakes in reporting). The principle of equity underpins most judicial interventions: corrections are permissible, but only after due verification, and not via unchecked self-correction that could undermine the scrutiny and integrity built into the system. This approach seeks to ensure that the GST regime is not only robust and reliable, but also fair and responsive to practical realities faced by taxpayers. The Government may consider constituting a judicious panel (comprising technocrats and legally reputed personnel) to resolve past and future disputes. As famously said by the English Poet Alexander Pope, that to err is human and to forgive is divine…!!!

Part A | Company Law

8. In the Matter of Vaishali Proficient Nidhi Limited

Registrar of Companies, Bihar

Adjudication Order: ROC/PAT/ Sec 158 / 013895/ 200 to 208

Date of Order: 30th May, 2025

Adjudication order for violation of section 158 of the Companies Act 2013 (CA 2013):

FACTS

  •  It was observed from the financial statements (filed for financial year ended 31st March, 2015 to 31st March, 2019) that they did not consist of Director’s Identification Number (DIN) in the annexure attached to the e- forms thereby leading to the violation of Section 158 of CA 2013.
  •  Notices were issued to the company seeking details as well explanation.
  •  In response, directors appeared in person but did not make any submissions.
  •  Hence, it was concluded that provisions of Section 158 of CA 2013 have been contravened by the company and its directors and therefore they are liable for penalty under section 172 of CA 2013.

THE PROVISIONS OF THE ACT IN BRIEF

Section 158: Every person or company, while furnishing any return, information or particulars as are required to be furnished under this Act, shall mention the Director Identification Number in such return, information or particulars in case such return, information or particulars relate to the director or contain any reference of any director.

Section 172: If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.

FINDINGS AND ORDER

  •  The company being a Nidhi Company, does not fall in the definition of a small company u/s 2(85) of CA 2013 and as such the provisions of Section 446B of CA 2013 imposing lesser penalty shall not be applicable.
  •  After taking into account all the factors, and having considered all the facts and circumstances of the case, penalty was imposed on the company and directors as per details given below:
  •  On company for each of 5 years @ ₹50,000 per year = ₹2,50,000.
  •  On 6 directors who were directors at the time of respective defaults ranging from ₹50,000 to ₹2,00,000. Aggregate penalty on all the directors subject to Rs ₹50,000 per year = ₹7,50,000.

9 In the Matter of M/s ORIENTAL INDIA KISANSHAKTI NIDHI LIMITED

Registrar of Companies, Uttar Pradesh

Adjudication Order No – 07/23/ADJ/2024/ORIENTAL INDIA/1525

Date of Order – 04th September, 2024

Adjudication order issued against the Company and its Director for not regularising the Additional Director in the subsequent Annual General Meeting which was contravention of provisions of Section 161 of the Companies Act, 2013.

FACTS

During the inquiry, it was observed that Mr. KB was appointed as an additional director of the company w.e.f. 25th February, 2017. However, he was not regularised in the subsequent Annual General Meeting of the M/s OIKNL.

As per Section 161(1) of the Companies Act, 2013, an additional director shall hold office up to the next annual general meeting. Thus, accordingly, it was evident that the company and its Directors had failed to comply with the provisions of Section 161(1) of the Companies Act, 2013 and are liable for penal action under Section 172 of the Companies Act, 2013.

Thereafter, a Show Cause Notice (SCN) was issued to M/s OIKNL and its directors on 11th June, 2024 under section 161 of the Companies Act, 2013. M/s OIKNL and its directors had not furnished any reply to the said SCN, hence no hearing was fixed for this matter.

PROVISIONS

Section 161 (Appointment of Additional Director, Alternate Director and Nominee Director)

“(1) The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an Additional Director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.”

Section 172 (Penalty)

“If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.””

ORDER:

Adjudicating Officer (AO) after consideration of the facts and circumstances of the case concluded that M/s OIKNL and its directors have failed to comply with the provisions of section 161 of the Companies Act, 2013 thereby attracting the penal provisions mentioned under Section 172 of the Act.

AO, therefore imposed the total penalty of ₹6,00,000/- i.e. maximum ₹3,00,000/- on M/s OIKNL and maximum ₹1,00,000/- each on each of its directors.

Applicability Of Section 56(2)(X) To Receipt Of Rural Agricultural Land

ISSUE FOR CONSIDERATION

Section 56(2)(x) provides for the taxability of certain receipts, which inter alia include the receipt of any immovable property as well as receipt of any other property, either without consideration or for a consideration which is less than its stamp duty value. Earlier, a similar provision was contained in section 56(2)(vii). For this purpose, the term ‘property’ is defined in clause (d) of the Explanation to section 56(2)(vii) as the capital asset of the assessee as specified therein, which, inter alia, includes immovable property, being land or building or both.

The issue has arisen as to whether the receipt of agricultural land, which does not fall within the definition of the term ‘capital asset’ under section 2(14), is covered within the ambit of section 56(2)(x) or not. The Jaipur bench of the tribunal has held that in order to apply the provisions of section 56(2)(x) to agricultural land, it must fall within the definition of “capital asset”. As against this, the Ahmedabad bench of the tribunal has held that all types of immovable property would get covered within the ambit of section 56(2)(x), irrespective of whether it falls within the definition of capital asset or not.

PREM CHAND JAIN’S CASE

The issue had earlier come up for consideration of the Jaipur bench of the tribunal in the case of Prem Chand Jain vs. ACIT [2020] 183 ITD 372.

In this case, during the previous year relevant to assessment year 2014-15, the assessee had purchased two pieces of agricultural land for an aggregate consideration of ₹5,50,000, which were valued by the Sub-Registrar at ₹8,53,636. On this basis, the Assessing Officer made an addition of the difference of ₹3,03,596 u/s. 56(2)(vii)(b) in the hands of the assessee under the head “Income from other sources”.

Before the CIT (A), the assessee contended that since the purchased land was agricultural, his case was not covered u/s. 56(2)(vii)(b). However, the CIT (A) rejected this argument of the assessee on the ground that no express exclusion was provided for agricultural land from the said section. Accordingly, the CIT (A) confirmed the addition made by the Assessing Officer.

In the appeal before the tribunal, the assessee invited the attention to the amendment brought in by the Finance Act, 2010 whereby clause (d) of the Explanation to Section 56(2)(vii), which provided the definition of the term ‘property’, was amended. In the opening portion of the definition of the term ‘property’, for the word “means – ”, the words “means the following capital asset of the assessee, namely:–“ were substituted with retrospective effect from 1-10-2009.

It was submitted that in section 56(2), an explanation has been provided to clause (vii) to explain the meaning and intendment of the Act itself. As the word “property” has been used in sub-clause (b) and (c) of clause (vii), and the Explanation was for the purpose of this clause, i.e. for clause (vii), the Explanation removed all doubts, obscurity or vagueness of the main enactment and clarified the property to be covered in its ambit, so as to make it consistent with the dominant objective, which it seemed to subserve.

The assessee fairly pointed out that what had been defined was the term ‘property’ and not the term ‘immovable property’ for the purpose of Section 56(2). However, the term ‘property’ was defined to mean the following capital asset of the assessee, namely immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of an art or bullion. From the above definition, it was evident that ‘property’ covered only the immovable properties which were in the nature of ‘capital asset’.

However, Section 56(2)(vii) has used the word ‘any immovable property’ while fixing the charge of taxation. Therefore, the challenge was whether the phrase ‘any’ should be interpreted in light of ‘capital asset’ or in its normal meaning. If the former interpretation is adopted, then only such immovable properties which were in nature of capital assets were getting covered in the ambit of Section 56(2). If the latter interpretation is adopted, then any kind of immovable property was covered, and there was no necessity to go and examine whether such immovable property would fit under the definition of capital asset.

The assessee contended that as per the rules of interpretation, where the language of the Act was clear, the former interpretation was more accurate, keeping the intent of the legislature in the background. Further, the phrase ‘capital asset’ as defined vide Section 2(14) was not only for the purposes of capital gains, but for the entire purposes of the Act, and hence the immovable property which was not in the nature of capital asset was not taxable under section 56(2). On the basis of this, and more particularly in view of the specific amendment made in this regard, the assessee contended that the intention of the legislature was very clear that the deeming provision of section 56(2)(vii)(b) would apply if and only if the asset received was a capital asset.

Since the impugned property purchased by the assessee was not a capital asset as defined in section 2(14), it was submitted that it was not taxable as income from other sources u/s. 56(2)(vii)(b). Without prejudice, it was submitted that the matter should have been referred to the DVO for determination of the fair market value since the assessee had objected to the DLC value adopted by the Assessing Officer.

On the other hand, the revenue contended that the provisions of section 56(2)(vii)(b) were clearly attracted in the instant case. Further, no proof had been submitted before the AO that agriculture land so purchased was not a capital asset. Further, it was also submitted that the assessee had not made any specific request for reference of the matter to the DVO. Therefore, in absence thereof, the Assessing Officer was not required to refer the matter to the DVO.

Referring to the provisions of section 56(2)(vii), the tribunal held that provisions of section 56(2)(vii)(b) referred to any immovable property. The provisions of section 56(2)(vii)(c) referred to any property other than an immovable property. The meaning of the term “property” has been provided in Explanation (d) to section 56(2)(vii) where the term “property” has been defined to mean capital asset of the assessee, namely immovable property being land or building or both. Where the term “property” has been defined to mean a capital asset as so specified, and where an immovable property as so specified being land, building or both was not held as a capital asset, it would not be subject to the provisions of section 56(2)(vii)(b). Therefore, where the agricultural land did not qualify as falling in the definition of capital asset, provisions of section 56(2)(vii)(b) could not be invoked.

However, in the instant case, since there were no findings of the lower authorities with regard to whether the agriculture land acquired by the assessee fell in the definition of capital asset or not, the tribunal set-aside the matter to the file of the AO for the limited purposes of examining whether the two plots of agricultural land so acquired fell within the definition of capital asset or not.

A similar view has been taken by the tribunal in the case of Ramnarayan vs. ITO (ITA No. 767/Del/2024 – order dated 14-6-2024), Yogesh Maheshwari vs. DCIT 187 ITD 618 (Jaipur), Dipti Garg vs. ITO 162 taxmann.com 347 (Jaipur), Mubarak Gafur Korabu vs. ITO 117 taxmann.com 828 (Pune), Ram Prasad Meena vs. ITO 119 taxmann.com 217 (Jaipur).

CLAYKING MINERALS LLP’S CASE

The issue, recently, came up for consideration before the Ahmedabad bench of the tribunal in the case of Clayking Minerals LLP vs. Income-tax Officer [2025] 174 taxmann.com 1111 (Ahmedabad – Trib.).

In this case, for the assessment year 2018-19, the assessee filed its income tax return on 30.08.2018, declaring a loss of ₹1,24,010/-. Subsequently, the case was selected for ‘Limited Scrutiny’ through CASS to examine whether the purchase value of a property was less than the value determined by the stamp valuation authority under section 56(2)(x) of the Act.

During the course of assessment proceedings, the Assessing Officer noted that the assessee purchased a property during the relevant year for ₹42,72,000/, whereas the stamp duty value of the same was ₹1,15,62,880/-. The assessee contended that the land in question, located at Ghanshyam Nagar Sosa, Kundal, Mahesana, was agricultural at the time of purchase on 21.09.2017. The land was later converted to non-agricultural use after obtaining permission from the Collector on 23.10.2017, and the property was registered on 26.03.2018. The assessee submitted that since the property was agricultural land at the time of purchase, it did not qualify as a “capital asset” as per section 2(14), and therefore, section 56(2)(x) was not applicable.

However, the Assessing Officer held that although the land was purchased as agricultural, the assessee’s intention was always to use it for non-agricultural purposes, as evident from the early application and subsequent conversion. The Assessing Officer placed reliance on the Supreme Court’s decision in Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631 in which it was held that agricultural status depends on actual use and intention, and not merely on classification in revenue records. Since the land was not used for agricultural purposes and was bought with a clear intention to convert it, the AO was of the view that it did not qualify as a capital asset. Accordingly, the Assessing Officer held that the provisions of section 56(2)(x) of the Act were attracted, and the difference of ₹72,90,880/- between the purchase consideration and the stamp duty value was liable to be taxed as “income from other sources”.

The CIT (A) dismissed the appeal filed by the assessee against the assessment order on the ground that the impugned land had been purchased by the assessee for industrial purpose and this fact was mentioned in the certificate of the District Collector, Surendra Nagar. It was held by him that the decisions relied upon by the assessee wherein it was held that if agricultural land is transferred to a non-agriculturist, it will not cease to be agricultural land were not applicable to the facts of the assessee’s case.

Before the tribunal, the assessee contended that the CIT(A) had erred in law and on facts by upholding the action of the Assessing Officer in failing to refer the matter to the Departmental Valuation Officer (DVO), despite specific requests made by the assessee. The assessee submitted that the addition made without such reference renders the assessment order void and legally untenable, for which it placed reliance upon several decisions. The assessee also submitted that the addition made under section 56(2)(x) was not sustainable since the land in question was rural agricultural land when it was purchased on 21.09.2017 for ₹42,72,000/-. Although the land was subsequently permitted for use for bona fide industrial purposes, such conversion was post-purchase, and therefore, the nature of the land at the time of acquisition remained agricultural.

With respect to the issue of the applicability of the provisions of section 56(2)(x) to the agricultural land, the tribunal proceeded to deal with it on the assumption for argument’s sake that the land in question qualified as an “agricultural land”. After referring to section 56(2)(x), the tribunal observed that it referred to the term “any immovable property”. The term “immovable property” has not been defined in section 56(2)(x) of the Act or in any other section in the Income Tax Act. Therefore, in the opinion of the tribunal, the term “immovable property” was required to be interpreted in general parlance. In general understanding of the term, the word “Immovable Property” meant an asset which could not be moved without destroying or altering it. Therefore, going by the general definition, the tribunal held that “immovable property” would include any rural agricultural land, in absence of any specific exclusion in section 56(2)(x) of the Act. The tribunal observed that section 56(2)(x) of the Act did not use the word “capital asset”. The sale of rural agricultural land was exempt in the hands of the seller since the word “capital asset” has been specifically defined to exclude agricultural land in rural areas under section 2(14). Thus, sale of rural agricultural land did not give rise to any capital gains in the hands of the seller as it was not considered as a capital asset itself.  However, from the point of view of the “purchaser” of immovable property, as stated, section 56(2)(x) mentioned “any immovable property” which, going by the plain words of the Statute, did not specifically exclude “agricultural land”.

Therefore, the tribunal held that the agricultural land could not be taken out of the purview of section 56(2)(x) of the Act.

A similar view had been taken by the Jaipur bench of the Tribunal in the case of ITO vs. Trilok Chand Sain 174 ITD 729. According to the Tribunal, the reference to “immovable property” was not circumscribed or limited to any particular nature of immovable property. It referred to any immovable property which by its grammatical meaning would mean all and any property which is immovable in nature, i.e., attached to or forming part of the earth surface. Importantly, this decision was rectified by the tribunal, itself, on a Miscellaneous Application by Trilok Chand Sain by holding that the scope of s 56(2)(vii) did not cover the receipt of an agricultural land. In between, the Rajasthan High Court has admitted the appeal of the assessee on 1st July, 2020 against the first order of the tribunal.

OBSERVATIONS

Clause (x) of section 56(2) (as well as the other clauses which were in effect prior to 1-4-2017) has three sub-clauses under which the receipt as specified in the respective sub-clause becomes taxable. The first sub-clause (a) refers to the receipt of any sum of money without consideration. The next sub-clause (b) refers to the receipt of ‘any immovable property’ either without consideration or for an inadequate consideration. The last sub-clause (c) refers to the receipt of ‘any property, other than immovable property’, either without consideration or for an inadequate consideration.

The Explanation to section 56(2)(vii) defines the meaning of certain terms which have been used in the above referred clause (x). Clause (d) of the Explanation defines the term ‘property’ and its definition is reproduced below –

(d) “property” means the following capital asset of the assessee, namely:-

(i) immovable property being land or building or both;

(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings;

(vi) paintings;

(vii) sculptures;

(viii) any work of art;

(ix) bullion;

The Explanation inserted w-e.f. 1.10.2009 has the effect of defining the term ‘property’ for the purposes of the main provision contained in clause (vii) and now clause(x). The main clause deals with the property as well as immovable property. For reasons best known, the term immovable property is defined in a roundabout manner; instead of defining the term directly and independently, the same is defined while defining the term ‘property’. The possible reason could be that the legislature wanted to limit the meaning of the term to the ‘capital asset’ only besides for the term ‘property’. Be that it may be, it is clear to us that the meaning of the term is to be gathered from the Explanation to the clause (vii). There does not seem to be any other way for gathering the meaning of the term ‘immovable property’’; any attempt to confer the meaning independent of the Explanation, would make entry (i) of sub-item(d) of the Explanation otiose and therefore such an interpretation that makes some part of the law redundant should be avoided. On acceptance of this important rule of interpretation, the next step is to give meaning to the term ‘capital asset’ used in the opening part of sub-item (d) of the Explanation. It is clear that the opening part of the Explanation is meant to relate to all the entries (i) to (ix) in the said sub-item that included an ‘immovable property” besides many other entries. Where each of the entries, in order for it to be covered by the Explanation and the main provision, has to be a capital asset in the hands of the recipient; taking any other view is very difficult (if not impossible) and might lead to violation of the provision and the intention of the legislature.

By no means can it be said that the definition as provided above does not apply to sub-clause (b) of section 56(2)(x), which deals with the taxability in respect of the receipt of an immovable property. Therefore, the observation of the Ahmedabad bench of the tribunal in the case of Clayking Minerals LLP (supra) that the term ‘immovable property’ has not been defined in section 56(2) does not appear to be correct.

Having said that, the definition of the term ‘property’ as given in clause (d) of Explanation is required to be taken into consideration while interpreting sub-clause (b) of section 56(2)(x). The inevitable conclusion would be that the relevant portion of that definition, referring to ‘the following capital asset of the assessee’, would also apply in so far as the immovable property is concerned. Therefore, in order to create the charge of tax u/s. 56(2)(x) upon the receipt of the immovable property, it should first be in the nature of the capital asset of the assessee. The immovable property, which is not in the nature of the capital asset of the assessee, therefore will not come within the purview of section 56(2)(x). This position has been made clear by Chaturvedi & Pithisaria’s Income-tax Law, Volume 4 (sixth edition) p. 4796.

Now, the crux of the issue is whether the term ‘capital asset’ used here would be interpreted as defined in section 2(14) of the Act. Here, it would be worthwhile to refer to the Memorandum explaining the provisions of the Finance Bill, 2010 by which the concerned amendment was made, inserting the reference to the term ‘capital asset’. The relevant extract is reproduced below for reference –

The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. It is, therefore, proposed to amend the definition of property so as to provide that section 56(2)(vii) will have application to the ‘property’ which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient.

It can be observed that the objective of the making the amendment was to exclude the transactions entered into in the normal course of business or trade i.e. transactions of stock-in-trade etc. from the purview of the taxability u/s. 56(2). It is with this intention that the amendment was made providing that the ‘property’ should be in the nature of a capital asset for applying the provisions of clause(vii) or (x).

Since the language of the provision is very clear and unambiguous and so is the intention spelt out by the memorandum, it is correct to cover only such immovable property that qualifies as a ‘capital asset’ while applying the provisions of clause (vii) or (x) of s.56(2) and in doing so the meaning of the term ‘capital asset’ should be gathered from s.2(14) as that is the only provision of the Act that defined the term for the purposes of the Act. The said term so defined in s.2(14) excludes an agricultural land and therefore the Jaipur bench was right in applying the provisions of s.2(14) while holding that the provisions of s.56(2)(vii) were not attracted on receipt of the agricultural land. Needless to say, the assessee is under onus to conclusively establish that the nature of the land was agricultural as held by the Ahmedabad bench of the tribunal.

Also, this provision is an anti-avoidance measure to check under-statement of consideration. Normally, under-statement of consideration is resorted to in order to avoid capital gains tax. Since capital gains on sale of agricultural land is not chargeable to tax, there is therefore no incentive to under-state the consideration. In a sense, therefore, applying this provision to the purchase of agricultural land may not have been intended. Please see Fitwell Logic Pvt. Ltd. 1 ITR(T) 286(Del.) and Ashok Soni, 102 TTJ (Del) 964; Navneet Kumar Thakkar, 112 TTJ (Jd) 76 : 298 ITR 42 (Jd) (AT) ; Kishan Kumar , 215 CTR (Raj) 181 and 315 ITR 204 (Raj) .

The Jaipur bench of the tribunal in the case of Yogesh Maheshwari vs. DCIT 187 ITD 618 (Jaipur), in paragraph 11 observed “Now, coming to the decision of Jaipur Bench of Tribunal in Trilok Chand Sain (supra), wherein provisions of cl. (b) of s. 56(2)(vii) of the Act were considered. However, they have failed to take into cognizance the provisions of cl. (c) of said section, which talks of property other than immovable property. The Tribunal in para 6 refers only to the definition of ‘immovable property’ and hold that it is not circumscribed or limited to any particular nature of property. However, cl. (c) very clearly talks of property other than immovable property and the word ‘property’ has further been defined under cl. (d) of Explanation thereunder. In the totality of the above said facts and circumstances, there is no merit in reliance placed upon by the learned Departmental Representative for the Revenue on the ratio laid down by Jaipur Bench of Tribunal in ITO vs. Trilok Chand Sain (supra). In view of clear-cut provisions of the Act, we find no merit in the orders of authorities below in making the aforesaid addition in the hands of assessee. The ground of appeal No.1 raised by assessee is thus, allowed.”

Therefore, the view taken by the Jaipur bench of the Tribunal in Prem Chand Jain’s case, and followed in numerous other ITAT decisions, seems to be the better view of the matter, that the provisions of section 56(2)(x) do not apply to receipt of agricultural land.

Announcement of Award Winners – BCA Journal

We are pleased to announce the recipients of the prestigious awards for the year 2024-2025 as follows:

I. JAL ERACH DASTUR AWARD FOR BEST ARTICLE

• Adv. Pankaj R. Toprani

Title: “Chamber Research by the Judges Post Conclusion of Hearing –Whether Justified?”

[This Article Published on page 39 of November 2024 issue of the BCAJ]

Please scan the QR code to access the PDF copy of this Article.

II. S. V. GHATALIA FOUNDATION FUND AWARD FOR BEST AUDIT ARTICLE

(1) CA Anand Paurana

Title: “Audit Trail Compliance in Accounting Software”

[This Article Published on page 11 of December 2024 issue of the BCAJ]

Please scan the QR code to access the PDF copy of this Article.

(2) CA Kishor M. Parikh and Ms. Divya A. Khaire

Title: “Climate Change & Its Impact on Financial Statement”

[This Article Published on page 11 of Januaryy 2025 issue of the BCAJ]

Please scan the QR code to access the PDF copy of this Article.

III. JAL ERACH DASTUR AWARD FOR BEST FEATURE

CA Chandrashekar Vaze

Three Features Contributed by CA Vaze are as follows:

“Namaskaar”, “Ethics and You” and “Light Elements”

We congratulate all winners and appreciate their outstanding contributions and commitment.

BCA Journal Editorial Team

The AI Revolution in Indian Accounting: A Landscape Analysis and Future Trends

Authors’ note: Reference has been made to certain software/tools/websites in this article only to highlight what is happening in the world in the context of AI. We have no intention of marketing or promoting any of these software/tools/websites.

INTRODUCTION

The world is on the brink of an AI revolution, with artificial intelligence reshaping industries by automating decisions, optimising workflows, and learning new things from data more effectively than before. From healthcare and logistics to finance and education, AI is transforming traditional systems, and accounting is no exception. What was once a field dominated by meticulous, manual work is now being rapidly redefined by AI-driven automation and real-time insights. And it’s not just in big firms or flashy start-ups. From CA offices in Mumbai and Delhi to practitioners in Surat or Bhopal, AI is becoming a part of daily life.

Also, this isn’t just about using a new tool. It’s about learning a new way to think, work, and grow as professionals.

Accounting, by its very nature, is rule-based, repetitive, and highly structured, making it uniquely suited for AI disruption. Tasks like ledger reconciliations, invoice processing, and compliance checks, which once took hours, are now completed in seconds. Modern AI systems can not only automate these functions but also interpret complex data, flag anomalies, and provide strategic insights. India, with initiatives like Digital India, GSTN, and MCA 21 V3, is uniquely poised to lead this AI-driven transformation in accounting.

In the last 10 years, we have already seen how the government has taken giant leaps in terms of digitisation of various services. With AI, all these would be taken to a completely different level in the days to come.

With the increasing role of AI in our daily professional and personal lives, we Chartered Accountants need to understand the disruption that is taking place, accept it and adapt it in our practices. All of us must understand the fact that AI is here to stay and that merely knowing this fact would not be enough. We need to not only have knowledge about AI but also learn how to use it in our daily professional practice.

In the other articles that are carried in this special issue of BCAJ, specific issues are dealt with by the respective authors. In this article, we look at the ways in which AI is impacting accounting and accountants in general and how, because of that, our traditional CA practice areas would also be affected.

INSTITUTIONAL PUSH AND EMERGENCE OF CA GPT

Recognising this shift, the Institute of Chartered Accountants of India (ICAI) has actively supported the integration of AI in accounting. From recommending platforms like Quadratic AI and EasyRecon to supporting Smart GST AI Summarizer, ICAI is paving the way for AI adoption in practice. A landmark development is the emergence of CA GPT a generative AI model tailored for the Indian Chartered Accountancy domain. It can interpret tax laws, generate audit documentation, and provide client-friendly summaries, showcasing the transformative potential of AI for professionals. At the same time, like any other AI tool, the CA GPT will also need to be used with moderation and care. Data privacy of our clients must be protected at all costs. It may also be appropriate and/or necessary to disclose to our client(s) that we have used an AI tool while rendering a particular service to that client.
Further, the ICAI is also conducting certificate courses on AI. It is only a matter of time before which other professional bodies too follow suit and start offering such courses to their members.

AI-POWERED ACCOUNTING PLATFORMS

Platforms like Zoho Books and TallyPrime are revolutionising financial management. They learn patterns, spot errors, and keep your ledgers neat.

Zoho Books, for example, offers powerful automation features:

  •  Automates recurring tasks such as expense entries, invoice generation, and payment reminders.
  •  Enables custom workflows to update, notify, or validate data, improving day-to-day operational efficiency.
  •  Enhances payment collection through auto-charging mechanisms and smart follow-ups.TallyPrime is evolving with smart capabilities:
  •  Automates routine processes like invoice generation, bank reconciliation, and compliance reporting.
  •  Supports integration with procurement systems and e-commerce platforms for seamless data flow.
  •  Offers built-in smart assistants and extensibility via TDL (Tally definition language) code generation, empowering businesses to tailor workflows efficiently.

One compelling example lies in the reimagining of data entry within TallyPrime. Traditional manual data input, especially from invoices, is being phased out in favour of AI-powered automation. Whether invoices are received digitally or as paper copies, intelligent systems can now extract, validate, and enter
data directly into Tally, eliminating human error and saving time.

There are other software that read data from bank statements and then provide ready-made entries that can be imported into Tally along with narrations. Edit facility is obviously available before the actual import of data into Tally. And the efficiency of this software improves as it gets more experience of how you carry out the edits. Thus, mundane and repetitive tasks like accounting are slowly but steadily being taken over by intuitive AI tools.

AI is also transforming compliance. Tools for e-invoicing and GST reconciliation now automate invoice validation, data matching, and error detection, minimising compliance risks and enhancing accuracy. These systems are not just making tax filing easier; they are fundamentally redefining the role of financial professionals by shifting their focus from data handling to strategic decision-making.

AI-DRIVEN ANALYTICS AND SaaS INNOVATIONS

Beyond automation, AI helps us not only to predict what might happen in the future but also to suggest the best actions to take.

These tools help businesses anticipate cash flow needs, detect fraud, and make proactive financial decisions. SaaS-based platforms like RazorpayX, Credgenics, and ClearTax are pushing the boundaries even further:

  •  RazorpayX offers integrations with Zoho Books and Tally, enabling seamless syncing of accounting data.
  •  ClearTax has launched AI-assisted tax filing tools that provide real-time insights and automate compliance.
  •  Credgenics leverages AI for credit risk analysis and intelligent collections, streamlining financial operations.

GOVERNMENT AND REGULATORY DEVELOPMENTS

The CBDT has embraced data analytics to enhance tax enforcement and compliance. A notable initiative includes a comprehensive review of approximately 40,000 taxpayers to identify discrepancies in Tax Deducted at Source (TDS) filings for the financial years 2022-23 and 2023-24. This effort involves a detailed 16-step strategy leveraging data analytics to pinpoint irregularities and ensure tax compliance.

The MCA’s rollout of MCA21 Version 3.0 marks a significant step towards leveraging AI for corporate compliance and fraud detection. This upgraded portal incorporates advanced features such as e-Adjudication, e-Consultation, and Compliance Management, all aimed at strengthening enforcement and promoting ease of doing business. By integrating AI and machine learning capabilities, MCA21 Version 3.0 enhances the ministry’s ability to detect anomalies, monitor compliance, and facilitate real-time data analysis.

THE FUTURE OF AI IN ACCOUNTING

AI-Powered Virtual CFOs are reshaping SME finance by offering intelligent financial planning, budgeting, cash flow optimisation, and real-time forecasting—services once exclusive to large firms with full-time teams. Integrated with platforms like Zoho Books and TallyPrime, they provide live dashboards, alerts, and compliance updates, helping Indian SMEs make informed decisions at a fraction of the traditional cost.

Building on this, AI and Blockchain-enabled Smart Contracts are transforming financial transactions and audits. These contracts self-execute terms, reduce errors and fraud, and, with AI, can learn from past data, detect anomalies, and adapt dynamically—streamlining compliance and taxation workflows.

Meanwhile, predictive and prescriptive analytics are enabling precise forecasting of cash flows, tax risks, and fraud while recommending strategic actions. This shift is moving accountants from record-keepers to real-time advisors.

Finally, AI-powered audit tools like MindBridge AI and Deloitte’s Argus are revolutionising risk detection, using machine learning to uncover anomalies and fraud, fundamentally changing how audits are conducted.

IMPLICATIONS FOR CHARTERED ACCOUNTANTS

As Artificial Intelligence (AI) continues to automate repetitive tasks such as data entry, reconciliations, and compliance checks, the role of Chartered Accountants (CAs) is undergoing a fundamental transformation. Traditional responsibilities are increasingly being handled by machines, compelling CAs to evolve from transactional number crunchers to strategic, tech-savvy professionals. Every traditional practice area of a CA is already and would be further impacted by the use of AI.

GST and compliances made easier

Whether it’s checking for ITC mismatches or sending reminders for upcoming filings, AI tools from platforms like ClearTax have become silent assistants for many mid-sized firms—even in smaller cities like Indore and Pune.

Audits are getting an upgrade

Instead of relying only on sampling, tools like MindBridge scans all the data, flagging unusual entries and helping us focus on where it really matters. It’s like having a microscope for your audit file.

Tax filing with a twist

Some platforms now auto-read your Form 26AS, AIS, and bank statements—and even suggest what deductions might apply. And yes, some can draft replies to scrutiny notices based on past cases. Scary or smart? Maybe both.

Smarter client conversations

Firms are building chatbots trained on their own advice and old case files. These bots answer common queries so that the team can focus on complex, value-added work.

In these very interesting and challenging times, to remain relevant, CAs must upskill in emerging areas such as Python, data analytics, and visualisation tools like Power BI, while also developing a working knowledge of AI and machine learning concepts.

This technological shift brings with it a new set of ethical challenges, including concerns around data privacy, algorithmic bias, and accountability for decisions made by AI systems. As a result, CAs will not only need to navigate these complexities but also advise clients on the responsible use of AI. In this regard, readers may read up on the recent news item about recalling of an ITAT order because it was passed based on submissions made by the DR who relied on AI tools to come up with case laws that never existed. Anyone who relies on AI must take proper care to recheck the facts / figures and verify whether what the AI tool is suggesting is factually correct or not.

Moreover, the profession is seeing the rise of new hybrid roles such as AI implementation consultants, forensic auditors using machine learning, and cyber risk advisors that combine financial expertise with technological fluency. Client expectations are also changing, with a growing demand for real-time insights, predictive analytics, and strategic financial advice. In this evolving landscape, CAs must adopt a forward-thinking mindset, repositioning themselves as financial strategists and trusted advisors who can bridge the gap between finance and technology.

Rise of Strategic Roles

CAs are moving from being ‘compliance experts’ to ‘financial interpreters’—drawing insights, foreseeing risks, and helping clients navigate financial futures rather than just recording the past.

Faster Turnarounds

With AI-enabled data entry and verification, turnaround time is dropping. Clients now expect real-time insights, not month-end reconciliations.

Democratisation of Expertise

AI tools are empowering even solo practitioners in small towns to offer insights once limited to Big 4 firms.

Cultural Shift: How Indian CAs Are Responding

The adoption of AI is uneven—but growing.

  •  Gen Z Articles and Young Partners are embracing tools like ChatGPT, Notion AI, Python scripts, and Airtable automation to optimise their workflows.
  •  Senior Partners are cautiously optimistic. While some see it as an opportunity, others worry about quality control, liability, and client trust.
  •  Training and ICAI Curriculum need to evolve faster. AI literacy must now be as foundational as Ind AS.

Interestingly, the firms leading this revolution are those that build cross-functional teams—pairing accountants with data scientists or assigning articles to innovation pods.

FUTURE TRENDS: WHAT THE NEXT 5 YEARS MAY HOLD

The AI wave is not cresting—it is still rising. Here’s what the future might look like:

1. Real-Time AI-Powered Audits

Blockchains and integrated ERP-AI models could enable continuous auditing—where anomalies are flagged the moment they occur.

2. Client-facing AI Tax Assistants

Imagine a WhatsApp bot that helps a small trader plan taxes, track invoices, and even file returns—all trained by a CA firm.

3. Algorithm Assurance Services

As businesses start relying on AI for decision-making, they will need CAs to audit the AI itself—ensuring it is fair, compliant, and explainable.

4. AI Co-pilots in Litigation & Representation

Drafting responses to show-cause notices or appeal memos with AI support will soon become standard.

5. Compliance-as-a-Service

Entire back offices for SMEs and start-ups may be run on AI-backed systems, with CAs providing periodic strategic oversight.

Ethical and Regulatory Considerations

This transformation must be accompanied by responsibility.

  •  Who is liable if AI makes a mistake?
  •  Should clients be informed when AI is used in their work?
  •  What regulatory framework is needed for AI audit tools?

As guardians of ethical practice, CAs must shape—not just follow—this debate. The ICAI should lead with a Code of Conduct for AI usage in the profession.

Conclusion

The AI revolution in Indian accounting is not a distant prospect; it is unfolding in real-time. While automation is changing the operational core of accounting, the real shift is strategic from compliance to insight, from recording history to predicting the future. CAs who embrace this shift and reinvent themselves will not just remain relevant they’ll lead.

AI is not the end of our profession. It is the rebirth of its most powerful version yet. This is not about man versus machine. It is about a man with a machine, serving better, faster, and with deeper insight.

Firms that embrace AI will not just survive—they will lead. CAs who upskill and reimagine their roles will not be replaced—they will redefine the profession.

And as we stand here, at this incredible intersection of tradition and transformation, we must ask ourselves:

“What kind of CA do I want to be by 2030?” 

1 Assisted by Chaitanya Vora and Pranav Nargale, Articled Students

LLMs in Audit – A Double-Edged Algorithm

INTRODUCTION

The exuberance associated with artificial intelligence (“AI”) has seamlessly transcended the practice of auditing. Large Language Models (“LLMs”) are heralded as a transformative solution due to their apparent ability to infer and reason both structured and unstructured data. Traditional auditing applications, constrained by rules and structures, are inherently rigid and complex, requiring intricate coding skills to derive substantive insights. In contrast, LLMs appear to be sentient, with their ability to interpret simple natural language instructions. Their ability to perform various tasks, from complex data analysis to code generation, makes them a versatile, unified tool. A simple instruction can now accomplish what previously required multiple applications and data analysis expertise.

This apparent ease of use and accessibility has made LLMs attractive to auditors seeking efficiency and potentially offers smaller audit firms an economical means to bridge their technology gap with larger competitors. As such, it is not surprising that most auditors intend to use LLMs1. However, the use of LLMs for audits may be fraught with risks, particularly when they are used in relation to matters that involve professional judgement. This article seeks to explore these issues.

1 “Audit Survey 2024”, Thomson Reuters Institute, https://www.thomsonreuters.com
/en-us/posts/wp-content/uploads/sites/20/2024/06/2024-Audit-Survey.pdf, 
Last Accessed on April 7, 2025.

BEYOND RULES: THE PROBABILISTIC NATURE OF LLMs

AI encompasses a wide range of technologies, including robotic process automation and machine learning (“RPA/ML”), which auditors have long leveraged. However, LLMs represent a fundamental shift in this landscape. Unlike RPA/ML systems, which are deterministic and bound by rules programmed by humans, LLMs are probabilistic – a feature enabling them to generate unique content. To use an analogy, RPA/ML is comparable to agreed-upon procedures where specific predetermined steps are undertaken within a tightly structured framework. LLMs function more like a statutory audit by operating within a broad framework with significant discretion in execution.

Unlike human auditors, who rely on professional judgment developed through education, experience, and reasoning, LLMs operate fundamentally as sophisticated pattern recognition systems. At their core, LLMs are probabilistic prediction engines that determine the most statistically likely response based on patterns observed in their training data rather than genuine understanding or reasoning.

When an auditor prompts an LLM with a question or instruction, it calculates probability distributions across its vocabulary, essentially “guessing” which words should follow based on the observed statistical patterns. This process fundamentally differs from human cognitive thinking, which involves causal reasoning, domain expertise, professional skepticism, and ethical judgment. Their ability to produce coherent text arises from identifying and encoding textual patterns as numerical “weights,” parameters reflecting statistical relationships among words, sentences, and broader textual contexts. Think of a parameter as something that demonstrates a connection between two facets of a word, concept, or idea. Recent LLMs have hundreds of billions of parameters. For example, the DeepSeek V3 model has 671 billion parameters2.

 2 “DeepSeek explained: Everything you need to know”, February 6, 2025, 
https://www.techtarget.com/whatis/feature/DeepSeek-explained-Everything-you-need-to-know, 
Last Accessed on April 7, 2025.

LLMs derive their knowledge from the data on which they have been trained. General purpose LLMs like ChatGPT and DeepSeek are trained on generalised information (primarily sourced from the Internet) and possess broad knowledge across various topics. Specialised LLMs, in contrast, are trained on specific data sets, making them more reliable in those particular domains. For instance, LLMs trained on legal material demonstrate greater accuracy on legal topics compared to general-purpose models like ChatGPT3. This distinction holds critical implications for auditing, where domain-specific knowledge of accounting standards, regulatory requirements, and industry practices is essential for practical professional judgement.

3  “AI on Trial: Legal Models Hallucinate in 1 out of 6 (or More) Benchmarking Queries”, May 23, 2024, 
https://hai.stanford.edu/news/ai-trial-legal-models-hallucinate-1-out-6-or-more-benchmarking-queries, 
Last Accessed on April 8, 2024

CONVERGENCE OF LLMs AND AUDIT PROCEDURES

The foundation of auditing rests on the pillars of professional judgement.4 and skepticism5, where auditors are required to apply requisite skills and knowledge in decisions related to an audit while being wary of factors that could lead to misstatement. Standards on Auditing (“SA”) mandate the application of these principles throughout the audit process.6 with particular emphasis on critical stages such as risk assessment7, determining materiality8 and conducting substantive audit procedures9. Contrary to the widespread notion that auditors primarily focus on financial metrics, the SAs require consideration of non-financial elements, such as governance structures, economic conditions, enterprise risks, and internal controls, as may be relevant while applying professional judgement.

4  Paragraph 13(k) of SA 200 - Overall Objectives of the Independent Auditor and 
the Conduct of an Audit in Accordance with Standards on Auditing (“SA 200”)

5 Paragraph 13(j) of SA 200 - Overall Objectives of the Independent Auditor and 
the Conduct of an Audit in Accordance with Standards on Auditing (“SA 200”)

6 Paragraph 15 and 16 of SA 200 - Overall Objectives of the Independent Auditor and 
the Conduct of an Audit in Accordance with Standards on Auditing (“SA 200”)

7 Paragraph A1 of SA 315 - Identifying and Assessing the Risks of Material Misstatement 
Through Understanding the Entity and its Environment (“SA 315”)

8 Paragraph 4 read with Paragraph A2 of SA 320 – Materiality in Planning
 and Performing an Audit (“SA 320”)

9 Paragraph 4 SA 520 – Analytical Procedures (“SA 520”)

LLMs seem attractive in this context, as they can process and analyse numeric and textual data, potentially enabling auditors to adopt a more rigorous and comprehensive approach. ICAI-led initiatives10 and use cases hosted on the ICAI website suggest that LLMs can be utilised for tasks such as risk assessments11, formulating audit procedures12, analytical procedures, fraud detection, and reporting (“LLM Use Cases”), where professional judgment and skepticism are crucial.

10 “Inviting AI Research Paper Submission at AI Innovation Summit 2025,”
 https://ai.icai.org/ais2025/research_paper.php, Last Accessed on April 7, 2025.

11 “Grand Finale AI Hackathon (S1) UC-5 | AI in Auditing”, September 23, 2024,
 https://ai.icai.org/video_details.php?id=348, Last Accessed on April 7, 2025.

12 “Enhancing Auditing Through AI: A Comprehensive Use Case of AI, Audit and
 Governance with ChatGPT Plus (4o)”, https://ai.icai.org/usecases_details.php?id=4, Last Accessed on April 7, 2025.

CONFIDENTIALITY IN LLMs: A MIRAGE

However, an LLM’s output not informed by confidential and/or unpublished information (“Classified Data”) risks being irrelevant as SAs mandate that auditors should consider non-Classified Data. For instance, decisions relating to risk assessment, materiality, and corresponding audit procedures must be made in conjunction with analysing unpublished financials. However, providing Classified Data to LLMs could potentially breach the auditor’s confidentiality obligations under the ICAI’s Code of Ethics13 and SEBI’s Prohibition of Insider Trading Regulations14 (“PIT”).

13  Refer Section 100.4(d) of ICAI’s Code of Ethics.

14  Refer Clause 3(1) of SEBI’s Prohibition of Insider Trading Regulations, 2015,

This risk is accentuated as the Classified Data may be accessible to other users by design.15 (i.e. used by the LLM to train itself) or inadvertently16 (e.g. data breaches), thereby broadening the exposure. Notably, Samsung has banned the use of LLMs after its employees uploaded sensitive data.17 While these risks can be mitigated by instituting curated access controls or using a secure offline LLM, such solutions are costly and complex.18 And would be infeasible for smaller audit firms who may default to general-purpose LLMs like ChatGPT.

15 “How your data is used to improve model performance”, 
Open AI, https://help.openai.com/en/articles/
5722486-how-your-data-is-used-to-improve-model-performance, 
Last Accessed on April 8, 2025

16 “Hundreds of LLM Servers Expose Corporate, Health & Other Online Data”,
 August 28, 2024, https://www.darkreading.com/application-security/
hundreds-of-llm-servers-expose-corporate-health-and-other-online-data,
 Last Accessed on April 4, 2025.

17 "Samsung bans staff’s AI use after spotting ChatGPT data leak”, November 21, 2024,
 https://www.straitstimes.com/asia/east-asia/samsung-bans-staff-s-ai-use-after-spotting-chatgpt-data-leak, 
Last Accessed on April 8, 2025

18 “Should You Use a Local LLM? 9 Pros and Cons”, October 24, 2023, 
https://www.makeuseof.com/should-you-use-local-llms/, Last Accessed on April 8, 2025

Consequently, auditors face an untenable choice: rely on generic and formulaic LLM outputs that exclude critical Classified Data or risk violating professional and regulatory standards by sharing Classified Data with LLMs.

EXPLAINING LLMs’ DECISIONS: A SISYPHEAN TASK

Assuming an auditor has instituted sufficient guardrails to negate the risk of leakage of Classified Data, LLMs pose another challenge. With their billions of parameters, LLMs lack explainability. Unlike traditional audit methodologies, where each step can be documented and justified, it is impossible to analyse the computational steps of an LLM and, therefore, understand the underlying correlation, accuracy, and relevancy between a prompt and the output. For example, an LLM cannot explain why it recommended a particular work procedure or course of action. While one can comprehend the logical accuracy of a response through one’s knowledge and experience, this approach will be infeasible in intricate problems that involve consideration of multiple complex factors.
SA 230—Audit Documentation underscores the importance of articulating the basis for professional judgment, which requires auditors to document the rationale and basis for significant audit matters19.

19 Refer Paragraph 8(c.) of SA 230 – Audit Documentation

Their probabilistic nature compounds this issue. LLMs provide different responses for the same instruction, bias, and their propensity to “hallucinate,” i.e., generate incorrect responses, is well documented. To illustrate these fallacies in an audit context, we queried20 ICAI’s AASB GPT regarding an auditor’s obligations when informed about an established fraud exceeding ₹1 Crore in a ‘limited company”. While superficially accurate, the response contained critical errors.

20 https://chatgpt.com/g/g-QpYe5htDG-icai-aasb-gpt/c/67f91b6b-82bc-8008-abbd-b82ea27a8a43
  •  It universally mandated reporting the fraud to the Central Government under Section 143(12) of the Companies Act, 2013, directly contradicting ICAI’s guidance21 that reporting obligations do not arise when management identifies the fraud. This recommendation would only be correct for listed companies (per NFRA’s 2023 circular22), but the query didn’t specify the company type. By failing to reference the NFRA circular while recommending universal reporting, AASB GPT effectively contradicted ICAI’s official position.
  •  The response incorrectly enumerated “Guidance Note on Audit of Banks (2025 Edition)” as the source document.
    This combination of explainability and output inconsistency creates a fundamental conflict with audit standards that demand transparency, consistency, and justifiable professional judgment. ICAI23 as well as general-purpose LLMs like ChatGPT24, explicitly disclaim any responsibility for the accuracy or correctness of the LLM’s output or the consequences arising therefrom, underscoring this technology’s inherent frailty. As such, attributing an audit error to an LLM would amplify the grounds for professional negligence, as this would be akin to a surgeon blaming their scalpel for a surgical error, or more precisely, blaming an untested experimental medical device that came with explicit warnings against relying on it for critical procedures. The auditor’s decision to delegate professional judgment to a technology explicitly designed without accountability mechanisms represents not merely an error in professional practice but a conscious circumvention of established standards designed to protect the integrity of the audit process.
21 Paragraph V of Part A of ICAI’s Guidance Note on Reporting on Fraud 
under Section 143(12) of the Companies Act, 2013 (Revised 2016),
 https://resource.cdn.icai.org/41297aasb-gn-fraud-revised.pdf,

22  NFRA’s circular dated June 26, 2023, 
https://cdnbbsr.s3waas.gov.in/s3e2ad76f2326fbc6b56a45a56c59fafdb/uploads/2023/06/2023062673.pdf,
 Last Accessed on April 8, 2025

23 Disclaimer on ICAI’s GPT, https://ai.icai.org/cagpt/gptlist.php, 
Last Accessed on April 8, 2025.

24 Open AI – Terms of Use, December 11, 2024, https://openai.com/policies/row-terms-of-use/, 
Last Accessed on April 8, 2025.

LLM DEPENDENCY – A SLIPPERY SLOPE

While technology has ushered in a range of benefits, overuse and overreliance on technology are common outcomes, leading to issues such as a decline in cognitive abilities25. This cognitive offloading, where we increasingly rely on technology to perform mental tasks, has become so pervasive that many can no longer function without it. Consider how few people today can recall phone numbers from memory, having delegated this cognitive function entirely to their devices. This dependency manifests gradually and results in unconscious self-reinforcing dependency.

25 “The impact of digital technology, 
social media, and artificial intelligence on cognitive functions: 
a review”. November 24, 2023, 
https://www.frontiersin.org/journals/cognition/articles/10.3389/fcogn.2023.1203077/full, 
Last Accessed on April 8, 2025.

The risk of over-reliance on LLMs is significantly higher, that humans may subconsciously defer to LLMs. Compared to conventional technology tools based on data analytics or RPA/ML, which are bound by rules and need human oversight, LLMs provide a comprehensive solution for nearly any query or task in a simple interface. This ease of use and all-around functionality amplify the risk of cognitive offloading, and research supports this assertion26. A study conducted across different age groups suggests that an increase in AI usage is correlated with a decline in critical thinking skills, and this decline was markedly increased in young participants. In a recent case, a bench of the Income Tax Appellate Tribunal passed an order based on cases that did not exist, suggesting that the underlying submissions were generated using ChatGPT27.

26 “Increased AI use linked to eroding critical thinking skills”, January 13, 2025,
https://phys.org/news/2025-01-ai-linked-eroding-critical-skills.html, Last Accessed on April 8, 2025.

27 “Bengaluru Tax Tribunal issued order based on ChatGPT research on cases that didn’t exist, 
recalls after finding out”, February 26, 2025, 
https://www.opindia.com/2025/02/bengaluru-tax-tribunal-issued-order-based-on-chatgpt-research-on-cases-that-didnt-exist/, 
Last Accessed on April 8, 2025.

While LLMs project an aura of omniscience, their responses, particularly from general-purpose models like ChatGPT, are inherently generalised answers derived primarily from publicly available data. This statistical approach fundamentally differs from the targeted domain expertise that SAs require auditors to apply28. For instance, an auditor evaluating a pharmaceutical company’s research and development capitalisation policy needs specialised knowledge of industry practices and applicable accounting standards. LLMs may generate plausible-sounding responses that miss crucial industry-specific considerations or regulatory nuances that would be evident to a seasoned professional.

28 Refer Paragraph A24 of SA 200 - Overall Objectives of the Independent Auditor 
and the Conduct of an Audit in Accordance with Standards on Auditing

This has profound implications as auditors may become complacent and overly dependent on LLM-generated insights without applying their professional judgment. When auditors rely on an LLM’s output without understanding its derivation, they effectively delegate their professional judgment to an opaque system that cannot be interrogated about its methodology or assumptions. This delegation potentially undermines the very essence of SAs. In other words, blindly relying on an LLM’s output without critically assessing its relevance, reliability, and appropriateness for the specific audit context would be a failure to exercise professional judgment.

CONCLUSION:

It is undisputed that LLMs can enhance and supplement auditing. Their demonstrated use across different specialised domains, such as finance and medicine, suggests that LLMs can be equally deployed for auditing. However, the emergence of LLMs in auditing represents a double-edged sword that demands careful consideration.

While they offer unprecedented capabilities in processing diverse data, their usage in context may be fundamentally inconsistent with core auditing principles. The inability to incorporate Classified Data without confidentiality risks and their inherent lack of explainability and consistency creates significant tensions with professional standards requiring documented, transparent judgment. Auditors who over-rely on LLMs risk compromising audit quality and potentially breaching their professional obligations under SAs and regulatory frameworks. The distinction between leveraging LLMs as supplementary tools versus delegating professional judgment to them will likely become a critical benchmark in determining professional negligence.

While regulators strive to define rules and guidelines on this vexing issue, maintaining and demonstrating the primacy of human judgement, particularly at critical junctures requiring skepticism and professional expertise, is paramount. Auditors must approach LLM adoption with clear guardrails that preserve their ultimate judgement, documentation, and compliance with SAs.

Challenges and Considerations of AI Adoption (Issues in Ethics, Privacy, Dependency)

AI tools are gradually finding a place in audits, tax work, and compliance reviews. Their appeal lies in speed and automation — but the risks, if ignored, can be operationally and reputationally damaging. This article examines the real-world challenges of AI in professional practice and argues for a disciplined, evidence-based adoption strategy — emphasising human supervision and strong procedural checks.

In June 2024, the ICAI published the results of an online survey on the use of AI within CA firms. Results showed that adoption is still limited, with most respondents expressing concerns about the cost of tools, unclear benefits, and a lack of AI knowledge. The response trend clearly indicates that the profession remains cautious—not because of resistance to technology, but due to practical concerns about reliability and control.

Consider this: an AI tool can scan and index over 1,000 judicial tax rulings in under five minutes. But if it confidently misapplies a case law and uses it in the wrong context for a client matter, the repercussions are real and potentially damaging. This is not just a technical flaw—it’s a professional liability.

The idea isn’t to avoid using AI, but to use it with clear limits and constant human oversight. It shouldn’t be a trial-and-error approach—AI must be handled like any high-risk tool, with proper checks and controls in place.

A January 2025 study by Wolters Kluwer1 based on insights from 2300 global participants revealed that :

  •  57% of accounting professionals view AI advancements as a significant industry influencer.
  • 27% of firms have integrated generative AI into their workflows, with an additional 22% planning adoption within the next 12 to 18 months.
  •  Only 25% have established AI policies, and concerns about data security, accuracy, and implementation costs persist.
[1] 1 https://www.theaccountant-online.com/news/wolters-kluwer-releases-study/?cf-view

The survey indicates that although there is significant global interest in AI technology, its adoption remains limited, with most taking a cautious approach.

Against this backdrop, the article delves into the primary ethical, privacy, and dependency challenges of AI—and highlights what every forward-thinking CA should consider before embracing it.

HALLUCINATION CHALLENGE

AI hallucinations—where AI tools produce seemingly credible but false information—present serious risks in our work. These errors can lead to incorrect financial analyses, misguided tax advice, and flawed audit conclusions.

Case Study: ITAT Bengaluru’s Erroneous Order2

In December 2024, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) issued an order in the case of Buckeye Trust vs. PCIT, which cited three Supreme Court judgments and one Madras High Court ruling. Subsequent scrutiny revealed that these citations / judgements were non-existent, raising concerns about the possible use of AI tools like ChatGPT in drafting the order. The ITAT revoked the order within a week, citing “inadvertent errors,” and scheduled a fresh hearing.

This incident highlights the biggest challenge of AI adoption: accuracy and reliability. AI tools can hallucinate information, generating details or facts that seem convincing but are entirely fabricated.

However, despite these inherent limitations, several scientific approaches can significantly reduce hallucination. For example, using well-crafted prompts, connecting the model to verified external information sources, i.e. Retrieval Augmented Generation (RAG). Additionally, custom-trained models can be developed for specific domains to improve performance in specialised areas.

2 https://counselvise.com/blogs/ai-hallucination-itat-buckeye-trust

ACCURACY CHALLENGE

When we use traditional accounting or tax software, the results are predictable. The same input always gives the same output—this is called a deterministic system. For example, if you enter income and deductions into a trusted tax filing software, it will compute the same tax every single time.

But AI systems don’t work like that. Most large language models (LLMs), like those used in AI assistants, are probabilistic. This means the output can vary slightly each time, even for the same question, depending on how it interprets the context. This makes it difficult to guarantee accuracy—especially for tasks like tax calculations, legal interpretations, or audit reporting.

So, how do we know if an AI model is reliable enough to be used in CA practice?

How AI Accuracy is Measured: Benchmarking

AI benchmarking is like a test or exam for AI models. Experts feed the model a large set of carefully designed questions and see how well it performs. These tests help us compare different models and understand where they are strong—or weak.

One of the most relevant benchmarks for our profession is Tax Eval V2, released in May 2025. It includes over 1,500 questions prepared by tax and law experts, covering:

  •  Tax compliance,
  •  Case law reasoning,
  •  Critical thinking in tax scenarios,
  •  Interpretation of tax statutes.

Each model is scored based on whether the final answer is correct and whether the reasoning steps are sound. Here’s how the top AI models performed:

These are top-tier models—and yet, they still get about 20% of tax questions wrong. That’s not acceptable if you’re relying on them for filings, opinions, or representations before authorities.

Source: https://www.vals.ai/benchmarks/tax_eval_v2-05-30-2025

How AI Stacks Up Against Humans

Another interesting study3, compared AI tools with human lawyers across seven real-world legal tasks. The findings help us understand where AI shines—and where it still struggles

This tells us something important: AI is very good at fast, structured tasks. But when precision, legal nuance, or contextual interpretation is needed, human judgment still outperforms.

3 https://www.vals.ai/vlair

What This Means for CAs

Accuracy is not optional in our profession—it’s mandatory. Whether it’s for audit work, return filings, or drafting submissions, we are responsible for what goes out with our name on it. If you’re using AI, ask:

  •  Has this tool been tested for CA use cases?
  •  Is the output verifiable and consistent? What is the source of output?
  •  Is a CA reviewing the output before it’s final?

AI can assist—but not replace—your professional judgment. Not until it can consistently hit 100% accuracy. And as of now, no model comes close.

ETHICAL CHALLENGES

Transparency and Explainability

AI systems must earn the trust of professionals. That starts with transparency—knowing what data the model learned from and how it arrives at a particular conclusion. But transparency alone isn’t enough. What we also need is explainability: the ability of the AI to justify its answer in a way that’s understandable and logical.

If an AI model behaves like a black box—giving you an answer without showing how it got there—it becomes impossible to audit or rely on it. This is especially dangerous in regulated fields like tax, audit, and financial reporting.

Example: Capital Gains Query

Query:

What is the rate of capital gains tax on equity shares purchased 15 months ago and sold on NSE?

Answer A (Black Box Response):

“The rate is 12.5% on gains exceeding ₹1,25,000 per financial year.”

No section is cited. No explanation of other relevant conditions.

Answer B (Explainable Response):

“As per the Income Tax Act, listed equity shares held for more than 12 months qualify as long-term capital assets. Since these were held for 15 months, gains are long-term. Under Section 112A, if STT was paid on both purchase and sale, LTCG on such equity shares is taxed at 12.5% for transfers on or after July 23, 2024 (Finance Act 2024). LTCG up to ₹1,25,000 is exempt. Indexation under Section 48 is not allowed. Surcharge and 4% HEC are additionally applicable.”

While giving Answer A, LLM models behaved as a black box, i.e. did not disclose sources and provide explanations for output. Answer B, on the other hand, gave a step-by-step explanation and cited proper Sections. So, Answer B passes the test of Explainable AI.

This is the kind of explanation a CA would expect. Step-by-step reasoning, proper references, conditionality, and full scope of implications.

Bias and Fairness in Algorithms

AI bias is not always visible—but it can have real-world consequences. If the data used to train an AI model reflects past discrimination or blind spots, the model will carry that forward. This is especially dangerous when used for decisions involving people—like fraud detection or internal audit flags.

Example

A company created an AI system to detect fraudulent expense claims by employees. The model was trained on past incidences of such claims.

Same expense. Different scores. Why?
The model had learned from a biased audit history—where scrutiny was disproportionately applied to junior employees from Tier 2/3 cities. The result: the AI repeated and amplified that bias.
Such systemic errors aren’t just unfair—they can damage employee trust, expose firms to HR and legal risk, and weaken the credibility of internal control systems.

Professional Integrity

Professionals are trusted and respected for their high standards of accountability, independence and judgement. This is the result of their intensive training and knowledge. However, when AI tools are used for generating advice, interpreting laws or drafting legal submissions without sufficient oversight, there is a risk of diluting this trust by delegating the core tasks to machines.

A Utah lawyer was sanctioned by the state Court of Appeals after filing a legal brief containing false case citation that were fabricated by ChatGPT. The brief was authored by one of the law clerks. Hence, the lawyer took full responsibility, acknowledging he neglected his duty to verify the AI-generated research before submission. This serves as a reminder that professional accountability in law remains human.5

5 https://www.theguardian.com/us-news/2025/may/31/utah-lawyer-chatgpt-ai-court-brief

PRIVACY CHALLENGES

Privacy with AI tools is a major worry, especially for jobs that deal with private client information, financial records, or legal documents. When you use AI, your sensitive data often gets processed or stored on internet servers, which creates risks of hackers accessing it, misuse, or information leaks. Many AI tools—particularly free ones—might keep and use your data to improve their systems unless you specifically tell them not to. Organisations need to make sure any AI tool they use follows privacy laws like GDPR in Europe, India’s data protection rules, or specific confidentiality requirements for their industry.

Case Study: Sage Group’s AI Assistant Mishap4

In early 2025, Sage Group, a UK-based accounting software provider, faced issues with its AI assistant, Sage Copilot. The tool inadvertently disclosed business information related to other clients during routine invoice lookups. Although no sensitive data was exposed, the incident highlighted deficiencies in access controls and data isolation, emphasising the need for robust safeguards in AI deployments within accounting systems.

4 https://www.theregister.com/2025/01/20/sage_copilot_data_issue/

Case Study: DeepSeek AI

DeepSeek – a Chinese AI company, rose to sudden fame when they launched their model DeepSeek-R1 in Jan 2025. The company claimed to cost 95% cheaper than OpenAI’s ChatGPT and required 1/10 of computing power as compared to META, yet offers a similar quality of response. However, within a short period, the Government and corporates of several countries (Italy, South Korea, the US and Australia) blocked, prohibited or advised against using DeepSeek. The ban was based on data privacy and security risks associated with the model’s origin and usage.

Data Collection and Consent

Before you upload a file or data to an AI tool, you must clearly understand

  •  Is your data stored permanently on their servers? If not, then what is the retention period?
  •  Is the uploaded data accessible to any support staff in their organisation?
  •  Is your data used for training the model?

Here is a comparison of two commonly used AI Chatbots

ORGANISATIONAL CHALLENGES

Accountability and Professional Liability

AI technologies serve as valuable support tools for tasks like drafting and analysis, but ultimate accountability belongs to the qualified professional who validates and endorses the results. AI technologies cannot face legal consequences, leaving humans fully responsible for mistakes and omissions.

In Nov 2022, Jake Moffatt used Chatbot on the Air Canada website and sought information about bereavement fares for a last-minute trip to attend his grandmother’s funeral. The airline’s chatbot informed him that he could apply for a bereavement fare refund within 90 days of ticket issuance, even after travel had occurred. Later, the airlines rejected the claim, citing the actual rule mentioned on the website that requires bereavement fare requests to be made prior to travel. British Columbia Civil Resolution Tribunal rejected these arguments, stating that the airline is responsible for all information given by the Chatbot.6

6 https://www.bbc.com/travel/article/20240222-air-canada-chatbot-misinformation-what-travellers-should-know

This and many such cases emphasise that companies and professionals are responsible for the output given by their AI systems.

HUMAN CHALLENGES

Skills Gap and Upskilling Needs

Adopting AI requires a basic understanding of

  •  How LLMs are created and how they generate response
  •  Selecting the right AI tools
  •  Identifying and mitigating risks associated with AI responses
  •  Adhering to data privacy regulations

AI tools have existed for more than two years. Even though chartered accountants and their teams are very aware of this technology and the many tools available, they still need to improve their skills. ICAI has been regularly conducting a Certificate Course on AI ( AICA-Level-1). As per estimates, about 20,000 CAs have taken this course so far, which is just 5% of the total number.

Addressing these skill gaps through structured training, certification programs, workshops, and continuous professional education can significantly enhance AI adoption.

Resistance to Change and Fear of Job Displacement

Leaders across the world are divided about the impact of AI on jobs. While some warn that AI could eliminate substantial white-collar jobs in the near future, others are optimistic about the technology transforming current jobs rather than eliminating them.

The World Economic Forum’s Future of Jobs Report 2025 indicates that 40% of employers anticipate workforce reductions in areas where AI can automate tasks. This trend is particularly affecting entry-level positions, as AI increasingly handles tasks traditionally assigned to junior staff, potentially limiting early career opportunities.7

7 https://www.weforum.org/publications/the-future-of-jobs-report-2025/

There are regular news stories about lay-offs by tech companies across the world, partially driven by AI adoption. This is causing anxiety among people, and they tend to avoid AI tools.

DEPENDENCY CHALLENGES

When AI tools become more powerful and user-friendly, there’s a danger that professionals will depend on them too heavily. This could lead to machines handling critical thinking and ethical choices that humans should make, potentially weakening professional abilities.

Several taxpayers in Ontario received tax demands and penalties from the Canada Revenue Authority for incorrect Child Tax Care Credit. They had relied on TurboTax software to file their tax returns and relied on its computation. No CPA cared to verify the calculation.8

8 https://globalnews.ca/news/11128974/turbotax-ontario-cra-audits/

Skill Atrophy

This refers to the gradual loss of human skills due to over reliance on automation and now on AI tools. There are fears that the professionals will stop practising key tasks requiring analytical or decision-making skills, thereby deferring human judgements to machines.

A pertinent example of skill atrophy is about commercial pilots – who heavily rely on flight autopilot systems. It has been regularly reported that over-reliance on automation has led to atrophy in manual flying skills. The regulators are now emphasising the importance of manual flying skills.
In the context of tax practice, drafting is considered as an intellectual craft among tax practitioners. Several lawyers and CAs are known for their distinguished style of legal drafting, where each clause reflects careful anticipation of risk, future disputes and the nuanced intent of the parties involved.

As AI tools make drafting a routine automated task, younger professionals may never be able to develop the instinct and depth required for sophisticated legal drafting.

Loss of Institutional Memory

Even now, senior legal counsels pass down case strategies, negotiation skills and interpretation of complex legal clauses through hands-on mentorship and formal/ informal internal notes. This process forms the backbone of consistent standing in the market across years and throughout leadership changes. Over-reliance on AI tools may disconnect and harm a firm’s legal heritage.

AI ADOPTION

With all these challenges outlined above, should a CA firm stay away from AI tools altogether or embrace them? Staying away is no option at all. As AI technology evolves and makes strides, it will be impossible to stay away and remain competitive.

Balanced adoption: Human + AI = Augmented Intelligence

The ideal approach for any firm is to strike a balance between AI capabilities and human judgment. AI tools should be considered valuable for augmenting human expertise. For example, during the audit, an AI tool may flag unusual journal entries or patterns in financial data across multiple subsidiaries within seconds—but it takes an experienced auditor to determine whether those anomalies are due to fraud, error, or legitimate business reasons.

Phased Implementation and Clear Objectives

Jumping into full-scale automation without a defined purpose often leads to inefficiencies, employee resistance, and misaligned outcomes.

There are certain areas where AI tools can bring speed and reasonable amounts of precision; such areas should be the first to be implemented. Later, more complex areas can be considered. Each phase should have measurable goals, like reducing turnaround time, and must include feedback loops for refinement. This approach not only builds internal confidence and capability but also allows teams to adapt culturally and technically.

Investing in People and Culture

For AI adoption to succeed sustainably, investing in people and culture is as important as investing in technology. Even the most advanced AI tools will fail to deliver value if the workforce is not prepared, engaged, and aligned with the transformation.

Employees should be encouraged to upskill themselves to utilise the power and understand limitations of the AI technology.

Strategic Tool Selection

The selection of a proper tool is very important for AI adoption to work smoothly.

  1.  Ensure that the tool fits the functional requirements and performs accurately on real-world test cases. Example: A Tax research tool should be able to present a comprehensive note on a given question, considering all relevant legal provisions, case laws and expert commentaries.
  2.  Verify that the tool offers clear reasoning and citations for the output i.e. should follow explainable AI principles. In the above example, in the output, the response must contain specific references to the sections, rules, notifications and citations used for generating the response.
  3.  Data Protection and Privacy: Check the tools provide strong encryption during data transmission. Do not use data for model training / other purposes without consent and compliance with data protection laws.
  4.  The ROI can be justified with measured success criteria, e.g. time-saving.

CONCLUSION

Looking at this comprehensive analysis of AI adoption challenges in professional practice, the path forward is clear: cautious optimism paired with strategic implementation. While AI tools present significant risks around accuracy, bias, privacy, and over-dependence, completely avoiding them is not a viable competitive strategy.

The key lies in treating AI as an intelligent assistant rather than a replacement for professional judgment, maintaining human oversight at every critical decision point, and investing equally in technology and people.

Success requires a phased approach that begins with lower-risk applications, establishes robust verification processes, and builds organisational capability through continuous learning and cultural adaptation.

Paradigm Shift in Drafting of Various Documents in Chartered Accountants’ Office Using Artificial Intelligence

“Tools maketh man. With tools he is everything, without tools he is nothing.” Thomas Carlyle, in Sartor Resartus, circa 1834

INTRODUCTION

In recent years, tools equipped with generative and assistive AI technologies have moved from the fringes into mainstream professional services. Chartered Accountants (CAs) are increasingly leveraging AI to transform how they draft, review, and finalise critical documents—from audit reports to tax opinions. This shift is not merely technological; it represents a fundamental change in workflows, skill sets, and value propositions for CA firms. This article explores that paradigm shift, drawing on industry surveys, flagship initiatives by major firms, and practical implementation guidance. Most importantly, it also identifies the AI edge and shortcomings when such AI technologies are used as tools in drafting, reinventing the drafting process flow.

CONVENTIONAL APPROACH TO DOCUMENT DRAFTING

Traditionally, drafting financial statements, audit opinions, limited review reports, tax submissions, board minutes, etc. has been mostly manual; a mix of labour and skill intensive process. CAs and their teams spend countless hours researching regulations, formatting disclosures, ensuring consistency, and tailoring wording to each client’s facts. Key steps included:

  •  Manual Template Updates: Maintaining Word/Excel templates with standardised language.
  •  Regulation Research: Manually searching for the latest standards or tax provisions.
  •  Drafting and Review: Repeated back-and-forth between juniors and seniors for completeness, accuracy and tone.
  •  Compliance Checks: Ensuring all disclosures meet statutory and professional requirements.

While this approach has served the profession for decades, it often led to bottlenecks, inconsistencies, mistakes and high costs—particularly during peak season. Enter AI.

OVERVIEW OF AI TECHNOLOGIES

Modern drafting tools have evolved to address challenges and limitations of conventional approach. These tools are built on one or more technologies that are Key AI components; these include:

  •  Natural Language Processing (NLP)
    Enables machines to understand and generate human-like text, improving grammar, tone, and context.
  •  Generative AI / Large Language Models (LLMs)
    Models such as GPT-4 can produce full-length narratives—like audit report sections—based on prompts.
  •  Machine Learning (ML)
    Learns from past document versions to suggest consistent phrasing and identify anomalies.
  •  Advanced Search & Knowledge Graphs
    Allow quick retrieval of relevant regulations or precedent documents.
  •  Conversational AI / Chatbots
    Provide on-demand assistance, summarise complex guidance, and automate routine queries.

With these capabilities, AI can draft first drafts, propose edits, extract key data, and even format entire documents—all under human oversight. Besides the popular and general-purpose AI tools like ChatGPT and Perplexity, some AI tools that have particularly found adoption for drafting include Claude, Gemini, Legalfly, and Gavel. Although most of these offer both free and subscribed versions, readers are encouraged to use subscribed version in order to harness their full capabilities.

AI IN DRAFTING: CORE APPLICATIONS

Audit Proposals, Observations and Reports

AI tools can generate complete proposals for Internal / Special purpose audits, given the financial statements or other relevant documents as inputs. It can also suggest fees for the proposed engagement, by identifying and comparing fees for similar engagements that may have been used in its training.

Feed an AI with data from Purchase or Sales register and it can identify an exhaustive list of high-risk transactions along with possible control deficiencies in client’s internal control system. Your audit observations are ready for management comments!

AI tools can generate sections of audit reports—such as Qualified Opinion, Emphasis of Matter, and Key Audit Matters—by analysing trial balance data, risk assessments, and fixed-asset registers. Similarly, AI tools can draft the “Basis for Opinion” section, reducing manual write-ups by up to 50%.

Financial Statements and Notes

Disclosures (e.g., related party transactions, impending litigation, asset impairments) often require standardised wording. AI can fill templates with client-specific numbers, adjust narratives based on materiality thresholds, and update references when accounting standards change.

Tax Returns and Schedules

From populating Schedule AL (Asset/Liability) of income tax returns to drafting TDS certificates, AI can extract figures from ERP systems, apply relevant sections (e.g., 194H, 44AD), and flag inconsistencies such as missing Form 16 entries.

Management Letters and Client Memos

Writing management letters after audit findings may also involve drafting recommendations to address each observed deficiency. AI-driven summarisation can convert bullet points—like control deficiencies—into coherent corrective action points. Chatbots can draft reminder emails or follow-ups, akin to the mail templates used by your firm in data-submission reminders.

Board Minutes and Corporate Filings

AI templates comply with Companies Act requirements for board resolutions, share allotments, and annual filings. A few prompts (e.g., “record today’s meeting approval of financial statements”) generate complete minutes, ready for partner review.

Routine Correspondence

Letters for engagement terms, appointment letters, and client onboarding can be drafted with minimal edits. AI ensures consistent tone and up-to-date compliance references, saving administrative staff over two hours per letter on average.

Tax scrutiny submissions, Grounds of Appeal, Statement of facts, Affidavits, Application to keep penalty proceedings under abeyance, etc.

CAs use AI to generate all of the above and more with remarkable accuracy and unmatched efficiency. Need a tax opinion on any complex matter, fully supported with citations, in a jiffy? With a few well-structured prompts, the first draft is ready, within seconds, literally!

Interpreting regulatory notifications, circulars and assessing their impact on Client’s operations
CAs are increasingly using AI tools to interpret regulatory changes (e.g., changes in TCS provisions and FEMA regulations) and help their clients understand their impact on their operations.

THE AI IMPACT – AI’S HITS AND MISSES

At this stage, the reader must know how this evolution (of implementing AI based tools) for document drafting has fared for the profession so far. Below is a concise comparison of where AI has outperformed even an experienced Chartered Accountant in drafting, and where it still lags behind.

Aspect AI’s Hits AI’s Misses
1. Speed & Throughput Generates first drafts (e.g. audit report sections, board minutes) in seconds versus hours or days of manual work. Studies show up to a 75% reduction in drafting time for standard documents. Cannot autonomously verify the factual accuracy of source data; human review remains essential to catch mis-pulls or misalignments with client-specific facts.
2. Consistency & Standardisation Always applies the latest approved wording and formatting, eliminating fatigue-induced inconsistencies across multiple documents. Lacks the ability to subtly tailor tone, emphasis, or “voice” to long-standing client relationships or firm culture—often resulting in language that feels generic or impersonal.
3. Regulation & Template Updates Instantly integrates new tax rulings or accounting-standard changes from a centralised knowledge base. No lag between enactment and template update. May “hallucinate” or misquote regulations if its underlying model isn’t rigorously fine-tuned and constantly validated, risking non-compliance without close human oversight.
4. Scalability Can draft hundreds or thousands of similar documents (e.g., TDS certificates, engagement letters) in parallel, with zero incremental fatigue or margin for human error. Cannot exercise professional judgement in distinguishing which items truly warrant emphasis in complex, non-standard cases—AI treats every file as a cold “data dump” unless explicitly guided.
5. Availability Operates 24/7 without downtime or shift constraints, enabling off-hours drafting and on-demand updates for global teams. No ethical responsibility or accountability. If a draft contains errors that lead to regulatory penalties, AI cannot be held liable—only the human practitioner can certify and assume professional risk.
6. Cost Efficiency Virtually zero marginal cost for each additional draft once deployed, driving down per-document costs significantly for high-volume tasks. Requires substantial upfront investment in secure, compliant infrastructure, model licensing, and ongoing retraining—often out of reach for smaller practices without clear ROI.
7. Multilingual & Formatting Quickly localises documents into multiple languages (e.g., English → Marathi) with minimal post-editing, and auto-formats tables, footnotes, and numbering. Struggles with idiomatic expressions or culturally nuanced phrasing—post-translation editing by a native speaker remains necessary to ensure readability and avoid misinterpretation.
8. Data Extraction & Linking Automatically pulls figures from ERP/GL and populates schedules or disclosures, linking cross-references accurately across a firm’s documents. Cannot detect missing disclosures or interpret ambiguous data without clear rules—in complex scenarios (e.g., unusual related-party transactions), the AI may omit or misclassify items, requiring a CA’s domain insight to catch and correct.

IMPLEMENTATION ROADMAP

Are you tempted to embark on your journey to make this paradigm shift in document drafting at your firm? Super! Here are the steps –

Assessing Readiness

Conduct an internal assessment to gauge your firm’s AI maturity, identify areas with high drafting volumes, and evaluate how well your systems and teams can adapt to AI-driven workflows.

Pilot Projects

Select one document type, such as tax scrutiny submissions or internal audit observations, for a pilot project to assess the AI tool’s ability to generate accurate drafts, track time savings, and measure user satisfaction with the process.

Training and Change Management

Provide targeted training to your teams on how to effectively use AI tools, focusing on prompt engineering, managing AI output, and integrating these tools into daily workflows. Also ensure that continuous support and resources are available to teams, such as AI usage workshops and a dedicated support team, to help with the transition and encourage adoption across the firm.

Governance and Controls

Establish clear governance policies to oversee AI usage, ensuring proper privacy and confidentiality of clients’ data, validation of AI outputs, compliance with applicable regulations, maintaining audit trails, and implementing change management procedures to monitor and adjust AI models as necessary.

In conclusion, while AI offers significant advantages in efficiency, scalability, and standardisation, it remains essential that Chartered Accountants oversee and guide AI-driven drafts to ensure compliance, judgement, and ethical considerations are consistently met.

And yes, good luck to you in the journey ahead!

Leveraging AI for Enhanced Ca Practice: A Practical Guide To Publicly Available Models

The post-pandemic digital transformation has accelerated professional adoption of AI-enabled tools across industries. For chartered accountants, the emergence of sophisticated AI models presents opportunities to enhance practice efficiency, analytical capabilities, and client service delivery. This guide explores how Indian CAs can strategically leverage publicly available AI models whilst maintaining professional standards and ethical obligations.

THE AI REVOLUTION IN PROFESSIONAL PRACTICE

The launch of ChatGPT in late 2022 marked a turning point in AI accessibility. What began as curiosity-driven experimentation has evolved into practical business applications across audit, taxation, advisory services, and compliance functions. By 2025, AI integration will be crucial for maintaining a competitive advantage and meeting evolving client expectations.

This transformation requires CAs to understand not merely what AI can do, but how to use it responsibly and effectively within professional frameworks. The approach involves viewing AI as an augmentation tool that enhances human expertise rather than replacing professional judgment.

CHATGPT BY OPENAI: THE FOUNDATIONAL TOOL

Core Features and Customisation

ChatGPT remains the most accessible entry point for AI adoption in professional practice. However, effective utilisation requires proper configuration  and understanding of its capabilities. The below-mentioned list gives specific suggestions on how it can be made better:

a. Custom Instructions Setup

Users should begin by personalising ChatGPT through Settings > Personalisation > Custom Instructions. This feature allows practitioners to provide context about their professional role, preferred communication style, and specific requirements. For instance, specifying that one is a chartered accountant in India ensures responses consider relevant regulatory frameworks and professional standards.

Figure 1 – Customise ChatGPT

Figure 2 – Set Custom Instructions

b. Leveraging Custom GPTs The Custom GPTs feature (free for all) provides pre-built specialisations that can enhance productivity. Notable options include “Data Analyst” by ChatGPT, YouTube Summarisers, and Whimsical Diagrams.

Practitioners can also create bespoke GPTs tailored to their practice needs, such as proposal generation, minute formatting, or specific compliance checklists.

c. ICAI’s CA-GPT Integration

The Institute of Chartered Accountants of India has developed CA-GPT (accessible at https://ai.icai.org/cagpt/), which provides authenticated access to specialised GPTs with ICAI publication repositories. This resource offers multiple domain-specific GPTs, including Direct and Indirect Tax GPTs, as well as industry-specific GPTs with annual report data for comparative analysis of FY 2023-24.

Figure 3 – CAGPT

Figure 4 – Industry GPT

d. Model Selection Strategy

Users with paid accounts can often access different models, such as GPT-4 and GPT-3, which are quite powerful. A model for simplicity’s sake is like a thinking hat that the AI puts on every time you ask a question. Some can answer with advanced reasoning (like the O3 model) and some with quick answers for general purposes (4O).

COMPARATIVE INSIGHTS: GPT-4O VS GPT-O3

Prompt Used in Both Models: “Clarify if input tax credit is available on RCM paid for legal services.” The prompt was kept simple and to the point to see how both models respond to a compliance-based GST question.

Using the GPT 4o Model

Figure 5 – Using CAGPT – Indirect Taxes – in GPT 4-o

RESPONSE FROM GPT-4O: QUICK, CONCISE, AND BUSINESS-FOCUSED

Figure 6 -Response from – Indirect Taxes – in GPT 4-o

GPT-4o answered promptly within 2–5 seconds and offered a well-structured, client-ready response.

RESPONSE FROM GPT-O3: DETAILED AND RESEARCH-FOCUSED

Figure 7 – Using CAGPT – Indirect Taxes – in GPT o3 with reasoning

GPT-o3 would take much longer to process the same question, indicative of its more analytical nature. Although the screenshot depicts it only as “thinking,” this model typically tries to probe questions in greater depth.

PERPLEXITY AI: RESEARCH AND COMPLIANCE INTELLIGENCE

Perplexity AI distinguishes itself as a research-focused tool that prioritises accuracy through source verification. Unlike traditional generative AI, it combines conversational intelligence with real-time web access, making it valuable for regulatory research and compliance updates.

Figure 8 – Perplexity giving reference to sources and linkages for further reference.

ILLUSTRATIVE PRACTICAL APPLICATIONS FOR CAs

  •  Source Verification: Every response includes citations from government websites, regulatory agencies, and official databases, enabling users to verify information independently.
  •  Real-Time Updates: Live connectivity ensures access to the latest amendments, notifications, and regulatory changes necessary for tax and compliance professionals.
  •  Factual Focus: Perplexity concentrates on factual information rather than interpretative content, making it suitable for compliance-sensitive work.

PRACTICAL APPLICATIONS

  •  Regulatory Monitoring: Track RBI, SEBI, and ministry announcements for weekly compliance digests
  •  Research Support: Fetch current provisions and notifications with source links for verification
  •  Due Diligence: Compile recent regulatory changes affecting specific sectors or transactions

The tool’s emphasis on source attribution makes it particularly useful when preparing regulatory updates or compliance memoranda where citation accuracy is critical.

CLAUDE BY ANTHROPIC: PROFESSIONAL COMMUNICATION EXCELLENCE

Claude excels in contextual understanding and ethical alignment, making it particularly valuable for professional environments requiring nuanced communication and balanced analysis. In addition, the ability to code and showcase VBA Scripts, Python Programs or even simple artefacts is compelling.

Figure 9 -Illustrative Valuation Forecasting Model created using Claude

DISTINCTIVE CHARACTERISTICS

  •  Contextual Reasoning: Claude interprets queries within broader professional and regulatory contexts, providing more relevant responses than literal text interpretation.
  •  Risk Sensitivity: Responses regularly include appropriate caveats and highlight potential exceptions, supporting balanced professional advice.
  •  Coding Proficiency: Strong capabilities in automation, macro development, and process scripting for practice efficiency improvements.
  •  Professional Tone: Maintains formal, legally prudent communication suitable for both internal and client-facing documentation.

ILLUSTRATIVE PRACTICAL APPLICATIONS FOR CAs

Claude proves particularly effective for:

  •  Draft preparation requires professional language and structure
  •  Complex regulatory interpretation requiring balanced analysis
  •  Automation scripts for repetitive tasks
  •  Client communication requires diplomatic language

The tool’s emphasis on ethical considerations and balanced responses aligns well with professional requirements for objective advice.

GEMINI: GOOGLE WORKSPACE INTEGRATION

Gemini represents Google’s integration of AI capabilities throughout its Workspace environment, including Docs, Sheets, Gmail, Slides, Meet, and Drive. This integration enables professionals to access AI assistance within their existing workflow.

KEY FEATURES

  •  Contextual Integration: Gemini analyses current documents, emails, or spreadsheets to provide contextually relevant suggestions and content.
  •  High Context Window: Capability to process approximately 500,000+ words or 25,000+ lines of code, enabling analysis of large documents or datasets.
  •  Collaborative Features: Functions as a co-author or co-analyst, proposing edits, formatting tables, and summarising meeting content.
  •  Clean Formatting: Outputs are structured with appropriate headings, bullet points, and tables for immediate use in professional documents.

ILLUSTRATIVE PRACTICAL APPLICATIONS FOR CAs

  •  Google Sheets Financial Analysis: Automated margin analysis, ratio report creation, and variance identification for management information systems and board presentations.
  •  Google Docs Compliance Drafting: Formatted tax summaries, CSR applicability notices, and FEMA checklists with appropriate formatting and legal clarity.
  •  Gmail Client Communication: Professional update drafting, audit query clarification, and reminder generation through prompt-based email composition.
  •  The tool’s integration within Google’s ecosystem makes it particularly valuable for practices already using Google Workspace for collaboration and document management.

MICROSOFT COPILOT: OFFICE 365 ENHANCEMENT

Microsoft Copilot integrates across Microsoft 365 applications (Word, Excel, PowerPoint, Outlook, Teams), providing AI assistance within existing workflows rather than requiring platform changes.

Figure 10 – Microsoft Copilot Integration and Use Cases

Features and Capabilities

  •  Context-Aware Support: Copilot understands file formats and content context, providing appropriate responses whether working in Excel, Word, or Outlook.
  •  Task-Specific Commands: Users can request email summarisation, financial report creation, audit schedule building, or client message refinement with appropriate tone adjustments.
  •  Data Integration: Leverages existing spreadsheets, documents, calendars, and Teams messages to produce accurate outputs without repetitive input requirements.
  •  Professional Standards: Employs skilled and consistent formatting that adheres to business conventions across all applications.

Applications in Practice

  •  Excel – Financial Modelling: Natural language input for pivot table creation, GST summary automation, cash flow forecasts, and working capital ratio analysis.
  •  Word – Document Preparation: Professional memo drafting, report formatting, and compliance documentation with appropriate structure and language.
  •  Teams – Collaboration: Meeting note recording, action item management, and team onboarding with a checklist and SOP-based briefings.
  •  Outlook – Communication: Email composition assistance, meeting scheduling optimisation, and client communication management.

ADDITIONAL SPECIALISED TOOLS

Several other AI applications serve specific professional needs:

Meeting and Documentation Tools

  •  Fireflies, Otter, Spinach.ai: Meeting transcription and minute preparation
  •  Guidde: Process documentation and flowchart creation

Content Creation

  •  Gamma.App, AIPPT.com: Professional presentation development
  •  Grammarly, Quillbot, Rytr: Writing enhancement and grammar correction

Custom Solutions

  •  Dante.ai, BotPress.com: Knowledge-based chatbot development for client service
  •  Loveable.dev, Cursor, Replit: Custom application development through natural language programming

Analysis and Summarisation

  •  Summarise.ing, TLDR, Google Notebook LM: Article and video summarisation for research.
  •  Midjourney: Professional infographic and visual content creation

CRITICAL CONSIDERATIONS FOR ETHICAL AI USAGE

The implementation of AI tools in CA practice must align with professional standards, regulatory requirements, and ethical obligations.Several considerations are essential for responsible adoption:

Data Privacy and Confidentiality

  •  Client Data Protection: Never input confidential client information, including financial statements, PAN numbers, or sensitive business details, into public AI tools.
  •  Enterprise Solutions: Use enterprise-grade AI solutions that comply with GDPR, Indian Data Protection Laws, and ICAI data security guidelines.
  •  Implementation Protocols: Establish strict data handling protocols when using cloud-based AI services, and consider local deployment options for highly sensitive information processing.

Professional Judgement Maintenance

  •  Independent Analysis: AI outputs must never replace professional scepticism and independent judgement in audit or advisory work.
  •  Validation Requirements: Always validate AI-generated content before incorporating it into reports, filings, or client deliverables.
  •  Professional Responsibility: Maintain full responsibility for all professional opinions regardless of AI assistance utilised.

ICAI Code of Ethics Compliance

  •  Fundamental Principles: Ensure all AI usage aligns with ICAI’s principles of integrity, objectivity, professional competence, and due care.
  •  Independence Considerations: Avoid situations where AI usage could compromise independence or create conflicts of interest.
  •  Ethical Standards: Maintain consistent ethical standards when using AI tools, as with traditional practice methods.

Transparency and Documentation

  •  Stakeholder Disclosure: Disclose to stakeholders when AI has been used in analysis, reports, or audit procedures that are material to their understanding.
  •  Record Maintenance: Maintain detailed records of AI tool usage in decision-making processes and report generation.
  •  Audit Trail: Document the extent and nature of AI assistance in audit working papers and client files.

Regulatory Compliance

  •  Legal Adherence: Verify that AI usage complies with the Income Tax Act, Companies Act 2013, SEBI guidelines, and relevant audit standards.
  •  Regulatory Updates: Stay current with regulatory guidance on AI usage in professional services.
  •  Jurisdictional Considerations: Consider jurisdictional differences when serving clients across multiple regulatory environments.

Continuous Professional Development

  •  ICAI Guidance: Stay informed about ICAI’s evolving guidance on AI and digital tools in professional practice.
  •  Education Participation: Engage in continuing education programmes focused on AI ethics and responsible usage.
  •  Policy Updates: Regularly review and update firm policies on AI usage based on emerging best practices and regulatory developments.

ILLUSTRATIVE IMPLEMENTATION STRATEGY

Successful AI adoption in CA practice requires a structured approach:

Phase 1: Foundation Building

  •  Begin with ChatGPT customisation and Custom GPT exploration
  •  Establish data handling protocols and ethical guidelines
  •  Train team members on basic AI tool usage and limitations

Phase 2: Workflow Integration

  •  Implement Perplexity AI for research and compliance monitoring
  •  Integrate Gemini or Copilot based on the existing software ecosystem
  •  Develop standard operating procedures for AI tool usage

Phase 3: Advanced Applications

  •  Create custom GPTs for specific practice needs
  •  Implement specialised tools for meeting management and documentation
  •  Establish quality control processes for AI-assisted work

Phase 4: Continuous Improvement

  •  Monitor AI tool developments and updates
  •  Regularly assess effectiveness and adjust usage patterns
  •  Stay current with professional guidance and regulatory requirements

CONCLUSION

The strategic integration of AI in chartered accountancy practice represents both an opportunity and a responsibility. AI tools offer substantial capabilities for enhancing efficiency, analytical depth, and client service quality, but professional judgement, ethical considerations, and regulatory compliance must guide their implementation.

Success in AI adoption requires understanding each tool’s strengths and limitations, implementing appropriate safeguards and validation protocols, and maintaining the professional scepticism and independent judgement that define chartered accountancy practice. By thoughtfully integrating AI as an augmentation tool rather than a replacement for professional expertise, chartered accountants can enhance their practice capabilities while preserving the trust and integrity that are fundamental to the profession.

The future of chartered accountancy lies not in choosing between human expertise and artificial intelligence, but in strategically combining both to deliver enhanced value to clients whilst maintaining the highest standards of professional practice. Practitioners who master this integration will be well-positioned to serve their clients effectively and contribute to the profession’s continued evolution in an increasingly digital landscape.

BCAS Foundation Annual Activities Report – 2024-2025

The Board of Trustees of the BCAS Foundation are pleased to present the Annual Report of the activities of the Foundation during the Financial Year 2024-2025.

The year witnessed many activities during the financial year, with the help of volunteers and joint initiatives with the Human Resource Development Committee of the Bombay Chartered Accountants’ Society (BCAS Foundation). The list of activities and their impact analysis is given below:

1.0 CHILDREN’S EDUCATION

1.1 Science Laboratory and Books Library at M.M. High School, Umbergaon, Gujarat

BCAS Foundation has donated a Book Library, Science Laboratory and Four Smart Classrooms to M. M. High School, run by the Umbergaon Education Society, Umbergaon, Gujarat. The school has 125 years of glorious presence and history and has 2300 plus students.

On 9th August, 2024, the team of BCAS Foundation visited and inaugurated these facilities. President, CA Anand Bathiya; Trustees of the BCAS Foundation and Past Presidents – Dr CA Mayur Nayak and CA Deepak Shah; Chairman of the Human Resource Development Committee and the Past President CA Mihir Sheth; Chairman of the Seminar, Membership and Public Relation Committee and the Past President CA Chirag Doshi, Ms. Silky Anand Bathiya (First Lady of the BCAS), and other volunteers graced the occasion. CA Prakash Mehta, member of the BCAS and an ex-student of the M. M. High School 50 years ago, was also present at the inauguration ceremony.

The planning, designing and execution of the making of the Science Lab, Modern Library and the Smart Classes are worth appreciation.

The inauguration on 9th August coincided with “Adivasi Divas” and “Book Lovers Day”. Adivasi Students performed various dances and skits to celebrate the Adivasi Divas, followed by motivational speeches by eminent dignitaries and teachers.

At the end, the dignitaries and teachers planted a tree in their mother’s name in the school compound and participated in the movement called “Ek Ped Maa Ke Naam” – “एक पेड मा के नाम” by the Government of India.

These initiatives will benefit 2300-plus students every year. The impact was instant as within a couple of months, four science projects of the school were selected at the District Level, first time in the history of the school.

Ceremonies were diligently planned and executed meticulously.

1.2 Digital Classrooms at Talasari

BCAS Foundation continued its initiative to empower tribal and poor children of Talasari, Maharashtra, Umbergaon, Gujarat and surrounding areas with digital learning.

BCAS Foundation, with the help of Rushabh Foundation, sponsored 7 digital classrooms in two schools in the Talasari area.

Each digital classroom comprises a TV Screen and preloaded content of the curriculum of standards 1 to 10 of the SSC Board, Maharashtra. In the absence of teachers, students learn on their own with the help of digital classrooms.

 

1.3 Distribution of Notebooks to Children at Govandi-Mankhurd

BCAS Foundation distributed 4000 notebooks to needy children studying in Municipal Schools in the Govandi – Mankhurd areas, Mumbai, with the help of Dharma Bharati Mission (DBM).
Along with DBM, the Foundation has also been supporting an initiative of “Chalo English Sikhaye” to the students at Vernacular Medium Schools of Govandi – Mankhurd areas.

1.4 Support to the Balvatika Language Programme for Grades 1 and 2 at ARCH Foundation, Valsad, Gujarat

ARCH has been working for the past seventeen years in developing early childhood education processes for children in preschool and Balvatika age groups. It has also conducted focused programs for language and mathematics in Grades 1 and 2 of Balvatika. Based on this extensive experience, regular training sessions for supervisors and teachers under this project are organised at Dharampur.

This year, BCAS Foundation funded the material and training costs of this project, which was undertaken in collaboration with Nachiketa Trust in Balvatika, grades 1 and 2 of the Government Schools. The entire project was coordinated and supervised by teachers appointed by the Arch Foundation. In all, 292 students from six schools have benefited from this project so far.

2.0 COMMUNITY DEVELOPMENT ACTIVITIES JOINTLY WITH  RANGOONWALA FOUNDATION (INDIA) TRUST

Rangoonwala Foundation (India) Trust-[RF(I)T] is a Mumbai based people-centric public charitable Trust, committed to empowering underprivileged communities in the slums of Mumbai through various programmes on capacity building, skill development and health.

During the FY 2024-2025 BCAS Foundation actively supported RF(I)T on capacity building and education related initiatives for marginalised women and children, in the slums of Mumbai.

During these joint initiatives, BCAS worked with RF(I)T in Mumbai’s ‘bastis’ through eight Community Centres in Premnagar- Andheri Plot, Subhash Nagar – Gumpha Road and Shivtekdi in Jogeshwari-east; Mahakali and Pump House in Andheri- east; Anandwadi and Pathanwadi in Malad east and Damunagar in Kandivali east.

Overall, 1735 women and youth from the above areas benefited. Fifteen skill development programmes were conducted benefiting more than 1300 women. More than 275 youth benefitted from the Aptitude Test and Career Guidance sessions conducted at various centres.

3.0 TREE PLANTATION DRIVE – MIYAWAKI FOREST

BCAS Foundation and Keshav Srushti Collaborate for Miyawaki Forest Project – 2024

On Sunday, 4th August 2024, the Bombay Chartered Accountants’ Society (BCAS Foundation), in collaboration with the NGO Keshav Srushti, launched the Miyawaki Forest Project – 2024 at Ismail Yusuf College, Jogeshwari (East), Mumbai. The initiative aims to contribute to environmental restoration and urban afforestation using the acclaimed Miyawaki plantation technique, developed by Japanese botanist Dr Akira Miyawaki.

Under this initiative, 1,000 native trees—including species such as Mango, Bakul, Kaner, Bel, Kadi Patta, and Neem—were planted in a compact 3,000 sq. ft. area. These trees are expected to grow 10 times faster and 30 times denser than traditional plantations, thereby fostering a self-sustaining urban ecosystem.

In his inaugural address, CA Anand Bathiya, President of BCAS Foundation, highlighted the significance of the event, citing BCAS Foundation’s 15-year-long commitment to environmental and community-centric initiatives, including captive plantations and rural upliftment programs in Dharampur, Gujarat.


Keshav Srushti, known for its extensive environmental initiatives, has planted over 1.25 lakh trees across Maharashtra and established 43 Miyawaki forests in urban and rural areas. Representatives, including Dr CA Mayur Nayak (Trustee, BCAS Foundation), CA Meena Shah and CA Utsav Shah (Active volunteers of the BCAS Foundation), Ms. Silky Anand Bathiya (First Lady of the BCAS), CA Rashmin Sanghvi (BCAS Member), CA Mihir Sheth (Chairman of the Human Resource Development Committee), Mr Sateesh Modh (President, Keshav Srushti), and Mr Vinay Nathani (Secretary), along with other BCAS Foundation volunteers and office bearers, graced the occasion.

This initiative aligns with BCAS Foundation’s continued commitment to sustainability, member engagement, and social responsibility.

4.0 BLOOD DONATION CAMP AND PLATELET AWARENESS DRIVE

On Friday, 16th May 2025, the BCAS Foundation, in collaboration with the Seminar, Membership & Public Relations (SMPR) Committee of the Bombay Chartered Accountants’ Society (BCAS Foundation), organised its annual Blood Donation Drive with the active support of Tata Memorial Hospital (TMH).

Notably, individuals with conditions such as controlled cholesterol, thyroid imbalances, or blood pressure were also considered eligible to donate, provided they fulfilled the requisite medical criteria. A total of 54 units of blood were successfully collected from eligible donors, which included the President of the BCAS – CA Anand Bathiya, the SMPR Committee Chairman – CA Chirag Doshi, members, and BCAS Foundation staff.

To foster awareness and dispel common myths surrounding platelet donation, a Platelet Donation Awareness Drive was also organised simultaneously.

As a token of appreciation, all donors were honoured with a “Life Saver” medal, along with a copy of the BCAS Calendar and a publication from the BCAS Book Mela, which was also held on the same day.

5.0 INTERNATIONAL YOGA DAY CELEBRATIONS

The BCAS Foundation, with the help of the Human Resource Development Committee, Organised “International Yoga Day Celebrations” on 21st June, 2025. The event was jointly organised with MaBap at Andheri East, Mumbai. The session was conducted both for Physical and online participants.

Mr. Pradeep Thakkar, the accredited Yoga Trainer, conducted the session.

The takeaways from the workshop are briefly given below:

1. Participants were guided to do various exercises and were explained the benefits of doing the exercises.

2. The exercises dealt with Asanas and tips for Osteoarthritis, Knee Pain, Blood Pressure, Diabetes and a lot more.

3. Also, breathing exercises, along with their benefits, were explained to the participants.

4. The benefits of yoga for digestion, Bloating, Chest and Lung congestion were explained.

5. The benefits of yoga for Flexibility, Strength and overall health were explained in detail.

Mr Vinayak Yadav, Founder of Aham Yog Institute, was a special guest and gave a talk for 5 Minutes on the importance of Yoga, not just for the body but for the mind also. He demonstrated exercise for Sciatica.

CA Mayur Nayak – assisted in the presentation and ensured the smooth conduct of the yoga. CA Gracy Mendes and CA Vinod Jain coordinated this event.
A Group Photo of Yoga Day Participants

This year, BCAS Foundation got recognition as a registered participant of the YOGA SANGAM, an initiative by the Ministry of Ayush, Government of India.

6.0 Other Activities

During the year, the Foundation extended medical and educational help to needy students and family members of the BCAS Foundation staff.

BCAS Foundation donated 350 sets of Steel Plates, Vati and Spoons to Prathmik Shala, Bhathi-Karambeli, Umbergaon, Gujarat.

During the CA-Thon Marathon, the Foundation donated Sewing Machines to needy women to enable them to earn their livelihood.

We take this opportunity to thank all our donors, volunteers, sister NGOs, office bearers of schools, Office Bearers and the Staff of BCAS, participants of all conferences/seminars at BCAS, for their continued support and encouragement to carry out some noble work to make a positive difference to the world. We also thank all beneficiaries and students / children for giving the opportunity to BCAS Foundation to serve them.

We welcome suggestions and volunteering. Kindly send volunteering requests to om1@bcasonline.org or bcasfoundation@bcasonline.org.

Best Regards,

For BCAS Foundation

Trustees

Allied Laws

16 Union of India vs. M/s. GR – Gawa R (JV)
2025 Live Law (Del) 565
April 24, 2025

Arbitration – Condonation of delay – Basic documents like impugned order not attached – Application filed only to circumvent limitation period without filing all the enclosures / documents – Application non-est in the eyes of the law. [S. 34(3), Arbitration and Conciliation Act, 1996].

FACTS

An arbitral award was passed in favour of the Respondent on January 3, 2024, and was subsequently modified through a corrigendum dated March 2, 2024. The Applicant challenged the said award on June 20, 2024, with a delay of 18 days beyond the prescribed limitation period. The Respondent, however, contended that although the delay appeared to be of only 18 days, the initial filing by the Applicant was deliberately made without attaching essential documents such as the impugned arbitral award, e-court fee receipt, one-time process fee, affidavit of service, and other requisite enclosures. It was argued that such a filing was not merely defective but was a strategic attempt to circumvent the limitation period, and therefore, the application should be treated as non-est in the eyes of law. The Respondent also highlighted that the initial filing comprised only 146 pages, whereas the final filing contained 6,677 pages, further indicating that the earlier filing was not a bona fide attempt to institute proceedings. The Applicant, on the other hand, submitted that the delay was only of 18 days and deserved to be condoned, especially since the defects pointed out by the Registry were subsequently rectified.

HELD

The Hon’ble Delhi High Court after relying on its earlier decision in the case of Oil and Natural Gas Corporation Ltd. vs. Joint Venture of Sai Rama Engineering Enterprises & Megha Engineering and Infrastructures Ltd (2023 SCC OnLine Del 6088) held that the initial filing of application without attaching the basic documents like the impugned arbitral award was only an attempt to circumvent the provision of the limitation period. Therefore, the application deserved to be treated as non-est. The delay was therefore not condoned and the application was rejected.

17 Saurabh Mishra vs. State of U.P. through Principal Secretary of Medical and Family Welfare U.P. and Ors.
Writ Civil No. 10898 of 2024 / 2025 Live Law (AB) 211 May 27, 2025

Wills and Preferences – Appointment of Representative – Intellectual Disability of the patient – Presumption of capacity to appoint – Lacuna in the Act – Courts exercise jurisdiction of parens patria. [S. 4 , 5, 14, Mental Healthcare Act, 2017].

FACTS

An application was filed by the Petitioner under section 14 of the Mental Healthcare Act, 2017 (Act) before the Mansik Swasthya Punarvilokan Board, (Board / Respondent No. 2) seeking to be nominated as the representative of his aunt, who was suffering from a moderate intellectual disability assessed at approximately 75 per cent. It was contended by the Petitioner that he was residing with his aunt and was actively involved in her day-to-day care and welfare. In support of his application, a no-objection certificate was also issued by a close relative/sibling of the aunt, expressing consent to the Petitioner being appointed as her nominated representative under the Act. However, the Board rejected the application on the sole ground that the Petitioner was facing two criminal cases registered against him.

Aggrieved a writ petition was filed before the Hon’ble Allahabad High Court.

HELD

The Hon’ble Allahabad High Court held that the two criminal cases filed against the Petitioner were still at the admission stage, and the Petitioner must be treated as innocent until proven guilty. With respect to the Petitioner’s plea to be nominated as the representative of his aunt, the Court observed that, under Section 14 read with Sections 4 and 5 of the Act, there exists a presumption that persons suffering from mental illness have the decision-making capacity to appoint a nominated representative. Thus, the Act envisages a deemed capability. However, in cases involving significant intellectual disability, such as in the present matter, the wills and preferences of the individual cannot be ascertained. The Hon’ble Court noted that the Act does not provide any mechanism for appointing a representative where the person concerned is incapable of making such a decision due to their mental condition. Thus, there existed a legislative vacuum in the Act. Accordingly, the Court exercised its parens patriae jurisdiction and nominated the Petitioner as the representative of his
mentally ill aunt under the Act. The petition was, therefore, allowed.

Editor’s Note: This issue of the BCAJ carries an article under feature `Laws and Business’ on ‘Guardianship of Persons with Intellectual Disabilities’ which also covers the Mental Healthcare Act, 2017.

18 Madhu Gupta vs. Municipal Corporation of Delhi and Ors.
Writ Petition Civil 8214 of 2025 (Delhi) (HC)
May 30, 2025

Writ Petition – Not signed by the litigant – Signed only by the counsel of the litigant – Abuse of process of law – Cost – Petition dismissed. [A. 226, Constitution of India].

FACTS

A Petition was filed before the Hon’ble Delhi High Court with respect to illegal construction carried out by the Municipal Corporation of Delhi (Respondent). It was contended by the Respondent that the illegal construction in question was already being taken care by the Corporation and steps have already been taken to remove the same. Further, with respect to the Petition, it was contended by the Respondent that Petition was not signed by the litigant and only the counsel for the Petitioner had signed the Petition.

HELD

The Hon’ble Delhi High Court took serious note of the fact that the petition had not been signed by the Petitioner himself and bore only the signature of the counsel appearing on his behalf. The Court held that such a practice amounted to a clear abuse of the process of law and could not be permitted. Consequently, the Petition was dismissed and a cost of ₹50,000/- was imposed on the counsel of the Petitioner.

Book Review

Title of the Book: THE ANTHOLOGY OF BALAJI

Author: ERIC JORGENSON

Reviewed by SHIVANAND PANDIT

When I saw a book sub-titled ‘A Guide to Technology, Truth, and Building the Future’, my guardrails went up, and a set of neurons in my brain started firing. Scepticism and wariness set in, because in the volatile world of start-ups, there’s no shortage of founders peddling pitches to investors, and this sounds like one of those claims.

However, my scepticism quickly faded as I flipped through the pages of this book, actually titled ‘The Anthology of Balaji’, written by Eric Jorgensen and illustrated by Jack Butcher. As I delved into just under 290 pages, my initial doubt gave way to a willing acceptance of Balaji’s aphorisms, which are succinctly captured and often humorously conveyed by the author. One such gem is: “Building a billion-dollar company is like assembling IKEA furniture blindfolded — challenging but rewarding!”

Of course, there are some general statements like “The future belongs to those who build it,” “In a world of noise, seek signal,” and “Technology is the ultimate force multiplier.”

If some of these concepts seem familiar, it’s likely because they are. Balaji relies on some classic ideas and modernises them. For example, the traditional 4 Ps of marketing evolve into 6 Ps in his framework: Product — What are you selling? Person — To whom? Purpose — Why are they buying it? Pricing — At what price? Priority — Why now? Prestige — And why from you? While useful, these ideas are not entirely original. However, once you become accustomed to this approach, it becomes easier to follow along.

His insights on technology remind us that it isn’t just about gadgets; it’s about shaping our world. Here are some standout points from these chapters:

a) The Value of Technology: “Technology is the ultimate lever. It allows us to do more with less.”

b) Building What Money Can’t Buy: “The best things in life are not for sale.” Balaji explores how technology creates value beyond mere transactions.

c) Faster, Better, and Cheaper: “Technology drives progress. It accelerates our journey toward a better future.”

d) Unlocking Unseen Value: “Look beyond the obvious. The real magic lies in the hidden potential.”

e) Technology Determines Political Order: “The tools we create shape our societies.” He delves into how technology influences governance.

In the second section, his relentless pursuit of truth urges us to question assumptions and seek clarity:

1) The Power of Radical Honesty: “Truth is liberating. It’s the foundation of trust and progress.”

2) The Art of Independent Thinking: “Don’t be a parrot. Be an original thinker.”

3) Embracing Uncertainty: “The future is a puzzle waiting to be solved. Embrace it.”

In part three — Building the Future — Balaji’s vision goes beyond the present, encouraging us to shape our destinies:

A) Creating New Nations: “Why not? The world needs fresh ideas and experiments.”

B) The Network State: “Imagine decentralised countries, powered by technology.”

“The Anthology of Balaji” is more than just a book — it’s a roadmap to navigate our complex and convoluted world. It’s a guide, indeed. At the beginning of any guided journey, scepticism is natural. One might wonder if this book is a collection of random ideas or an illusion. However, Eric Jorgenson’s compilation of Balaji Srinivasan’s musings takes the reader on a deep dive into the realms of technology, truth, and the future.

What’s commendable about the anthology is its ability to push readers to perceive technology in extraordinary ways. From blockchain to biohacking, Balaji covers a wide range of topics. For those seeking intellectual stimulation, the book offers plenty to chew on. It’s refreshingly honest: Balaji’s dedication to truth echoes the ‘Satyameva Jayate’ philosophy, which means ‘truth alone triumphs’ (yes, I know this might make you sceptical). This exploration of transparency and authenticity may resonate with the yet-unjaded Indian reader. His vision of decentralised governance is also fascinating: imagine India as a network state, powered by blockchain! It’s a bold idea, but isn’t boldness often a precursor to progress?

However, the book does have its drawbacks. There is a fair amount of esoteric language, with references to Silicon Valley jargon and crypto-speak that might perplex uninitiated Indian readers. The humour, which I mentioned earlier, is rather lacklustre. Balaji’s wit is reminiscent of PG Wodehouse’s restrained and polite style, unlikely to provoke a laugh. Additionally, there is a cultural disconnect: his global perspective can sometimes clash with local sensibilities. His mantra of “starting a new country” sounds a lot like a Silicon Valley start-up pitch. In a country that is a cacophony of contradictions rather than a controlled environment, the anthology might not always hit the mark.

In conclusion, “The Anthology of Balaji” is like a typical masala chai — strong and aromatic, but an acquired taste for someone who prefers the more refined and elegant Darjeeling tea. If you’re willing to sift through the jargon and embrace the boldness, give it a read. But remember, wisdom isn’t always presented on a silver platter in an air-conditioned dining room; sometimes, it’s hidden in a roadside dhaba.

Miscellanea

1. TECHNOLOGY

Humans vs. Robots: Scientists create self-healing human-like skin for robots

Scientists have successfully grafted living, self-healing skin onto robots, a feat that could revolutionise the future of robotics. Imagine robots that can not only move and think like humans but also look and heal like them. The team led by Michio Kawai, MinghaoNie, Haruka Oda, and Shoji Takeuchi from the University of Tokyo has developed a technique to seamlessly attach living skin to robotic faces, creating lifelike robots capable of displaying human emotions.

The magic lies in something called “perforation-type anchors.” Inspired by human skin ligaments, these anchors attach cultured skin to robotic surfaces through tiny perforations, much like how our skin connects to underlying tissues. This method ensures the skin adheres securely, even on complex 3D structures like faces, and can withstand the wear and tear of everyday interactions.
To showcase this technology, the researchers created a robotic face that can express emotions, like smiling. Using these innovative anchors, they attached a skin equivalent — a lab-grown model of human skin — onto the robot’s face. The robot’s smile isn’t just a mechanical movement; it’s a lifelike expression made possible by the skin’s ability to stretch and contract naturally, thanks to the underlying anchors.

This isn’t just about making robots more realistic; it’s about functionality. The living skin can heal itself, much like our own, making robots more durable and suitable for long-term use. This self-repair capability is crucial for robots expected to operate in unpredictable environments where they might get scratched or damaged.

The implications of this research are vast. From healthcare robots that assist the elderly to humanoid robots in customer service and entertainment, the possibilities are endless. Robots with lifelike, self-healing skin could blend seamlessly into human environments, making interactions more natural and effective.
In essence, this breakthrough takes us one step closer to a future where robots are not just tools but companions, indistinguishable from humans in both appearance and functionality. The team’s research, published in Cell Reports Physical Science, marks a significant milestone in the quest to create the ultimate human-robot symbiosis.

(Source: businesstoday.in dated 26th June, 2024)

India to Adopt Common Charger Law for Smartphones and Tablets by Mid-2025

Starting June 2025, all new smartphones and tablets sold in India will be required to feature a standard charging port, allowing a single charger and cable to power multiple devices. This regulation is similar to the “universal phone charger” law implemented by the European Union (EU). India’s common charging law will extend to laptops in 2026 but will not apply to basic phones and wearables at this time, according to three informed sources, says a report by Mint.

“USB-C or Type C charging port will be made mandatory for smartphones and tablets from June next year. Feature phones or basic phones, hearables and wearables will be kept out for now,” the Mint report cited a source as saying.

USB-C Port to be Mandated for Laptops

The source also mentioned that the USB-C port requirement for laptops will take effect in the country at the end of 2026. These deadlines were established following discussions with industry representatives and manufacturers.

The new regulation applies across a wide spectrum of devices, including not only Android and iOS smartphones and tablets but also Windows and Mac devices. However, the law excludes small accessories like fitness bands, smartwatches, earbuds and basic feature phones.

Although the Indian Union IT Ministry has not issued an official statement yet, reports suggest that the regulation will likely be announced soon.
To recall, in 2022, the Indian government unveiled its initiative to enforce uniform ports across consumer electronics, following an agreement reached during discussions with industry bodies including MAIT, FICCI and CII. As part of this move, USB Type-C was designated as the standardised charging port for smartphones, tablets and notebooks in India. The Type-C charging port uses a Type-C cable with identical connectors at both ends, allowing for reversible plug-in capability.

This simplifies consumer convenience by enabling the use of a single cable and charger across multiple devices. For manufacturers, adopting a standardised charging solution like Type-C streamlines their supply chains and sourcing efforts, reducing complexity associated with multiple components specific to different charging ports.

Additionally, this transition is expected to contribute to reducing the burden of e-waste.

(Source: abplive.com dated 27th June, 2024)

2. ENVIRONMENT

“Ocean Is Changing”: NASA Visuals Show Impact of Greenhouse Gases On Earth’s Water Bodies

The greenhouse gases are impacting Earth’s water bodies, NASA’s scary visualisation of the oceans revealed. Taking to Instagram, NASA Climate Change shared a visualisation showing sea surface currents on the Estimating the Circulation and Climate of the Ocean, Phase II (ECCO2) model. In the caption, the space agency wrote that the gases produced by human activities are altering the ocean. “Our ocean is changing,” the National Aeronautics and Space Administration (NASA) wrote in its post.

“With 70% of the planet covered by water, the seas are important drivers of Earth’s global climate. Yet, increasing greenhouse gases from human activities are altering the ocean before our eyes. NASA and its partners are on a mission to find out more,” NASA further posted.

Further, elaborating on the visualisation, NASA shared that different colours depict the average temperature for the sea surface currents. “With warmer colours (red, orange, and yellow) representing warmer temperatures and cooler colours (green and blue) representing cooler temperatures,” the agency added.

NASA shared the visualisation just a day back. Since then, it has accumulated more than 13,000 likes. Social media users posted varied comments while reacting to the post.

“Can you please explain what this data is showing? Is it taken over days or months? What time of year? Is it ocean currents or ocean temperatures? What have we concluded from this data?” asked one user. NASA responded, “The visualisation shows sea surface current flows. The flows are coloured by corresponding sea surface temperature data.

“Amazing data and visualisation. Very cool!” said one user.

(Source: ndtv.com dated 26th June, 2024)

Regulatory Referencer

I. DIRECT TAX: SPOTLIGHT – JUNE 2024 ISSUE

1. CBDT notified 363 as Cost Inflation Index for FY 2024–25 – Notification No. 44/2024, dated 24th May, 2024

2. RBI is excluded from the definition of “specified person” for the purposes of Section 206AB and Section 206CCA – Notifications No. 45/2024 and 46/2024, dated 27th May, 2024

II. COMPANIES ACT, 2013

1. MCA relaxes additional fees on filing of certain LLP Forms up to 1st July, 2024: In view of the transition of MCA-21 from version 2 to version 3 and to promote compliance on the part of reporting LLPs, MCA has granted relaxation in filing of LLP forms. Accordingly, LLPs may now file Form LLP BEN-2 and LLP Form No. 4D, without payment of any further additional fees up to 1st July, 2024. Form LLP BEN-2 is filed with the ROC regarding declaration u/s 90 of Companies Act, 2013. LLP Form No. 4D is filed with the ROC regarding declaration of beneficial interest in contributions received by LLP. [General Circular No. 03/2024, dated 7th May, 2024]

III. SEBI

1. Nomination for Mutual Funds shall be optional for jointly held Mutual Fund folios: Earlier, SEBI vide Master Circular for Mutual Funds dated 19th May, 2023 prescribed the requirement for nomination / opting out of nomination for all existing individual unit holders holding Mutual Fund units either solely or jointly by 30th June, 2024. SEBI has now modified this requirement in a Master Circular regarding nomination for Mutual Fund unit holders. SEBI has clarified that the requirement of nomination for Mutual Funds shall be optional for jointly held Mutual Fund folios. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/29, Dated 30th April, 2024]

2. Appointment of a dedicated fund manager for commodity-based funds shall be optional: SEBI has modified Clause 3.3.11 of the Master Circular for Mutual Funds dated 19th May, 2023 regarding the appointment of a dedicated fund manager. SEBI has clarified that appointment of a dedicated fund manager shall be optional for commodity-based funds such as Gold ETFs, Silver ETFs and other funds participating in the commodities market. However, the person appointed as a fund manager for such funds must have adequate experience in managing investments in the commodities market. [Circular No. SEBI/HO/IMD/IMD-POD-2/P/CIR/2024/30; Dated 30th April, 2024]

3. SEBI releases framework for administration and supervision of Research Analysts and Investment Advisers: Earlier, SEBI notified that a recognised stock exchange may undertake activities of administration and supervision over specified intermediaries. Accordingly, stock exchanges can be recognised as Research Analyst Administration & Supervisory Body (RAASB) and Investment Adviser Administration & Supervisory Body (IAASB) for administration & supervision of RAs and IAs. SEBI has now released a framework for the administration & supervision of Research Analysts and Investment Advisers. [Circular No. SEBI/HO/MIRSD/MIRSD-SEC-3/P/CIR/2024/34, dated 2nd May, 2024]

4. SEBI mandates person or entity involved in distribution of portfolio management services to get registered with APMI: In order to facilitate collective oversight of PMS distributors at the industry level, SEBI has decided that any person or entity involved in the distribution of portfolio management services must obtain registration with APMI. This move is aimed at promoting ease of doing business initiatives for portfolio managers. Further, portfolio managers must ensure that registration is obtained in accordance with the criteria laid down by APMI. The circular shall be effective from 1st January, 2025. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/32, dated 2nd May, 2024]

5. Portfolio Manager now requires new client’s separate signature on fee annexure with handwritten confirmation: SEBI has notified amendments to facilitate ease in the digital onboarding process for clients and enhance transparency for Portfolio Managers. Now, while onboarding a client, Portfolio Managers must ensure that the client has understood the fee and charge structure. Further, for physical & digital onboarding, a new client must provide a separate signature on the fee annexure, with acknowledgement either by handwritten note or by electronically typing or using a finger or stylus pen. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/35, dated 2nd May, 2024]

6. SEBI issues updated master circular on “Alternative Investment Funds”: SEBI has issued an updated master circular on “Alternative Investment Funds” (AIFs). The master circular consolidates all existing circulars issued by SEBI till date. [Circular No. SEBI/HO/AFD-1/AFD-1-POD/P/CIR/2024/39, dated 7th May, 2024].

7. SEBI prescribes timeline for payment of annual charge by Depositories: SEBI has notified amendment in Regulation 9, i.e., Payment of annual charge of SEBI (Depositories and Participants) Regulations, 2018. Now, a depository shall make payment of annual charge within 15 days from the end of each month a percentage of the annual custody charges received by it from the issuers during the month. Earlier, no such timeline was prescribed. [Notification No. SEBI/LAD-NRO/GN/2024/173, dated 10th May, 2024]

8. At least one KMP among associated persons functioning as AIF manager must obtain certification from NISM: SEBI has notified an amendment to Regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007. It states that at least one key managerial personnel (KMP), amongst the associated persons functioning in the key investment team of the Manager of an AIF, must obtain certification from the National Institute of Securities Market (NISM) by passing the NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination issued by NISM. [Notification No. SEBI/LAD-NRO/GN/2024/176, dated 10th May, 2024]

9. SEBI issues updated master circular on “REITs and InvITs”: SEBI has issued an updated master circular on “Real Estate Investment Trusts” (REITs) and “Infrastructure Investment Trusts” (InvITs). This is done to enable stakeholders to have access to all applicable circulars at one place. This master circular consolidates all existing circulars issued till 15th May, 2024. [Circular No. SEBI/HO/DDHS-POD-2/P/CIR/2024/43 & 44, dated 15th May, 2024]

10. SEBI issues updated master circular consolidating all existing circulars on “Debenture Trustees”: SEBI has issued an updated master circular on “Debenture Trustees” (DTs). This circular is a compilation of all the existing circulars issued till date. This is done to enable the Debenture Trustees and other market stakeholders to access all the applicable circulars at one place. Further, Debenture Trustees are directed to comply with the conditions laid down in this circular. Also, BODs of Debenture Trustee must be responsible for ensuring compliance with these provisions. [Circular No. SEBI/HO/DDHS-POD3/P/CIR/2023/46, dated 16th May, 2024]

11. SEBI issues updated master circular on “Credit Rating Agencies”: SEBI has issued an updated master circular on “Credit Rating Agencies” (CRAs). This circular is a compilation of all the existing circulars issued till date. This is done to enable the industry and other users to access all the applicable circulars / directions at one place. The circular covers norms such as registration requirements, rating operations, reporting and disclosures, internal audits for CRAs and miscellaneous guidelines. [Circular No. SEBI/HO/DDHS-POD3/P/CIR/2023/47, dated 16th May, 2024]

12. Unverified media reports to be excluded from purview of “generally available information” under Insider norms: SEBI has notified the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2024. An amendment has been made to Regulation 2(1)(e). The definition of “generally available information” has been broadened. The term “generally available information” means information that is accessible to the public on a non-discriminatory basis and shall not include unverified events or information reported in print or electronic media. The amended norms are effective from 17th May, 2024. [Notification No. SEBI/LAD-NRO/GN/2024/181, dated 17th May, 2024]

13 SEBI allows non-individual public shareholders holding 5 per cent of post-issue capital to meet minimum promoters’ contribution: SEBI has notified the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2024. Regulation 14 relating to minimum promoters’ contribution has been amended. It states that if promoters’ post-issue shareholding is less than 20 per cent, any non-individual public shareholder holding at least 5 per cent of the post-issue capital or any entity forming part of promoter group (other than promoters) may also contribute to meet the shortfall in minimum promoters’ contribution. [Notification No. SEBI/LAD-NRO/GN/2024/178, dated 17th May, 2024]

14. Company’s share price impact due to material price movement excluded from volume-weighted average price under buyback norms: SEBI has notified the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2024. Regulation 19 has been amended. As per the amended norms, the effect on the price of the company’s equity shares due to material price movements and confirmation of reported events or information may be excluded when determining the volume-weighted average market price. The amended norms are effective from 17th May, 2024. [Notification No. SEBI/LAD-NRO/GN/2024/180, dated 17th May, 2024]

15. SEBI notifies Industry Standards on verification of market rumours: The Industry Standards Forum (ISF) comprising representatives from three industry associations, viz., ASSOCHAM, CII and FICCI, has formulated industry standards, in consultation with SEBI. The purpose is to effectively implement the requirement to verify market rumours under Regulation 30(11) of SEBI (LODR) Regulations, 2015. The industry associations which are part of ISF (ASSOCHAM, FICCI, and CII) and the stock exchanges shall publish the industry standards note on their websites. [Circular No. SEBI/HO/CFD/CFD-POD-2/P/CIR/2024/52, dated 21st May, 2024]

16. SEBI issues updated Master Circular for Research Analysts: SEBI, from time to time, has been issuing various circulars / directions to Research Analysts (RAs). In order to enable users to have access to the applicable circulars at one place, this master circular consolidating all the existing circulars on Research Analyst has been issued. The provisions of circulars issued until 15th May, 2024 have been incorporated in this master circular. [Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2024/49, dated 21st May, 2024]

17. SEBI issues updated Master Circular for Stock Brokers: SEBI, from time to time, has been issuing various circulars / directions to Stock Brokers (SBs). In order to enable users to have access to the provisions of applicable circulars at one place, SEBI has issued master circular dated 17th May, 2023 in respect of Stock Brokers, which is superseded by the instant master circular. [Master Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2024/53, dated 22nd May, 2024]

IV. FEMA

I. Regularisation permitted through compounding for partly paid units issued by AIFs before amendment allowing such issuance:

Investment funds were not permitted to issue partly paid units to non-residents. In March 2024, the FEM (Non-Debt Instruments) (Second Amendment) Rules, 2024 were notified permitting investment funds to issue partly paid units to non-residents. Under FEMA, a contravention needs to be first regularised before it can be compounded. In order to simplify the regularisation of cases where partly paid units had been issued by AIFs when it was not permitted, regularisation has been permitted through compounding. In essence, where AIFs had issued partly paid units to non-residents at the time it was not permitted, there is no separate regularisation required; the Fund can directly apply for compounding. The AD Banks have been directed to ensure that necessary administrative action, including the reporting of such issuances by Alternative Investment Funds to the Reserve Bank, through Foreign Investment Reporting and Management System (FIRMS) Portal and issuing of conditional acknowledgements for such reporting, is completed.

[A.P. (DIR Series 2024-25) Circular No. 7, dated 21st May, 2024]

II. Launch of PRAVAAH portal:

The RBI launched PRAVAAH portal. PRAVAAH is a secure and centralised web-based portal for any individual or entity to seek authorisation, license or regulatory approval. At present, 60 application forms covering different regulatory and supervisory departments of RBI have been made available on the portal. Even compounding applications can be submitted on the portal though no changes are yet made in the Compounding Proceedings Rules. This also includes a general purpose form for applicants to submit their requests which are not included in any other application form. The application can be submitted online; it can be tracked and monitored; response to RBI’s queries can be provided online and the decision of RBI can be received on the portal.

[RBI Press Release: 2024-2025/393 dated 28th May, 2024]

III. IFSCA notifies regulations for Book-Keeping, Accounting, Taxation and Financial Crime Compliance Services:

The IFSCA has notified a comprehensive framework for providers of Book-keeping, Accounting, Taxation and Financial Crime Compliance Services. Detailed guidelines have been prescribed for registration application, requirements for “Fit & Proper” criteria and Key Management Personnel, and other conditions.

[Notification No. IFSCA/GN/2024/003, Dated 4th June, 2024]

IV. RBI expands the scope of Overseas Portfolio Investment (OPI):

Two-fold expansion has been made pertaining to Overseas Portfolio Investment (OPI) by residents. Residents could make OPI in units issued by an overseas Investment fund provided it (the Fund) was duly regulated by the regulator for the financial sector in the host jurisdiction. This created practical issues due to diverse regulatory frameworks governing investment funds across various jurisdictions. The main hurdle was that many countries regulate the Investment Manager and not the Investment Fund. Para 1(ix)(e) of FEM (Overseas Investment) Directions, 2022 required that the Investment Fund should be regulated. An explanation has been inserted to this provision whereby “investment fund overseas, duly regulated” would also include funds whose activities are regulated by financial sector regulator of host country or jurisdiction through a fund manager.

Secondly, such OPI was allowed only in “units” of investment fund. This has now been expanded to permit any other instrument issued by investment funds; not only “units”.

[A.P. (DIR Series 2024-25) Circular No. 7, dated 7th June, 2024]

V. Facility to AD Banks for opening additional current account for settlement of export transactions now extended for settlement of import transactions as well:

AD Category-I banks who maintain Special Rupee Vostro Account vide A.P. (DIR Series) Circular No. 10, dated 11th July, 2022 on International Trade Settlement in Indian Rupees (INR) were earlier permitted to open an additional special current account for its constituents, exclusively for settlement of export transactions. Now, this facility has been extended for import transactions as well.

[RBI FED Circular No. 11, Dated 11th June, 2024]

Part A | Company Law

5 In the Matter of M/s EIT Services India Private Limited

Registrar of Companies, Koramangala, Bengaluru

Adjudication Order No.ROC(B)/Adj.Order/454-118(1)/EITServices/Co.No.026968/2023

Date of Order: 05th January, 2024

Adjudication Order for not properly/consecutively numbering the pages of the minute book of the Board Minutes and a few pages of the book were left blank without crossing the same with initials of the Chairman, which amounts to a violation of section 118 (1) of the Companies Act, 2013 (CA 2013) read with the Secretarial Standard — I (SS-1) issued by the Institute of Company Secretaries of India

FACTS

It was observed during an inquiry conducted by the Inquiry Officer (“IO”) for violation of section 118(1) of CA 2013 that the Minute Book of the Board Minutes of M/s ESIPL dated 19th January, 2017, 23rd December, 2017 and 23rd March, 2018 did not contain proper pagination and few pages were left blank without crossing the same with the initials of the Chairman of the Board.

The Registrar of Companies, Koramangala, Bengaluru i.e., Adjudication Officer (“AO”) issued an adjudication notice dated 24th February, 2023 to M/s ESIPL and its directors. M/s ESIPL responded vide letter dated 12th March, 2023 accepting the default stating that due to management change and oversight, there was a non-compliance of section 118 of CA 2013 read with SS-I.

Relevant provisions of CA 2013:

Section 118(1) “Every company shall cause minutes of the proceedings of every general meeting of any class of shareholders or creditors, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of the resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.”

Section 118(10) “Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.”

Section 118(11) “If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.”

AO held a physical hearing which was attended by an Authorized Representative (AR) on behalf of M/s. ESIPL and its directors and made submissions. Further, AR submitted that M/s ESIPL has made good the offence and displayed the minutes book of the Board Meetings to the AO.

HELD

AO after considering the facts of the case and submissions made, for the non-compliance of the provisions of Section 118(1) read with SS-1, in the exercise of the powers vested under section 454(3) of CA 2013 imposed a penalty in the following manner on M/s ESIPL and its directors.

The amount of penalty was ordered to be paid through the MCA website, within 90 days of the receipt of the order and to be intimated by filing Form INC-28 attaching a copy of the order and payment challans. In case of directors, such penalty amount was ordered to be paid out of their own funds.

Learning Events at BCAS

LEARNING EVENTS AT BCAS

1. Power Summit 2024 | 28th & 29th June, 2024 | Hotel Fountainhead and Imaginarium AliGunjan, Alibaug

Human Resource Development Committee of BCAS organised a two-day residential program “The Power Summit 2024” on 28th and 29th June, 2024 at Hotel Fountainhead and Imaginarium AliGunjan, Alibaug. This was the 8th season of the Power Summit with the first one being held in 2011.

Much before the last date for early bird was to end, the registrations for the Summit were full. There were many members who had even listed down their names in the Wait List. Such an overwhelming response in itself is a strong testimony of the popularity of the Power Summit amongst our members.

The Power Summit hosted 88 participants from 15 different cities. We witnessed a mixed age group of audience with members in their twenties to experienced patrons and seniors. This diversity added to the charm of the Summit. The Summit had 8 eminent faculties. The program was curated and anchored by a team of 3 esteemed members — CA Nandita Parekh, CA Ameet Patel and CA Vaibhav Manek.

This is the second year in which we continued to hold this program in residential format. The benefits in residential format was truly reaped and cherished by the participants. They got added networking opportunities and chance to have casual interactions with the faculties some of whom were present through the entire duration of the program.

The theme for the Power Summit was “Walk the Talk | Leverage AI, Technology, Capital & Collaboration”. All the sessions had been strategically crafted around this theme.

The presentations by the faculties over the two days were creative, intriguing and intertwined in a way that all the participants came back with good food for thought and also a zeal to walk forward on the growth trajectory.

The program on Day 1 started with a panel discussion on the topic of Leadership Quotient for CA Firms. CA Hitesh Gajaria and CA Milan Mody shared their journeys as panellists and candidly explained the challenges of leading a CA firm. The session was moderated by CA Nandita Parekh.

In the next session, CA J. K. Shah shared his entrepreneurial journey and inspiring everyone by touching upon the values of Courage, Conviction and Commitment.

The next session was creatively crafted by CA Vaibhav Manek in the form of a Workshop. A mock Merger Lab had been organized wherein 4 CA Firms from amongst the participants were selected and divided in group of two firms each in advance. Each group was asked to stimulate a scenario wherein they have approached each other for a potential merger. The discussions that they would have carried out in a closed meeting room was stimulated and held on stage for all the participants to observe. This gave everybody an exposure on how the real-life merger discussions take place.

The last session for the day was a power packed session on Partnering with Technology for Growth by CA Lalit Valecha and CA Rajeev Sharma. They shared their experiences and introduced the Technology Best practices for CA Firms. This session continued late into the evening and yet saw a packed house till the very end.

While Day 1 of the Summit was hosted at Hotel Fountainhead, the Day 2 of Summit was hosted at Imaginarium AliGunjan. Imaginarium AliGunjan is a state-of-the-art research facility developed by Nishith Desai Associates in Alibaug. The philosophy of Blue Sky with which the research centre has been developed inspired our participants and added to their zeal for sessions to be hosted on this Day.

Day 2 began with a session by CA Aniket Talati. He shared insightful statistics around the composition of our current fraternity and the direction in which our fraternity and the profession is moving. He also reminded the participants about the Prime Minister’s wish to have large Indian firms emerging from amongst the existing firms.

The next session was by CA Dinesh Kanabar who shared his own journey and experiences of how one can navigate or sail through the Winds of Change.

The last session of the Summit focused on the new age HR practices for professional services firms. The session was led by Pakzad Nussirabad who has headed the HR function in various organisations in the past including a CA firm. He gave useful inputs to the participants on people management and how to face the challenges of a multi generational workforce.

The Power Summit was concluded with the closing bell session from CA Nandita Parekh, CA Ameet Patel and CA Vaibhav Manek summarising the learnings of the two days and motivating everyone to carry on the energy and zeal and take necessary action on their growth trajectory. They also thanked the convenors and other members of the HRD Committee for the excellent work done in organising the Summit.

The interest of the participants was evident in terms of the involved discussions and the large number of questions raised during and after each session and also during the casual networking interactions.

The Summit succeeded in generating a lot of interest amongst the participants thereby motivating them to strategically plan for their growth. The participants were extremely thankful to the organising team for the excellent work done by them and for providing a top-quality program to them. All the participants graciously shared their Testimonies and Gratitude over WhatsApp group and Social Media platforms.

2. Webinar on Use of Technology for Practice Management in CA Firm held on 18th May, 2024 Zoom Online Meeting

The Technology Initiatives Committee of BCAS conducted a Webinar on “Webinar on Use of Technology for Practice Management in CA Firm” on 18th May, 2024. The webinar was aimed enlightening the participants on how to improve a CA Firm’s practice management techniques through the use of technology.

The webinar began with CA Rahul Bajaj explaining the dashboard of the Practice Management Software BIZALYS. He demonstrated the features of the cloud based software like minimal data entry, auto work flow reports, automated reminders to clients and staff, branch and team management, document management, departmental hearing notices management, billing and receivables, appointment, library base etc. The speaker also answered multiple questions and addressed doubts of the participants.

In the second part of the webinar Mr Kshitiz Bharti, explained the features of MyTasksoftware. He demonstrated the management problems faced by the practicing professional firms and the benefits of using technology with enhanced tracking and control. He further elaborated the unique offerings of the software like Income Tax Return Status checker, geo location based attendance, client portal, GST return status tracker etc.

Key takeaways for the participants from the webinar:

  • With increasing complexity in the various laws of the land and with multiple due dates to be taken care of, it is risky to continue to rely on manual ways of managing one’s practice.
  • Various practice management software available in the market enable CAs to put in place proper processes and rules for carrying out each task in each assignment that the firm takes up
  • Exploring the latest trends and advancements in CA practice management software.
  • Understanding how automation can enhance productivity and reduce manual errors.
  • Demonstration of the features and dashboards of the software
  • Real-life case studies showcasing the transformative impact of software’s on CA Firm operations.

The webinar had 100+ participants from more than 35 cities.

3. ITF Study Circle Meeting held on Friday, 17th May, 2024 in Hybrid mode at BCAS.

Discussion on Case Study 1 of the ITF Conference Paper II: Unraveling GAAR, SAAR, PPT and LOB – Overlap and Intricacies by CA H Padamchand Khincha. The meeting was attended by approximately 28 participants.

The International Tax and Finance Study Circle organised a meeting (hybrid mode) on 17th May, 2024 to discuss the implications and different viewpoints of Case Study 1 of the ITF Conference Paper II

  • The basic facts of the Case Study were summarised.
  • Discussions began on various questions in the Case Study.
  • Several members expressed divergent views on various issues.
  • Various rulings and interpretations with respect to GAAR provisions were discussed.
  • Some members shared their experiences dealing with GAAR provisions.
  • Divergent views on different issues were well summarised.

Speaker: CA Rohit Jethani

4. Workshop on Positive Parenting held virtually on 21st April, 2024, 28th April, 2024 and 5th May, 2024.

The Human Resources Development Committee organised a workshop on “Positive Parenting” on 21st April, 28th April and 5th May, 2024. It was attended by 48 participants.

The faculty, Rev Fr Patrick D’Mello, Dr Janice Morais and Dr Sheryl John showed how parents can enjoy with their kids at the same time bring out the best in them.

The takeaways from the workshop are briefly given below:

1. “A child is the beauty of God’s presence in the world, the greatest gift to a family.” – Mother Teresa

2. The old ways of disciplining — shouting, correcting, spanking, punishing don’t work. They impact the children negatively. They are replaced by new ways — positive incentives, contracts, empathy, environmental control, curiosity questions, ‘and’ and not ‘but’.

3. The parenting process — holding, reassuring and letting go has to be age appropriate.

4. Various problems can be solved by “connect” and “skill-building” techniques

5. How to deal with internet addiction, excessive video games, and gadgets.

6. Spend time with children on activities that will have beneficial effects for their growth and success.

7. Positive parents nurture, discipline and respect their children
8. Universal problems like excessive mobile use, no motivation, disrespect & lying were discussed and the ways to deal with them were shown.

9. Important to be aware of the common mental health problems and seek help for the same.

10. Understanding that annoying and irritating behaviour are not misbehaviour.

11. Encourage children to express themselves and not to whine.

A lot was taught, enabling parents to use new strategies to get children to become more disciplined and grow to their full potential.

5. CAMBA Certified Management Programme for CAs held on 12th to 14th April, 2024 @ ATLAS SkillTech University Mumbai

These represent CAMBA — a certified Management Programme for CAs organised by BCAS in association with the ATLAS SkillTech University, mentored by CA Naushad Panjwani and designed by Dr Chetana Asbe. Approximately 90 participants from over 20 cities attended 10+ enjoyable sessions.

It was a unique program where CAs from across the country gathered not to enhance their technical skills but to dive into the nuances of personal and professional growth. From 12th to 14th April, 2024, participants embarked on an immersive journey designed to stretch their minds and broaden their perspectives. Sessions spanned topics like ‘AI for non-technical professionals’, ‘Leadership Ascendancy’ and ‘Design thinking for goal setting’. What truly set CAMBA apart was its hands-on, experiential approach to learning. Attendees didn’t just passively absorb information; they actively engaged in real-world scenarios, solving challenges, and refining their skills in real-time.

But it wasn’t all business. In between sessions, participants bonded over unique experiences like a Heritage City Bus Tour and a delightful Food Crawl, fostering connections that transcended professional boundaries.

A standout feature was the Speed Mentoring sessions, where eager young professionals had the invaluable opportunity to tap into the wisdom of seasoned experts, gaining insights that textbooks alone could never offer.
CAMBA wasn’t just a program; it was a holistic journey of growth, camaraderie, and enlightenment — an experience that left participants not just better professionals, but better equipped to navigate the ever-evolving landscape of the professional world with poise and confidence.

6. Suburban Study Circle Meeting on “Issue-based study and discussion on Section 44AD & 44ADA” on 7th June, 2024 at C/o Bathiya & Associates LLP, Andheri (E), Mumbai.

Suburban Study Circle Meeting on “Issue-based study and discussion on Section 44AD & 44ADA”, was led by CA Viral Shah as Group Leader under the Guidance of CA Ketan Vajani.

In a comprehensive and insightful session, CA Viral Shah, under the chairmanship of CA Ketan Vajani, elucidated the intricacies of Sections 44AD and 44ADA of the Income Tax Act. The session focused on the provisions, applicability, and critical issues related to these sections, which are designed to simplify the taxation process for small businesses and professionals. The meeting was attended by approximately 20 participants. They shared their views on the following:

  • Overview of Sections 44AD and 44ADA
  • Eligibility and Conditions
  • Computation of Income
  • Advantages and Limitations
  • Practical Scenarios and Case Studies
  • Recent Amendments and Judicial Pronouncements

During the course of an engaging question-and-answer segment, participants raised queries about specific concerns and received expert advice from CA Viral Shah and CA Ketan Vajani.

The session was highly informative, providing attendees with a thorough understanding of Sections 44AD and 44ADA. Both speakers effectively highlighted the benefits of these presumptive taxation schemes while also cautioning about potential issues, ensuring that professionals and small business owners are better equipped to make informed decisions regarding their tax filings.

Arbitration Clauses in Unstamped Agreements

INTRODUCTION

An agreement often contains a clause for arbitration. An agreement is an instrument under the meaning of the Stamp Act and if it falls within the Articles contained in the Schedule to the Stamp Act, then the agreement needs to be stamped. An interesting question arose as to what would be the status of the arbitration clause in an event where the underlying agreement itself is inadequately stamped? Would the reference to arbitration survive since the main agreement itself is not properly stamped? A seven-judge Bench has given its final opinion on this issue in the case of Re Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 And The Indian Stamp Act 1899 Curative Pet(C) No. 44/2023 In R.P.(C) No. 704/2021 In C.A. No. 1599/2020.

Judicial History

A three-judge Bench of the Supreme Court in its decision N N Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. (2021) 4 SCC 379 held that an arbitration agreement, being separate and distinct from the underlying commercial contract, would not be rendered invalid, unenforceable, or non-existent. The Court held that the non-payment of stamp duty would not invalidate even the underlying contract because it is a curable defect.

However, this decision of the Supreme Court was at variance with an earlier decision of a co-ordinate bench of the Court in the case of Vidya Drolia vs. Durga Trading Corporation (2021) 2 SCC 1. In that case, the Court had held that an agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. Accordingly, it was concluded that an arbitration agreement does not exist if the agreement is illegal or does not satisfy mandatory legal requirements. It concluded that an invalid agreement is no agreement.

Reference to Larger Bench

The Supreme Court in NN Global (supra) noted the earlier contrary decision and hence, referred the matter to a larger five-judge bench of the Supreme Court. The question framed was whether non-payment of stamp duty would also render the arbitration agreement contained in such an instrument, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument.

The five-judge Bench in N N Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd 8 (2023) 7 SCC 1,by a majority of 3:2, held that the earlier decision in NN Global (supra) did not represent the correct position of law. It concluded that:

(a) An unstamped instrument containing an arbitration agreement was void under the Contract Act;

(b) An unstamped instrument, not being a contract and not enforceable in law, could not exist in law. The arbitration agreement in such an instrument could be acted upon only after it was duly stamped;

(c) The “existence” of an arbitration agreement contemplated under the Arbitration Act was not merely a facial existence or existence in fact, but also “existence in law”;

(d) The Court acting under the Arbitration Act could not disregard the mandate of the Stamp Act requiring it to examine and impound an unstamped or insufficiently stamped instrument; and

(e) The certified copy of an arbitration agreement must clearly indicate the stamp duty paid.

Curative Petition

Subsequent to the above five-judge Bench Decision, several other cases reached other three-judge and five-judge Benches of the Apex Court on the same issue. Considering the larger ramifications and consequences of the five-judge decision in the 2nd NN Global Case, a curative petition was referred to a seven-judge Constitution Bench of the Supreme Court. It was requested to reconsider the correctness of the view of the five-judge Bench.

Verdict of seven-Judge Bench

Scheme of Stamp Act

The Court analysed the entire framework of the Indian Stamp Act, of 1899 (which was the charging Stamp Act in the case at point). It noted that section 17 of the Stamp Act provided that all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution. Section 62 inter alia penalised a failure to comply with Section 17. However, despite the mandate that all instruments chargeable with the duty must be stamped, many instruments were not stamped or are insufficiently stamped. The parties executing an instrument may, contrary to the mandate of law, attempt to avoid the payment of stamp duty and may therefore refrain from stamping it. Section 33 provided that every person who has authority to receive evidence (either by law or by consent of parties) shall impound an instrument which is, in their opinion, chargeable with duty but which appears to be not duly stamped. The power under Section 33 may be exercised when an instrument is produced before the authority or when they come across it in the performance of their functions. In terms of Section 35, an instrument which was not duly stamped was inadmissible in evidence for any purpose and it shall not be acted upon, registered, or authenticated. The Collector was conferred with the power to impound an instrument under Section 33. If any other person or authority impounded an instrument, it must be forwarded to the Collector under clause (2) of Section 38. The Collector may also levy a penalty, as provided.

It noted that in terms of Section 42 of the Stamp Act, an instrument was admissible in evidence once the payment of duty and a penalty (if any) was complete. Once an instrument has been endorsed, it may be admitted into evidence, registered, acted upon or authenticated as if it had been duly stamped.

Section 36 of the Stamp Act provided that where an instrument was admitted in evidence, the admission of an instrument was not to be questioned at any stage of the same suit or proceeding on the ground that the instrument was not duly stamped.

Difference between inadmissibility and voidness

It held that the admissibility of an instrument in evidence was distinct from its validity or enforceability in law. The Contract Act provided that an agreement not enforceable by law was said to be void. The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence. An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence. Similarly, an agreement can be valid but inadmissible in evidence.

A very important distinction was made by the Court as follows:

“When an agreement is void, we are speaking of its enforceability in a court of law. When it is inadmissible, we are referring to whether the court may consider or rely upon it while adjudicating the case. This is the essence of the difference between voidness and admissibility.”

Unstamped does not mean Void

The Court held that the effect of not paying duty or paying an inadequate amount rendered an instrument inadmissible and not void. Non-stamping or improper stamping did not result in the instrument becoming invalid. The Stamp Act did not render such an instrument void. The non-payment of stamp duty was accurately characterised as a curable defect. The Stamp Act itself provided for the manner in which the defect may be cured and set out a detailed procedure for it. The Court observed that there was no procedure by which a void agreement can be “cured.”

The Supreme Court held that in Hindustan Steel Ltd. vs. Dilip Construction Co. (1969), 1 SCC 597 held that the provisions of the Stamp Act clearly provided that an instrument could be admitted into evidence as well as acted upon once the appropriate duty had been paid and the instrument was endorsed.

The Court held that the negative stipulations in Sections 33 and 35 of the Stamp Act were specific, albeit not so absolute as to make the instrument invalid in law. A “void ab initio” instrument, which was stillborn, had no corporeality in the eyes of law. It did not confer or give rights or create obligations. However, an instrument which was “inadmissible” existed in law, albeit could not be admitted in evidence by such person, or be registered, authenticated or be acted upon by such person or a public officer till it was duly stamped.

An instrument which is void ab initio or void, could not be validated by mere consent or waiver unless consent or waiver undid the cause of invalidity. However, after due stamping as per the Stamp Act, the unstamped or insufficiently stamped instrument could be admitted in evidence, or be registered, authenticated or be acted upon by such person.

It held that to hold that an insufficiently stamped instrument did not exist in law will cause disarray and disruption.

Harmonious Construction

The Court stated that the challenge before it was to harmonize the provisions of the Arbitration Act and the Stamp Act. The object of the Arbitration Act was to inter alia ensure an efficacious process of arbitration and minimize the supervisory role of courts in the arbitral process. On the other hand, the object of the Stamp Act was to secure revenue for the State. It was a cardinal principle of interpretation of statutes that provisions contained in two statutes must be, if possible, interpreted in a harmonious manner to give full effect to both the statutes — Jagdish Singh vs. Lt. Governor, Delhi, (1997) 4 SCC 435. The challenge, therefore, before the Court was to preserve the workability and efficacy of both the Arbitration Act and the Stamp Act.

Supremacy of Arbitration Act

The Apex Court laid down an important principle that the Arbitration Act was legislation enacted to inter alia consolidate the law relating to arbitration in India. It will have primacy over the Stamp Act and the Contract Act in relation to arbitration agreements.

The Arbitration Act was a special law and the Indian Contract Act and the Stamp Act were general laws and it was a settled proposition that a general law must give way to a special law — LIC vs. D.J. Bahadur 7 (1981) 1 SCC 315.

The issue in this case was not whether all agreements were rendered unenforceable under the provisions of the Stamp Act but whether arbitration agreements, in particular, were unenforceable. Hence, the special law in this case was the Arbitration Act. The Court held that the Arbitration Act was a special law in the context of the case because it governed the law on arbitration, including arbitration agreements — Section 2(1)(b) and Section 7 of this statute defined an arbitration agreement. In contrast, the Stamp Act defined ‘instruments’ as a whole and the Contract Act defined ‘agreements’ and ‘contracts.’ As observed by the Supreme Court in Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd (2022) 1 SCC 75, “the Arbitration Act is a code in itself’.

It further observed that the Arbitration Act contained a non-obstante clause in section 5 by virtue of which must take precedence over any other law for the time being in force. Any intervention by the courts (including impounding an agreement in which an arbitration clause is contained) was, therefore, permitted only if the Arbitration Act provided for such a step, which it did not. The five-judge Bench held that this non-obstante clause did not mean that the operation of the Stamp Act, in particular, the power to impound would not have any play. The Constitutional Bench of the Supreme Court disagreed with this view and held that section 5 was rendered otiose by the aforesaid interpretation. The Court held that it must be cognizant of the fact that one of the objectives of the Arbitration Act was to minimise the supervisory role of courts in the arbitral process.

It also held that Parliament was aware of the Stamp Act when it enacted the Arbitration Act. Yet, the latter did not specify stamping as a pre-condition to the existence of a valid arbitration agreement.

The Arbitral Tribunal had full Powers

The Supreme Court held that section 16 of the Arbitration Act, empowered the arbitral tribunal to rule on its own jurisdiction. This included the authority to decide the existence and validity of the arbitration agreement. As per Section 16, an arbitration agreement was an agreement independent of the other terms of the contract, even when it was only a clause in the underlying contract. The section specifically stated that a decision by the arbitral tribunal holding the underlying contract to be null and void did not lead to ipso jure the invalidity of the arbitration clause. The existence of an arbitration agreement was to be ascertained with reference to the requirements of the Arbitration Act. In a given case the underlying contract may be null and void, but the arbitration clause may exist and be enforceable. The invalidity of an underlying agreement may not, unless relating to its formation, result in invalidity of the arbitration clause in the underlying agreement.

The Court held that it was the arbitral tribunal and not the court which may test whether the requirements of a valid contract and a valid arbitration agreement were met. If the tribunal found that these conditions were not met, it would decline to hear the dispute any further. If it found that a valid arbitration agreement existed, it may assess whether the underlying agreement was a valid contract.

The Court held that once the arbitral tribunal has been appointed, the Tribunal will act in accordance with the law and proceed to impound the agreement under Section 33 of the Stamp Act if it sees fit to do so. It has the authority to receive evidence by consent of the parties, in terms of Section 35 of the Stamp Act. The procedure under Section 35 may be followed thereafter. The arbitral tribunal continues to be bound by the provisions of the Stamp Act, including those relating to its impounding and admissibility. The interpretation of the law in this judgment ensures that the provisions of the Arbitration Act are given effect while not detracting from the purpose of the Stamp Act.

The interests of revenue were not jeopardised in any manner because the duty chargeable must be paid before the agreement in question was rendered admissible and the dispute between the parties adjudicated. The question was at which stage the agreement would be impounded and not whether it would be impounded at all.

The seven-judge Bench held that the decision of the five-judge Bench in N N Global 2 (supra) gave effect exclusively to the purpose of the Stamp Act. It prioritised the objective of the Stamp Act, i.e., to collect revenue at the cost of the Arbitration Act). The impounding of an agreement which contained an arbitration clause at the stage of the appointment of an arbitrator under Section 11 (or Section 8 as the case may be) of the Arbitration Act will delay the commencement of arbitration. It was a well-known fact that Courts were burdened with innumerable cases on their docket. This had the inevitable consequence of delaying the speed at which each case progressed. Arbitral tribunals, on the other hand, dealt with a smaller volume of cases. They were able to dedicate extended periods of time to the adjudication of a single case before them. It concluded that if an agreement was impounded by the arbitral tribunal in a particular case, it was far likelier that the process of payment of stamp duty and a penalty (if any) and the other procedures under the Stamp Act were completed at a quicker pace than before courts.

Conclusive Findings

The Supreme Court summarised its findings as follows:

(a) Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable;

(b) Non-stamping or inadequate stamping is a curable defect;

(c) An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;

(d) Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and

(e) The five-judge decision in NN Global stood overruled on this issue.

Epilogue

This is a very good decision by the Apex Court which will uphold arbitrations rather than referring disputes to lengthy and time-consuming Court procedures.

Allied Laws

16 Atanu Mondal vs.The State of West Bengal and Ors.

AIR 2024 Calcutta 144

9th January, 2024

Auction of property — Sale Certificate issued by Bank officer — Market Value higher than bid value — Bank Officer deemed to be a Revenue Officer — Stamp duty payable on Bid value and not Market value. [S. 47A, Stamps Act, 1899].

FACTS

A property was set up for auction by the United Bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2022 (SARFAESI Act). The Appellant emerged as the highest bidder and purchased the property at ₹39,00,000/-. The Authorised Officer of the bank issued a sale certificate to appellant after payment was made by the appellant. However, during registration of the said property, the stamp duty officer ascertained the market value of the property at ₹1,71,19,140/- and directed the Appellant to pay stamp duty at 6 per cent on the ascertained market value of the property as against the purchased value. Aggrieved, the appellant filed a writ petition before the Hon’ble Calcutta High Court (Single Bench). The Hon’ble Court dismissing the petition, held that the registration authority was empowered under section 47A of the Stamps Act, 1899 (Stamps Act) to determine the correct market value of the property and calculate the stamp duty payable thereon.

Aggrieved by the said order, an appeal was filed before the division bench of the Hon’ble Calcutta High Court.

HELD

The Hon’ble Court observed that the property was sold in an auction by the bank under the provisions of the SARFAESI Act. Further, an Authorised Officer of the bank conducting such a sale shall be deemed to be a Revenue Officer and a certificate issued by him shall be evidence of sale. Furthermore, the Court noted that such a sale by a revenue officer is exempted from the provision of section 47A of the Stamps Act. Furthermore, the Court also noted the market value of the property is a changing concept and the value fetched after it is sold in the open market pursuant to advertisement and publication, the invitation of bids shall be exempted from scrutiny under the Stamps Act. Thus, the appeal was allowed.

17 Sivarajan vs. Jagadamma

AIR 2024 (NOC) 372 (KER)

6th December, 2023

Will or Gift Deed — Entire property rights transferred — Only life interest was reserved to reside — Gift deed — No saleable rights after property transferred / gifted. [S. 63, Succession Act, 1925; S. 122, Transfer of Property Rights, 1882].

FACTS

The Plaintiff (Respondent- Jagadamma) had instituted a suit for declaration of title and peaceful possession of property against the Defendant (Appellant – Sivarajan). The Plaintiff, relying on a gift deed, had contested that the property in dispute was allegedly gifted to her by her mother. Whereas, Defendant had contested that the said property was sold to her by the mother of Plaintiff through a conveyance deed. Further, the Defendant also contested that the alleged gift deed was actually a Will and not a gift deed. Furthermore, the Defendant also contested that the time period for instituting the said suit began immediately after the death of her mother. Thus, since the suit was instituted after a period of three years from the death of the mother, the Defendant contended that the said suit was barred by limitation as per the provisions of the Article 58 of the Schedule of the Limitations Act, 1963 (Act).

HELD

The Hon’ble Kerala High Court observed that the alleged deed / Will gave the entire rights of the property to the Plaintiff. Further, only life interest was reserved by the mother of the Plaintiff to reside in the house until death. Thus, the Hon’ble Court concluded after relying on section 122 of Transfer of Property Rights, 1882 that the document was in fact a gift deed and not a Will. Further, the Hon’ble Court held that once the property was gifted to the Plaintiff, she (mother) had no saleable interest in the property and thus, the conveyance deed would not have any legal effect. Furthermore, the Hon’ble Court held that the period of limitation shall be as per the provisions of Article 65 (providing limitation period for suit for possession based on title) of the Schedule of the Act, i.e., a period of twelve years from the date of death of the mother and not as per Article 58 (providing limitation period for suit for obtaining a declaration) of the Act.

Thus, the appeal of the Defendant was dismissed.

18 Ramesh Tiwary vs. Sheo Kumari Devi

AIR 2024 (NOC) 393 Patna

3rd May, 2023

Power of Attorney — Attorney holder cannot depose for the acts of Principal — Spouse of the parties to the suit — Can depose as a witness to the extent of personal knowledge. [O. 3, R. 1 and 2, Code for Civil Procedure, 1908; S.120, Indian Evidence Act, 1872].

FACTS

The Respondent (Original Plaintiff) had instituted a suit against the Appellant (Original Defendant) for declaration of title over a property. Since the Plaintiff was an eighty-year-old woman suffering from various diseases, she had executed a power of attorney in favour of her husband (Respondent no. 2) to adduce evidence on her behalf. The Appellant, however, objected by relying on Order 3, Rules 1 and 2 of the Code for Civil Procedure, 1908 (CPC) that a power of attorney holder can adduce evidence or depose for the principal only in respect of acts done by the attorney holder in pursuance to said power. Further, the Appellant also argued that an attorney holder cannot depose on behalf of the principal in respect of acts done by the principal itself or where the principal is the only person who has personal knowledge about the facts. However, the Learned Trial Court dismissed the objections of the Appellant and allowed Respondent No. 2 to adduce evidence on behalf of her wife (Original Plaintiff).

Aggrieved by the said dismissal, a Civil Miscellaneous Application was filed under Article 227 of the Constitution before the Hon’ble Patna High Court.

HELD

The Hon’ble Patna High Court observed that Order 3, Rules 1 and 2 of the CPC restricted an attorney holder to adduce evidence only in respect of acts done by itself. However, the Hon’ble Court also noted that section 120 of the Indian Evidence Act, 1872 empowers the spouse of the parties to the suit to depose as a witness. Therefore, the Hon’ble Court held that Respondent No. 2 cannot adduce evidence in place of his wife (Original Plaintiff) but can adduce evidence as a witness only to the extent of his personal knowledge.

Thus, the Miscellaneous Application was partially allowed.

19 People Welfare Society vs. State Information Commissioner and Ors.

AIR 2024 Bombay 54 (Nagpur Bench)

1st March, 2024

Right to Information — Supply of Information — Public Trust running educational institution from government fund/grant — Substantial grant — Duty bound to provide information about the educational institution — Charity Commissioner is not bound to supply information regarding Public Trust — [S. 2(h), 4, 6 – Right to Information Act, 2005; S. 18, Maharashtra Public Trust Act,1950].

FACTS

The moot question which was referred to the full bench of the Hon’ble Bombay High Court (Nagpur Bench) was whether a public trust registered under the provisions of Maharashtra Public Trusts Act, 1950, which is running an educational institution and receiving a grant from the state is duty bound to supply information sought from it under the provisions of Right to Information Act (RTI Act)?

HELD

The Hon’ble Bombay High Court held that if the information solicited under the RTI Act is regarding the Public Trust, which has not received substantial government largesse to implement the aims of the Public Trust, then, in that case, there is no obligation to supply information if that Public Trust does not fall within the ambit of section 2(h) of the RTI Act. Further, the Hon’ble Court also held that in case the information is solicited in respect of an educational trust or other institution, which is run by that Public Trust, in case financial support from the government is found to be substantial, (which is a plea to be decided by the Information Commissioner), information relating to such Educational or other Institutions can be directed to be supplied. Furthermore, the Charity Commissioner would also not be legally obliged to supply such information, which may be collected by him, in respect of the Public Trust, under the provisions of the Maharashtra Public Trusts Act, 1950 in case such information falls under the exempted category mentioned in Section 8(j) of the RTI Act and the demand does not have statutory backing.

20 Vivek Jain vs. Deputy Commissioner vs. Ors

2024 LiveLaw (Kar) 248

4th June, 2024

Gift Deed — Father to son — Property — Gift cannot be cancelled for failure to maintain if no condition is specified in the Gift deed to maintain father. [S. 23, Maintenance and Welfare of Parents and Senior Citizen Act, 2007].

FACTS

Respondent No. 3 (father) had gifted a property by way of a gift deed to his son (Respondent No. 4). Thus, Respondent No. 4 became a lawful owner of the property. Subsequently, Respondent No. 4 sold the property by way of a sale deed to the Petitioner. Two years after the sale deed, the father (Respondent No. 3) filed an application before the Learned Assistant Commissioner under section 23 of the Maintenance and Welfare of Parents and Senior Citizen Act, 2007 (Act) to set aside the gift deed and the subsequent sale deed. The Learned Assistant Commissioner observed that the son (Respondent No. 4) had failed to maintain his father, thus, he cancelled the said gift deed and subsequent sale deed.

Aggrieved by the said order, a Petition was filed by the Purchaser of the property (the Petitioner) before the Hon’ble Karnataka High Court.

HELD

The Hon’ble Karnataka High Court observed that section 23 of the Act mandates for a condition to be mentioned in the gift deed for maintaining the father. Thus, in absence of any such condition mentioned in the gift deed, the Hon’ble Court quashed the order of the Learned Assistant Commissioner.

The Petition was allowed.

BCAS Foundation Annual Activities Report – 2023–2024

The Board of Trustees of the BCAS Foundation are pleased to present the Annual Report of the activities of the Foundation during the Financial Year 2023–2024.

The year witnessed many activities during the financial year with the help of volunteers and joint projects with the Human Resource Development Committee of the Bombay Chartered Accountants’ Society (BCAS). The list of activities and their impact analysis are given below:

1. Children’s Education

1.1 Digital Classrooms at Vevji, Talasari

BCAS Foundation has undertaken various projects in the Vevji area of Talasari, Maharashtra and Umbergaon, Gujarat for the benefit of tribal and other poor children.

There is an acute shortage of teachers in the Talasari area and therefore, the Foundation set up 25 digital classrooms in 11 schools in the Vevji area. Each digital classroom comprises a TV Screen and preloaded content of the curriculum of standards 1 to 10 of the SSC Board, Maharashtra. In the absence of teachers, students learn on their own with the help of digital classrooms. The project was launched on 28th January, 2023 with the help of the Rushabh Foundation and is working very well. About 1900 students will benefit every year from this project.

1.2 Distribution of Notebooks to Children at Govandi — Mankhurd

BCAS Foundation distributed 4000 notebooks to needy children studying in Municipal Schools in the Govandi — Mankhurd areas, Mumbai, with the help of Dharma Bharati Mission (DBM).

Along with DBM, the Foundation had also been engaged in a project of “Chalo English Sikhaye” for the students at Vernacular Medium Schools of Govandi — Mankhurd areas.

1.3 Educational Tailormade Games / Toys at Arch Foundation, Valsad1

Balvadi is a kind of experimental platform which not only provides interactive processes to the children but also becomes an idea exchange ground for the persons interested in assisting young kids in their foundational journey.

With the help of BCAS’s contribution, Arch Foundation earlier made a number of wooden blocks and prepared other materials which helped a number of children. Wooden Blocks and building open-ended structures, Rollers, and Water play have got children interested in trying out various structures themselves.

1. Five of the short videos of physical knowledge activities.

https://drive.google.com/drive
folders/19cIkxc0n0uNp4we12LD90MAwg6hmdrhp?usp=drive_link

This year with BCAS Foundation helped in developing some other things — indoors and outdoors in preschool and the surrounding external campus. Arch Foundation provides objects and playthings so that children act on them and create their own knowledge. Some of these interesting play games are as follows:

Balance Beam

The balance beam enables kids to be challenged while improving balance and coordination. Kids improve vestibular balance, movement coordination, and concentration while understanding their body’s centre of gravity. The balance beam also helps to improve self-confidence, learning stability and sense of reaction. Balance is fundamental in all human movement. Research shows that balance skills help children to develop better language, improve reading and writing skills, and improve concentration and body control. In practising new skills in all sports and physical activity, balance is the most essential.

Wooden Wobble Board

Due to the sturdy, design of a balance board, children will support their physical development, practice spatial awareness, and strengthen coordination as they balance.

Playgrounds offer many benefits and childhood opportunities. Playground equipment and child development are closely linked. Children can work on their mental and emotional development by building confidence as they master play equipment such as swings and slides. They can also build social skills as they learn to share, take turns and play together.

Incline

The popularity of slides on playgrounds indicates that young children are naturally interested in incline. Incline seemed particularly rich in potential in physical knowledge activity because children wonder how objects move at different speeds by letting them go without applying any force to them and at different angles and this wonderment builds up their learning.

2.0 Solar Panels at Vraj Hostel, Kaprada, Gujarat — A Green Initiative by BCAS

Sparsh Foundation: Vraj Hostel: Solar Efficient Vraj is home to 20 boys between the ages of 8–14 years, most of whom belong to poor families. The hostel is situated at Tetbari, Kaprada District and the closest city is Vapi, which is 60+ km. away.

BCAS Foundation funded the Solar set up which will make the Hostel a Green Project.

3.0 Tree Plantation Drive

As we celebrate our 75th anniversary, the BCAS Foundation proudly launched a significant green initiative, planting 7,500 trees in Banaskantha, Gujarat, which we now call BCAS वन (Forest). We are deeply grateful to our CSR Donors, Omkara Asset Reconstruction Private Limited and Siyaram Silk Mills Ltd. The Van was created with the support of Vicharta Samuday Samarthan Manch (VSSM) and we are extremely thankful to them. We express our gratitude and sincerely appreciate generous contributions from our various donors.

75 trees were planted by the volunteers of BCAS Foundation at the divine land of Siddh Guru Pith (Proposed), (Courtesy: MaBap Foundation) at Nivari Faliya, Bathi Karambeli, Sanjan, Umargaon.

4.0 INTERNATIONAL YOGA DAY CELEBRATIONS

BCAS Foundation along with MaBap Foundation celebrated International Yoga Day on 21st June, 2023 at the Prestige Banquets, Andheri East, Mumbai 400069 from 7 am to 9 am. About 30 people participated and benefited. Yoga Teacher Pradeep Thakkar, a volunteer of the MaBap Foundation conducted the session. CA Gracy Mendes and CA Anand Kothari coordinated the event with the support of BCAS staff and volunteers of the MaBap Foundation.

5.0 OTHER HELPS

Some other activities of the Foundation

During the year the Foundation extended medical and educational help to needy students and family members of the BCAS staff. The foundation also became instrumental in carrying out 50 cataract operations for poor people in Vansada, Gujarat.

We take this opportunity to thank all our donors, volunteers, sister NGOs, office bearers of schools, Office Bearers and the Staff of BCAS, and participants of all conferences / seminars at BCAS for their continued support and encouragement to carry out some noble work to make a positive difference to the world. We also thank all beneficiaries, and children for giving us an opportunity to serve you.

We welcome suggestions and request volunteers to contact us at om1@bcasonline.org.

Best Regards,
For BCAS Foundation

Trustees

Article 11 of India-Cyprus DTAA — Assessee is the beneficial owner of income if it has the right to receive and enjoy interest income without any obligation to pass on income to any other person.

7 [2024] 162 taxmann.com 766 (Delhi — Trib.)

Little Fairy Ltd vs. ACIT

ITA No: 1513/Del/2022

A.Y.: 2017–18

Dated: 15th May, 2024

Article 11 of India-Cyprus DTAA — Assessee is the beneficial owner of income if it has the right to receive and enjoy interest income without any obligation to pass on income to any other person.

FACTS

Assessee, a tax resident of Cyprus, invested in Compulsorily Convertible Debentures (CCDs) of an Indian Company (ICO). In terms of India-Cyprus DTAA, the assessee offered a gross amount of interest on CCDs to tax @10 per cent. AO held that the assessee was not the beneficial owner of income as (a) the Assessee had not performed any activity in Cyprus; (b) there were other companies having the same registered address; and (c) the Assessee was merely a conduit for channelizing the funds invested in CCDs. Accordingly, AO charged tax @40 per cent on the interest income of the assessee.

On appeal, CIT(A) confirmed the order of AO. Being aggrieved, the assessee appealed to ITAT.

HELD

ITAT held that the assessee is the beneficial owner of income on account of the following facts:

  •  The Assessee had taken the following decisions in its Board meeting held in Cyprus:

               (a) Decision to invest in ICO. (b) Declaration of dividend to its sole shareholder.

  •  The parent company by itself does not become the beneficial owner of income because it does not get any right over the assets of the assessee.
  •  The Assessee made an investment in CCD’s of ICO in its own name through proper banking channels. Unlike in the case of manufacturing and trading businesses where a person is required to undertake business activity, after making an investment, no activity is required since the investment may fetch either interest or capital gains to the assessee without doing anything.
  •  The Assessee being an investment company, does not require any personnel other than directors on its payroll to carry out day-to-day operations. The Directors of the assessee company were qualified and competent to run the company and make its business investment decisions. Furthermore, the assessee had availed services of a professional administrator for general administration, such as book-keeping, company secretarial services, etc., and there was no need to have any employee on its own payroll.
  •  The Assessee received interest in its bank account. Assessee had the right to receive interest income. There was no compulsion or contractual obligation to simultaneously pass on the same to another entity. The assessee had also borne foreign currency risk as well as counter-party risk.

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

26 (2024) 162 taxmann.com 730 (DelhiTrib)

Genus Power Infrastructure Ltd. vs. ACIT

ITA Nos.: 2573 & 2680(Del) of 2023

A.Y.: 2010–11

Dated: 10th May, 2024

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

FACTS

For AY 2010–11, the assessee filed its return of income on 23rd September, 2010 declaring total income at Nil. The case was subjected to regular assessment vide order under section 143(3) dated 28th March, 2013 and income was assessed at ₹8,71,08,200 and book profit under section 115JB at ₹31,04,38,156.

Thereafter, notice under Section 148 was issued by the AO on 31st March, 2017, that is, after a period of four years from the end of the assessment year where the original assessment was earlier completed under Section 143(3). The reasons recorded by AO showed that an adjustment at ₹4,28,41,017 was proposed to the book profit on the ground that provision on the repair of partly damaged assets had been wrongly allowed and was not eligible for deduction while computing book profits. The reasons recorded also made allegations towards escapement of income on varied grounds [namely, prior period expenses, deduction under s. 80IC, calculation mistakes etc.] while reassessing the taxable income under the normal provisions of the Act. The book profit was thus reassessed at ₹35.31 crores [as opposed to ₹31.04 crores in original assessment] whereas the taxable income under the normal provisions was assessed at ₹13.67 crores [as opposed to ₹8.71 crores in original assessment].

Cross appeals were filed by the Revenue and assessee against the order of CIT(A).

A jurisdictional controversy had been raised before the Tribunal as to whether re-opening under section 147/148 is maintainable where MAT liability as per book profits computed under section 115JB would not get disturbed on the correct application of the law, and tax on such book profits also exceeded the total income determined as per normal provisions.

HELD

The Tribunal observed as follows:

Escapement alleged qua book profits did not meet the conditions embodied in the first proviso to section 147 having regard to full and true disclosure of the relevant/material facts attributable to provisions for repairs in the ROI by making disallowances under normal provisions and suitable declarations in the audited financial statement;

One cannot say that when the adjustment on account of such provision for repairs has been made by the assessee while determining the income as per normal provisions of the Act, there was a failure on the part of the assessee to disclose facts in not making such corresponding adjustments while determining the book profit. The disclosures were also made in the financial statement. The condition of the first proviso was thus clearly not satisfied in the instant case. Hence, the escapement qua book profits were not sustainable in law.

In the absence of escapement qua book profits, the escapement alleged under normal provisions was of no consequence since despite the purported escapement qua normal provision which may lead to enhancement of taxable income under the normal provision, the tax liability thereon would still be lower than the book profits assessable in law;

The claim of the assessee that the tax liability on book profit was higher than the income assessable under normal provisions including escapement alleged qua normal provisions, had not been disputed by the revenue.

Accordingly, following the decisions of the Gujarat High Court in India Gelatine and Chemical Ltd. vs. ACIT, (2014) 364 ITR 649 (Guj) and Motto Tiles P. Ltd. vs. ACIT, (2016) 286 ITR 280 (Guj), the Tribunal quashed the reassessment notice and declared the reassessment order null and void.

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

25 Shree Swaminarayan Gadi Trust vs. CIT

(2024) 162 taxmann.com 772 (SuratTrib)

ITA Nos.: 369 & 370(Srt) of 2024

A.Y.: N.A

Dated: 13th May, 2024

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

FACTS

The assessee-trust applied for registration under section 12A and section 80Gin Form 10AB. Instead of selecting section 12A(1)(ac)(iii) in the Form, the assessee incorrectly selected section 12A(1)(ac)(iv). A similar mistake was also made in the Form relating to section 80G. In the proceedings before CIT(E), the assessee requested the CIT to consider the application under the appropriate sub-clause.

CIT(E) held that he has no power to change / amend / rectify Form 10AB and therefore, rejected the applications.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed as follows—

a) the mistake in filing entry was not fatal and could be considered under the appropriate sub-clause or clause of section 12A(1).

b) Being the first appellate authority, the plea of the assessee for correction in Form-10AB should be accepted and the order of CIT(E) be set-aside.

The Tribunal directed CIT(E) to treat the application of the assessee under Section 12A(1)(ac)(iii) in place of Section 12A(1)(ac)(iv) and to consider the case on merit and pass the order in accordance with the law. Similar directions were also given for application for approval under section 80G(5).

Black Days

Arjun : (Chanting) Krishna Krishna Hare Krishna Krishna! Sabhi dishame Krishna Krishna

Shrikrishna : (enters) Arey Arjun, why are you chanting my name?

Arjun : Oh Krishna! Lord, I was not chanting your name. Krishna means darkness. For my profession, I see darkness everywhere. No one is there to protect us.

Shrikrishna : Why? You are capable of protecting yourselves. You are so highly qualified. Nothing moves without your signature.

Arjun : Those signatures only have brought this darkness. We do not see any ray of hope.

Shrikrishna : How can the signatures bring darkness?

Arjun : That I will tell you later. By the way, tell me, ‘Krishna’ means black or dark. Why is your name Krishna?

Shrikrishna : Arjun. You are right. But in Sanskrit language, every word has multiple meanings. Krishna means who has a lot of attraction in his personality. ‘Aakarshan’ karnewala krishna. He who pulls the attention of all, who is attractive.

Arjun : Oh Lord, our profession also was very attractive once upon a time. All of us got attracted and fell in this deep well. We cannot come out. I see no light around. Everything looks gloomy.

Shrikrishna : Why are you nervous?

Arjun : We have become like ‘Abhimanyu’, my brave son who was killed by Kauravas in an unfair manner. He knew how to enter the ‘chakravyuha’ but did not know how to come out.

Shrikrishna : But why do you want to come out? People outside envy you.

Arjun : Because people do not know about our real plight. The grass is always greener on the other side…

Shrikrishna : I do not understand why you have become so helpless.

Arjun : Who is there with us? We don’t get good staff. They are keen to grab some opportunity outside right from the day they join! We don’t get article trainees. There is a mountain of regulations. Unsurmountable!

Shrikrishna : Arjun, if you come together, you can lift the mountain. Do you remember? All Gopas and Gopikas had lifted Goverdhan mountain in Mahabharata.

Arjun : Natural mountains can be easily lifted. But this man-made mountain of laws and regulations…

Shrikrishna : But what you do is so valuable…

Arjun : (laughs sarcastically). Value? No one sees any value in it. The clients for whom we slog and invite risks for ourselves ask us ‘what value addition you have made.

Shrikrishna : But basically, it is clients’ responsibility to do it properly.

Arjun : Ha! Ha!! Ha!!! Lord, it is only in theory. Everybody feels it is our responsibility. So, no payment for carrying this burden.

Shrikrishna : Then why don’t you refuse to sign?

Arjun : If I say, “No,” there are hundreds of other CAs who will jump to sign. We are never together. We have no unity amongst us. So, the question of lifting the mountain does not arise. And if I refuse to sign, we will die of starvation! We have no choice, Lord.

Shrikrishna : Regulations are bound to be there. They were there also in the past.
Arjun : Agreed. But in the past, the regulators were more sensible and decent. They understood the spirit behind the law and our practical difficulties. Now, they are bent on killing us.

Shrikrishna : Who are they all?

Arjun : All investigating and regulatory authorities keep on complaining against us. Any fraud occurs, we are the first to blame as if we only commit frauds or we mastermind them.

Shrikrishna : Why are they having such a negative opinion against you?

Arjun : In the past, I admit that a few CAs might have been involved in scams or at least connived at it. They did the audit very casually and signed it very carelessly. But all are not like that.

Shrikrishna : But your Institute does not protect you?

Arjun : These regulators complain against us to our Institute only. And we have to also face disciplinary action.

Shrikrishna : Really?

Arjun : Managements sponsor a fraud. They themselves have vested interests. Such frauds are difficult to detect and we have limited time. We have to meet deadlines. Limited manpower, limited authority. And the investigating authorities routinely make us co-accused! We are made to face SEBI, RBI, Stock Exchange authorities, EOW, SIFO, NFRA, CBI…

Shrikrishna : Oh! You mean there are criminal cases against you CAs?

Arjun : Then our first task is to obtain bail. Today many CAs are on bail. The criminal proceedings take years together; and until it is settled, there is no peace of mind. Even technical errors are made a hype of! They treat it as misconduct.

Shrikrishna : How do you plead your case before the courts and investigators?

Arjun : That is another burden of expenditure on us. Compiling the old data, hunting for it, then conveyance, travelling, lawyer’s fees…just unaffordable. And in the process, regular work suffers. So again a loss. And they rake up matters where we would have done the audit even 15 years ago! They expect us to produce evidence of those years!

Shrikrishna : But you can always deny or refuse.

Arjun : Many times, the investigating officials have no concept at all as to what an audit is and how is it distinct from investigation. They have wide powers, team of experts working for them and their own sweet time of even a couple of years to detect the fraud. And for us, only a couple of weeks’ time — with limited authority, pressures from clients, limited manpower, and to look after so many rules and regulations!

Shrikrishna : What is the remedy!

Arjun : Lord, you are Bhagwan, and you are asking me for remedy? Even you will have no solution to this problem. Already, many are quitting the profession, surrendering their COP, giving up audit work, avoiding signing the audits…and their next generations profession. Grossly underpaid; and overburdened with regulation!

Shrikrishna : Who else complains against you?

Arjun : Our clients, our partners, our staff, our articles, our spouse, close relatives and almost everyone. Even a stranger can complain. I am told there are even professional black mailers! Lord, nothing appears to be positive. Ghor Kaliyuga.

Shrikrishna : Make more use of technology to add efficiency in your functioning.

Arjun : Technology? That is another monster. Soon we will be rendered outdated due to the automation. That is why I was chanting Krishna Krishna. Everywhere, there is darkness.

Shrikrishna : I feel, only a strong base of ethics and unity amongst you all can save you in this scenario.

Arjun : Agreed. But under ethics, they charge us for negligence. How can a fraud and negligence, exist together? In fraud, something is done consciously. In negligence, there is absence of application of mind.

Shrikrishna : You have a point.

Arjun : Moreover, these authorities are not accountable to anyone. In the process, our ordinary professionals are being harassed.

Bhagawan, it is high time that you use your ‘Sudarshan Chakra’ to save us. Otherwise, we see only ‘black days’ around.

Shrikrishna : Do not worry Arjun. Bright days will come soon. Keep on fighting ethically. And ultimate success will be yours.

|| Om Shanti ||.

Note: This dialogue is based on the general scenario in the profession today, where regulators have become a little too active against CA professionals.

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit. II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

24 Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. vs. ACIT

ITA No. 3569/Del./2016

Assessment Year: 2012–13

Date of Order: 24th April, 2024

Section: 80IB(10)

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit.

II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

FACTS I

The assessee aggrieved by the order of CIT(A) denying a claim for deduction under section 80IB(10) in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit preferred an appeal to the Tribunal.

HELD I

The Tribunal upon perusal of the orders of the authorities below and the decision of the Tribunal in the assessee’s own case for AYs 2008–09 to 2011–12 observed that the Tribunal for AYs 2008–09 and 2009–10 in the common order dated 30th May, 2016 in ITA Nos. 1950/Del/2012 & 5849/Del/2012 allowed the claim for deduction under section 80IB(10) of the Act in respect of flats excluding the balcony open to the sky for the purpose of calculating the built-up area of the individual units. Following the earlier orders, the Tribunal allowed the claim for deduction u/s 80IB(10) in respect of those flats whose area exceeded 1,000 sq. feet only as a result of including a balcony open to the sky. The AO was directed to verify the claim of the assessee after obtaining the details and allow the deduction after providing adequate opportunity of being heard by the assessee.

FACTS II

Aggrieved by the order of the CIT(A) directing the AO to accept the project completion method followed by the assessee, revenue preferred an appeal to the Tribunal.

It was submitted that this issue came up for adjudication in assessee’s case for AY 2008–09 to 2011–12. It was also mentioned that the Tribunal for AY 2008–09 and 2009–10 has upheld the order of the CIT(A) in accepting the project completion method adopted by the assessee.

HELD II

The Tribunal observed that the Tribunal has decided the issue in appeal in favour of the assessee by sustaining the order of CIT(A) in holding that the project completion method adopted by the assessee is the right method for determining the profits. The CIT(A) had held that the AO should not have disturbed the project completion method followed by the assessee regularly and there is no cogent reason to change the method. Both these findings of the CIT(A) were upheld by the Tribunal for AYs 2008–09 and 2009–10. The appeal of the revenue has been dismissed by the High Court in ITA No. 766/2016 and 178/2017 dated 16th May, 2017 holding that there is no substantial question of law. The tribunal also observed that the Court held that the question “whether the addition made by the AO to the income of the Respondent for the relevant year based on percentage completion method was not correct as held by the ITAT’ stands answered in favour of the assessee and against the revenue by order dated 16th November, 2016 in ITA No. 802/2016 in PCIT vs. Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. Following this decision of the High Court, Tribunal rejected the ground of the revenue.

In This Issue, We Look At Some Interesting AI Driven Tools For Productivity At The Workplace

Summarize.tech

We often come across lengthy YouTube videos which may be useful but time consuming. We just want to know the summary of the content without having to go through the entire video.

Summarize.tech is a very useful tool to get a text summary of the entire video within seconds. Just head to summarize.tech, paste the YouTube or Video link in the space provided and within seconds, you will get a simple text summary of the entire video in a single paragraph. If you wish to see an elaborate summary of a lengthy video, you may scroll down and see the detailed summary broken up over the entire timeline.

It even works on Hindi and Hinglish Videos!

The free version of summarize.tech has daily limits of just a few videos a day. The premium version has no daily limits, and you can summarize up to 200 videos a month.

A very valuable tool if you are short on time and want the summary instantly!

https://www.summarize.tech/

 

Xume : Health Food Scanner App

Groceries now have ratings!

We all want to eat healthy, but do not know how to analyse the food products which we buy. It is almost impossible to sort through and decode all the perplexing and contradictory health claims and counterclaims mentioned on the labels.

Xume’s food scanner takes the con out of consumption by giving personalised health scores. No more demystifying food ingredient lists, decoding nutrition information or getting fooled by product claims.

All you have to do is to scan the barcode on the label of the food item you have and it will give you detailed information about its ingredients and nutritional information, along with a rating — whether it is healthy enough to consume. If it is rated as unhealthy, it will also suggest healthier alternatives. And, if there are any concerns in some ingredients, it will highlight those too! An important tab shows you how processed the food item is, along with a Taste Meter to tell you how tasty it is.

While at a supermarket or shopping online, you can scan the packaging before you actually decide to buy any food item.

The first few scans are free and to continue using it, you may have to subscribe for a paid version.

If you are serious about your health and the foods you eat, this is the app for you!

Android: https://bit.ly/4aT52pk

iOS: https://apple.co/3x5k11F

 

Cool the Globe

Are you serious about caring for the planet? Want to know what is your carbon footprint? Want to do something about it yourself?

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The app will instantly calculate your GHG wastage / savings which you can save on a daily basis. You can then share your scores on Social Media with family and friends and help create a movement for reducing emissions and cooling the earth!

Be the change – join this citizen-led movement for climate action!

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https://www.cooltheglobe.org/

Android : https://bit.ly/3Xb5Q63

iOS : https://apple.co/4c3iUOM

Ghostwrite

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For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

23 Sunil Amritlal Shah vs. ITO

ITA No. 4069/Mum./2023

Assessment Year: 2011-12

Date of Order: 13th May, 2024

Section: 54

For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

FACTS

The assessee, an individual, preferred an appeal against the assessment order dated 3rd October, 2023 passed under section 144C(13) read with section 147 read with section 254 of the Act determining total income of ₹35,97,395 and denying a claim of deduction of ₹34,25,243 made under section 54 of the Act.

During the year under consideration, the assessee had long-term capital gain on the sale of a residential house on 10th February, 2011. The entire long-term capital gain was claimed to be exempt under section 54 on the ground that the assessee purchased a residential house at Ghatkopar. For this new house, the assessee entered into an agreement for sale with builder Runwal Capital Land India Private Limited on 25th July, 2009 for a consideration of ₹73,06,530. The possession of the new house was granted to the assessee on 2nd February, 2011 after receipt of the occupancy certificate and when the building was habitable. Assessee considered the date of possession i.e., 2nd February, 2011 to be the date of acquisition of the property. The AO denied the claim by holding the date of acquisition of the property to be 25th July, 2009.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

On behalf of the assessee reliance was placed on the decision of Bombay High Court in CIT vs. R K Jain [ITA No. 260 of 1993 (1994) 75 Taxman 145] wherein the Court has held that the date of possession of new residential premises is considered for exemption under section 54F instead of the date of sale agreement. It was submitted that there is no difference in the eligibility for deduction under section 54F and section 54 of the Act. It was also submitted that following this decision of the jurisdictional High Court, the co-ordinate bench in the case of Sanjay Vasant Jumde vs. ITO [148 taxmann.com 34] has so held. Reliance was also placed on several other decisions.

HELD

The Tribunal observed that —

(i) by agreement dated 25th July, 2009, the assessee acquired a `right to purchase a house’ which was under construction. On 2nd February, 2011 when the house was handed over to the assessee, when it was inhabitable (sic habitable) the assessee purchased the house;

(ii) in PCIT & Others vs. Akshay Sobit & Others [(2020) 423 ITR 321 (Delhi)], the Delhi High Court held that the provision in question is a beneficial provision for assessees who replace the original long-term capital asset with a new one. It was further held that booking of the bare shell of a flat is a construction of house property and not purchase. Therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the Act. In the present case as well, the assessee has booked the flat under construction which was handed over to the assessee upon completion of construction;

(iii) the Bombay High Court in the case of Beena K Jain [217 ITR 363 (Bom.)], in connection with section 54F which is parimateria, affirmed the action of the Tribunal and held that the date of the agreement is not the date of purchase but the date of payment of full consideration amount on flat becoming ready for occupation and having obtained possession of the flat is the date of purchase. The action of the Tribunal in looking at the substance of the transaction and coming to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by full payment of consideration and handing over of possession of the flat on the next day was upheld by the court;

(iv) the co-ordinate bench in Bastimal K Jain vs. ITO [(2016) 76 taxmann.com 368 (Mum.)] has also held that the assessee’s claim for deduction under section 54 was to be reckoned from the date of handing over of possession of the flat by the builder to the assessee.

The Tribunal held that the assessee is entitled to deduction under section 54 of the Act on the purchase of a new house considering the date of possession when it is completed as the date of purchase of property as agreement to purchase the property was for under-construction property. By entering into an agreement to purchase assessee acquired the right to purchase the property and did not purchase the property as the same was under construction. The section requires “purchase” of property.

The Tribunal allowed the ground of appeal filed by the assessee.

From Published Accounts

COMPILERS’ NOTE

As per the amendments to the Companies Act, 2013 and Rules thereto, for Financial Years commencing on or after 1st April, 2023, i.e., audit reports issued for FY 2023–24, the auditor needs to report on whether the accounting software used by a company has a feature of recording audit trail (edit log) facility and whether the same has been operated throughout the year and it has not been tampered. To assist auditors on this new reporting requirement, ICAI has, in February 2024, issued an Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (Revised 2024) Edition.

Given below are instances of modified reporting on the above for the year ended 31st March, 2024. (One such instance was also given in June 2024 issue.)

HINDUSTAN UNILEVER LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, except for certain matters in respect of audit trail as stated in the paragraph 2B(f) below;

….

f) The modifications relating to the maintenance of accounts and other matters connected therewith in respect of audit trail are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) of the Act and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f) Based on our examination which included test checks and in accordance with requirements of the
Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, except for the instances mentioned below, the Company has used accounting software for maintaining its books of account, which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software:

(i) The feature of recording audit trail (edit log) facility was not enabled at the database layer to log any direct data changes for the accounting software used for trade scheme masters;

(ii) We are unable to comment if the audit trail (edit log) facility was enabled at the database layer to log any direct data changes for accounting software operated by a third-party service provider and used for maintaining purchase orders in absence of independent auditor’s report in relation to controls at the third-party service provider;

(iii) For one accounting software, changes to the application layer by a super user does not have feature of a concurrent real time audit trail.

Further, where audit trail (edit log) facility was enabled and operated throughout the year, we did not come across any instance of audit trail feature being tampered with during the course of our audit.

The back-up of audit trail (edit log) maintained on the server physically located in India for the financial year ended 31st March, 2024, except for the back-up of audit trail (edit log) of trade scheme masters (maintained on servers physically in India from 1st January, 2024 onwards) and for back up of audit trail (edit log) of purchase orders (not maintained on servers physically in India).

TATA CONSUMERS PRODUCTS LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, based on our audit, we report that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, except for not complying with the requirement of audit trail to the extent stated in (i) and (vi) below.

……

f) The modification relating to the maintenance of accounts and other matters connected therewith is as stated in paragraph (b) above.

……

i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us;

vi. Based on our examination, which included test checks, the Company, has used accounting software systems for maintaining its books of account for the financial year ended 31st March, 2024 which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software systems, except in respect of maintenance of records of a hospital which was maintained in an accounting software system in which the audit trail feature did not operate from 1st April, 2023 till 31st August, 2023.

Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with, in respect of accounting softwares for the period for which the audit trail feature was operating.

As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from 1st April, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the year ended 31st March, 2024.

AMBUJA CEMENTS LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report, to the extent applicable, that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, except for the matters stated in the paragraph (vi) below on reporting under Rule 11(g);

…..

h) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3)(b) and paragraph (vi) below on reporting under Rule 11(g).

……

i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:

vi. Based on our examination which included test checks, the Company has used accounting software and a payroll application for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software / application. However, audit trail feature is not enabled for certain direct changes to data when using certain access rights at the application level for the accounting software; and at the database level for the accounting software and payroll application, as described in Note 70 to the financial statements. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with in respect of the accounting software and payroll application.

From Notes to Accounts

Note 70 – Audit Trail

The Company uses an accounting software and a payroll application for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the accounting software and the payroll application, except that a) audit trail feature is not enabled for certain direct changes to the data for users with the certain privileged access rights to the SAP application and b) audit trail feature is not enabled at the database level for the payroll application and HANA database. Further, no instance of audit trail feature being tampered with was noted in respect of the accounting software and payroll application.

Presently, the log has been activated at the application and the privileged access to HANA database continues to be restricted to a limited set of users who necessarily require this access for maintenance and administration of the database.

SULA VINEYARDS LIMITED

Report on Other Legal and Regulatory Requirements

Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, we report, to the extent applicable, that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books; except for the matter stated in paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);

…..

f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph 17(b) above on reporting under section 143(3)(b) of the Act and paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);

…..

h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), in our opinion and to the best of our information and according to the explanations given to us:

vi. As stated in Note 49 to the accompanying standalone financial statements, and based on our examination which included test checks, except for instance mentioned below, the Company in respect of financial year commencing on 1st April, 2023, has used accounting software for maintaining its books of accounts which have a feature of recording audit trail (edit log) facility and the same have been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with in respect of the accounting software where such feature is enabled.

Nature of exception noted Details of exception
Instance of accounting software for maintaining books of account which did not have a feature of recording audit trail (edit log) facility. The accounting software (OnePos and IDS) used for maintenance of sales records for the hospitality services of the Company did not have a feature of recording audit trail (edit log) facility.

From Notes to Accounts

Note 49: Audit Trail

The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 inserted by the Companies (Accounts) Amendment Rules 2021 requiring companies, which use accounting software for maintaining its books of accounts, to use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

The Company uses accounting software (SAP ECC 6.0 and HROne) for maintaining its books of account which has a feature of recording audit trail (edit log) facility, and the same has operated throughout the year for all relevant transactions recorded in the accounting software.

The Company also uses accounting software (OnePos and IDS) for maintaining sales records of the hospitality services which does not have a feature of recording audit trail (edit log) facility. Based on management assessment, the non-availability of audit trail functions will not have any impact on the performance of the accounting software, as management has all other necessary controls in place which are operating effectively.

ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED

Report on Other Legal and Regulatory Requirements

As required by paragraph 2 of Schedule C to the IRDAI Financial Statement Regulations read with Section 143(3) of the Act, in our opinion and according to the information and explanations given to us, we report to the extent applicable that:

b) Proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014;

…..

h) The observation relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2 (b) above on reporting under Section 143(3)(b) of the Act and paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

j) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

vi. As stated in Note 5.2.30 to the financial statements and based on our examination which included test checks on the software applications, except for instances mentioned below, the Company, in respect of the financial year commencing on 1st April, 2023, has used software applications for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the respective software applications. Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with.

Instance of accounting software for maintaining books of account which did not have a feature of recording audit trail (edit log) facility. In case of one of the policy and claim administration applications, discontinued w.e.f. 31st October, 2023, used for maintaining policy and claim records related to the insurance business demerged from Bharti Axa General Insurance Company Limited and forming part of the Company’s business, we are unable to test whether the audit trail feature was enabled or tampered with.
Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software. The audit trail feature was not enabled up to 15th March, 2024, at the database level for accounting software used for maintenance of commission and reinsurance records by the Company to log any direct database level changes.

From Notes to Accounts

The Company has implemented a framework to identify relevant applications from the overall IT universe as “Books of account” as per the Companies Act 2013. The Company’s books of account maintained in the electronic mode comply with the requirements to the Companies Act 2013, read with relevant rules and notifications, except:

The Company follows a specific procedure for direct database changes in a controlled environment which includes logging of changes into a ticketing approval tool with an integrated approval process. This tool records all the specific details regarding audit trail requirements for capturing timing, the executor and the details of the change. Further, this information was available for the entire fiscal year. In respect of Applications used for maintenance of commission and reinsurance records, the Company has implemented logs at the application level to record audit trail (edit logs) of transactions directly impacting the database from the backend, starting 15th March, 2024.

The Company has discontinued one of the policy and claim administration applications (used for maintenance of policy and claim records of business demerged from Bharti Axa General Insurance Company Limited and forming part of the Company) on 31st October, 2023 and all open transactions have been migrated to its other policy and claim administration applications. As of 31st March, 2024, access to this specific application and its database is no longer available to the Company to demonstrate the audit trail feature in a live environment.

ARCHEAN CHEMICALS INDUSTRIES LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

k) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in paragraph (h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

g) The observation relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3)(b) and paragraph (h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

h) With respect to the other matters to be included in the Auditors’ Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

vi) Relying on representations / explanations from the Company and based on our examination which includes test checks on the software application, the Company has used accounting software (ERP) for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded, and we did not come across any instance of audit trail feature being tampered with during the course of our audit.

However, audit trail was not enabled to log any direct data changes at database level both in application layer and database layer of the accounting software.

INDIAN HOTELS COMPANY LIMITED

Report on other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matter stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

f) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditors’ Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f. Based on our examination which included test checks, except for the instances mentioned below and as explained in note 47 of the standalone financial statements, the Company has used accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software:

i. The feature of recording audit trail (edit log) facility was not enabled, for a portion of the year at the application layer of the accounting software used for maintaining general ledgers for master fields and direct data changes to transactions; the audit trail feature was enabled in a phased manner between June 2023 and July 2023.

ii. In case of the accounting software used for maintaining general ledger for one of its hotel units, the audit trail (edit log) facility for data changes performed by users having privileged access was enabled from 21st December, 2023 onwards at the application layer and accordingly, such audit trail feature was not enabled for the period from 1st April, 2023 to 20th December, 2023.

iii. The feature of recording audit trail (edit log) facility was not enabled at the database level to log any direct data changes for the accounting software used for maintaining the books of accounts. Further, for the periods where audit trail (edit log) facility was enabled and operated for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with.

From Notes to Accounts

Note 47 – Audit Trail

In the ERP, audit trail at transaction level on application layer has an embedded audit trail in sub-ledger accounting tables which creates unique events for every transaction along with dates of creating and updating transactions with the identity of users. General ledger journals are not allowed to be modified after posting and the date and creator of journals are tracked. This feature cannot be disabled. Additionally, audit trail was enabled for masters and transactions in a phased manner from June to July 2023. Audit trail feature with respect to application layer changes in accounting software has worked effectively during the year. PMS and POS (Property Management and Point of Sales software) has inbuilt audit trail feature from 1st April, 2023. Post publication of ICAI implementation guide, direct database level changes was also included in audit trial scope. In respect of ERP, access to direct database level changes is available only to privileged users and for PMS and POS, it is not available to any of the Company personnel. However, the software product owners have confirmed that there is no audit trail enabled for database level changes.

VIVRITI CAPITAL LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f. Based on our examination which included test checks, except for the instances mentioned below, the Company has used accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has been operating throughout the year for all relevant transactions recorded in the software:

With respect to one accounting software, the feature of recording audit trail (edit log) facility was not enabled at the database layer for the period from 1st April, 2023 to 28th November, 2023. Further, the feature of audit trail (edit log) was not enabled in full at the application layer of such core accounting software in respect of account payable and payment interface. With respect to maintaining loan management information, the feature of recording the audit trail (edit log) has not been enabled.

Further, for the periods where audit trail (edit log) facility was enabled for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with.

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

22 Emaar MGF Land Limited vs. ACIT

ITA Nos. 825 to 820/Del/2018 and 1378/Del/20123

Assessment Years: 2010–11 & 2015–16

Date of Order: 30th May, 2024

Section: 153D

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

FACTS

The assessments of the assessee company for AY 2010–11 to 2015–16 were completed by the Assessing Officer (AO). Aggrieved by the assessments so made, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who vide his order dated 30th November, 2017 decided some of the grounds in favour of the assessee and some of the grounds were decided against the assessee.

Aggrieved by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal. In the course of appellate proceedings before the Tribunal, the assessee filed an application under Rule 11 of the Income-tax Appellate Tribunal Rules, 1963 for admission of additional grounds which inter alia had the following as an additional ground —

“5. That, on the facts and circumstances of the case and in law, the approval under section 153D of the Act is mechanical and without application of mind and thus the impugned assessment order is illegal, bad in law and liable to be quashed.”

It was only ground no. 5 out of the additional grounds filed which was pressed and since the same raised purely a question of law, the Tribunal admitted the same.

HELD

Upon the Revenue not being able to produce a copy of the approval granted by the Range Head under section 153D of the Act, it was contended that as there is no order available with the Department for the purpose of section 153D of the Act, presumption has to be drawn that no such order was passed and in the absence of such order the assessment concluded in the relevant assessment years under section 153A read with section 143(3) of the Act are void. For this proposition reliance was placed on the decision of the Delhi High Court in the case of Rajsheela Growth Fund (P.) Ltd. vs. ITO [ITA No. 124/202 and other judgment dated 8th May, 2024].

On behalf of the revenue, reliance was placed on concluding para 7 of the assessment order and it was submitted that there is a reference of letter No. Jt. CIT/C.R.-1/153D Appr./2016–17/1025 dated 26th December 2016, by which approval was given, so it is not correct to contend that there was no approval under section 153D of the Act.

The Tribunal held that it is now a settled proposition of law that prior approval of competent authority under section 153D of the Act is mandatory and the same is required to pass rigour of the law, to show that the approval was granted after due consideration of the assessment record and it was not a mechanical approval.

In spite of giving reasonable and sufficient opportunities to the department, AO failed to produce any copy or other evidence of the existence of the approval. That only gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with law or not but to hold that the assessments in hand were concluded without the requisite approval under section 153D of the Act.

The Tribunal allowed additional ground no. 5 with a caveat that, in case the department is able to lay hand on any evidence showing existence and content of approval, application may be filed for re-calling this order and to contest this issue afresh on merits along with other issues raised in respective appeals.

The Tribunal allowed the appeals of the assessee.

Amendment to Ind AS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

WHAT IS THE ISSUE?

MCA issued amendments to Ind AS 12 Income Taxes in order to address potential issues of inconsistency and interpretation by users in respect of the initial recognition exemption (“IRE”) detailed in paragraphs 15 and 24 of Ind AS 12 (for deferred tax liabilities and assets respectively).

Ind AS 12 contains exceptions from recognising the deferred tax effects of certain temporary differences arising on the initial recognition of some assets and liabilities, generally referred to as the ‘initial recognition exception’ or ‘IRE’. Prior to amendment views differed on whether (and to what extent) the IRE applied to transactions and events, such as leases, that lead to the recognition of an asset and a liability.

The amendments introduce an exception to the initial recognition exemption in Ind AS 12. Additional exclusions have been added to the IRE, detailed in paragraphs 15(b)(iii) and 24(c) for deferred tax liabilities and assets respectively. Applying this exception, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences – such that deferred taxes are calculated and booked for both temporary differences, both at initial recognition and subsequently. Only if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal, would the IRE be applied.

Example

  • An entity (Lessee) enters into a five-year lease of a building.
  • The annual lease payments are ₹100 payable at the end of each year.
  • Advance lease payments and initial direct costs are assumed to be nil.
  • The interest rate implicit in the lease cannot be readily determined. Lessee’s incremental borrowing rate is 5 per cent per year.
  • At the commencement date:
  • Lessee recognises a lease liability of ₹435 (measured at the present value of the five lease payments of ₹100, discounted at the interest rate of 5 per cent per year) ,
  • Lessee measures the right-of-use asset (lease asset) at ₹435, comprising the initial measurement of the lease liability (₹435).

 

  • Tax law:
  • The tax law allows tax deductions for lease payments when an entity makes those payments.
  • Economic benefits that will flow to Lessee when it recovers the carrying amount of the lease asset will be taxable.
  • A tax rate of 20 per cent is expected to apply to the period(s) when Lessee will recover the carrying amount of the lease asset and will settle the lease liability.
  • After considering the applicable tax law, Lessee concludes that the tax deductions it will receive for lease payments relate to the repayment of the lease liability.

Deferred tax on the lease liability and related component of the lease asset’s cost:

  • At the inception:
  • The tax base of the lease liability is NIL because Lessee will receive tax deductions equal to the carrying amount of the lease liability (₹435).
  • The tax base of the related component of the lease asset’s cost is also NIL because Lessee will receive no tax deductions from recovering the carrying amount of that component of the lease asset’s cost (₹435).
  • The differences between the carrying amounts of the lease liability and the related component of the lease asset’s cost (₹435) and their tax bases of nil result in the following temporary differences at the inception:
  • a taxable temporary difference of ₹435 associated with the lease asset; and
  • a deductible temporary difference of ₹435 associated with the lease liability.
  • IRE does not apply because the transaction gives rise to equal taxable and deductible temporary differences.
  • Lessee concludes that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.
  • Lessee recognises a deferred tax asset and a deferred tax liability at inception, each of ₹87 (₹435 × 20 per cent), for the deductible and taxable temporary differences.

TRANSITIONAL PROVISIONS

98J Deferred Tax related to Assets and Liabilities arising from a Single Transaction, amended paragraphs 15, 22 and 24 and added paragraph 22A. An entity shall apply these amendments in accordance with paragraphs 98K–98L for annual reporting periods beginning on or after 1st April, 2023.

98K An entity shall apply Deferred Tax related to Assets and Liabilities arising from a Single Transaction to transactions that occur on or after the beginning of the earliest comparative period presented.

98L An entity applying Deferred Tax related to Assets and Liabilities arising from a Single Transaction shall also, at the beginning of the earliest comparative period presented:

(a) recognise a deferred tax asset — to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised — and a deferred tax liability for all deductible and taxable temporary differences associated with:

(i) right-of-use assets and lease liabilities; and

(ii) decommissioning, restoration and similar liabilities and the corresponding amounts recognised as part of the cost of the related asset; and

(b) recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date.

EXAMPLE

Entity X recognised a provision for the decommissioning of a nuclear plant in 2011 for ₹9,00,00,000; it capitalised the associated expenses as an asset and depreciated this over the 60-year expected period of use until decommissioning is required. The tax rules allow for deduction of these expenses on a cash basis. At the time of the transaction, Entity X applied the IRE to both the asset and liability separately, therefore, no deferred tax has ever been accounted for in relation to this transaction. The decommissioning provision has been discounted in accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets. The table below shows the associated carrying values of the provision and asset at relevant dates:

Date Carrying value of provision (₹) in million Deferred tax asset at 20 per cent (₹) in million Carrying value of asset (₹) in million Deferred tax liability at 20 per cent (₹) in million
1st April, 2011 90.0 18.0 90.0 18.0
1st April, 2022 170.8 34.2 73.6 14.7

Entity X adopts the Ind AS 12 amendments in its financial statements for the year ended 31st March, 2024, with the
beginning of the earliest period presented being 1st April, 2022. The required accounting entry on the date of transition (1st April, 2022) is:

Dr deferred tax asset ₹34.2m

Cr deferred tax liability ₹14.7m

Cr retained earnings ₹19.5m

If Entity X had, instead, previously recognised deferred tax on a net basis (i.e., assessed the temporary differences net), then, brought forward, as at 1st April, 2022 it would already be carrying a deferred tax asset of ₹19.5m. In which case, the required accounting entry on transition (1st April, 2022) is:

Dr deferred tax asset ₹14.7m

Cr deferred tax liability ₹14.7m

That is, there would be nil impact on opening retained earnings.

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

21 Culver Max Entertainment Pvt. Ltd. vs. ACIT

ITA Nos. 7685/Mum/2019 and 925/Mum/2021

Assessment Years: 2015–16 & 2016–17

Date of Order: 02nd May, 2024

Section: 199

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

FACTS

MSM Satellite (Singapore) Pte Ltd. (MSN Singapore) a wholly owned subsidiary of the assessee purchased, in March 2005, a TV channel named “SAB TV” from a company named Shri Adhikari Brothers. Subsequently, during the financial year 2014–15 MSN Singapore demerged its broadcasting business and the same was taken over by the assessee herein. The demerger scheme was sanctioned by the Bombay High Court on 10th January, 2014 and it came into effect on 1st April, 2014.

Upon completion of the assessment u/s 143(3) r.w.s. 144C of the Act in pursuance of the directions given by the Dispute Resolution Panel, the assessee preferred an appeal to the Tribunal. One of the grounds of the appeal was with regards to the non-granting of TDS to the tune of ₹8,13,81,645.

On behalf of the assessee, it was submitted that the TDS credit was not given by the Assessing Officer (AO) for the reason that the TDS certificates were not in the name of the assessee, but it was in the name of amalgamated / demerged company. The contention was that the relevant income has already been assessed in the hands of the assessee and hence the TDS deducted from the said income should be allowed credit in the hands of the assessee.

HELD

The Tribunal noted that in the following cases, in identical circumstances, the AO has been directed to allow TDS credit —

(a) Popular Complex Advisory P. Ltd. vs. ITO [ITA No. 595/Kol./2023; order dated 22nd August, 2023];

(b) Adani Gas Ltd. vs. ACIT [ITA Nos. 2241 & 2516/Ahd./2011; order dated 18th January, 2016];

(c) Ultratech Cement Ltd. vs. DCIT [ITA No. 1412/Mum./2018 & Others; order dated 14th December, 2011]

The Tribunal observed that —

(i) In the above-mentioned cases, the co-ordinate benches have held that the resulting company in the case of demerger and transferee company in the case of transfer, are eligible to claim TDS credit, even if the TDS certificates are in the name of demerged company / transferor company;

(ii) The assessee has offered the relevant income, even though the TDS certificates were in the name of demerged company.

Following the above decisions, the Tribunal directed the AO to allow TDS credit to the assessee after verifying that the relevant income has been assessed by the AO this year.

Exchange Rate to Be Used For Computation of Capital Gains In The Case Of Cross-Border Transactions Involving Transfer of Shares

With the removal of exemption for capital gains arising on transfer of shares under the Indian tax treaties (DTAA) with Mauritius, Singapore and Cyprus, gains arising on such transfer, in most cases, would now be taxed in the country of source. Further, there have been certain significant judgments which raise pertinent issues in respect of computation of capital gains arising on the transfer of shares in a cross-border scenario. Some of these judgments are in respect of domestic provisions in the Income Tax Act, 1961 (ITA) related to the computation of capital gains in a cross-border scenario whereas some are related to computation or eligibility of claim under the DTAA.

In this article, the authors have sought to analyse the issues related to the exchange rate to be used for computation of capital gains in the case of a cross-border scenario. These issues are dealing with the domestic provisions under the ITA and the Income Tax Rules, 1962 (Rules).

EXCHANGE RATE FOR COMPUTATION OF CAPITAL GAINS

An important issue in recent times has been related to the exchange rate to be used for the purpose of computing capital gains. There have been a couple of recent judgments, both by the Mumbai bench of the ITAT, which have discussed these issues at length. The issue of exchange rate to be used in the case of capital gains arises in both type of transactions — when a resident sells the shares of a foreign company as well as when a non-resident sells the shares of an Indian company. However, while the broad principle would apply in both the transactions, as the provisions of the ITA differ slightly in each of the above transactions, each transaction has been analysed separately.

a. Inbound

In this type of transaction, a non-resident is selling shares of an Indian company. The main issue in this type of transaction is the interplay of sections 48 and 112 of the ITA and Rule 115/115A of the Rules.

Let us take an example to understand this issue further. US Co, a US company, had acquired shares of I Co, an Indian unlisted private company, in 2014 when the exchange rate was 1 USD = INR 60. During FY 2024–25, these shares are sold to a UK-based company, when the exchange rate is 1 USD = INR 85. The computation of capital gains would be as follows:

Particulars Amount in USD Exchange Rate Amount in INR
Sales consideration 80,000 85 68,00,000
(-) Cost of acquisition 100,000 60 60,00,000
Capital Gains (20,000) 8,00,000

As can be seen from the computation above:

a. If one computes the capital gains in USD terms there is a loss; whereas

b. If one computes the capital gains by converting the cost of acquisition and the sales consideration at the exchange rate prevalent at the time of acquiring or transfer of the shares, respectively, it results in a gain.

Therefore, one can say that the gain is primarily on account of the difference in the exchange rates on both the dates.

The first proviso to section 48 of the ITA, which provides the mode of computation of capital gains, states as follows:

“Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company:..”

Therefore, the proviso requires one to convert the cost of acquisition as well as the sales consideration into foreign currency, compute the capital gains in foreign currency and then recompute the gains arrived in this manner, into INR.

Rule 115A of the Rules provides further guidance in case of sale of shares by a non-resident Indian. Rule 115A requires one to compute the capital gains in this manner:

(i) Convert the cost of acquisition into foreign currency at the rate as on the date of acquisition (USD 100,000 in the said example).

(ii) Convert the expenditure incurred in connection with the transfer as well as the full value of consideration into foreign currency at the rate as on the date of transfer of the capital asset (USD 80,000 in the said example).

(iii) Reconvert the capital gains into INR at the rate as on the date of transfer (loss of USD 20,000 converted to loss of INR 17,00,000).

While Rule 115A applies only to non-resident Indians and not all non-residents or foreign companies, in the view of the authors, one may be able to apply the same principle in the case of all non-residents.

Section 112(1)(c) of the ITA, which provides the rate of tax on long-term capital gains in the hands of a non-resident (other than a company) or a foreign company, states as follows:

“(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head ‘Capital gains’, the tax payable by the assessee on the total income shall be the aggregate of, –

(a)..

(c) in the case of a non-resident (not being a company) or a foreign company, –

(i) …

(ii) …

(iii) the amount of income-tax on long-term gains arising from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which the public are substantially interested, calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48;” (emphasis added)

Therefore, in the case of transfer of unlisted shares of an Indian company by a non-resident or a foreign company, section 112 provides that the tax is to be computed on an income without giving effect to the first and second proviso to section 48 of the ITA. If one computes the gains without giving effect to the first proviso to section 48 of the ITA in the above example, it will result in taxable long-term capital gains of INR 8,00,000.

The question which arises is which section should one apply while computing the capital gains in the case of a non-resident or a foreign company, which is transferring unlisted shares of an Indian company — section 48 or 112(1)(c) of the ITA?

This issue has been evaluated by the Mumbai ITAT in the case of Legatum Ventures Ltd vs. ACIT (2023) 149 taxmann.com 436, wherein, on similar facts as our example above, the ITAT held that in such a situation, section 112 would apply and not section 48. The relevant extracts of the reasoning provided by the ITAT is as follows:

“17. From the perusal of section 112 of the Act, forming part of Chapter XII – Determination of Tax in Certain Special Cases, we find that though the said section deals with the determination of tax payable by the assessee on the total income which includes any income arising from the transfer of a long-term capital asset chargeable under the head ‘capital gains’. However, in the case of a non-resident (not being a company) or a foreign company, sub-clause (iii) of clause (c) to sub-section (1) also provides the mode of computation of capital gains. As per section 112(1)(c)(iii) of the Act, in case of a non-resident, capital gains arising from the transfer of a long-term capital asset, being unlisted securities or shares of a company in which public are not substantially interested, shall be computed without giving effect to 1st and 2nd proviso to section 48 of the Act. The aforesaid section further provides a tax rate of 10% on the capital gains so computed. Therefore, we are of the considered opinion that section 112(1)(c)(iii) is a special provision for the computation of capital gains, in case of a non-resident, arising from the transfer of unlisted shares and securities. While, on the other hand, section 48 of the Act is a general provision, which deals with the mode of computation of capital gains in all the cases of transfer of capital assets. Further, section 112(1)(c)(iii) of the Act does not provide for ‘re-computation’ of capital gains for levying tax rate of 10%. Since section 112(1)(c)(iii) is the specific provision, therefore, in case the ingredients of the said section, i.e. (i) in case of non-resident or foreign company; (ii) long-term capital gains arise; (iii) from the transfer of unlisted shares or securities of a company not being a company in which public are substantially interested, are fulfilled, capital gains is required to be computed as per the manner provided under the said section. It is a well-settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim ‘Generallia specialibus non derogant’. Further, it is also a well-settled rule of construction that when, in an enactment, two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, the effect should be given to both. Therefore, if the submission of the assessee that in the present case the income chargeable under the head ‘capital gains’ is to be computed only as per section 48 of the Act is accepted, then the same would render the computation mechanism provided in section 112(1)(c)(iii) of the Act completely otiose and redundant.

18. In view of the above, we also find no merits in the assessee’s submission that if the case of the assessee is governed under two provisions of the Act, then it has the right to choose to be taxed under the provision which leaves him with a lesser tax burden. In the present case, the capital gains has to be computed only by reference to provisions of section 112(1)(c)(iii) of the Act. Further, it cannot be disputed that if as per section 112(1)(c)(iii), the 1st and 2nd proviso to section 48 of the Act are not given effect, the assessee will have a long-term capital gains of Rs. 17,13,59,838 from the sale of unlisted shares of the Indian company. Therefore, we find no infirmity in the orders passed by the lower authorities taxing the long-term capital gains of Rs. 17,13,59,838 as per section 112(1)(c)(iii) of the Act.”

Therefore, the ITAT held that section 112 is a special provision and would override section 48, which is a general provision under the ITA.

With utmost respect to the Hon’ble ITAT, in the view of the authors, the above decision did not consider a few aspects, discussed in detail in the ensuing paragraphs, which could have an impact on the issue at hand.

i. At the outset, section 48 lays down the computation mechanism whereas section 112 prescribes the rate of tax. As both sections operate on different aspects and one needs to give impact to both the sections when one is finally computing the tax payable. Therefore, if one takes a harmonious reading of the law, one cannot state that either section should override the other.

ii. Section 112 of the ITA begins with the language “Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head ‘Capital gains’”. Therefore, for section 112 of the ITA to apply, there needs to be income which is chargeable under the head “Capital gains”. For the purpose of computing the capital gains, one would need to consider section 48 of the ITA, including the first proviso. If after computing the capital gains in accordance with the ITA, there is a loss, the question of applying section 112 of the ITA does not apply as the total income of the assessee does not include any income chargeable under the head “Capital gains”.

One may refer to the CBDT Circular 721 dated 13th September, 1995, wherein the application of section 112 in the set-off of losses under the other heads of income was discussed in detail. The relevant extracts of the said Circular are reproduced below:

“The above phraseology contains two significant expressions, ‘total income’ and ‘includes any income’. The total income is to be computed in the manner prescribed in the Income-tax Act. Set-off of loss as per the provisions of sections 70 to 80 is a stage which is part of this procedure. When this procedure is adopted for computing gross total income or total income, only the amount of income after set-off remains under a head as part of gross total income or total income. Only that amount of long-term capital gains which is included in the total income would be subject to tax at a prescribed flat rate. Thus, if there was a loss of Rs. 10,000 from business and there is long-term capital gains of Rs. 30,000, then after setting off of loss of Rs. 10,000 with long-term capital gains, only Rs. 20,000 would remain under the head ‘Capital gains’ to be included in the gross total income or total income. The flat rate of tax will be applicable in respect of Rs. 20,000 and not Rs. 30,000, since the amount of long-term capital gains included in that total income is Rs. 20,000. (Here it is assumed that the total income ignoring, long-term capital gains, is above the exemption limit).”

In the view of the authors, while the above circular is in the context of application of section 112 after set-off of the losses, it clearly lays down the manner of interpreting section 112 (the relevant portion of which has not been amended after this Circular), i.e., section 112 applies after the computation provisions have been given effect to. Therefore, the principles emanating from the Circular should also apply in the case interplay of section 112 and section 48 and allows one to give a harmonious reading of both the sections.

iii. Further, the ITAT applied the principle of “Generallia specialibus non derogant”, i.e., special provisions shall override the general provisions. While using this interpretation, it held that section 112(1)(c) specifically applies to non-residents whereas section 48 applies to all transfers. However, what should be considered is that the first proviso to section 48 is also a specific provision and applies only in the case of a non-resident transferring shares or debentures of an Indian company. In other words, both the sections [the first proviso to section 48 and section 112(1)(c)] are special provisions and not general provisions under the ITA.

iv. Another aspect to be considered while evaluating the above decision of the ITAT above is to compare it with the treatment provided to transfer of shares listed on a recognised stock exchange under section 112A of the ITA. In case of such gains also, the first and second proviso to section 48 of the ITA do not apply. However, the manner in which such exclusion has been implemented is by adding a separate proviso to section 48 itself and not in the taxing section 112A. The third proviso to section 48 of the ITA states as below:

“Provided also that nothing contained in the first and second provisos shall apply to the capital gains arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A:”

If a similar carve-out in section 48 was also provided for unlisted shares, taxable under section 112(1)(c), the ITAT decision could have been better appreciated. However, the fact that the legislature, in its wisdom, decided to carve-out the benefit of the first and second proviso in the section dealing with tax rate instead of that dealing with the computation would mean that its intention was different and has to be interpreted in a manner different than one would for section 112A.

v. If one follows the view of the ITAT, it could result in an absurdity wherein a situation of loss in foreign currency but gains in INR would be dealt with differently than loss in foreign currency as well as INR. In case of a loss in foreign currency as well as in INR, the provisions of section 112 of the ITA do not apply and for the purpose of the carry forward of the loss under section 74 of the ITA, one would consider the first proviso of section 48 for carrying forward such loss. Therefore, in the case of a profit due to exchange fluctuation, one would not apply the first proviso to section 48 whereas in the case of a loss, one would apply the first proviso to section 48, resulting in two different outcomes in two similar situations (loss in foreign currency).

vi. Lastly, if one views purely from a non-resident’s perspective, i.e., from the perspective of the US Co in this case, there is clearly a loss. In the above example, US Co had invested in I Co at USD 100,000 and received USD 80,000 in return. Therefore, while the value of the investment may have grown on account of the exchange rate fluctuation, it does not result in an actual profit or gain from US Co’s point of view.

Therefore, in the view of the authors, the only way one would be able to harmoniously apply both the sections without making either obsolete would be to first compute capital gains in accordance with section 48 (including the first proviso) and if the income in accordance with the said section is positive, apply the provisions of section 112 by recomputing the gains without giving effect to the first proviso to section 48. If the income, after computing in accordance with section 48, is a loss, then one need not apply section 112 of the ITA.

b. Outbound

Having analysed the case of a non-resident transferring the shares of an Indian company, one should also evaluate the issues arising in the transfer of shares of a foreign company by a resident. The main issue in this type of transaction is the interpretation of Rule 115 of the Rules.

Let us take a similar example as that above to understand this issue further. In this example, I Co, an Indian company, had acquired shares of US Co, a company incorporated in the US, in 2014 when the exchange rate was 1 USD = INR 60. During FY 2024–25, these shares are sold to a UK-based company, when the exchange rate is 1 USD = INR 85. The computation of the capital gains would be similar to above and as follows:

Particulars Amount in USD Exchange Rate Amount in INR
Sales consideration 80,000 85 68,00,000
(-) Cost of acquisition 100,000 60 60,00,000
Capital Gains (20,000) 8,00,000

Similar to the earlier example, I Co has made a loss in USD terms but a profit if one considers the exchange rate fluctuation.

In this situation, the first proviso to section 48 of ITA does not apply as it applies only in the case of a non-resident transferring the shares of an Indian company and not in the case of a resident transferring the shares of a foreign company. Similarly, section 112(1)(c) of the ITA also does not apply to this transaction.

Rule 115 of the Rules, which deals with the exchange rate to be used for conversion into INR of income expressed in foreign currency, provides as under:

“(1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.

Explanation.—For the purposes of this rule,—

(1) ‘telegraphic transfer buying rate’ shall have the same meaning as in the Explanation to rule 26;

(2) ‘specified date’ means—

(a) …
(b)…

(c) in respect of income chargeable under the heads ‘Income from house property’, ‘Profits and gains of business or profession’ not being income referred to in clause (d) and ‘Income from other sources’ (not being income by way of dividends and ‘Interest on securities’), the last day of the previous year of the assessee

(f) in respect of income chargeable under the head ‘Capital gains’, the last day of the month immediately preceding the month in which the capital asset is transferred:

Provided that the specified date, in respect of income referred to in sub-clauses (a) to (f) payable in foreign currency and from which tax has been deducted at source under rule 26, shall be the date on which the tax was required to be deducted under the provisions of the Chapter XVII-B.

(2) Nothing contained in sub-rule (1) shall apply in respect of income referred to in clause (c) of the Explanation to sub-rule (1) where such income is received in, or brought into India by the assessee or on his behalf before the specified date in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973).”

The issue which arises is whether Rule 115 shall apply in a situation where the income accruing as a result of a transfer has been received in India — whether the exchange rate for the currency in which the transfer was effectuated and therefore, income accruing, is to be considered or does Rule 115 not apply as the income is received in India.

One of the key decisions on Rule 115 is that of the Supreme Court in the case of CIT vs. Chowgule & Co. Ltd (1996) 218 ITR 384, wherein the Apex Court held as follows:

“Rule 115 merely lays down that ‘for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency’, the rate of exchange shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation (2) has clarified that the ‘specified date’ will mean in respect of income chargeable under the heading of ‘Profits and gains of business or profession’, the last day of the previous year of the assessee. This only means that if an assessee is assessable in respect of any income accruing or arising or deemed to have accrued or arisen in foreign currency or has received or deemed to have received income in foreign currency, then such foreign currency shall be converted into rupees notionally at the telegraphic transfer buying rate of such currency as on the last day of the previous year of the assessee. If on the last day of the previous year, the assessee does not have any foreign currency in his hand or the assessee is not entitled to receive any foreign currency, then there is no question of conversion of such foreign currency into rupees. It is only the foreign currency which will have to be converted into rupees. But, if the foreign currency received by an assessee has been converted into rupees before the specified date, question of application of rule 115 does not arise. Rule 115 does not lay down that all foreign currencies received by an assessee will be converted into rupees only on the last day of the accounting period. Rule 115 only fixes the rate of conversion of foreign currency. If there is no foreign currency to convert on the last day of accounting period, then no question of invoking rule 115 will arise. The assessee in this case is agreeable to have the outstanding amount of foreign currency payable to him at the rate of exchange prevalent on the last day of the previous year of the assessee. But this rule cannot apply to the amounts received by the assessee in course of the accounting period in rupees. Clause (2), which was introduced on 1-4-1990, is really clarificatory and does not bring about any change in rule 115.”

Therefore, the SC held that Rule 115 would have no implication if the income has been brought into India as on the last day of the previous year. The SC further held that Rule 115(2) of the Rules is merely clarificatory and does not bring about any change in Rule 115. This would, therefore, mean that in the case of capital gains, if the sales consideration (of which the income is a part) is brought into India before the last date of the previous year, the rate at which the income was brought into India would be considered for computing the capital gains.

In the view of the authors, the above SC decision is to be read in the context of the facts which were before the Apex Court. The facts of that case were in respect of business income, wherein the Rule itself provides for the exchange rate on the last date of the previous year to be applied. Therefore, one may be able to distinguish that the principle laid down by the SC in the above decision would not apply to other streams of income where a different date for considering the exchange rate is to be considered — for example, in the case of capital gains, on the last date of the month preceding the month of transfer.

Another point which needs to be considered is the language of Rule 115 which deals with exchange rate for “income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency”. Therefore, when the Rule itself distinguishes between income accrued and income received, considering the rate at which the income was brought into India and not at which the income was accrued, may not be in line with the Rule. Similarly, if one takes a view that the observation of the SC, that Rule 115(2) is clarificatory, should apply to all streams of income and not just business income, it may be considered as against the intention of the Rule which provides for the rate at which income was brought into India only for business income, income from house property, income from other sources (other than dividend) and interest on securities.

Therefore, in the view of the authors, the above SC decision may not apply to the case of capital gains. Secondly, even if one needs to consider the above SC decision and take the exchange rate as on the date on which it was brought into India, the said exchange rate would apply on the ‘income’ component, which is capital gains and therefore, one need not convert the cost of acquisition and sales consideration separately.

In the context of capital gains, one may refer to the recent decision of the Mumbai ITAT in the case of ICICI Bank Ltd vs. DCIT (2024) 159 taxmann.com 747. In the said case, the assessee had invested in foreign subsidiaries and some of the subsidiaries had been sold while some of the investments were redeemed during the year. As per the limited facts provided in the judgement, the sales consideration was accruing in foreign currency and received in India. The Pr. CIT, while passing an order under section 263, held that indexation of cost is available only when capital assets are acquired in Indian currency. The Pr. CIT further computed the income by converting the cost of acquisition and sales consideration at the exchange rate on the date of acquisition and date of sale, respectively, and held that the investment was made in INR and, therefore, indexation was computed on the gains computed in INR as stated above. The ITAT upheld the order under section 263 and held as follows:

“…. The assessee has sold the shares of the subsidiary company to another entity for a consideration of Russian rubles Rs. 122,49,51,818. This was purchased by the assessee for Russian ruble Rs. 183,12,16,035…..Undisputedly, all these acquisitions have been made by the assessee in Indian currency and sold and ultimately consideration was received in India in Rupees. The acquisition cost in INR was converted in to FC and sale in foreign currency was received in INR. The learned PCIT has given a reason that the order of the learned assessing officer is not in accordance with the concept of cost inflation index. In fact, assessee has not invested in foreign currency but in INR. Even the second proviso to section 48 is only with respect to Non-resident Assessee. By computing long term capital gain by incorrect method assessee has got the benefit of Foreign Exchange Fluctuation as well as cost inflation index both, which is not in accordance with Income-tax Act.”

While no detailed reasoning is provided, it seems that the ITAT has held that as ultimately the acquisition was made by converting INR into foreign currency and as the sales consideration, though in foreign currency, was received in India, the capital gains is to be computed by converting the cost of acquisition and sales consideration at the exchange rate prevailing on the date of purchase and sale, respectively.

Therefore, the ITAT effectively read Rule 115(2) even for capital gains and did not distinguish between “income accruing” and “income received”. As has been analysed above, in the view of the authors, such a position, with utmost respect of the ITAT, may need to be reconsidered on the basis of the arguments provided above. If the same is not reconsidered, in the view of the authors, the provisions of Rule 115 may become obsolete as income, would at some point of time, in the case of a resident, always be repatriated to India, in accordance with the rules under Foreign Exchange Management Act, 1999.

Therefore, in the view of the authors, if the income accruing as a result of transfer, is expressed in foreign currency, such income, being capital gains, would need to be converted in accordance with Rule 115, i.e., there would be a loss of USD 20,000 in the above example.

However, care needs to be taken that the income should be accruing in foreign currency and not in INR. The Bombay High Court in the case of CIT vs. E.R.Squibb & Sons Inc (1999) 235 ITR 1 held, while in an inbound scenario, where the sale price of the shares of an Indian company by a non-resident, as well as the RBI approval for the sale, was in INR, the income would not be said to be accruing in foreign currency and hence, Rule 115 would not apply. Therefore, for Rule 115 to apply in the case of capital gains, it is essential that the agreement in form as well as in substance, refer to the consideration to be received in foreign currency and not INR.

CONCLUSION

While the arguments provided above could help in distinguishing the decisions of the ITAT in the case of inbound investments as well as outbound investments, one may need to consider the possibility of litigation on this aspect as there is no favourable judicial precedent on the subject directly, taking the above arguments. Further, the Mumbai ITAT in the case of ICICI Bank (supra) has held, by upholding the order of the Pr. CIT under section 263, that indexation should apply only to investments in INR and not in case of income expressed in foreign currency. Such a view, not coming clearly from language of the second proviso to section 48 (which seems to apply to all transactions other than capital gains in the hands of a non-resident on sale of shares or debentures of an Indian company), would need a detailed evaluation.

Goods and Services Tax

HIGH COURT

23 Kalpana Cables Products Pvt. Ltd. vs.

Commissioner, Department of Trade and Taxes

(2024) 18 Centax 485 (Del.)

Dated 22nd April, 2024

Cancellation of registration cannot be done retrospectively by the department without providing any specific and justifiable reasons.

FACTS

Petitioner was a registered person engaged in the business of manufacturing PVC copper wires under GST law. Petitioner applied for cancellation of GST registration on 21st May, 2019, due to closure of business following director’s ill health. The respondent issued an order dated 5th June, 2020, rejecting the cancellation application without providing any reasons. Additionally, a show cause notice was issued on 1st September, 2020, stating that the taxpayer had not filed returns for a continuous period of six months. The petitioner was asked to appear for a personal hearing without specifying the date, time and reason. As a result, the petitioner could not represent itself before the respondent. Subsequently, an ex-parte order was passed, cancelling the GST registration retrospectively, with effect from 1st July, 2017 without assigning any reasons whatsoever. Aggrieved by this order, the petitioner filed a writ petition before the Hon’ble High Court.

HELD

Hon’ble High Court observed that petitioner’s GST registration was not liable to be cancelled retrospectively as there were no material facts on record justifying such action. The Hon’ble Court further held that discretion to cancel registration retrospectively must be exercised objectively and not arbitrarily. Accordingly, the Court directed that cancellation of GST registration would be effective from the date mentioned in the petitioner’s application. Thus, the impugned order was set aside, and writ petition was disposed of.

24 B. Kusuma Poonacha vs. Senior Intelligence Officer

(2024) 19 Centax 6 (Kar.)

Dated 20th February, 2024

Cash cannot be seized by Revenue during search operations as it does not fall under “goods” or “things” as envisaged under section 67(2) of CGST Act, 2017.

FACTS

The Petitioner was an employee of M/s. Vihaan Direct Selling (India) Pvt. Ltd. The respondent searched residential premises of the petitioner and seized various goods along with cash amounting to ₹1,71,07,500. Additionally, the petitioner’s statement was recorded. However, following the seizure of goods and cash and the recording of the statement, no SCN was issued by the respondent and more than a year and a half has since elapsed. Aggrieved by the seizure of goods and cash, the petitioner filed a writ before this Hon’ble High Court.

HELD

Relying on various judgments, the Hon’ble High Court held that the term “things” mentioned under section 67(2) of CGST Act does not include cash / currency / money. Therefore, it cannot be seized during search and seizure, in terms of the aforesaid provision. Additionally, it was also held that seizure of documents or books or things is only for the purpose of inquiry or any proceedings under the Act and cannot be used to tax the seized goods. Lastly, as per section 67(7) of CGST Act, 2017, the respondent does not have the right to retain the subject cash for beyond six months. However, in the given case, more than one year has elapsed. Therefore, High Court quashed the impugned seizure order and directed the respondent to return the entire cash together with accrued interest.

25 Vela Agencies vs. Assistant Commissioner,

State Tax

(2024) 19 Centax 35 (Mad.)

Dated 26th April, 2024

An Order creating a demand cannot be issued based on a subject matter if no allegations regarding it were raised in SCN.

FACTS

The Petitioner discontinued its business operations as an Aircel distributor following the closure of Aircel Ltd. on
29th December, 2022. An SCN was issued to the petitioner, demanding ₹8,27,252, for alleged under reporting of sales in comparison to ITC availed. Subsequently, an impugned order was passed, creating a liability amounting to ₹14,97,702 along with an equivalent penalty. The additional demand of ₹6,69,820 was based on a comparison between GSTR 3B and GSTR 2A, which was not included in SCN. Aggrieved by the impugned order, the petitioner filed an appeal before the High Court.

HELD

The Hon’ble High Court observed that there must be consistency between the grounds raised in SCN and its corresponding Order passed subsequently. Since impugned Order was passed on a ground different from that raised in SCN, the Court set aside the impugned order. The writ petition was disposed of, granting the respondent liberty to initiate fresh proceedings.

26 Laxmi Construction vs. State Tax Officer,

CT & GST

(2024) 18 Centax 490 (Ori.)

Dated 9th May, 2024

Notice uploaded electronically via GST portal is a valid mode of service even though the notice was not physically served to the noticee.

FACTS

The petitioner was engaged in the business of works contract. On 1st October, 2021, the petitioner was issued an SCN alleging that the petitioner had rendered works contract service; however, the same was not reported in its GSTR 3B returns. Subsequently, an order was passed electronically and uploaded on the common portal on 7th December, 2021, confirming the demand. However, this order was not physically served to the petitioner. The time limit to file an appeal had already expired when the petitioner became aware of such an order and filed a writ before Hon’ble High Court.

HELD

Hon’ble High Court held that the order uploaded electronically was sufficient and a valid mode of service, and it was not mandatory for the respondent to serve it physically. Accordingly, the writ petition was dismissed.

27 Universal Relocations India Pvt. Ltd. vs.

State Of Tamil Nadu

2024 (19) Centax 43 (Mad.)

Dated 26th March, 2024

GST cannot be demanded mechanically on figures of trade payables and employee benefit expenses mentioned in financial statements.

FACTS

The petitioner was engaged in the business of relocation service. An SCN was issued raising a demand regarding trade payables and employee benefit expenses, based on the petitioner’s balance sheet. However, the petitioner contended that he did not receive any SCN and was not offered a personal hearing. Despite this, an impugned order was passed, confirming the demand. Aggrieved by the impugned order, the petitioner filed this petition before the Hon’ble High Court.

HELD

High Court held that there is a lack of clarity regarding the basis for imposing GST on total trade payables, where the turnover was taken directly from the balance sheet of the petitioner. Similarly, the basis for levying GST on employee benefit expenses, based on amounts from the petitioner’s profit and loss account, was not established. Accordingly, the impugned order was quashed, and the matter was remanded for reconsideration.

28 Mahesh Devchand Gala vs. Union of India

(2024) 18 Centax 525 (Bom.)

Dated 10th May, 2024

The detention of the petitioner on behalf of his company cannot extend overnight or beyond 24 hours under the pretext of recording a statement, especially considering the petitioner’s cooperation during the investigation and the complete discharge of the entire GST liability.

FACTS

In October 2021, a thorough fraud investigation was carried out against the petitioner, followed by several summons. During one of these instances, the petitioner was summoned to visit the respondent’s office where he was detained overnight and arrested by the police the next day. Later, he was presented before the magistrate. The petitioner contended that such an allegation was illegal and was delayed for 13 hours, without providing any reason. Aggrieved by the prolonged and unnecessary arrest, the present petition has been filed.

HELD

The High Court held that the investigation was conducted in 2021 and since then, the petitioner had cooperated with the authorities. Despite this cooperation, he was detained without any substantial reason for more than 24 hours. Additionally, the entire liability was discharged by the company.

The Court criticised the practice of detaining individuals overnight under the guise of recording of their statements, regardless of their willingness to co-operate. Relying on the case of Arnab Manoranjan Goswami vs. State of Maharashtra (2021) 2 SCC 427, the Court underscored the need for judicial scrutiny where the State potentially misuses criminal law. Accordingly, interim bail was granted, and the petition was disposed of.

29 M. Trade Links vs. Union of India

[2024] 163 taxmann.com 218 (Kerala)

Dated 4th June, 2024.

The Hon’ble High Court dismissed the challenge to the constitutional validity of section 16(2)(c) and section 16(4) of the CGST Act. The Court ruled that for the purpose of section 16(4), the deadline for filing GSTR 3B return for month of September is deemed to be 30th November of each financial year, retrospectively effective from 1st July, 2017. Thus, assessees who filed their returns for September on / or before 30th November will have their ITC claims considered as availed within the specified time limit under section 16(4), provided they are otherwise eligible for ITC.

FACTS

The petitioners challenged Sections 16(2)(c) and 16(4) of the Central Goods and Services Tax Act and State Goods and Services Act, 2017. The provisions were challenged inter alia on the following grounds:

(a) The recipient dealer cannot be burdened to ensure that the supplier of goods and services has paid the tax. Such a condition would be absolutely impossible for the recipient dealer to comply with. Further, the recipient dealer has no means to force the supplier to make the payment and therefore, the doctrine of impossibility would be applicable in such a situation.

(b) Where the revenue is able to recover the tax along with interest and penalty from the supplier dealer and also denied the claim of the input tax credit as the said tax would not get reflected in GSTR-2A, this situation would lead to unjust enrichment of the Government as on the same taxable transaction, the Government would collect tax from the recipient dealer and also from the supplier along with interest and penalty, as there is no provision for refunding the amount collected from the recipient in cases where the department successfully recovers the unpaid tax from the supplier who had defaulted.

(c) Section 16(2)(c) confers unchecked powers on the respondent authorities, to treat bona fide and genuine purchaser dealers and guilty purchasers alike.

(d) The claim of ITC is a right of the recipient dealer and not a concession given by the taxing authorities under the statute. The input tax credit under the GST Act is the property of the recipient dealer, and denying the credit for default of the supplier dealer would be violative of Article 300 of the Constitution.

HELD

The Hon’ble High Court held as under:

(i) The recipient dealer’s claim for ITC is in the nature of concession or entitlement. It is not an absolute right and is subject to the conditions and restrictions as per the scheme of the GST legislation. Hence, there is no substance in the submissions that section 16(1) of the GST Act provides an absolute right to claim Input Tax Credit and conditions in sub-section (2) of section 16 cannot take away the right conferred thereunder. Section 16(2) is the restriction on eligibility and section 16(4) is the restriction on the time for availing ITC.

(ii) The Scheme of the Act provides that only tax collected and paid to the Government could be given as input tax credit. Hence, permitting ITC without payment of tax would render the GST laws and schemes unworkable. The condition imposed by section 16(2)(c) is therefore neither unconstitutional nor onerous on the taxpayer. In order to claim ITC, each registered person has a reason and incentive to request documentation and tax payment compliance from the person behind him in the value-added tax chain to ensure that the ITC chain is not broken.

(iii) Section 16(1) is subject to section 49 and section 16(2)(c) is subject to section 41. Eligible ITC is self-assessed in the GSTR 3B return, and only then it is credited to the electronic credit ledger, which can be utilised for payment of tax.

(iv) Prior to the amendment to section 39, by the Finance Act 2022, the date for furnishing the return under section 39 was 30th September. Considering the difficulties in the initial stage of the implementation of the GST regime, its understanding, and compliance, the Legislature effected the amendment and extended the time for filing the return for September to 30th November in each succeeding Financial Year. The amendment is only procedural to ease the difficulties initially faced by the dealers / taxpayers. Therefore, where for the period from 1st July, 2017 till 30th November, 2022, if a dealer has filed the return after 30th September and the claim for ITC was made before 30th November, such ITC claim should also be processed if he is otherwise entitled to claim the ITC.

30 Annalakshmi Stores vs. Deputy State Tax Officer

[2024] 163 taxmann.com 469 (Madras)

Dated 10th June, 2024.

When the show cause notice was served on a temporary ID created by the department, treating the petitioner as unregistered person while carrying out proceedings under section 63 of the CGST Act and the assessment order was passed ex-parte, on a best judgment basis, the Hon’ble Court set aside the matter for reconsideration on payment of 10 per cent of disputed tax demand.

FACTS

The GST registration of the petitioner was cancelled on 8th February, 2019 with retrospective effect from

31st August, 2017, on the grounds that the petitioner had not filed his returns continuously for a period of six months. Thereafter, the assessment was completed under section 63 of the CGST Act. The petitioner submitted that the show cause notice in Form ASMT-14 was mandatory and that he was unaware of the issuance thereof as the said documents were uploaded by creating a temporary ID.

HELD

The Hon’ble Court observed that tax liability was computed on a best-judgment basis by drawing on the particulars available in the auto-populated GSTR-2A. By using the total purchase value as the basis, the taxable value was arrived at and freight and miscellaneous charges and gross profit were added thereon. This exercise was carried out without hearing the petitioner in person and without considering the petitioner’s objections. Hence, the impugned orders are set aside subject to the petitioner remitting 10 per cent of the disputed tax demand in respect of each assessment period permitting the petitioner to file a reply to tax proposals in the show cause notice on merits and provide personal hearing in the said matter.

31 Rahul Bansal vs. Assistant Commissioner of State Tax

[2024] 163 taxmann.com 32 (Calcutta)

Dated 15th May, 2024.

Where the petitioner filed an appeal in time; however, due to technical glitches, it was rejected as deficient, and on resubmission, it was rejected on the grounds of limitation as being filed beyond the prescribed period mentioned in section 107 of the CGST Act, the Hon’ble Court held that statutory right to challenge the order passed under section 129 (3) of the said Act cannot be defeated by reason of technical glitches and directed to restore the appeal.

FACTS

The petitioner challenged orders passed by the first Appellate Authority under section 107 of the CGST Act, rejecting the appeals filed by the petitioner on the grounds of limitation. Petitioner’s goods were detained and seized and a penalty order was passed in terms of section 129(3) of the CGST Act. The petitioner got the goods released upon payment of penalty and also filed an appeal against the said order, but the said appeal was rejected on the grounds that no amount of disputed tax / interest / penalty is mentioned in form GST APL-01. According to the petitioner, by reasons of a technical glitch, the petitioner could not insert the disputed amount in the “disputed tax” column which ultimately resulted in the auto-generated rejection of the appeal, by the issuance of form GST APL- 02. The petitioner filed another appeal by incorporating the disputed amount, but on this occasion, since the appeal was filed beyond the prescribed period of limitation for filing of the appeal, the said appeal was rejected. The petitioner submitted that having paid the amount of penalty, he could not have been called upon by the appellate authority to make payment of any pre-deposit.

HELD

The Hon’ble Court observed that although the petitioner’s appeal was filed within time, by reasons of technical glitches, the same was rejected. It held that the petitioner’s statutory right to challenge the order passed under section 129(3) of the said Act cannot be defeated by reason of technical glitches and restored the appeal.

32 Shree Sai Hanuman Smelters (P.) Ltd vs. Senior

Intelligence Officer, Directorate General

of Goods and Service Tax

[2024] 163 taxmann.com 436 (Madras)

Dated 3rd June, 2024

Where a person registered with State GST authorities received a summon from the Central GST authority, the Hon’ble Court held that a writ of mandamus cannot be issued to restrain the performance of a statutory duty, especially in the instant case, where it was not possible to ascertain whether the summon was issued in connection with the inquiry of the petitioner or third party.

FACTS

The petitioner received a summon under section 70 of the Central Goods and Services Tax Act, 2017 from the Senior Intelligence Officer of the CGST department, which was addressed to its Accountant. The petitioner challenged the said summon on the ground that the petitioner’s assessment has been allotted to the State GST authorities and hence, the impugned summon is invalid. The department contended that the summons is in relation to proceedings initiated against M/s. GBR.

HELD

The Hon’ble Court noted that at this juncture, it is not clear as to whether the summon relates to proceedings against M/s. GBR or Shree Sai Hanuman Smelters Private Limited. It held that section 70 of the CGST Act empowers an officer to summon any person whose attendance is necessary in relation to the relevant enquiry and thus a mandamus cannot be issued to restrain the performance of a statutory duty.

Recent Developments in GST

A. GSTN INFORMATION 

i) The Government has issued information dated 16th May, 2024, whereby the availability of a facility to register machines for Pan Masala and Tobacco is informed (GST SRM-1). Further, information in the above respect is given vide information dated 7th June, 2024, for making available the facility of Form GST SRM-2 for reporting the details of inputs and outputs procured and consumed for the relevant month.

ii) The CBIC has issued Instruction No.1/2024-GST dated 30th May, 2024 whereby guidelines for initiation of recovery proceedings (in exceptional cases), before three months from the date of service of demand order, are given.

iii) Vide Press Release dated 6th May, 2024 the appointment of Justice (Retired) Sanjay Kumar Mishra as the first president of GST Appellate Tribunal is informed.

iv) Advisory dated 28th May, 2024 is issued to inform about the launch of the E-way Bill 2 portal.

B. ADVANCE RULINGS

14  TDS liability on PSU

M/s. Ramagundam Fertilizers and

Chemicals Ltd. (AR Order No.A.R.Com/17/2023 dt. 2nd January, 2024 (Telangana)

The facts are that Ramagundam Fertilizers and Chemicals Limited (RFCL) was incorporated on 17th February 2015 as a public company to set up a natural gas-based ammonia urea complex along with offsite & utility facilities at Ramagundam. RFCL is formed as a Joint Venture Company of various Public Sector Undertakings like National Fertilizers Limited (NFL), Engineers India Limited (EIL) Fertilizer Corporation of India Limited (FCIL) (Promoters) and Govt. of Telangana with participation in equity and control over RFCL. It has set up a natural gas-based ammonia urea complex along with offsite & utility facilities at Ramagundam, Telangana. RFCL supplies urea to National Fertilizers Limited (NFL) and NFL supplies the same to the farmers. Section 51 of the CGST Act requires the notified person to pay GST TDS by deducting the same from its suppliers. The Government of India has notified persons under Clause (d) of Section 51(1) vide notification no.33/2017-CGST (Rate). The Government has also issued Notification No.73/2018-CGST to give exemption from the operation of TDS provisions under certain circumstances.

The applicant has raised the following questions before ld. AAR.

“1. Whether the applicant can be classified under notified persons under section 51 of CGST ACT 2017 read with Notification No. 33/2017 dated 15th September, 2017?

2. Whether the applicant is liable to pay GST TDS by deducting it from the consideration payable to the Supplies?

3. Whether the exemption notification is applicable for the transactions undertaken by the applicant if other applicable conditions remain satisfied?”

The applicant has presented sufficient material to prove that it is covered by section 51(1)(d). The ld. AAR observed that the applicant is established by the Government through the investment policy under the Ministry of Fertilizers as a consortium of nominated Public Sector Undertaking, and the same is approved by the Central Government. It is further noted by the ld. AAR that the revival of RFCL is made on the directions of the government and nominated a group of Public Sector Undertakings for investment purposes and accordingly, a significant part of shareholding is jointly or severally held by Public Sector Undertakings.

The ld. AAR came to the conclusion that the applicant is established by the Government under the Ministry of Fertilizer as a PSU and Cumulative shareholdings in the company i.e., 87.3 per cent belong to Central PSUs & the State Government of Telangana. Hence, the applicant falls under section 51 (1)(d) of the CGST Act. It is accordingly held that the benefit of notification no.73/2018 dt. 31st December, 2018 is available to the applicant and gave the following ruling.

Questions Ruling
1. Whether the applicant can be classified under notified persons under section 51 of CGST Act,2017 read with Notification no.33/2017 dated
15th September, 2017?		 Yes
2. Whether the applicant is liable to pay GST TDS by deducting it from the consideration payable to the Supplies? If the recipient is falling under clauses (a), (b), (c) & (d) of the sub-section (1) of section 51 then the applicant supplier will not attract TDS.
3. Whether the exemption notification applicable for the transactions undertaken by the applicant if other applicable conditions remain satisfied? Same as in question (2) above.

15  Rate of tax on leasing of goods with the operator

M/s. Ventair Engineers (AR Order

No.A.R.Com/11/2023 dt. 9th January, 2024

(Telangana)

The applicant, M/s. Ventair Engineers are providing industrial equipment falling under HSN Codes: 84151090, 84798920, 84145930 on rent/leasing with operators and are charging GST tax at the same rate as applicable for such equipment as per the HSN code of equipment. The customers of the applicant took objection that it should be 18 per cent in all cases. To have clarification about the correct position, the following question was raised before the ld. AAR.

“Applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipments provided with operator falling under HSN Codes: 84151090, 84798920, 84145930.”

The ld. AAR referred to relevant notification no.11/2017, as amended up to 18th July, 2022. The ld. AAR noted that the entry at serial No. 17 enumerates heading 9973 & the service description for leasing or renting of goods is enumerated at sub-entry (vii a) & (viii) and reproduced the same as under:

(viia) Leasing or renting of Goods The same rate of central tax as applicable on supply of like goods involving the transfer of title in goods.
(viii) Leasing or rental services, without an operator, other than (i), (ii), (iii), (iv), (vi) and (viia) above. 9

The ld. AAR observed that as per sub-entry (viii), which enumerates leasing or renting of goods without an operator, a rate of tax of 18 per cent is attracted and since the applicant provides the services along with the operator it will not fall under this classification. The ld. AAR observed that the services of the applicant will fall under sub-entry (vii a) where Leasing or renting of goods is enumerated without reference to the operator. The ld. AAR concluded that as per this entry, the rate of tax is the same as the rate of CGST applicable on the supply of goods involved and accordingly confirmed the view of the applicant.

The learned AAR also referred to the HSN mentioned by the applicant. The Ld. AAR noted that HSN Code 84151090 covers Air Conditioning etc. which is liable to tax @ 28 per cent, as per notification no.1/2017 dt. 28th June, 2017, as amended from time to time.

The ld. AAR noted that the HSN Code 84145930 covers Industrial fans and are liable to tax @ 18 per cent vide Sr. no.317B to Schedule III of Notification 1/2017-CT(R) dated 28th June, 2017.

The ld. AAR also referred to HSN 84798920 which covers Air humidifiers or dehumidifiers and noted that as per Notification 01/2017, dated 28th June, 2017, the applicable Rate of tax is 12 per cent.

Accordingly, the ld. AAR replied by question as under:

Questions Ruling
Applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipment’s provided with operator falling under HSN Codes: The supplies of rental / leasing services made by the applicant fall under sub entry (viia) of entry of sl. no 17 of Notification 11/2017. Therefore, the rate of tax for the service shall be same as applicable on supply of such goods which are:
1. 84151090 CGST 14 per cent + SGST 14 per cent
2. 84798920 CGST 6 per cent + SGST 6 per cent
3. 84145930 CGST 9 per cent + SGST 9 per cent”

16  Recovery towards Canteen facility — Taxable

M/s. Sundaram Clayton Ltd. (AR Order No.107/AAR/2023

dt. 5th September, 2023 (TN)

The applicant, M/s. Sundaram Clayton Limited is engaged in the manufacture and supply of die-casting parts for use in automobiles. The applicant submitted that they have 3 plants which are located in three different districts of Tamil Nadu namely, Padi (Chennai), Oragadam (Chennai) and Belagondapalli (Hosur) and a registered Corporate Office in Chennai. The applicant is governed by the Factories Act, of 1948 and section 46 of the Factories Act applies to them. The applicant has to provide a canteen facility as per the above provisions. It is further informed that the canteen facility is provided by two models as under:

“a. Model I — Canteen operated by the Applicant (Padi) — Applicant runs the canteen, hired a cook who is their employee and food supplies are bought by the Applicant

b. Model II — Canteen run by a third party (Oragadam and Hosur) — Applicant avails canteen services from its subsidiary company namely Sundaram Auto Components Limited (SACL). There is a common canteen for food preparation operated by SACL. After the food is prepared, SACL sends the food to the Applicant’s dining area within the Applicant’s plant. SACL recovers charges for the canteen facility provided to the Applicant’s workers and the Applicant in turn recovers subsidized amount from its workers.”

The applicant also informed about the recovery of the subsidized amount from the workers/employees as under:

Plant Location Type of worker Recovery per month/day
Padi (own canteen) Regular R25 per month
Trainee R25 per month
Contractors R15 or 30/per day
Oragadam (SACL) Regular R5 per day
Trainee R5 per day
Security R15 per day
Contractors R30 per day
Hosur (SACL) Regular R5 per day
Trainee R5 per day
Contractors R15 per day

It was clarified that the cost over and above recovery is borne by the applicant.

The applicant was canvassing that they are not liable on the above recovery, based on the following contentions:

  • There is no legal intention to provide a canteen facility
  • The provision of taxability is not against consideration but it is a statutory obligation under the Factories Act.
  • It was also contended that the activity of providing a canteen facility does not fall under any of the clauses of the definition of ‘business’. It was submitted that the main business is the manufacture and supply of die-casting parts and the provision of a canteen facility is not incidental or ancillary to their main business.

Therefore, it was contended that there is no liability for recovery from employees. Several judgments and Advance Ruling are cited to support the above contention. The ld. AAR noted that the applicant has raised the following question.

“‘Whether recovery of subsidised value from employees for providing canteen facility

would (a) amount to ‘supply’ under the CGST Act and (b) whether the recovery

would attract GST under the following two models:

  • Model I — Canteen operated by the Applicant within the factory premises
  • Model II — Canteen run by Applicant’s subsidiary company operating within common premises for which the subsidiary company recovers charges from the applicant.”

The ld. AAR also noted the above contentions made by the applicant for non-liability. The ld. AAR referred to the appointment letter issued to employees and noted that there is a clause which mentions that the employee is entitled to use the canteen facility subject to recovery at specified charges.

The ld. AAR observed that the applicant is required to provide a canteen facility as per the Factories Act, 1948 and also required to bear canteen costs. The ld. AAR referred to the definition of ‘business’ in section 2(17) of the CGST Act and reproduced the same as under:

““Business” includes:

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit:

(b) any activity or transaction in connection with or incidents or ancillary to sub-clause (a);”

The ld. AAR observed that the canteen is established as per the Factories Act and hence it is an activity in furtherance of the business.

The ld. AAR also made reference to the term ‘Outward supply’, as defined in Section 2(83) of the CGST Act, 2017 and reproduced the same as below:

“‘Outward Supply’ in relation to a taxable person, means the supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business”.

Supply made by a taxable person in the course or furtherance of business is an ‘Outward supply’. The ld. AAR observed that establishing a canteen is in the furtherance of the business of the applicant and the provision of food in the canteen for a nominal cost is ‘Supply’ for the purposes of the GST Act.

Regarding the contention of applicant that there is no consideration but reimbursement of cost, the ld. AAR referred to the term ‘Consideration’ as defined in Section 2(31) of the CGST Act, 2017 and reproduced the same as under:

“‘Consideration’ in relation to the supply of goods or services or both includes, —

a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.”

The ld. AAR held that the applicant supplies food to their employees at a nominal cost, and the same
is the consideration for such supply made by the Applicant on which GST is liable to be paid. The judgments cited by the applicant were not applicable. The ld. AAR also held that the provision of food/drinks in the canteen is service as per Clause 6 of Schedule II to the CGST Act.

The ld. AAR also observed that circular no.172/04/2022-GST DT. 6th July, 2022 does not contemplate excluding the canteen facility from taxation. It is only perquisites which are sought to be excluded from taxation. The ld. AAR held that perquisites are non-cash benefits attached to an office or position of employee and cannot apply to a canteen facility which is against consideration.

The ld. AAR thus rejected all contentions of the applicant and held that GST is to be levied on the amount received by the applicant from the employees towards canteen provision.

In respect of Model II, the further argument was that the applicant is merely an agent and hence not liable for reimbursement from employees. However, the ld. AAR rejected the said argument also on the ground that the third person is providing services to the applicant and it is the applicant who provides further provides said services to employees. So this activity is also taxable, held the ld. AAR. Regarding citations, the ld. AAR held that such advance rulings passed by advance ruling authority and appellate authorities cannot be generalized and applied to all cases as they are binding only on the applicant of that Advance Ruling.

The ld. AAR gave the ruling as under:

“Question: Whether recovery of subsidized value from employees for providing canteen facility would (a) amount to ‘supply’ under the CGST Act and (b) whether the recovery would attract Goods and Services Tax (GST), under the following two models:

(i) Canteen operated by the Applicant within the factory premises

(ii) Canteen run by Applicant’s subsidiary company operating within common premises

Answer: For both the models, recovery of subsidised value from employees for providing canteen facility will amount to ‘supply’ under the CGST Act and GST is to be levied on the amount recovered by the Applicant from the employees towards provision of canteen facility.”

17  Canteen Facility – Non-Taxable

M/s. Kolher India Corporation Pvt. Ltd.

(AR Order No. GUJ/GAAR/R/2024/03

(in application no. AR/ SGST & CGST/2023/AR/19)

dt. 5th January, 2024 (Guj)

The applicant, M/s. Kohler India Corporation P. Ltd. is engaged in the manufacturing of plumbing products for kitchens & bathrooms. Their manufacturing facility is in Gujarat and is governed by the provisions of the Factories Act, of 1948.

To comply with this requirement of providing canteen facilities, the applicant entered into a contract with a canteen service provider (for short — ‘CSP’) to provide canteen facilities to their workers at their factory premises.

The CSP raises the invoice along with applicable GST for its canteen services. The invoice is raised by the CSP on the basis of the consumption by the employees of the applicant, which is tracked based on employees of the applicant who avail the canteen facility. A part of the canteen charges is borne by the applicant whereas the remaining part is borne by their employees, which is collected from employee’s salaries and paid to the CSP.

The applicant has relied upon the scope of section 7 of GST and further relied upon various Advance Rulings and judgments and press releases dated 10th July, 2017 as well as circular no.172/04/2022-GST dt, 6th July, 2022.

The applicant also raised the issue about eligibility to ITC. With the following questions were raised before the ld. AAR.

“(i) Whether the subsidized deduction made by the applicant from the employees who are ultimate recipients of the canteen facility provided in the factory / corporate office would be considered as ‘supply’ under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017?

(ii) If the answer to the above is affirmative, the value at which the GST is payable?

(iii) Whether the Company is eligible to take the ITC for the GST charged by the CSP for canteen services, where the canteen facility is mandatory in terms of section 46 of the Factories Act, 1948.”

About canteen recovery, after examination of the given submission, the ld. AAR observed as under:

“Now in terms of Circular No. 172/04/2022-GST, it is clarified that perquisites provided by the ‘employer’ to the ‘employee’ in terms of the contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same is provided in terms of the contract between the employer and employee. We find that factually there is no dispute as far as [a] the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided a sample copy of the HR Manual [only one page] reproduced supra. In view of the foregoing, we hold that the deduction made by the applicant from the employees who are availing food in the factory would not be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017.”

Thus, it is held that recovery towards the canteen facility is not taxable.

In view of the above, the ld. AAR held that the second question becomes infructuous.

The ld. AAR also dealt with the issue of eligibility for ITC. The ld. AAR held that Input Tax Credit will be available to the applicant with respect to food and beverages as it is obligatory for the applicant to provide a canteen facility under the Factories Act, 1948, read with Gujarat Factories Rules, 1963. The ld. AAR further held that the ITC on GST charged by the CSP will be restricted to the extent of cost borne by the applicant.

18  Classification — Seat covers for motorcycles

M/s. Lion Seat Cushions Pvt. Ltd. (AR Order

No.105/AAR/2023 dt. 5th September, 2023 (TN)

The facts are that the applicant is a manufacturer of Two-wheeler Seat Covers for bikes and scooters. The applicant has sought an Advance Ruling regarding the tax rate on the goods manufactured by them i.e., whether the GST rate of 28 per cent collected and paid for two-wheeler seat covers for Bikes and Scooters under HSN code 87089900 is correct or not?

The applicant submitted that the issue has arisen as other similar manufacturers collect tax @18 per cent under HSN code 9401 2000 or 5 per cent under HSN code 87149990. The applicant narrated that the customers are not buying the said two-wheeler seat covers from the applicant and resisting paying 28 per cent charged by them, referring to the other dealers who are charging lower rates on the same product. Applicant prayed to decide the correct rate.

The department authorities claimed that the goods are covered by heading 8711 or 8714 and levying the rate at 28 per cent is correct.

The ld. AAR examined the above classification under different headings given by the applicant i.e., 8708 9900, 9401 2000 and 8714 9990.

After a detailed examination of the classification under the above heading, the ld. AAR observed its own interpretation as under:

“6.7. Based on the examination of documents submitted by the Applicant, it is clear that they are making seat covers fit to be mounted on the existing seats of the Two Wheelers specifically Hero Honda Motorcycles. These seat covers are meant for the protection of the seats and the functional value of the seat cover is the comfort and convenience it extends to the rider and pillion rider. Thus, the seat cover is nothing but an accessory, which is generally bought by the customer for protection and comfort purposes. The features of the seat cover are distinct and clearly distinguishable from the seat.

6.8. From the above, we find that seat covers are accessories to Two-wheelers. Chapter 87 covers Vehicles other than railway or tramway rolling stock, and Parts and accessories thereof, under which parts and accessories of two-wheelers specifically find place under 8714, which is given as follows:

Chapter / Heading/ Tariff

Item

 Description of Goods
8714 Parts and Accessories of Vehicles of Headings 8711 to 8713.
8714 99 Other
8714 99 10 Bicycle chains
8714 99 20 Bicycle wheels
8714 99 90 Other

The heading CTH 8711 and 8713, are described as under:

Chapter / Heading/ Tariff

Item

 Description of Goods
8711 Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars;
8712 Bicycles and other cycles (including delivery tricycles), not motorized;
8713 Carriages for disabled persons, whether or not motorised or otherwise, which is reproduced as under:

6.7 Thus, we find that Motorcycles are classified under CTH 8711 and on the seats of such Motorcycles, the seat covers are fitted. Hence, these seat covers are nothing but part and accessories of Motorcycles and fall under CTH 8714, and more specifically, under CTH 87149990.”

Based on the above HSN classification the ld. AAR held that the rate will be 28 per cent, under Sr. no.174
of Schedule IV of Notification 1/2017-CT(Rate) dt. 28th June, 2017. The ld. AAR passed the following ruling:

“Two-wheeler seat covers merit classification under the CTH 87149990 and is taxable @ 14 per cent CGST + 14 per cent SGST vide entry no. 174 of Schedule IV of Notification No. 1/2017-CT (Rate), dated 28th June, 2017, as amended.”

Section – 148 — Reassessment — Assessment Year 2013–14 — Search — computation of the “relevant assessment year”.

9 Flowmore Limited vs. Dy. CIT Central Circle – 28

WP (C) No. 3738 OF 2024 & CM APPL. 15409/2024

Dated: 27th May, 2024. (Del) (HC)

Section – 148 — Reassessment — Assessment Year 2013–14 — Search — computation of the “relevant assessment year”.

Pursuant to a search and seizure operation conducted in respect of the Alankit Group on 18th October, 2019, the Petitioner was served a notice under Section 153C on 3rd March, 2022. On culmination of those proceedings, the Department proceeded to pass a final order of assessment on 23rd March, 2023, accepting the income which had been assessed originally under Section 143(3) of the Act. The Petitioner stated that insofar as the original Section 143(3) assessment was concerned, an appeal was taken to the Income Tax Appellate Tribunal which ultimately accorded relief to the petitioner with respect to disallowances made under Section 40(a)(ia) of the Act.

The subsequent notice under Section 148 of the Act dated 31st March, 2023 was concerned with a search which was conducted in the case of the Proform Group on 9th February, 2022.

The court noted that for the purposes of reopening, bearing in mind the proviso to Section 149(1), action could have been initiated only up to A.Y. 2014–15. Since the notice was issued on 31st March, 2023, it would be the amended regime of reassessment which came into effect from 1st April, 2021 which would be applicable. The action for reassessment would thus have to satisfy the provisions made in the First Proviso to Section 149(1) of the Act.

The Court observed that from a reading of that provision, any action for reassessment pertaining to an A.Y. prior to 1st April, 2021 can be sustained only if it be compliant with the timeframes specified under Section 149(1)(b), Section 153A or Section 153C as the case may be and on the anvil of those provisions as they existed prior to the commencement of Finance Act, 2021. Viewed in that light, it is manifest that the assessment for A.Y. 2013–14 could not have been reopened.

The Honourable Court referred and relied on the following decisions:

Filatex India Ltd. vs. Deputy Commissioner of Income Tax & Anr.[WP(C) 12148/2023]; Principal Commissioner of Income Tax-1 vs. Ojjus Medicare Pvt. Ltd[2024 SCC OnLine Del 2439]

Principal Commissioner of Income Tax-Central-1 vs. Ojjus Medicare Pvt. Ltd.[2024 SCC Online Del 2439]

The Court further observed that the computation of the “relevant assessment year” from the date of the impugned Section 148 notice dated 31st March, 2023 would be as follows:

Therefore, ex-facie evident that A.Y. 2013–14 falls beyond the 10-year block period as set out under Section 153C read with Section 153A of the Act. Consequently, the impugned notice was unsustainable.

The writ petition was allowed, and the notice dated 31st March, 2023 under Section 148 of the Act was quashed.

Director’s Personal Liability

The thought of penning this article emerged from two decisions of the Bombay High Court1: The first was a case where a mammoth penalty of ₹3,700 crores was imposed on a key employee of the Company, and the second involved a case where past directors were made liable for tax dues pertaining to a period after their resignation. While the Court ultimately granted relief from such over-ambitious notices, the decision brought to the forefront the monetary exposures hovering over individual(s) operating under the aegis of a company.

1.  Shantanu Sanjay Hundekari v. UOI (WP (L) NO. 30198 OF 2023) & Prasanna Karunakar Shetty v State of Maharashtra (2024-VIL-358-BOM)

Directors are at the forefront of recovery of any statutory liability. In this context, the GST law provides for three areas for discussion — (a) Recoveries of tax dues from directors of private companies including those arising during liquidation; (b) Penalty recoverable from directors for offences committed by Companies; (c) Penalty imposable on directors for aiding or abetting an offence committed by Companies.

The first two categories are recovery provisions where the tax, interest or penalties would be first imposed on the company and in case of their non-recoverability, the extended provisions enable the revenue to recover the tax and penalty from the directors of such companies u/s 89 or 88(3) of the CGST/SGST Act, 2017. The said provisions are exclusive to private limited companies and hence public limited companies fall outside its purview. The third category involves a direct imposition of penalty on the director for aiding or abetting offences u/s 122(3) of the CGST/SGST Act and this applies to directors of both private and public limited companies.

Liability of Directors on Private Company (Section 89& 88(3))

Under the Companies Act, the personal liability of directors is limited to the acts which arise out of breach of trust, fraud, etc. However, it is practically cumbersome for the revenue department to prove such acts have resulted in non-recoverability of tax liabilities. Hence, the provisions of section 89 have been specifically legislated as deeming provisions:

“Notwithstanding anything contained in the Companies Act, 2013 (18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.……….”

Similarly, section 88(3) contains statutory powers to collect tax dues of companies undergoing liquidation –

“(3) When any private company is wound up and any tax, interest or penalty determined under this Act on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, then every person who was a director of such company at any time during the period for which the tax was due shall, jointly and severally, be liable for the payment of such tax, interest or penalty, unless he proves to the satisfaction of the Commissioner that such non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.”

While both these provisions are broadly similar in nature, a comparison throws up certain differences:

  • Section 89 provides for recovery even during its regular operations, section 88(3) provides for recovery only during the winding up of the company – being more specific, section 88(3) would prevail over section 89 in the specified circumstances;
  • Individuals holding the directorship during the existence of the company, especially during the initiation of recovery provisions, are covered under section 89, but section 88(3) applies only to directors holding their post at the time the tax was due on the Company — subsequent directors may not be covered by the provisions of section 88(3);
  • Section 89 contains overriding provisions which is absent in section 88(3), enabling it to surpass the Companies Act for recovery of amounts.

With these key differences in mind, the following elements can be dissected and analysed: (i) the overriding character of Section 89; (ii) the pre-condition that the tax dues should be “non-recoverable”; (iii) the tax dues should be in respect of any supply of goods or services; (iv) a negative presumption that directors are liable for payment of tax and rebuttable only if the directors prove that such non-recovery is not on account of gross neglect, misfeasance or breach of duty; (v) the director(s) of the company are jointly or severally liable for such recoveries.

Overriding character

A private limited company, though a separate legal entity, is an artificial person under law. Therefore, the decision-making functions of a company are entrusted to a Board of Directors mandated to operate under a fiduciary capacity. While the directors act as agents or representatives before third parties, the company continues to be primarily liable for all acts performed by the directors within their capacity.

Section 166 of the Companies Act, 2013 specifically lays down that the Directors should operate under the memorandum and articles of association as documented by its members. It is the duty of the Director to act with ‘diligence’ and in ‘good faith’ only to promote the best interests of its stakeholders. The decisions taken by the director should involve reasonable care, judgement and skill independent of personal interests. In case of conflicts (direct or indirect), the director ought to refrain from taking any undue advantage or gain. As directors of a company, they may be held liable for any loss or damage sustained by the company because of any breach of duty or failure to disclose a personal financial interest in a particular matter. They may be directed to repay any gain or advantage derived from their fiduciary duty and liable for penal action under the said Act. Therefore, the Companies Act expects directors to honour their fiduciary capacity and protects them from any liability in case of honest diligence. Losses on account of business exigencies or external factors despite reasonable care do not generally devolve upon the directors.

Consequently, all tax liabilities would first be recoverable from the company unless there are specific provisions enabling recovery from the directors or key managerial personnel. By invoking the Companies Act, recovery of any tax liabilities (as a civil liability) from directors of the company can emerge only after the establishment of a ‘fraud’ or ‘breach of duty’ on the part of the director concerned. Moreover, only the officer in default would be liable and other director(s) disengaged from the finance/ tax function could take shelter as not being in default and outside the recovery net. Being a very narrow provision, the Companies Act places a larger onus on the tax administration to establish such a breach of duty and only then proceed to recover the civil liabilities from the director(s) u/s 166 of the Companies Act, 2013.

Section 89 of GST law overrides this feature of the Companies Act, 2013 for the purpose of recovery of tax dues from private companies. The section is aimed at “looking through” the “separate legal entity” and identifying the directors who have been negligent as representatives of the Company. It simply states that tax recovery can be made from any director of the company ‘jointly’ or ‘severally’ in case taxes are non-recoverable from the Company. An onerous presumption has been placed that the directors have breached their fiduciary duties unless they prove that the non-recovery of taxes is NOT on account of willful neglect, fraud, breach of duty, etc. In view of the negative presumption, the director must come forward to prove that they have been diligent in complying with the statutory responsibilities and such default is not attributable to them. Directors would be obligated to enlist the efforts taken to ensure tax dues were discharged and the failure to discharge them was beyond their reasonable control.

On the other hand, section 88(3) does not contain overriding provisions akin to section 89. Can this be taken to imply that the Companies Act provisions would influence the provisions of section 88(3) at the time of recovery actions on the winding up of the company? It appears that unlike section 89, section 88(3) would have to undergo the rigorous test of fraud, etc. being established prior to invoking recovery from directors during the winding up of the Company. Section 88(3) appears to be milder to this and hence read harmoniously with the Companies Act provisions.

Non-recoverability from the Company

Section 89 of GST law specifies that the taxes should be “non-recoverable” from the Company. It places an onus on the department to exhaust all modes of recovery prior to calling upon directors to discharge the liability of the company2.

2. Indubhai T. Vasa (HUF) v. ITO [2005] 146 Taxman 163 (Guj.);

As a first step, the revenue officer would have to establish that tax, interest and penalty are available for recovery u/s 79. The revenue officer cannot invoke the said provisions pending investigation, adjudication, assessment, etc., Even in respect of confirmed tax demands which are under appeal, sections 78 and 107(7) or 112(8) stay the recovery of the tax dues along with interest and penalty. Hence balance amounts may not be available for recovery until the matter attains finality i.e., matter being decided in the apex court or the right of appeal not being exercised by the taxpayer.

Coming now to section 79, it provides multiple avenues to the tax department for recovery of tax dues of the company i.e., bank accounts, debtors, goods, movable / immovable property or as arrears as land revenue. The said section should be exhausted completely and cannot be short-circuited to directly attach the bank accounts / properties of the director. In essence, recovery officers should reach out to directors only once section 79 leads to a dead end.

Even before the tax department alleges that taxes are due from directors, a specific conclusion is to be arrived at and recorded in writing that the taxes are ‘non-recoverable’ from the company. Under parimateria provisions of Income-tax (section 179), the Bombay High Court3 held that only after the first requirement is satisfied would the onus shift on any Director to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. In the case of Amit Suresh Bhatnagar4, the court quashed the attempt of the revenue to take effective steps of recovery from the Company and stated that the phrase “cannot be recovered” requires the Revenue to establish that such recovery could not be made against the Company, and then and then alone would it be permissible for the Revenue to initiate action against the Director or Directors responsible for conducting the affairs of the Company during the relevant accounting period. The provision has been specifically inserted to shield the directors from any hasty recovery by the tax department. In summary, only those amounts which are recoverable under section 79 from the Company fall into consideration under both sections and the tax department should exhaust all such recovery remedies under section 79 for a tax due to be non-recoverable.

3. Manjula D. Rita vs. PCIT, [2023] 153 taxmann.com 468 (Bombay)
4. [2009] 183 Taxman 287 (Gujarat)

Now let us take a peculiar circumstance where a company enters insolvency and is either wound up or taken over by another company under a resolution plan. The process of insolvency involves agreement over a resolution plan by operational / financial creditors and other stakeholders. The government’s debt being classified as operational debt would in all likelihood be trimmed down under the resolution scheme. The government being a party to the said proceedings is bound by the resolution plan approved by all creditors in terms of section 31 of the Insolvency Bankruptcy Code5. Once the primary liability on the company’s account is reduced, the vicarious liability on the directors also stands correspondingly reduced. The phrase “non-recoverable” from the company presupposes a right to recover the amounts from the Company. The tax authorities cannot state that the amounts which have been written off continue to be recoverable from directors despite the resolution plan. Moreover, with respect to the reduced tax demands, tax authorities would have to abide by the timelines provided in the resolution plan prior to concluding that taxes are ‘non-recoverable’.

5. Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. — [2021] 126 taxmann.com 132 (SC)

Presumption as to gross neglect, breach of duty, etc.

Section 89 places a statutory presumption that the non-recovery of taxes is on account of gross neglect, and breach of duty on the part of the directors. Since sovereign dues are considered to be supreme obligations, directors (in their fiduciary capacity) are expected to arrange their affairs in such a manner that sovereign defaults are avoided. The presumption is with reference to “nonrecovery” of tax dues and cannot be extended to circumstances prior to the fastening of tax dues — i.e., it refers to the circumstances after the tax demand is affixed on the company and the corresponding actions taken by the directors to make appropriate arrangements for payment of the said tax demands rather than the decision making resulting in the tax demand. For e.g., the directors cannot be held responsible for incorrect classification of goods/services but would certainly be responsible for payment of tax dues once the tax on incorrect classification is confirmed against the Company. Probably the intent of the section is to deter directors from taking evasive acts by depleting the company’s assets and making them responsible for the non-recoverability of taxes. The directors on the other hand would have to overcome the presumption by contending that despite the tax demand, business exigencies and external circumstances have resulted in insolvency and non-recoverability of tax demands.

In Maganbhai Hansrajbhai Patel6, the Gujarat High Court held that gross negligence etc., is to be viewed in the context of non-recovery of the tax dues of the company and not with respect to the functioning of the company when the company was functional. In that case, the revenue had placed the entire focus and discussion with respect to the Director’s neglect in the functioning of the company which was set aside by the Court. A similar view was also taken by Gul Gopaldas Daryani v. ITO7 wherein it was held that though the burden is cast by statute in the negative and on the director concerned, once in defence the director places necessary facts before the revenue to establish that non-recovery cannot be attributed to gross negligence, misfeasance or breach of duty on his part, the revenue is required to arrive at definite findings on negligence on part of directors. In this case, the director could not pay tax dues as its hotel building got damaged in the earthquake, in view of the fact that an insurance claim had been raised but was not passed by an insurance company and civil disputes were still pending, it could not be regarded as a case where director failed to take measures for protecting property or interest of the company. A similar view was held in Ram Prakash Singeshwar Rungta vs. ITO8 where even though directors were responsible for the non-filing of returns were not imposed with such harsh recovery as the emphasis of the section is with respect to neglect during the recovery proceedings against the company and not otherwise.

6.  [2012] 26 taxmann.com 226 (Gujarat)
7.  [2014] 46 taxmann.com 35/227 Taxman 190 (Mag.)/367 ITR 558
8.  [2015] 59 taxmann.com 174/370 ITR 641 (Mag.)

Status of directorship

The other question that arises is whether the individual should be in active directorship during the action of recovery from the tax department or past directors could be engulfed in the recovery actions. Recovery action against directors could be with reference to three different tax periods (a) holding directorship during the relevant tax period for which demand is raised; (b) holding directorship at the time of confirmation of tax demand; and (c) holding directorship while recovery attempts are made by tax department.

This section fixes personal liability on directors based on the nature of acts performed during their directorship. The focus of the section is with reference to the responsibility of the directors to meet tax dues and deter depletion/diversion of assets of the company for other purposes. Exclusion from recovery can be claimed only where the directors prove that they have acted in good faith and business exigencies have resulted in non-recovery of taxes. Naturally, this implies that the individuals should be directors at the time the tax demands are raised and recovery attempts are being made by the revenue. Thus, individuals holding directorship during the relevant tax period for which tax demand has been raised cannot be held responsible for tax demands as they cannot be expected to establish bonafides at a time when they are not holding directorship. But the Bombay High Court9 has held that the true purport of Section 179(1) of the Income Tax Act is that a person must not only be a Director at the relevant assessment year but also a Director at the time when the demand was raised and such Director can be held responsible only and only when “non-recovery” is attributable to gross neglect, misfeasance or breach of duty on the part of such Director.

9. Prakash B. Kamat vs. Pr. CIT [2023] 151 taxmann.com 344 (Bom.)

Unlike section 89, section 88(3) speaks about recovery of tax liabilities during the liquidation of companies and specifies the directors who were holding the position at the relevant tax period for which the taxes were due as responsible for payment of the tax dues on liquidation. Due to the specific identification of directors and linkage to a particular period of default, other directors would not be covered by such recovery action even if they are in directorship during the liquidation of the company.

Tax dues with respect to the supply of goods or services

Interestingly, section 89 provides for tax recoveries only in respect of “supply of goods or services”. This is a consequence of borrowing terms from parallel provisions under the Income Tax Act where the scope is restricted to tax dues in respect of the income of an assessee. Probably, the legislature must have missed recognizing that recoveries under the GST law can arise on four counts (a) output tax in respect of the supply of goods/services; (b) input tax on erroneous utilization; (c) erroneous refunds; and (d) transitional credit. With the missed phrases, one can argue that the recoveries from directors could be only in respect of short payment of output tax on account of non-payment, short-payment, under-valuation, rate classification, etc. While revenue may argue that such a narrow reading would make the provision toothless, courts may view such exceptional provisions very strictly.

Joint and several liability

The phrase ‘joint and several’ liability implies that the directors are both collectively or individually liable for the revenue. The revenue authorities can at their discretion ‘pick and choose’ the directors who they wish to pursue for recovery of their tax liability, irrespective of their involvement in the affairs of the company. To put it differently, while Director A may be responsible for gross negligence in protecting the assets of the company, the revenue can choose to pursue Director B for recovery of its entire dues, no matter that Director B may not have had an active role in the company. In the decision of the Gujrat High Court in Suresh Narain Bhatnagar v. ITO10 the ground raised by the director of the company being only in a technical capacity with limited control did not ipso facto make Section 179 of the Income Tax Act inapplicable to the director. That Section 179 would continue to apply even if the petitioner was functioning in a limited capacity vis-à-vis the company. Hence, it is quite clear from this decision that the degree of involvement of a director in the affairs of the company is not a yardstick in deciding whether Section 179 is applicable to the director or not.

10. [2014] 43 taxmann.com 420/227 Taxman 193/ 367 ITR 254 (Guj.)

Many times, the revenue makes the error of applying the phrase joint and several liabilities qua the directors and the company. Revenue officials pursue the remedy of recovering the tax liability from directors of the company on the premise that directors are jointly and severally liable to the company. Being a vicarious liability, it is important to put in perspective that the joint and several liability is qua the directors among themselves and not qua the company. It is only after crossing the stage of nonrecoverability from the company would the revenue be permitted to make all directors jointly and severally liable for such non-recoverable dues. This can also be confirmed from the earlier phrases which require the revenue to exhaust the recovery from the company and only then proceed to recover the dues from directors.

Time limitation

Section 89 does not contain any time limit for the initiation of recovery action. But it is well understood by many courts including Parle International Ltd. vs. Union of India11 that delay in adjudication defeats the very purpose of the legal process and a taxable person must know where he stands and if there is no action from the departmental authorities for a long time, such delayed action would be in contravention of procedural fairness and thus violative of principles of natural justice. In this case, a long period of about 8 years was set aside as being beyond a reasonable period of time. A similar principle may be adopted in specific cases of delayed recovery after the finalization of tax demands.

11. [2014] 43 taxmann.com 420/227 Taxman 193/ 367 ITR 254 (Guj.)

Type of Directorship

The above provisions include all the directors of the company as responsible for the statutory dues. Among the many types of directors in a Company — managing directors, full-time directors, non-executive directors, independent directors, nominee directors etc., questions arise on the applicability of the above provisions to directors. While executive directors cannot be said to be outside the scope of the above provisions, nominee directors could take shelter in view of their restricted role in the decision-making process of the Company. One would be mindful that the nomenclature by itself does not result in automatic immunity under the above widely drafted provisions. It is the appointment letters, emails/ transcripts, and board resolutions which would establish diligence on their part. Independent directors are appointed for specified public limited companies, and listed companies and hence would anyway be outside the scope of section 89 or 88(3) which are applicable only to private limited companies.

Penalty imposable for aiding/ abetting an offence

Directors can also be held responsible for aiding or abetting an offence by Companies. Section 122(3) provides for penalties on any person who aides/abets an offence as enlisted under section 122(1)(i) to (xxi). Naturally, once a Company is charged with any of the list of offences, directors who are in the knowledge of these offences would also become vulnerable to a charge of penalty under section 122(3). The phrase ‘aiding or abetting’ has its roots in the Indian Penal Code and implies an element of mens-rea in the act of instigating or encouraging a person to commit an offence, or promoting a person into a conspiracy of an offence, or willfully aiding another to facilitate in furtherance of the offence. Since men-rea is not a virtue of artificial persons, the individuals (especially directors) behind the scenes would be considered to be involved in the commission of the offence of companies. The maximum penalty in such cases would be ₹25,000 under each enactment.

Despite all the technicalities discussed above, directors of both private and public companies are answerable under the Companies Act for all their actions. Once fraud by directors is established, it vitiates all technicalities and the Companies Act would make the directors personally responsible for all recoveries by lifting the corporate veil. This makes the role of the Director in financial decision-making cautious and critical. Board minutes, demarcation of funds, operational involvement as evidenced by emails / employees, etc. would play a pivotal role in assessing the diligence of the director. While one may argue that the onus is on the revenue to allege any misdoing, the specific presumptions in law have shifted the primary onus on the directors to establish their bonafide, which obviously involves a written document rather than mere oral assertions.

Recovery provisions are extreme steps where the revenue is empowered to pierce the corporate veil and make the directors responsible for the discharge of their fiduciary duties. As is evident the section is a separate code in itself and all pre-conditions of the section have to be satisfied and duly recorded prior to initiating action against the directors of the company. The directors on the other hand must ensure that they manage the affairs responsibly and protect the assets of the company to discharge the statutory liabilities. The intent of the section is to make directors responsible where the revenue has been deprived on account of fraudulent depletion of assets of the company. Amongst the directors, each director should take precautionary steps and inter-alia act as a check for actions by other directors keeping in mind the overall interest of the company. In law, these matters are addressed by Courts based on the facts produced by the directors in their defence and hence the directors need to record all their actions to prove their diligence in their duties.

Section – 220(6) — Stay application — Rectification application —Adjustment of a disputed tax demand against refunds which were due during pendency of the above application.

8 National Association of Software and Services Companies vs. Dy. CIT (Exemption) Circle – 2(1)

WP (C) NO. 9310 of 2022

A.Y.: 2018–19

Dated: 1st March, 2024, (Delhi) (HC)

Section – 220(6) — Stay application — Rectification application —Adjustment of a disputed tax demand against refunds which were due during pendency of the above application.

The Petitioner filed its Return of Income for A.Y. 2018–19 on 29th September, 2018 claiming a refund of ₹6,45,65,160 on account of excess taxes deducted at source which was deducted during the course of the said year. In the course of processing of that ROI, notices under Sections 143(2) and 142(1) of the Act came to be issued on 22nd September, 2019 and 9th January, 2020, respectively. On 16th November, 2019, the petitioner received an intimation, referable to Section 143(1) of the Act, apprising it of an amount of ₹6,42,30,413 being refundable along with interest. However, when the assessment was ultimately framed and a formal order was passed under Section 143(3) read with Section 144B of the Act, various additions came to be made to the income disclosed in the ROI and leading to the creation of a demand of ₹10,26,85,633.

Aggrieved by the aforesaid, the petitioner preferred an appeal before the Commissioner of Income Tax (Appeals), which was pending. Simultaneously, petitioner also moved an application purporting to be under Section 154 of the Act for correction of rectifiable mistakes, which according to it were apparent on the face of the record. Along with the rectification application, the petitioner on 28th May, 2021 also filed a stay application in respect of the demand so raised. The rectification application however came to be perfunctorily rejected in terms of an order dated 7th June, 2021

During the pendency of the appeal before CIT(A), NFAC, and without attending to the stay application which had been moved, the department proceeded to adjust the demand that stood created by virtue of the assessment order dated 29th April, 2021 against various refunds which were payable to the petitioner for A.Y.s’ 2010–11, 2011–12 and 2020–21.

According to the Petitioner, the action so initiated and the adjustments effected are wholly arbitrary and illegal in as much as there existed no justification for the adjustments being made without its application referable to Section 220(6) being either considered or examined. According to petitioner, the very purpose of Section 220(6) has been nullified by the action of the department who have proceeded to make the impugned adjustments without even examining the application of the petitioner for not being treated as an “assessee in default”.

The Petitioner relied on the Central Board of Direct Taxes Office Memorandum No. 404/72/93-ITCC6 dated 31st July, 2017, to state that the department could have at best required the petitioner to deposit 20 per cent of the outstanding demand.

The department contented that the application for stay which was moved by the writ petitioner was not accompanied by any challan evidencing deposit of monies against the demand for A.Y. 2018–19 which was outstanding. Thus, and according to department, since a pre-condition as specified in the Office Memorandum dated 31st July, 2017 and OM dated 29th February, 2016 was not adhered to, the application of the assessee was rightly not considered.

The Honourable Court observed that the Revenue department have proceeded on a wholly incorrect and untenable premise that the assessee was obliged to tender or place evidence of having deposited 20 per cent of the disputed demand before its application for stay under section 220(6) of the Act could have been considered. The interpretation which was sought to be accorded to the aforesaid OM was misconceived.

The Honourable Court noted that the two OMs neither prescribe nor mandate 15 per cent or 20 per cent of the outstanding demand as the case may be, being deposited as a pre-condition for grant of stay. The OM dated 29th February, 2016, specifically spoke of a discretion vesting in the AO to grant stay subject to a deposit at a rate higher or lower than 15 per cent dependent upon the facts of a particular case. The subsequent OM merely amended the rate to be 20 per cent. In fact, while the subsequent OM chose to describe the 20 per cent deposit to be the “standard rate”, the same would clearly not sustain.

The Honourable Court referred and relied on the decision of Avantha Realty Ltd. vs. The Principal Commissioner of Income Tax Central Delhi 2 & Anr [2024] 161 taxmann.com 529 (Delhi) wherein it was observed that the administrative circular will not operate as a fetter on the Commissioner since it is a quasi-judicial authority, and it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20 per cent, pending appeal.

The Honourable Court further relied on the order passed by the Supreme Court in Principal Commissioner of Income Tax & Ors. vs. LG Electronics India Private Limited [2018] 18 SCC 447 wherein it had been emphasised that the administrative circular would not operate as a fetter upon the power otherwise conferred on a quasi-judicial authority; and that it would be wholly incorrect to view the OM as mandating the deposit of 20 per cent, irrespective of the facts of an individual case. This would also flow from the clear and express language employed in sub-section (6) of Section 220 which speaks of the Assessing Officer being empowered “in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case”. The discretion thus vested in the hands of the AO is one which cannot possibly be viewed as being cabined by the terms of the OM.

The Honourable Court further referred the following decisions:

Dabur India Limited vs. Commissioner of Income Tax (TDS) & Anr. [2023] 291 Taxman 3 (Delhi); Indian National Congress vs. Deputy Commissioner of Income Tax Central – 19 & Ors.[2024] 463 ITR 182 (Delhi); Benara Valves Ltd. & Ors. vs. Commissioner of Central Excise & Anr [2007] 6 STT 13 (SC).

Thus, the Honourable Court held that while 20 per cent is not liable to be viewed as an entrenched or inflexible rule, there could be circumstances where the department may be justified in seeking a deposit in excess of the above dependent upon the facts and circumstances that may be obtained. This would have to necessarily be left to the sound exercise of discretion by the department based upon a consideration of issues such as prima facie, financial hardship and the likelihood of success.

The Court held that the department have clearly erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been entertained without a 20 per cent pre-deposit. The aforesaid stand as taken is thoroughly misconceived and wholly untenable in law.

Undisputedly, and on the date when the impugned adjustments came to be made, the application moved by the petitioner referable to Section 220(6)of the Act had neither been considered nor disposed of. This action of the department was wholly arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it is found that the application for stay remained pending and the said fact is not an issue of contestation.

The writ petition was allowed and the matter was remitted to the department for considering the application of the petitioner under Section 220(6) in accordance with the observations made hereinabove.

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

28 Principal CIT vs. Oxygen Business Park Pvt. Ltd.

[2024] 463 ITR 125 (Del)

A.Y. 2011–12

Date of order: 8th December, 2023

Ss. 80IAB, 132, 143(1), 143(2) and 153A of ITA 1961

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

For the A.Y. 2011–12, the assessee’s return of income wherein it claimed deduction of net profit u/s. 80-IAB of the Income-tax Act, 1961 was processed u/s. 143(1). Thereafter, on 29th October, 2013, search and seizure operation was conducted u/s. 132 at the premises of the assessee. In response to notice u/s. 153A, the assessee requested the Department to treat the original return of income as the return filed in response to notice u/s. 153A of the Act. The Assessing Officer disallowed the deduction claimed u/s. 80-IAB and also initiated penalty proceedings u/s. 271(1)(c).

The Commissioner (Appeals) accepted the contention of the assessee that since no incriminating material belonging to the assessee was found during the course of the search, initiation of proceedings u/s. 153A was bad in law, especially because the assessment proceedings stood closed u/s. 143(1) and partly allowed the assessee’s appeal. The Tribunal dismissed the Department’s appeal.

The following question was raised in the appeal by the Department:

“Whether the decision in the case of CIT vs.. Kabul Chawla applies to a case where a fresh material/information received after the date of search is sufficient to reopen the assessment under section 153A (see Dr. A. V. Sreekumar vs. CIT)?”

The Delhi High Court dismissed the appeal filed by the Revenue held as under:

“i) The assessment for the A. Y. 2011-12 was finalized on 20th January, 2012 and no notice u/s. 143(2) having been issued, no assessment was pending on the date of search, i. e., 29th October, 2013. Also, during the search of the assessee no incriminating material was found and the material in the form of statement sought to be relied upon by the Department was recorded subsequent to the search action.

ii) In view of the aforesaid, we are unable to find any substantial question of law in this appeal for our consideration u/s. 260A of the Act. Therefore, the appeal is dismissed.”

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

27 Angelantoni Test Technologies Srl vs. Asst. CIT

[2024] 463 ITR 139 (Del)

A.Y.: 2019–20

Date of order: 19th December, 2023

Ss. 147, 148, 148A(b) and 148A(d) of the ITA, 1961

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

Where the assessees, foreign companies, invested in shares of their own Indian subsidiaries, the Assessing Officer (AO) treated the investment as giving rise to income chargeable to tax which had escaped assessment. On writ petitions challenging the notices issued u/s. 148A(b) of the Income-tax Act, 1961, the orders passed by the AO u/s. 148A(d) of the Act, the consequential notices issued to the assessees u/s. 148 of the Act, the Delhi High Court allowed the writ petition and has held as under:

“i) It is settled law that investment in shares in an Indian subsidiary cannot be treated as ‘income’ as it is in the nature of a ‘capital account transaction’ not giving rise to any income.

ii) It was an admitted position that the transactions were capital account transactions. Though there was a doubt expressed that the transactions might be a consequence of round tripping, no evidence or proof of these said allegations had been stated or annexed with the orders and notices. Further, the action of the respondents was in contravention of the Central Board of Direct Taxes Instruction No. 2 of 2015, dated 29th January, 2015 [2015] 371 ITR (St.) 6, reiterating the view expressed by the Bombay High Court in Vodafone India Services Pvt. Ltd. vs. Union of India. In fact, the judgment of the Bombay High Court was accepted by the Union Cabinet and a press note dated January 28, 2015, was issued by the Press Information Bureau, Government of India. Consequently, the notices issued under section 148A(b) of the Act, orders passed under section 148A(d) of the Act and the notices issued under section 148 of the Act and all consequential actions taken thereto were set aside.

iii) It was clarified that if any material became subsequently available with the Revenue, it shall be open to it to take proceedings in accordance with law.”

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

26 Chambal Fertilizers and Chemicals Ltd. vs. Principal CIT

[2024] 462 ITR 4 (Raj)

A.Y. 2018–19

Date of order: 4th January, 2024

Ss. 270A and 270AA of ITA 1961

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

The petitioner had filed its original return of income u/s. 139(1) of the Income-tax Act 1961 on 30th November, 2018 for the A.Y. 2018–19 and revised return of income on 29th March, 2019 u/s. 139(5) of the Act. The case of the petitioner was selected for complete scrutiny and an exhaustive list of issues was communicated by a notice u/s. 164(2) of the Act on 22nd September, 2019. During the course of scrutiny, various notices u/s. 142(1) of the Act were issued and replies to the same were submitted by the petitioner. It is claimed that during the course of scrutiny proceedings, the petitioner realised that “provision for doubtful goods and services tax input tax credit” amounting to ₹16,30,91,496 had been inadvertently merged with another expense account and mistakenly claimed as expenses under the income-tax provisions. Accordingly, the said amount was suo motu surrendered by the petitioner by revising its return of income and adding back the amount “provision for doubtful goods and services tax input tax credit”, to the total income. The said aspect was communicated vide letter dated 24th February, 2021 along with submission of revised computation.

The assessment order u/s. 143(3) of the Act was passed by the National E-Assessment Centre (“NeAC”), making only addition of suo motu surrendered amount of ₹16,30,91,496; however, it was observed in the order that the penalty u/s. 270A of the Act is imposed for misreporting of the income. The petitioner filed an application u/s. 270AA of the Act against the penalty order before the Deputy Commissioner, which came to be rejected by an order dated 27th July, 2021.

The petitioner challenged the order of rejection by filing revision petition u/s. 264 of the Act, inter alia, on the grounds that no opportunity of hearing was provided to the petitioner, which was in non-compliance of section 270AA of the Act and that the order rejecting the application did not specify how there was misreporting of the income when the amount was disclosed by the petitioner on its own volition and that the case of the petitioner did not fall in any of the exceptions u/s. 270AA of the Act. However, the revision petition came to be rejected by an order dated 13th March, 2023.

The assessee filed a writ petition challenging the order u/s. 264. The Rajasthan High Court allowed the writ petition and held as under:

“i) A perusal of sections 270A and 270AA of the Income-tax Act, 1961, would reveal that under sub-section (3) of section 270AA of the Act, the assessing authority can grant immunity from imposition of penalty u/s. 270A, where the proceedings for penalty u/s. 270A have not been initiated under the circumstances referred to in sub-section (9) of section 270A of the Act, and under the provisions of sub-section (4), it has been provided that no order rejecting an application shall be passed unless the assessee has been given an opportunity of being heard.

ii) Although several notices were issued u/s. 142 of the Act, during the course of scrutiny proceedings, and as many as ten issues were raised, on which the authority could not make any additions, the aspect of merging goods and services tax input tax credit with expenses was not pointed out/detected and this was only pointed out voluntarily by the assessee. Admittedly, the assessee in its application u/s. 270AA of the Act had sought personal hearing and the authority was bound to provide such personal hearing, but, admittedly no opportunity of hearing was provided to the assessee. The Deputy Commissioner had violated the provisions of the proviso to section 270AA(4) of the Act by not providing any opportunity of hearing, and the order passed was wholly laconic.

iii) The order passed by the assessing authority rejecting the application u/s. 270AA and the order passed by the revisional authority rejecting the revision petition, could not be sustained.”

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

25 Munjal Bcu Centre of Innovation and Entrepreneurship vs. DY. CIT(Exemptions)

[2024] 463 ITR 560 (P&H)

Date of order: 4th March, 2024

Ss. 12A(1)(ac)(iii) and 282(1) of the ITA 1961;

R. 127(1) of the Income-tax Rules, 1962.

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

A notice was issued to the assessee by the Commissioner (Exemptions) for initiating proceedings u/s. 12A(1)(ac)(iii), but the notice was not sent to the assessee’s e-mail address or otherwise and was only reflected on the e-portal of the Department. Thereafter, two reminders in respect of the notice were published on the e-portal of the Department. The notice and reminders were not served upon the assessee, no e-mail was sent by the Department to the assessee, and an order was passed.

The assessee filed a writ petition and challenged the orde.: The Punjab and Haryana High Court allowed the writ Petition and held as under:

“i) The provisions of section 282(1) of the Income-tax Act, 1961 and rule 127(1) of the Income-tax Rules, 1962 provide for a method and manner of service of notice and orders. It is essential that before any action is taken, communication of the notice must be done in terms of these provisions. The provisions do not mention communication to be ‘presumed’ upon the placing of the notice on the e-portal. A pragmatic view has to be adopted in these circumstances. An individual or a company is not expected to keep the e-portal of the Department open all the time so as to have knowledge of what the Department is supposed to be doing with regard to the submissions of forms. The principles of natural justice are inherent in the Income-tax provisions which are required to be necessarily followed.

ii) The assessee had not been given sufficient opportunity to make its submissions with regard to the proceedings under section 12A(1)(ac)(iii) since it was not served with any notice. The assessee would be entitled to file its reply and the Department would be entitled to examine it and pass a fresh order thereafter. The order was quashed and set aside.

iii) The assessee was to reply to the notice and the Department would provide an opportunity of hearing to the assessee, consider the submissions of the assessee and thereafter pass an order.”

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

24 BDR Finvest Pvt. Ltd. vs. Dy. CIT

[2024] 462 ITR 141 (Del)

A.Y.: 2019–20

Date of order: 31st October, 2023

Ss. 154, 194, 205 and 237 of ITA, 1961

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

The order was passed pursuant to a rectification application filed by the petitioner concerning the return of income (ROI) dated 10th August, 2019. Via the rectification application, the petitioner sought to stake a claim with respect to the tax which had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. This application was dismissed by an order dated 21st September, 2023.

The assessee filed the writ petition against the order. The Delhi High Court allowed the writ petition and held as under:

“i) Tax deducted at source is part of the assessee’s income and therefore, the gross amount is included in the total income and offered to tax. It is on this premise that the tax deducted at source would have to be treated as tax paid on behalf of the assessee. The amount retained against remittance made by the payer is the tax which the assessee or deductee has offered to tax by grossing up the remittance. The ‘payment of tax deducted at source to the Government’ can only be construed as payment in accordance with law.

ii) No recovery towards tax deducted at source could be made from the assessee in terms of the provisions of section 205 of the Income-tax Act, 1961.

iii) The assessee should be given credit for the tax deducted at source though it was not reflected in form 26AS. The assessee had followed the regime put in place in the Act for collecting tax albeit, through an agent of the Government. The agent for collecting the tax under the Act who was the deductor had failed to deposit the tax with the Government and the recovery proceedings could only be initiated against the deductor. The order passed u/s.154 was accordingly set aside. Since the assessee had lodged a claim with the resolution professional, if it were to receive any amount, it would deposit with the Department the amount not exceeding the tax deducted at source by the deductor undergoing the corporate insolvency resolution process.”

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

23 Tamil Nadu State Marketing Corporation Ltd. vs. DY. CIT(TDS)

[2024] 463 ITR 487 (Mad)

A.Ys.: 2016–17 to 2023–24

Date of order: 22nd December, 2023

S. 206C of the ITA 1961

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

The assessee-company was wholly owned by the Government of Tamil Nadu. It was a statutory body which had been vested with the special and exclusive privilege of effecting wholesale supply of Indian-made foreign spirits in the entire State of Tamil Nadu under section 17C(1A)(a) of the Tamil Nadu Prohibition Act, 1937. The assessee ran a number of retail vending liquor shops across the State and, as a policy decision, it did not want to get into the business of running bars. The assessee had taken the responsibility of ensuring bars were located adjacent to its shop so that liquor sold in its shops were consumed in the licensed bars. From 2005, the assessee floated tenders to select third-party bar contractors (licensees) to sell eatables and collect empty bottles from bars situated adjacent to or within the assessee’s retail shops. The assessee awarded contracts to various bar owners to run the bar adjacent to the retail shops run by the assessee. The licensees who had been issued licences to run the bar adjacent to the retail outlets of the assessee were required to offer their bid to run the bar under a tender process under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. In the bar, the bar contractors (successful licensees) were entitled to sell food items (short eats) and collect the bottles left by the consumers after consuming liquor from the retail outlet in the premises licensed under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 to the bar licensees. For the A.Y. between 2016–17 and 2023–24, the Assessing Officer held that the assessee ought to have collected tax at source u/s. 206C(1) of the Income-tax Act, 1961 on the amounts tendered by the successful bar licensee, inter alia, towards tax from sale of empty bottles by treating the sale of bottles as scrap.

Assessee filed writ petition challenging the orders. The Madras High Court allowed the writ petition and held as under:

“i) Section 206C of the Income-tax Act, 1961, seeks to prevent evasion of taxes and therefore shifts the burden to pay tax on the seller. Section 206C was enacted in the year 1988 to ensure collection of taxes from persons carrying on particular trades in view of peculiar difficulties experienced by the Revenue in the past in collecting taxes from the buyer. It therefore needs to be construed strictly to achieve the purpose for which it was inserted in the year 1988 in the Income-tax Act, 1961. Section 206C of the Act deals with profits and gains from the trading in alcoholic liquor, scrap, etc. Section 206C contemplates a seller of specified goods to collect as tax from a buyer, a sum equal to the percentage specified entry in column 3. There is no definition for the expression ‘buyer’ in section 206C of the Act. ‘Buyer’ is defined in section 2(1) of the Sale of Goods Act, 1930 as a person who buys or agrees to buy goods. Under sub-section (7) to section 206C of the Act, where a person responsible for collecting tax fails to collect it in accordance with section 206C(1) of the Income-tax Act, 1961, shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of sub-section (3). The expression ‘scrap’ has been defined to mean waste and scrap from the ‘manufacture’ or ‘mechanical working of materials’ which is definitely not usable as such because of breakage, cutting up, wear and other reasons. The expression ‘mechanical working of materials’ in the definition of ‘scrap’ in Explanation (b) to section 206C has not been defined separately. Both manufacture and ‘mechanical working of material’ can generate ‘scrap’. Although, an activity may not amount to ‘manufacture’ yet waste and scrap can be generated from ‘mechanical working of material’. Though the expression ‘manufacture’ has been defined in the Income-tax Act, 1961, the expression ‘mechanical working of material’ has not been defined in the Act.

ii) The principle of nocitur a sociis, provides that words and expression must take colour from words with which they are associated. In the absence of definition for the expression ‘mechanical working of materials’ in section 206C of the Act, the doctrine of nocitur a sociis can be usefully applied. Only those activities which resemble ‘manufacturing activity’, but are not ‘manufacturing activity’ can come within the purview of the expression ‘mechanical working of material’. Only such ‘scrap’ arising of such ‘mechanical working of material’ is in contemplation of section 206C.

iii) Mere opening, breaking or uncorking of a liquor bottle by twisting the seal in a liquor bottle would not amount to generation of ‘scrap’ from ‘mechanical working of material’ for the purpose of the Explanation to section 206C of the Act. That apart, the activity of opening or uncorking the bottle was also not done by the assessee. These were independent and autonomous acts of individual consumers who decided to consume liquor purchased from the shops of the assessee which had a licensed premises (bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. Scrap, if any, was generated at the licensed premises which were leased by the licensees from the owners of the premises. Rule 9(a) of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither ‘scrap’ nor the property of either the assessee or bar licensee.

iv) There was neither ‘manufacture’ nor generation of ‘scrap’ from ‘mechanical working of materials’, and the liability u/s. 206C of the Income-tax Act, 1961 was not attracted. Therefore, invocation of sections 206C, 206CC and 206CCA of the Act was wholly misplaced and unwarranted. The order were not valid.”

Builders and Developers – Understanding Reconciliation of GST and Accounting Records

This article aims at understanding the need and areas for reconciliation between accounting and GST records in the case of real estate sector. In accountancy the objective of reconciliation is to explain differences between two sets of financial records. Unexplained differences in the process of reconciliation signifies a possible red flag. Hence, reconciliation becomes relevant whenever transactions are differently recorded in two sets of financial records.

In simple transactions involving outward supply of goods, the revenue recognised in the books of accounts and the financial statements prepared based on the books of accounts as at the end of the year and the value of outward supplies recognised in the GST returns during that particular year would usually be in agreement. However, it may not be the same case when we come to supply of services. For instance, advances in case of services are liable for payment of GST but the income in respect of services provided is recorded only when the services are actually rendered. The situation in case of real estate sector gets even more complex due to the fact that the process of receipt of progressive payments and the ultimate transfer of possession of the unit sold to a buyer may happen over several accounting periods.

Tax payers declare their gross receipts / gross turnover to the Income Tax authorities by furnishing their annual Income Tax Return (‘ITR’). On the other hand, turnover relating to outward supplies of goods and services (taxable as well as exempt) are furnished by the tax payers in the monthly GSTR-1 and GSTR-3B. Further, in the annual return that the tax payer furnishes in GSTR-9 he consolidates the monthly turnovers and also declares details of no-supply (that is, transactions neither amounting to supply of goods nor supply of services). Depending upon the nature of business there could be various reasons for differences between the gross turnover declared by the tax payers to both these authorities.

In order to check potential tax evasion, there is a mechanism in place for sharing data between Income Tax Department and the Goods and Services Tax Network that aims at identifying differences between income declared to both these authorities and sending out alerts to the tax payers requesting them to explain the differences.

GST VS. ACCOUNTANCY — REASONS FOR THE GAP BETWEEN THE TWO RECORDS

Fundamentally, accounting principles are based on the matching concept. This is an important concept under the accrual method of accounting. Under this concept one recognises revenue when it is earned, and expenses incurred for earning such revenue in the same period. This ensures that the earnings reported in a period are accurate. Further, accounting follows the concept of conservatism. Under this concept expenses and liabilities should be recognised as soon as probable in a situation where there is uncertainty about the possible outcome and in contrast assets and revenues should be recorded only when they are assured to be received. However, the liability to pay GST would be guided by the provisions of time of supply provided in GST Law1.

  1. Section 12 of the Act in case of supply of goods and section 13 of the Act in case of supply of services.

Due to the above there is always a difference between the financial data as per books of accounts and the data as per the GST records. This precisely is the reason for need to reconcile both these records.

As far as accounting principles are concerned, general principles of accountancy equally apply to the real estate industry. However, there is one unique feature inherent to this sector, that is, duration of the activity of provision of construction services as stated above. Further, another reconciliation challenge is due to the fact that transactions in the Real Estate Industry take different forms and are inherently complex.

TYPICAL LIFE CYCLE OF SALE OF UNDER-CONSTRUCTION UNITS CONSTITUTION

Sale of under-construction units involves sale of units that are not complete at the point in time when the agreement for sale of the said unit is entered between the developer and the buyer. The entire process of sale passes through the following stages:

  • Filing of booking form by the prospective buyer and customer KYC.
  • Demand/ Receipt of booking advance.
  • Entering into an agreement of sale / agreement for sale of the unit(s).
  • Issue of demand notes (Tax Invoices) for milestone payments.
  • Completion of project.
  • Handover of possession of the unit.

ACCOUNTING PRINCIPLES APPLICABLE TO REAL ESTATE SECTOR

Due to its inherent nature the sale of under-construction units spans over more than one or two accounting periods. Accounting of transactions in real estate sector are guided by the Guidance note2 issued by the ICAI. The Guidance Note is based on the theory of risks and rewards and lays down the principles of revenue recognition by identifying the point where the transfer of significant risk and rewards takes place based on the contractual terms between the parties.

2. Guidance Note on Accounting for Real Estate Transactions, 2012 (Revised)

Based on the nature and time of the contract for sale of unit between buyer and seller real estate transactions for sale of units can be divided as under:

  • Sale of a unit while project is under-construction

– Significant risks and rewards transferred to the buyer

– Significant risks and rewards not transferred to the buyer

  • Sale of unit post completion of the project

SALE OF UNIT WHILE THE PROJECT IS UNDER-CONSTRUCTION

The Guidance Note states that the agreement for sale between the developer and the buyer which is entered during the construction phase can be considered to have the effect of transferring all significant risks and rewards of ownership of the property to the buyer provided the agreement is legally enforceable and subject to the satisfaction of conditions which signify transferring of significant risks and rewards.

The Guidance Note further states that in such cases the developer, in essence can be regarded at par with a contractor for the buyer. It suggests to adopt percentage completion method for revenue recognition as per Accounting Standard — 7 on Construction Contracts in such cases.

SALE OF UNIT IN OTHER CASES

Cases other than above could include a case where in terms of the agreement for sale significant risks and rewards are not transferred to the buyer at the time of entering into agreement for sale or where the sale of the unit takes place post completion of the project. The Guidance Note states that in such cases the Completion of Contract method is to be applied and revenue is to be recognised by applying principles laid down in Accounting Standard — 9 on Revenue Recognition relating to sale of goods. It further states that the project can be considered to be complete when following conditions are satisfied:

  • Significant risks and rewards are transferred to the seller.
  • Effective hand over of the possession to the buyer.
  • No uncertainty regarding the amount of consideration that will be derived from the sale.
  • Not unreasonable to expect ultimate collection of revenue from the buyers.

The principles laid down in the accounting standards and the Guidance Note are diagrammatically described as follows:

It is evident from the above that irrespective of the nature of contract the liability to pay GST is to be recognised based on time of supply provisions contained in section 13 of the Act. On the other hand, the point of time when revenue is to be recognised in the books of accounts would depend on various factors as stated above.

TAX TREATEMENT OF REAL ETSTAE TRANSACTIONS UNDER GST LAW

Under the GST law tax is imposed3 on the supply4 of goods or services by a person to another for a consideration. An activity which constitutes a “supply” shall be treated either as supply of “goods” or supply of “services” based on principles laid down in Schedule II5 to the Act. Construction services provided by a developer, except where the entire consideration is received after issuance of completion certificate is considered6 to be supply of services in terms of Schedule II. However, sale of land and sale of building (post completion) is neither a supply of goods nor supply of services7.

3.  The tax is imposed under the charging section 9 of the Central Goods and Services Tax Act, 2017
4.  Section 7 of the Central Goods and Services Tax Act, 2017 defines the scope of the term ‘Supply’
5.  Section 7(1)(c) read with Schedule II to the Central Goods and Services Tax Act, 2017.
6.  Entry 5(b) of Schedule II to the Central Goods and Services Tax Act, 2017.
7.  Entry 5 of Schedule III to the Central Goods and Services Tax Act, 2017

Typically, sale of under-construction flats by developers are considered to be “continuous supply of services8”. In terms of the GST Law9 in case of continuous supply of services, the liability to pay GST arises when each milestone payment becomes due by the buyer to the developer. Every agreement for sale of under-construction unit entered between the buyer and a developer specifically provides for a payment schedule. This schedule is linked to various stages of completion of the project which are known as milestones.

8. Section 2(33) of the Central Goods and Services Tax Act, 2017.
9. Section 13 read with section 31(5)(c) of the Central Goods and Services Tax Act, 2017.

A typical payment schedule as appearing in any agreement for sale of an under construction residential flat or a commercial unit is reproduced hereunder for better understanding. However, it may be noted that in case of any advance payment the same becomes liable for payment of GST on the date such advance is received irrespective of the stage of completion as at the date of receipt of such advance.

Stage Milestones %
1 Booking of the Unit 10
2 Execution of Agreement 20
3 Completion of the Plinth 15
Stage Milestones %
4(a) Completion of 1st floor slab 5
4(b) Completion of 3rd floor slab 5
4(c) Completion of 5th floor slab 5
4(d) Completion of 9th slab 5
4(e) Completion of terrace slab 5
5 Completion of walls, internal plaster, floorings and waterproofing 5
6 Completion of doors, windows and sanitary fittings 5
7 Completion of the staircases, life wells, lobbies upto the upper floor level 5
8(a) Completion of the external plumbing, external plaster, and elevation of the building 5
8(b) Completion of the entrance lobby, lifts, water pumps, electrical fittings, driveways 5
9 At the time of handing over the possession of the apartment to the Allottee 5
Total 100

On achievement of each milestone the developer issues a demand note (Tax Invoice) for recovery of the milestone payment along with GST. However, that does not mean that the amount received / receivable and liable for GST payment would be disclosed as revenue in the books of accounts or the profit and loss account.

RECONCILIATION BETWEEN GST RECORDS AND ACCOUNTING DATA

In the above backdrop it is clear that the stage of completion does not have any impact on the amount on which GST becomes payable. GST is always payable on the amount of milestone-based payment that is due from the buyer to the developer. On the other hand, recognition of revenue in the books of accounts or financial statements is linked to various factors as described above. It is due to this differential treatment under both records that gives rise to difference in the revenue / value (taxable or otherwise) and hence need for reconciliation.

Let us examine with illustrative examples the manner in which revenue is recognised under both the methods viz, percentage completion method and completed project method.

A) PERCENTAGE COMPLETED METHOD

Illustration:

Builder and Co is construing a project comprising of saleable area of 10,000 Sq. ft. Year-wise details of the project relevant for our understanding are as under:

Year-1 of the Project

Out of the total saleable area of 10,000 Sq. Ft. of Builder and Co received bookings for 2 flats admeasuring a total of total 2,400 Sq. Ft. area as at the end of year-1 of the project.

Details of cost and amounts realised as at the reporting date are as under:

Flat Area in Sq. Ft. Agreement Value (Rs) Amount Received (Rs) Amount realised as a % of agreed Value GST (Rs)
1. 1,200 1,00,00,000 3,00,00,000 30 1,50,000
2. 1,200 1,00,00,000 5,00,000 5 25,000
2,400 2,00,00,000 35,00,000 1,75,000

 

Particulars Estimate Actual % of Estimate
Land Cost 3,20,00,000 3,20,00,000 100
Construction Cost 4,00,00,000 80,00,000 20
Project Cost 7,20,00,000 4,00,00,000 56

Let us examine the above facts by applying the conditions for revenue recognition as per the Guidance Note as at the reporting date for the 1st year of the project:

Conditions Response
Is 25 per cent or more of construction cost incurred No
Is 25 per cent of saleable area booked No
Whether 10 per cent or more of the agreement valued received Received in case of one of the units

It is evident that two of the three conditions laid down by the Guidance note for recognising revenue under percentage completion method are not satisfied as at the end of Year-1. Hence, no revenue is to be recognised as at the end of the first year of the project. However, amounts receivable or received during the year-1 shall be liable for payment of GST as per the provisions of time of supply discussed above under the GST Law.

Relevant extract of Profit and Loss account and Balance Sheet as at the end of Year-1 is as under:

Builder and Co

Profit and loss Account for the Year-1

Particulars Amount (Rs) Amount (Rs) Particulars Amount (Rs) Amount (Rs)
– By Contract Revenue –

Builder and Co

Balance Sheet as at Year-1

Liability Amount (Rs) Amount (Rs) Asset Amount (Rs) Amount (Rs)
Advance recieved from Flat Buyers 35,00,000 Work-in-Progress

 

Land Cost

Construction Cost

  

 

 

3,20,00,000

 

80,00,000

  

 

 

 

 

4,00,00,000

Year-2 of the Project

During the Year 2 Builder Ltd received booking for one more unit admeasuring 1,500 Sq. ft. Hence, as at the end of year-2 a total of 3 units have been booked.

Details of cost and amounts realised as at the reporting date of year-2 are as under:

Flat Area in Sq. Ft. Agreement Value (Rs) Year 1 Year 2 Total Amount realised as a % of agreed Value
Amount Received (Rs) GST (Rs) Amount Received (Rs) GST (Rs) Amount Received (Rs) GST (Rs)
1. 1,200 1,00,00,000 30,00,000 1,50,000 20,00,000 1,00,000 50,00,000 2,50,000 50
2. 1,200 1,00,00,000 5,00,000 25,000 30,00,000 1,50,000 35,00,000 1,75,000 35
3. 1,500 1,25,00,000 – – 10,00,000 50,000 10,00,000 50,000 8
3,900 3,25,00,000 35,00,000 1,75,000 60,00,000 3,00,000 95,00,000 4,75,000

 

Particulars Estimate Actual %
Land Cost 3,20,00,000 3,20,00,000 100
Construction Cost 4,00,00,000 1,80,00,000 45
Project Cost 7,20,00,000 5,00,00,000 69

Let us examine the above facts by applying the conditions for revenue recognition as per the Guidance Note as at the reporting date for the 2nd year of the project:

Conditions Response
Is 25 per cent or more of construction cost incurred Yes
Is 25 per cent of saleable area booked Yes
Whether 10 per cent or more of the agreement valued received Received for 2 out of 3 units

It is evident that all the three conditions laid down by the Guidance note for recognising revenue under percentage completion method are satisfied as at the end of Year-2 in respect of 2 of the 3 units booked. Hence, at the end of the Year-2 revenue under percentage completion method can be recognised. Computation of various disclosures as per the Guidance Note and AS-7 are as under. However, amounts receivable or received during the year-2 in respect of all the 3 units shall be liable for payment of GST as per the provisions of time of supply discussed above under the GST Law.

Revenue to be recognised

(2,00,00,000 * 69.4444 per cent)

 : 1,38,88,889
Cost to be recognised

(5,00,00,000 * 2,400 / 10,000)

 :1,20,00,000
Work in Progress as at the reporting date :3,80,00,000

Relevant extract of Profit and Loss account and Balance Sheet as at the end of Year-2 is as under:

Builder and Co

Profit and loss Account for the Year-2

Particulars Amount (Rs) Amount (Rs) Particulars Amount (Rs) Amount (Rs)
To Construction Cost

 

To Profit

  

 

1,20,00,000

 

18,88,889

 By Contract Revenue  

1,38,88,889

Builder and Co

Balance Sheet as at Year- 2

Liability Amount (Rs) Amount (Rs) Asset Amount (Rs) Amount (Rs)
Advance received from Flat

Buyers

Op.Balance

Add: Recd during the Year

 

Less: Re-claased under Debtors

  

 

 

 

35,00,000

 

 

60,00,000

95,00,000

 

 

 

-85,00,000

  

 

 

 

 

 

 

 

 

 

 

 

10,00,000

 Work – In – Progress

Land Cost

Construction Cost

 

Less: Cost Recognised

 

Amount Due from Flat Buyers

Revenue Recognised

Less: Payments recd for above

  

 

3,20,00,000

 

1,80,00,000

5,00,00,000

 

-1,20,00,000

 

 

 

 

1,38,88,889

 

-85,00,000

  

 

 

 

 

 

 

3,80,00,000

 

 

 

 

 

 

53,88,889

Now on the basis of the above it is evident that the revenue recognised in the profit and loss account is ₹1,38,88,889 as against the GST turnover for year-2 being ₹60,00,000 only (cumulatively ₹95,00,000 up to Year-2).

B) COMPLETION OF CONTRACT (PROJECT) METHOD OF REVENUE RECOGNITION

Under this method the revenue of a project is recognised only when the construction service has been completed. Under this method in the case of real estate sector the revenue from a project shall only be recognised in the year when the construction is completed to the extent of the flats that have been sold. Usually, in this case all amounts due and received from the flat buyer are recognised as advance and the costs are accumulated as Work in Progress in the Balance Sheet. In the year of completion, the revenue and costs to the extent of flats sold would be taken to the Profit and Loss Account. In this case demand notes issued based on point of taxation provisions need to be reconciled with the advance from flat purchaser ledger.

DISCLOSURES OF REAL ETSTAE TRANSACTIONS IN GST RETURNS

Chapter IX of the Central Goods and Services Tax Act, 2017 contains provisions for filing of returns by the tax payer. In case of real estate transactions, the income accrued and the manner of declaration in returns is briefly tabulated in table below:

Nature of transaction Disclosure in GST returns Accounting implication
GSTR-1 GSTR-3B GSTR-9 GSTR-9C
On receipt of advance/ booking amount Furnished in Table 11A as advance received. Furnished as taxable outward supplies in Table 3.1(a) along with other taxable supplies. To the extent the advance remains unadjusted as at end of the year the same shall be disclosed in Table 4F. To the extent the advance remained unadjusted as at the beginning of the current year it shall be reported in Table 5I.

 

To the extent the advance remains unadjusted as at end of the year the same shall be disclosed in Table 5C.

 Amount of advance received will appear as a credit entry in the “Flat Purchaser ledger”.

 

However, it may be noted that every credit entry in this ledger does not imply that it is taxable receipt.

There could be various reasons like stamp duty collection, re-credit on dishonour of cheque which would appear as a credit entry in this ledger.
On issue of demand note or Tax Invoice for stage-wise progressive payments Furnish details in Table 4/ 7.

 

To the extent tax already paid on advance received the same needs to be adjusted in Table 11B.

 Furnish details in Table 3.1(a) as taxable outward supplies.

 

Advance adjustment to be reduced from value reported in Table 3.1(a).

 Total value of demand notes and GST thereon shall be disclosed in Table 4A or 4B.

 

In case of sale of completed unit the same shall be disclosed in Table 5(F) as “No Supply”.

 GSTR-9C requires tax payer to reconcile the turnover as per audited financial statements with the GST turnover reported in GSTR-9.

 

The revenue recognition in case of builders and developers depends on the method followed in each case.

 On issuance of demand note a debit entry will appear in the flat purchaser ledger. The debit entry shall be for the amount receivable as progressive payment plus GST thereon.

 

It is common for developers not to record these debit entries and only record receipts in the flat purchaser ledger.

 

In some other cases all debit entries passed may be reversed at the end of the year.
In case of sale of completed units the same may be disclosed in Table 8 as non-GST supplies.

 

Some tax payers may not show such transactions in GSTR-1 since the same is neither supply of goods nor supply of services.

 In case of sale of completed units the same shall be disclosed in Table 3.1(e) as non-GST outward supplies.

 

Some tax payers may not show such transactions in GSTR-3B since the same is neither supply of goods nor supply of services.

 Some tax payers may not show such transactions in GSTR-9. Under percentage completion method revenue recognised in the profit and loss account may depend on costs incurred as at the date of balance sheet and other factors as discussed above.

 

As an alternative tax payers may reconcile turnover of demand notes with the GST turnover instead of starting Table 5A with the revenue as per Profit and Loss account.

 Hence, it would be important for one to examine the method of accounting followed in every case and accordingly analyse the books of account.

 

At times a flat purchaser may engage the developer for the interior decoration of his unit. In such cases the debit entries to the flat purchaser ledger may attract GST @ 18 per cent as a works contract service.
Credit Note issued against flat cancellation. Credit note shall be disclosed in Table 9.

 

However, in cases where time limit10 for issuance of credit note has expired the developer shall issue a financial credit note after deducting the amount of GST collected on demand notes.

 

It has been clarified11 that in such cases the flat buyer may apply for refund of such GST.

 The value of Credit note, and tax thereon shall be reduced from the amount disclosed in Table 3.1(a). To be furnished in Table 4I.

 

In case no GST is reversed in respect of credit notes issued (financial Credit Notes) the same shall not be reflected in GSTR-9.

 Value of Credit notes where GST has been reversed shall not be reported in GSTR-9C, presuming that the amount furnished at Table 5A is total of demand notes less the value of Credit notes where GST is reversed.

 

In cases where no GST has been reversed in respect of credit notes issued (financial Credit Notes) the same shall be reflected in Table 5J.

 

The above treatment shall much depend on what is the starting point at Table 5A of GSTR-9C.

 The flat purchaser shall be credited with the amount to be refunded including GST amount where the Credit note includes GST.

 

Amount of GST reversed shall be debited to the output tax ledger.

 

Where a financial credit note is issued the value of the credit note (excluding the GST amount) shall be credited to the flat purchaser ledger.

 
10. As per section 34(2) of the Central Goods and Services Tax Act, 2017 details of credit note(s) in respect of a Tax Invoice issued during a financial year need to be disclosed not later than 30th day of November of the following financial year.
11 Circular 180/20/2022-GST, dated 27th December, 2022.

RECONCILIATION OF DEMAND NOTES WITH AGREEMENTS MILESTONES

Varied accounting practices may be followed by various developers. In many cases (common in cases where project completion method is followed) only actual receipts from flat buyers is recorded in the balance sheet. In these cases, for the purposes of GST it becomes important to analyse the milestone payments receivable by comparing the agreements with the demand notes issued during the year. The steps to be followed in these cases shall be as follows:

  • Prepare a list of flats which have been booked since inception
  • Identify stage of completion at the beginning of the year
  • List down the project milestones achieved during the year
  • Map these milestones with those stated in the agreement for determining the point in time when demand notes need to be issued
  • Compare the liability as per above with the GST liability actually paid during the year.

RECONCILIATION DUE TO DIFFERENCE IN VALUATION

Another reason for reconciliation difference between GST records and revenue as per books is the base value on which GST is charged. The rate notification12 states that in case of real estate sale of under-construction units that involve transfer of property in land or undivided share of land, the value of construction service shall be equivalent to the total amount charged for the unit less 1/3rd of such value towards value of land or undivided share of land. Revenue shall be recognised in the books of accounts or financial statements based on the agreement value / consideration of the unit while the value disclosed in the GST records shall be agreement value less the value of land. This also would be one reason for the difference and hence a part of the reconciliation.

12 Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 (as amended).

FREE SALE AND EFFECT ON RECONCILIATION

Real Estate transaction takes different forms and various business models may exist. It is common to enter into joint development agreements with land owners. Here the land owner gives the developer a right to develop on his land parcel and in return may be given an area share in the form of certain flats free of cost. In such cases the developer is known as a promotor and the land owner is known as a co-promotor. The supplies involved in such a transaction can be understood with the help of the following diagram:

In terms of the GST law supply of flats by the developer to the land owner in consideration for supply of development rights is liable for payment of GST. Hence, the developer shall pay GST on the value of these flats. However, since this does not involve any monetary consideration the same shall not be recorded as revenue in the books of account or profit and loss account of the developer. This would lead to a difference between the turnover recorded in the GST records as compared to the revenue recognised in the books of accounts of the developer.

Before parting, in view of the author, it would be a better practice to analyse the data relating to milestone payments receivable during the year as per contractual terms and reconcile them with the demand notes issued by the developer to the buyer to correctly determine and compare the amount of value or turnover declared in GST returns. At times it may be impracticable or difficult to reconcile or map the financial turnover with the GST turnover. The exercise may become even complex in case where multiple projects are carried out by the developer in the same entity.

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

22 Principal CIT vs. Weilburger Coatings (India) Pvt. Ltd.

[2024] 463 ITR 89 (Cal):

A.Y. 2015–16

Date of order: 11th October, 2023

Ss. 143(2) and 143(3) of ITA 1961

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

The return of the assessee for the A.Y. 2015–16 was selected for limited scrutiny. The assessee was issued notice u/s. 143(2) of the Income-tax Act, 1961 in respect of the disallowance of carry forward of losses of earlier years. The assessee participated in the proceedings and thereafter, the assessment was completed u/s. 143(3) of the Act.

The Commissioner (Appeals) affirmed the disallowance. The assessee preferred an appeal before the Tribunal, raising an additional ground that the action of the Assessing Officer (AO) in making additions in respect of issues not mentioned in limited scrutiny were beyond the jurisdiction of the AO. The Tribunal, holding that the issue was jurisdictional and could be raised by the assessee at any point of time, admitted it and, holding that the AO had exceeded his jurisdiction in completing the assessment u/s. 143(3) of the Income-tax Act, 1961 on grounds which were not subject matter of limited scrutiny u/s. 143(2) for the A.Y. 2015–16, deleted the disallowance of carry forward of losses of earlier years.

The Calcutta High Court dismissed the appeal filed by the Revenue and held as under:

“i) The finding of the Tribunal, that the additional ground raised by the assessee against the order of the Commissioner (Appeals) confirming the addition made by the Assessing Officer in respect of issues not mentioned in the limited scrutiny were beyond jurisdiction of the Assessing Officer since it was selected for limited scrutiny assessment and not complete scrutiny, was a jurisdictional issue and could be raised by the assessee at any point of time was justified and in accordance with the settled legal principle. The Tribunal had also considered the Central Board of Direct Taxes Instruction No. 5 of 2016 to hold that the Assessing Officer had exceeded his jurisdiction.

ii) The Tribunal did not err in deleting the disallowance of carry forward of losses of earlier years and in holding that the Assessing Officer had exceeded his jurisdiction in enquiring into other issues which were beyond the scope of limited scrutiny u/s. 143(2) for the A. Y. 2015-16.”

Taxation of Interest on Compensation

ISSUE FOR CONSIDERATION

The Constitution of India has vested the Government of India with the power to acquire properties for public purposes, provided an adequate compensation is paid to the owner for deprivation of the property. Such a power was largely exercised by the government under the Land Acquisition Act, 1894 (“LAA”), which Act has been substituted by the Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation and Resettlement Act, 2013 (“RFCTLARRA”) w.e.f 1st January, 2014. In addition, various specifically legislated enactments permit the government to acquire properties, e.g., The National Highways Act and The Metro Railways Act.

On acquisition of properties, the government is required to adequately compensate the owner with payment of the assured amount under the award. This amount is determined as per certain guidelines provided in the respective acts and in the rules. At times, the awards are challenged on several grounds, including on the ground of inadequacy of the compensation. The government usually pays compensation as per the award within a reasonable period and the enhanced compensation is paid on settlement of the dispute.

The government pays interest for delay in payment of the awarded compensation under s. 34 of the LAA (s.72 of RFCTLARRA), and pays interest under s. 23 and 28 of the LAA (section 80 of RFCTLARRA) in cases of enhanced compensation for the period commencing from the date of award to the date of the payment of the enhanced compensation after settlement of the dispute.

Section 45 (5) of Income Tax Act, 1961 provides a deeming fiction to tax the compensation, including enhanced compensation, in the year of receipt of the compensation under the head “Capital Gains”. Section 10(37) of the Act provides for exemption from tax on capital gains arising in the hands of an individual or HUF on transfer of an agricultural land. A separate exemption is provided under s. 10(37A) for acquisition of properties under the Land Pooling Scheme of Andhra Pradesh on or after 2nd June, 2014 in the hands of an individual or HUF for development of the proposed city of Amravati. In addition, section 96 of the RFCTLARRA provides an independent exemption from payment of income tax on a compensation received under an award or an agreement under the said Act. No capital gains tax is payable at all on application of the provisions of the section 10 (37) and 10(37A) of the IT Act and section 96 of the RFCTLARRA. In respect of the other cases, the taxation is governed by section 45(5) of the Act.

Section 56(2)(viii) was inserted by the Finance Act, 2009 w.e.f A.Y 2010-11 to provide for taxation of interest on compensation in the year of receipt of the interest. Simultaneously section 145A/145B have been amended /inserted to provide that such interest would be taxed in the year of receipt, irrespective of the method of accounting followed by the assessee.

An interesting issue has arisen recently in relation to taxation of interest on the enhanced compensation. The Punjab and Haryana High Court, in a series of cases, held that such interest was taxable under the head Income From Other Sources, while the Gujarat High Court has held that such interest on enhanced compensation was a part of the compensation, and was governed by the provisions of section 45(5) and / or the tax exemption provisions. In fact, the Punjab & Haryana High Court has not followed its own decisions in later decisions, and the Pune bench of the Income tax Appellate tribunal has given conflicting decisions.

MANJET SINGH (HUF) KARTA MANJEET SINGH’S CASE

The issue first arose in the case of Manjet Singh (HUF) Karta Manjet Singh vs. UOI, 237 Taxman 161(P&H). During the period relevant to the assessment year 2010-11, the assessee, a landowner, received interest under section 28 of the Land Acquisition Act, 1894 and claimed that the said interest did not fall for taxation under section 56 as income from other sources, in view of the judgment of the Apex Court in the case of Ghanshyam (HUF) 315 ITR 1.

In this case, Notifications under sections 4 and 6 of the Land Acquisition Act, 1894 were issued on 2nd January, 2002 and 24th December, 2002 respectively for acquisition of land in District Karnal. After considering all the relevant factors, the Land Acquisition Collector assessed the compensation vide award No.22, which award was contested by way of a reference under Section 18 of the 1894 Act, which was accepted vide order dated 11th August, 2009. Higher Compensation was awarded on reference, along with other statutory benefits, including the interest in accordance with sections 23(1-A), 23(2) and 28 of the 1894 Act. Form ‘D’ had been drawn on 11th May, 2010 and 27th May, 2010 by the Land Acquisition Officer containing the complete details regarding the names of the petitioners, principal, interest, cost, total amount, TDS and net payable in accordance with the decision dated 11th August, 2009.

Proceedings for reassessment were initiated under Section 148 of the Income Tax Act,1961 on 9th April, 2012, by issue of notice under Section 148 of the Act to the assessee.

In the reply submitted to the Assessing Officer, the benefit of exemption under Section 10(37) of the Act was claimed. It was also pointed out that interest under section 28 of the 1894 Act did not fall for taxation under Section 56 of the Act as income from other sources in view of the judgment of the Apex Court in the case of Ghanshyam (HUF), and in case it was still treated as income from other sources by the AO, then the assessee was entitled to mandatory deduction as enumerated under Section 57(iv) of the Act on a protective basis.

A Writ Petition was filed before the Punjab & Haryana High Court by the assessee challenging the notice under s. 148, and requesting for appropriate orders by the court, including on the prayer of the assessee to refund the tax deduced at source from the compensation for the land acquisition which was claimed to be exempt from deduction under Section 194LA of the Act.

The High Court also noted that the assessee, on the basis of the judgment of the Supreme Court rendered in the case of Ghanshyam (HUF) (supra), had sought reconsideration of judgment of the Punjab and Haryana High Court in CIT vs.Bir Singh [IT Appeal No. 209 of 2004, dated 27th October, 2010], where the Division Bench had held that element of interest awarded by the Court on enhanced amount of compensation under section 28 of the 1894 Act fell for taxation under section 56 as income from other sources in the year of receipt.

The High Court noted that the primary question for consideration related to the nature of interest received by the assessee under section 28 of the 1894 Act. In other words, whether the interest which was received by the assessee partook the character of income or not, and in such a situation, was it taxable under the provisions of the Income-tax Act.

In accordance with the decision of the Apex Court in Ghanshyam (HUF), 315 ITR 1, it was claimed by the assessee that the amount of interest component under section 28 of the 1894 Act should form part of enhanced compensation, and secondly, that concluded matters should not be reopened. Reliance was placed by the assessee upon following observations in Ghanshyam (HUF)’s case (supra):—

“To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under Section 34.”

The claim of the assessee was controverted by the revenue by filing a written statement. In the reply, the initiation of proceedings under Section 148 of the Act was sought to be justified by relying upon judgment of this Court in Bir Singh (HUF’s case (supra). It had also been stated that legislature had introduced Section 56(2) (viii) and also Section 145A(b) of the Act by Finance (No.2) Act, 2009 with effect from 1st April, 2010, according to which the interest received by the assessee on compensation or enhanced compensation should be deemed to be his income in the year of receipt, irrespective of the method of accountancy followed by the assessee subject however to the deduction of 50 per cent under Section 57(iv) of the Act. It had further been pleaded that the amendment was applicable with effect from assessment year 2010-11, and the assessee had received the interest amount during the period relevant to assessment year 2010-11 and therefore, the assessee was liable to pay tax.

The assessee submitted that the judgment of this Court in Bir Singh (HUF)’s case (supra) required reconsideration being contrary to the decision of the Hon’ble Supreme Court in Ghanshyam’s case (supra). In response, the revenue contended that the judgment in Bir Singh (HUF)’s case (supra) neither required any reconsideration nor any clarification, as the same was in consonance with the Scheme of the 1894 Act and law enunciated by the Constitution Bench of the Apex Court in Sunder vs. Union of India JT 2001 (8) SC 130.

The court reiterated that the main grievance was regarding the treatment given qua the amount of interest received under section 28 of the 1894 Act while arriving at the chargeable income under the Act. It observed that the grant of interest under Section 28 of the 1894 Act applied when the amount originally awarded had been paid or deposited and subsequently the Court awarded excess amount and in such cases interest on that excess alone was payable; section 28 empowered the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector; the compensation awarded by the Court included the additional compensation awarded under Section 23(1A) and the solatium under Section 23(2) of the said Act. It further observed that Section 28 was applicable only in respect of the excess amount, which was determined by the Court after a reference under Section 18 of the 1894 Act.

The High Court observed that a plain reading of sections 23(1A) and 23(2) as also section 28, clearly spelt out that additional benefits were available on the market value of the acquired lands under sections 23(1A) and 23(2), whereas benefit of interest under section 28 was available in respect of the entire compensation. The High Court observed that the Constitution Bench of the Supreme Court in the case of Sunder vs. Union of India JT 2001 (8) SC 130 had approved the observations of the Division Bench of the Punjab and Haryana High Court made in the case of State of Haryana vs. Smt. Kailashwati AIR 1980 Punj. & Har. 117, that the interest awardable under section 28 would include within its ambit both the market value and the statutory solatium, and as such the provisions of section 28 warranted and authorised the grant of interest on solatium as well.

The High Court then noted that the Three Judge Bench of the Supreme Court in the case of Dr. Shamlal Narula, 53 ITR 151 had considered the issue regarding award of interest under the 1894 Act, wherein the interest under section 28 was considered akin to interest under section 34, as both were held to be on account of keeping back the amount payable to the owner, and did not form part of compensation or damages for the loss of the right to retain possession. The principle of Dr. Shamlal Narula’s case had subsequently been applied by a Three Judge Bench of the Apex Court in a later decision in T.N.K. Govindaraju Chetty, 66 ITR 465.

The High Court also took note of another Three Judge Bench of the apex Court in the case of Bikram Singh vs. Land Acquisition Collector, 224 ITR 551, wherein the court following Dr. Shamlal Narula’s case (supra), and taking into consideration definition of interest in section 2(28A) of the Income-tax Act, had held that interest under section 28 of the 1894 Act was a revenue receipt and was taxable.

The High Court cited with approval the decision of the Supreme Court in the case of Dr. Shamlal Narula vs. CIT, 53 ITR 151, which had considered the issue regarding award of interest under the 1894 Act and held that the interest under Section 28 of the 1894 Act was considered akin to interest under Section 34 thereof, as both were held to be on account of keeping back the amount payable to the owner and did not form part of compensation or damages for the loss of the right to retain possession. It was noticed as under:—

“As we have pointed out earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation or both the rights. Therefore, the interest awarded under s. 28 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner.”

The Punjab & Haryana High Court held that in view of the authoritative pronouncements of the apex court in cases of Dr. Sham Lal Narula, T.N.K. Govindaraja Chetty, Bikram Singh (supra), State of Punjab vs. Amarjit Singh, 2011 (2) SC 393, Sunder vs. Union of India [2001] (8) SC 130, Rama Bai, 181 ITR 400 and K.S. Krishna Rao, 181 ITR 408, the assessee could not derive any benefit from the observations made by the Supreme Court in the case of Ghashyam (HUF) (supra).

While deciding the issue of the taxation of interest, the court kept open the issue of tax deduction at source, which was not being agitated in this case, and stated that it would be taken up in an appropriate case and thus the issue was left open, observing “We make it clear that since no arguments have been addressed with regard to the tax deduction at source, the said issue is being left open which may be taken up in accordance with law.”

It also noticed the claim of the assessee based on provisions of Section 10(37) and 57(iv) of the Act, and held that the issue required examination based on factual matrix, and therefore directed that the assessee might plead and claim the benefit thereof before the Assessing Officer in accordance with law.

Accordingly, finding no merit in the petitions, the court dismissed the same.

MOVALIYA BHIKHUBHAI BALABHAI’S CASE

The issue arose before the Gujarat High Court, this time under s.194 LA of the Income tax Act relating to the tax deduction at source in the case of Movaliya Bhikhubhai Balabhai vs. ITO TDS-1, Surat, 388 ITR 343.

In this case, the assessee’s agricultural lands were acquired under the provisions of the Land Acquisition Act, 1894 for the public purpose of developing irrigation canals. The compensation awarded by the Collector was challenged by the assessee before the Principal Senior Civil Judge, who awarded additional compensation with other statutory benefits. Pursuant to such award, the Executive Engineer of the irrigation scheme calculated the amount payable to the petitioner, that included an amount of interest of ₹20,74,157 computed as per s. 28 of the said Act. An amount of tax of ₹2,07,416 was proposed to be deducted at source as per section 194A of the Income tax Act by the Executive Engineer.

The assessee made an application to the Income-tax Department under section 197(1) for ascertaining the tax liability on interest, claiming that such interest was not taxable and requested the AO to issue a certificate for Nil tax liability. The application was rejected on the ground that the interest for the delayed payment of compensation and for enhanced value of compensation was taxable as per the provisions of sections 56(2)(viii) and 145A(b) r.w.s 57(iv). Being aggrieved, the assessee filed a writ petition before the Gujarat High Court.

The assesseee submitted to the court that, when the interest under section 28 of the Act of 1894 was to be treated as part of compensation and was liable to capital gains under section 45(5) of the I.T. Act, such amount could not be treated as Income from Other Sources and hence no tax could be deducted at source. It was submitted that subsequent to the refusal to grant the certificate under section 197 of the I.T. Act, the Executive Engineer deducted tax at source to the extent of ₹2,07,416, which was not in consonance with the statutory provisions, and directions should be issued for refund of tax deducted.

On behalf of the revenue, it was submitted that the interest in question was taxable under the head Income from Other Sources on insertion of s. 56(2) (viii) and s. 145A of the Act. Reliance was placed upon several decisions of the High Courts, including the decision of the Punjab and Haryana High Court in the case of Manjet Singh (HUF) Karta Manjeet Singh vs. Union of India (supra) in support of the view of the revenue.

Opposing the petition, the revenue submitted that the Income Tax Officer, TDS-1, Surat, while rejecting the application made by the petitioner under section 197 of the I.T. Act, had taken into consideration the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of that Act, and the action of the AO in rejecting the application was just, legal and valid in terms of the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act. It was submitted that tax was required to be deducted at source under section 194A of the I.T. Act at the rate of 10% from the interest payable under section 28 of the Act of 1894.

Referring to the provisions of section 56 of the I.T. Act, it was pointed out that sub-clause (viii) of sub-section (2) thereof provided that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A was chargeable to income tax under the head “Income from other sources”. It was pointed out that under sub-clause (iv) of section 57, in case of the nature of income referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income was permissible. It was pointed out that under section 145A of the Act, interest received by the assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it was received. It was submitted that the interest on enhanced compensation under section 28 of the Act of 1894, being in the nature of enhanced compensation, was deemed to be the income of the assessee in the year under consideration and had to be taxed as per the provisions of section 56(2)(viii) of the Act, as income from other sources.

As regards the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra), it was submitted on behalf of the revenue that such decision was rendered prior to the amendment in the I.T. Act, whereby clause (b), which provides that interest received by an assessee on compensation or on enhanced compensation, as the case may be, should be deemed to be the income in the year in which it was received, came to be inserted in section 145A of the Act and hence, the said decision would not have any applicability in the facts of the case before the court.

In support of the submissions, the revenue placed reliance upon the decision of the Punjab & Haryana High Court in the case of Hari Kishan vs. Union of India [CWP No. 2290 of 2001 dated 30th January, 2014] wherein the court had placed reliance upon its earlier decision in the case of CIT vs. Bir Singh (HUF) ITA No. 209 of 2004 dt. 27th October, 2010, wherein the court, after considering the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra), had held that the interest received by the assessee was on account of delay in making the payment of enhanced compensation, which would not partake the character of compensation for acquisition of agricultural land and thus, was not exempt under the Income Tax Act. Once that was so, the tax at source had rightly been deducted by the payer.

The Gujarat High Court held that it was not in agreement with the view adopted by the other high courts, which were not consistent with the law laid down in the case of Ghanshyam (HUF) 182 Taxman 368 (SC). The Gujarat High Court took notice of the decision in Manjet Singh (HUF) Karta Manjeet Singh’s case, 237 Taxman 116 by the Punjab and Haryana High Court, wherein the court had chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997, and had chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF)’s case (supra), which was directly on the issue, by observing that the assessee could not derive any benefit from the observations made by the Supreme Court in that case.

The court held that the view of the Punjab and Haryana High Court was contrary to what had been held in the decision of the Supreme Court in Ghanshyam (HUF)‘s case (supra), that interest under section 28, unlike interest under section 34, was an accretion to the value, hence it was a part of enhanced compensation or consideration, which was not the case with interest under section 34 of the 1894 Act. The Gujarat High Court stated that it was rather in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh vs. State of Haryana [Civil Revision No. 7740 of 2012, dated 18th July, 2013], which had been extensively referred to in paragraph 4.1 of the later decision of the said court.

It was clear to the Gujarat High Court that the Supreme Court, after considering the scheme of section 45(5) of the I.T. Act, had categorically held that payment made under section 28 of the Act of 1894 was enhanced compensation. As a necessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 was interest as envisaged under section 145A of the I.T. Act and had to be treated as income from other sources, deserved to be rejected.

The court also held that the substitution of section 145A by the Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai’s case, 181 ITR 400, wherein it was held that arrears of interest computed on delayed or enhanced compensation should be taxable on accrual basis. Therefore, in reading the words “interest received on compensation or enhanced compensation” in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)’s case (supra).

The upshot of the above discussion, the court stated, was that since interest under section 28 of 1894 Act partook the character of compensation, it did not fall within the ambit of the expression ‘interest’ as contemplated in section 145A of the Income-tax Act. The Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the Income-tax Act to the assessee for non- deduction of tax at source, inasmuch as, the taxpayer was not liable to pay any tax under the head ‘income from other sources’ on the interest paid to him under section 28 of the Act of 1894.

The court noted that the assessee had earlier challenged the communication dated 9th February, 2015, whereby its application for a certificate under section 197 had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 had already been deducted at source. Consequently, the challenge to the above communication had become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 formed part of the compensation and not interest, the Executive Engineer was not justified in deducting tax at source under section 194A of the Income-tax Act in respect of such amount. The assessee was, therefore, entitled to refund of the amount wrongly deducted under section 194A.

For the foregoing reasons, the court allowed the petition. The Executive Engineer, having wrongly deducted an amount of ₹2,07,416 by way of tax deducted at source out of the amount of ₹20,74,157 payable to the assessee under section 28 of the Act of 1894 and having deposited the same with the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court in Jagmal Singh’s case (supra), the High Court directed the AO to forthwith deposit such amount with the Reference Court, which would thereafter disburse such amount to the assessee.

OBSERVATIONS

Under the land acquisition laws, two types of payments are generally made, besides the payment of compensation for acquisition of property. These payments are referred to in the respective amendments as “interest”. One such ‘interest’ is payable under section 34 of LAA (s.80 of RFCTLARRA) for delay in payment of the amount of compensation award, in the first place, on passing of an award of acquisition. This interest is payable on the amount of award for the period commencing from the date of award and ending with the date of payment of the compensation awarded. Another such ‘interest’ is payable on the increased/enhanced compensation under section 23 and/or s. 28 of the LAA of section 72 of the RFCTLARRA for the period commencing from the date of the award to the date of award for enhanced compensation, on the amount of enhanced compensation.

Section 28 of the LAA reads as “28. Collector may be directed to pay interest on excess compensation. – If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of nine per centum per annum from the date on which he took possession of the land to the date of payment of such excess into Court.”

Section 34 of the LAA reads as; “34. Payment of interest- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited.

Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry.”

Section 2(28A) defines “interest” for the purposes of the Income -tax Act effective from 1-6-1976. The expression “interest” occurring in section 2(28A) widens the scope of the term “interest” for the purposes of the Income-tax Act.

The interest of the first kind, payable under section 34 of LAA, is paid for the delay in payment of the awarded compensation and therefore represents an interest as is so understood in common parlance. In contrast, the ‘interest’ on the enhanced compensation is not for the delay in payment of compensation, but is in effect a compensation for deprivation of the amount of the compensation otherwise due to be payable to the owner of the property. The nature of the two payments referred to as ‘interest’ under the LAA is materially different; while one represents the interest the other represents the compensation for deprivation of the lawful due which was otherwise withheld and not paid on account of an unjust order. LAA awards ‘interest’ both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 is an accretion to the value and is a part of enhanced compensation or consideration which is not the case with interest under section 34 of LAA. Additional amount paid under section 23(1A) and the solatium under section 23(2) form part of enhanced compensation under section 45(5)(b) of the 1961 Act , a view that is confirmed by clause (c) of section 45(5). Equating the two payments, with distinct and different characters, as interest under the Income tax Act is best avoidable. The Supreme Court in the case of Ghanshyam (HUF), 315 ITR1, vide it’s order dated 16th July, 2009 passed for assessment year 1999-2000, held that the interest on enhanced compensation paid under LAA was compensation itself and its taxability or otherwise was governed by the provision of section 45(5) of the Income Tax Act in the following words;

“The award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under section 23(1A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation” [Para 23].

“To sum up, interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under section 28 is part of the amount of compensation whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under section 34.” [Para 24].

It is true that ‘interest’ is not compensation. It is equally true that section 45(5) refers to compensation. But the provision of the 1894 Act awards ‘interest’ both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value. Hence, it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also, additional amount under section 23(1A) and solatium under section 23(2) of the 1894 Act form part of enhanced compensation under section 45(5)(b) of the 1961 Act. The said view is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004.” [Para 33]

“When the Court/Tribunal directs payment of enhanced compensation under section 23(1A), or section 23(2) or under section 28 of the 1894 Act, it is on the basis that award of the Collector or the Court under reference has not compensated the owner for the full value of the property as on date of notification.” [Para 35]

The ratio of this decision of the Supreme Court was followed by the apex court in the later decisions in the cases of Govindbhai Mamaiya, 367 ITR 498, Chet Ram (HUF), 400 ITR 23 and Hari Singh and Other, 302 CTR 0458.

In the background of this overwhelming positioned in law, it is relevant to examine the true implications of the insertion of section 56(2)(viii) and section 145A/B of the Income tax Act which provide for taxation of interest on compensation under the head Income from other sources. The Punjab and Haryana High Court, guided by the amendments in the Income Tax Act, has held in a series of cases, distinguishing the decision in the case of Ghanshyaam (HUF)(supra), that interest on enhanced compensation was taxable under the head Income From Other Sources, in the year of receipt of interest on enhanced compensation. The Gujarat high court has chosen to dissent from the decisions of the Punjab and Haryana high court to hold that such interest was in the nature of compensation even after insertion/amendment of the Income Tax Act. The Supreme Court has dismissed the Special Leave Petition of the assessee, 462 ITR 498, against the order of the high court in one of the decisions of the high court in the case of Mahender Pal Narang, 423 ITR 13(P&H), a decision where the court has dissented form the decision of the Gujarat high court. Like the high courts, there are conflicting decisions of the different benches of the Income tax Appellate Tribunal; the Pune bench has delivered conflicting decisions on the same subject. All of these conflicting decisions highlight the raging controversy about taxation of interest under consideration.

The issue according to us moves in a narrow compass; whether the law laid down by the Supreme Court in the series of cases, that interest on enhanced compensation is taxable as compensation and not as an interest has undergone any change on account of insertion of section 56(2)(viii) and 145A/B of Income Tax Act. In our considered opinion – No.

The insertion / amendment of the Income tax Act has the limited object of providing for the year of taxation of such interest in the year of receipt. The objective of the amendment is limited to settle the then prevailing controversy about the year of taxation of interest in cases where such interest was otherwise taxable. This can be gathered and confirmed by a reference to the Notes to Clauses and the Explanatory Memorandum accompanying the Finance (No.2) Bill, 2009. Circular No. 5 of 2010 in a way confirms that the amendments by the Finance Act, 2010 Act are not in connection with the decision of the Supreme Court in Ghanshyam’s case (supra); they are made to mitigate the hardship caused by the decision of Supreme Court in Rama Bai’s case about the year or years of taxation of interest, where taxable. Under no circumstances, the amendments should be viewed to have changed the law settled by the Supreme Court, where the apex court held that the interest on enhanced compensation was nothing but compensation and the payment being labelled as interest under the LAA did not change the character of the receipt of compensation for the purposes of the Income tax Act.

The better and the correct view is to treat the interest on enhanced compensation as a payment for unjust deprivation of the lawful dues payable under the statute and treat such payment as a compensation and not as an interest taxable under the head Income from Other Sources.

Glimpses of Supreme Court Rulings

4.  Condonation of delay in filing an appeal — Filing a belated appeal after knowing  of a subsequent decision is not a sufficient ground for condonation of the delay

Commissioner of Income (International Taxation) vs. Bharti Airtel Ltd

(2024) 463 ITER 63 (SC)

The Supreme Court noted that before the High Court, the Commissioner of Income-tax filed an affidavit stating that pursuant to the impugned order a decision was taken not to file an appeal and it was only after coming to know that in another case, that the Tribunal had given a decision in favour of the Department, it was decided to file the appeal. The appeal was filed after a delay of about four years and 100 days.

According to the Supreme Court, the explanation given for the delay in filing the appeal had no merits and neither could it be construed to be a sufficient cause for condoning the same.

The Supreme Court dismissed the SLP holding that the High Court was justified in dismissing the appeal filed under section 260A of the Act on the ground of delay.

5. Substantial questions of law — Once an appeal under section 260A is admitted, the same has to be decided on merits at the time of final hearing

Commissioner of Income-tax vs. I.T.C. Ltd

(2024) 461 ITR 446 (SC)

The Supreme Court noted that the High Court had admitted the appeal formulating ten questions of law.

When the matter came up for final hearing, the High Court dismissed the appeal holding that no substantial questions of law arose from the judgement of the Tribunal.

According to the Supreme Court, on a combined reading of the order of admission and the order dismissing the appeal upon final hearing, it had no option but to set aside the impugned order and remand the matter to the High Court for hearing of the appeal.

The Supreme Court accordingly restored the appeal on the record of the High Court and directed the High Court to decide the case on merits.

Whether an Inordinate Delay in the Disposal of Appeals by the First Appellate Authorities is Justifiable?

INTRODUCTION

The Indian public, especially professionals, are perturbed, agitated and upset as there has been an inordinate delay on the part of First Appellate Authorities in passing appellate orders in respect of appeals filed by the assessees against assessment orders passed by the Assessing Officers. This is for the reason that the assessees who may have received high-pitched assessment orders raising huge tax and interest demands must have approached the First Appellate Authorities by preferring appeals before them. However, it is very disturbing that the First Appellate Authorities, for reasons best known to them, have refrained from taking any further action in deciding the appeals, except sending notices after notices in standard formats to the assessees to file submissions in support of their grounds of appeal. It may be noted that after the introduction of the Faceless Appeal Scheme by the Government, the Faceless Appeal Centre conducts the functions of the First Appellate Authorities.

In this write-up, an attempt is made to highlight the legal position as to whether the time limit for passing appellate orders by the First Appellate Authorities is mandatory or directory, the consequences of inaction on the part of the First Appellate Authorities in hearing and disposing of appeals, whether the First Appellate Authorities can be made accountable for their inaction, and whether there is any remedy against such inaction.

PROVISIONS OF THE INCOME TAX ACT, 1961

The provisions relating to the appeals before the Joint Commissioner (Appeals) and the Commissioner (Appeals) (hereinafter referred to as “the First Appellate Authorities”) are contained under Chapter XX of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) covering sections 246 to 251 of the Act. Section 250 of the Act provides for the procedure in appeal. The Finance Act, 1999, for the first time, inserted sub–section (6A) to section 250 of the Act, which reads as follows:

Sub-section (6A)

In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide such appeal within a period of one year from the end of the financial year in which such appeal is filed before him under section (1) of section 246A.

The Finance Act, 2023, slightly amended the above sub-section by including the Joint Commissioner (Appeals) in the said sub-section and also provided for the time limit for passing orders when the appeal gets transferred to the First Appellate Authority. The amended sub-section (6A) reads as under:

Amended Sub-section (6A)

In every appeal, the Joint Commissioner (Appeals) or Commissioner (Appeals), as the case may be where it is possible, may hear and decide within a period of one year from the end of the financial year in which such appeal is filed before him under subsection (1) or transferred to him under subsection (2) or sub-section (3) of section 246 or filed before him under sub-section (1) of section 246A as the case may be.

The memorandum explaining the provisions of the Finance Bill, 1999, giving the reasons for the insertion of sub-section (6A) in section 250 of the Act, reads as under:

“In the absence of any statutory provision, there is considerable delay in the disposal of appeals. It is also seen that there is a disinclination to take up old appeals for disposal by the Commissioner (Appeals). To ensure accountability as well as to ensure disposal of appeals within a reasonable timeframe, it is proposed to provide that the Commissioner (Appeals) where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed.”

WHETHER THE PROVISIONS OF SUB-SECTION (6A) TO SECTION 250 ARE MANDATORY OR ONLY DIRECTORY?

There are several judicial pronouncements in which the Supreme Court has held that where a public officer is directed by a statute to perform his duty within a specified timeframe, the provisions as to time are only directory. Reliance in this regard may be placed on the ratio of the decision of the Supreme Court in the case of P. T. Rajan vs. T. P. M. Sahir (2003) 8 SCC 498.

As per the ratio of the decision of the Supreme Court in the case of T. V. Usman vs. Food Inspector Tellicherry Municipality JT 1994 (1) SC 260 it can be argued that although the provisions in a statute requiring a public officer to perform a public duty within a particular timeframe are directory, nonetheless the other party on whom the right is conferred is seriously prejudiced on account of non — performance of such duty within the prescribed timeframe then in such cases, the related provisions with regard to performance of public duty by a public officer within the prescribed time can be construed as imperative. Therefore, on the basis of this decision of the Supreme Court, it can be contended that even though the legislature has used the words “may” in the context of hearing and deciding appeals by using the expression “where it is possible may hear and decide every appeal” in sub-section (6A) to section 250 of the Act, as the assessees are seriously prejudiced on account of non — performance of their duties by the First Appellate Authorities in hearing and disposal of appeals within the time limit of one year, the said provisions with regard to time limit should be considered as mandatory. In such cases, assessees on whom the right is conferred to challenge the appellate orders before the Tribunals cannot do so on account of non-performance of duties by the First Appellate Authorities within the stipulated timeframe. Further, the legislature, in fixing the time limit, has contemplated that the First Appellate Authorities should be made “accountable” for not acting within the prescribed timeframe because, in the memorandum explaining the provisions of the Financial Bill, 1999, it has been emphasised that “to ensure accountability as well as to ensure disposal of appeals within a reasonable timeframe”, the time limit of the year has been prescribed for hearing and deciding the appeals. There are conflicting decisions of the Supreme Court with regard to reliance on the memorandum explaining the provisions of the Bill while interpreting the provisions of the Enactment, for example, in the case of Ajoy Kumar Bannerjee vs. Union of India, AIR 1984 SC 1130, while interpreting the provisions of section 16 of the General Insurance Business (Nationalisation) Act, 1972, the Supreme Court relied on the memorandum of the relevant Bill explaining the object of clause 16 of the Bill, which became section 16 of the said Act. Further, one can rely on the ratio of mischief rule laid down in the famous Heydon’s case for the proposition that “accountability” was contemplated by the First Appellant Authorities to cure the mischief of delaying the hearing and deciding appeals within a reasonable time.

But the directory provisions do not vest in the concerned First Appellate Authorities, who are quasi-judicial authorities to act according to their whims and fancy. Assuming for the sake of argument that the provisions regarding hearing and deciding appeals within one year, as stated in sub-section (6A) to section 250, are directory, then whether the First Appellate Authorities can take the assessees for a ride by not deciding the appeals for several years?

MEANING OF “ACCOUNTABILITY”

The Cambridge Dictionary defines the word “accountable” as meaning “someone who is accountable is completely responsible for what they do and must be able to give a satisfactory reason for it.” The Collins Dictionary defines the word accountable as meaning “if you are accountable to someone for something that you do, you are responsible for it and must be prepared to justify your actions to that person.” The synonym for the word “accountable” is “answerable” which has been defined by Mitra’s Legal & Commercial Dictionary as “Liable to be called to account, responsible, liable to answer.” When it comes to the accountability of public servants, the word “accountable” assumes a greater significance because a public servant is answerable to the Government and the Public for justification for his inactions.

Para 5 of the “Tax Payers’ Charter issued by the Income Tax Department states that the Department shall make decisions in every income tax proceeding within the time prescribed under the law. Therefore, non-passing of appellate orders within the timeframe prescribed under sub-section (6A) of section 250 of the Act amounts to infringement of the provisions of the Tax Payers’ Charter issued by the Income Tax Department, and this is a serious matter. The CBDT has also released a Citizen Charter in which it has been emphasized that the Income Tax Department should act in a fair manner with the taxpayers.

Now, the Tax Payers’ Charter has the mandate of section 119A of the Act and therefore, the Income Tax Department should not take this matter lightly, where a large number of assessees are adversely affected.

Way back in the Year 1955, the CBDT had issued administrative instructions for the guidance of Income Tax Officers on matters pertaining to assessment in terms of Circular No. 14 (XL — 35) dated 11th April, 1955 inter-alia stating in Para 3 that the officers of the Department must not take advantage of the ignorance of an assessee as to his rights. As the powers of the First Appellate Authorities are coterminous with those of the Assessing Offices, these instructions apply with equal force to the First Appellate Authorities.

Even the Direct Tax Laws Committee, in its Interim Report in the Year 1977 had observed that whenever litigation is inevitable, the same will be disposed of as expeditiously as possible.

It may be noted that in which manner the public officers performing public duty, including the First Appellate Authorities, can be made accountable for their inactions is a matter of great concern. Our constitution is silent for making public officers accountable for their acts of omission as well as their inaction in performing their official duties. Further, section 293 of the Act offers a shield to those erring officers, as the said section states that no suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceedings shall lie against the Government or any officer of the Government for anything in good faith done or intended to do under this Act. It needs to be emphasized that this section bars suits, etc., against the Government or its officers for anything in good faith done or intended to be done under this Act. Whether non-disposal of appeals by the First Appellate Authorities for several years, overstepping the time limit of one year laid down under sub-section (6A) of section 250 of the Act be construed as an act done in good faith? The answer will certainly be in the negative. Whether in such cases, the provisions of section 293 of the Act can be invoked? The answer will be in the affirmative.

EFFECT OF INORDINATE DELAY IN DELIVERING JUSTICE

With regard to the delay in delivering justice, it is apposite to quote the following observations of the Supreme Court in the case of Imtiaz Ahmed vs. State of Uttar Pradesh & Others (AIR 2012 SC 642).

“Unduly long delay has the effect of bringing about blatant violation of the rule of law and adverse impact on the common man’s access to justice. A person’s access to justice is a guaranteed fundamental right under the Constitution and, particularly Article 21.

Denial of this right undermines public confidence in the justice delivery system. It incentivises people to look for shortcuts and other fora where they feel that justice will be done quicker. In the long run, this also weakens the justice delivery system and poses a threat to the Rule of Law.”

Thus, it is very true that non-disposal of appeals within the time frame prescribed for the First Appellate Authorities under the Act has resulted in the blatant violation of the Rule of Law and has shaken the confidence of a large number of assessees who are eagerly awaiting appellate orders in their cases.

WHETHER A LONG TIME TAKEN FOR THE DISPOSAL OF APPEALS BY THE FIRST APPELLATE AUTHORITIES LIKELY TO IMPROVE THE QUALITY OF APPELLATE ORDERS?

If the quality of appellate orders passed by the First Appellate Authorities is likely to improve, then the slight delay in passing such appellate orders by the First Appellate Authorities may be justified.

One is reminded of the case of CIT vs. Edulji F. E. Dinshaw (1943) 11 ITR 340 (Bombay), which came up for consideration before the Bombay High Court in which his Lordship Chief Justice Beaumont remarked as under with regard to the quality of appellate orders passed by the First Appellate Authorities.

“I have been hearing income tax references in this Presidency for the last thirteen years, and I would say that in at least ninety per cent of the cases which have come before this Court, the Assistant Commissioner has agreed with the Income Tax Officer and the Commissioner has agreed with the Assistant Commissioner, however complicated and difficult the questions may have been.”

It appears that even after a long period of more than eighty years, the situation is far from satisfactory, as otherwise, the Income Tax Appellate Tribunals all over India may not have been flooded with appeals filed mostly by the assessees.

JUSTICE DELAYED IS JUSTICE DENIED AND AMOUNTS TO VIOLATION OF ARTICLE 21 OF THE CONSTITUTION OF INDIA

The expression “Justice delayed is justice denied” was used for the first time by the Jurist Sir Edward Coke in the Sixteenth Century.

Article 21 of the Constitution of India, which deals with the Protection of Life and Personal Liberty, states that “No person shall be deprived of his life or personal liberty except according to procedure established by law.”

In the landmark case of Hussainara Khatoon vs. Home Secretary, State of Bihar [1979 SCR (3) 532], the Supreme Court gave a wider interpretation to Article 21 of the Constitution of India, holding that speedy trial is a fundamental right of every litigation.

Thus, by not passing appellate orders in a reasonable timeframe by the First Appellate Authorities, there is a violation of Article 21 of the Constitution of India.

The delayed justice results in mental agony, harassment and frustration amongst the assessees.

HEADS I WIN AND TAILS YOU LOSE APPROACH OF THE INCOME TAX DEPARTMENT

It is a matter of great concern that when it comes to filing of appeals before the First Appellate Authorities against assessment orders passed by the Assessing Officers, the time limit has been laid down under section 249 of the Act, and only in exceptional circumstances, the time limit is extended by the First Appellate Authorities. Where there is a slight genuine delay on the part of the assessee in filing an appeal, he is at the mercy of the First Appellate Authority. In such cases, the assessee has to file a Petition for Condonation of Delay with the supporting affidavit duly notarized. Therefore, the honest assessees suffer at both ends. They have to file appeals within a particular timeframe and also they do not receive appellate orders well in time. The Income Tax Department expects that the assessees should strictly follow the law, but it does not take any action against the erring First Appellate Authorities, who act according to their whims and fancies and do not abide by the law.

CONCLUDING REMARKS

In view of the aforesaid discussion, it is amply clear that on account of the non-disposal of appeals by the First Appellate Authorities —

The delay in justice tantamounts to the denial of justice.

There is a violation of Article 21 of the Constitution of India apart from infringement of the Taxpayers’ Charter.

The Income Tax Department is neither taking any remedial action against the erring First Appellate Authorities nor making them accountable for their inactions. It appears that the Income Tax Department is unperturbed and is a silent observer. Even if the Income Tax Department has taken some actions, they are outside the public domain and certainly did not yield the desired results.

The honest taxpayers’ are suffering, undergoing mental stress and agony and facing considerable hardships on account of the non-disposal of appeals by the First Appellate Authorities within a reasonable period.

The main reason why no attention is being paid to the taxpayers’ grievances is because of the reason that those taxpayers who are willing to fight against grave injustice done to them are not duly supported by others, as a result of which their grievances go unnoticed and remain unredressed.

The eminent Jurist and Senior Lawyer Late Mr. Nani Palkhiwala had, in the context of tinkering with the Act every year, had once remarked during one of the great Budget Speeches that “the patience of the Indian Public is anaesthetised, and it continues to endure injustice and unfairness without any resistance”.

REMEDY

The appropriate remedy in such cases is to approach the High Court by filing a Writ of Mandamus. In the case of Praga Tools Corporation vs. Imannual AIR 1969 SC 1306, the Supreme Court observed that an order of mandamus is a form of a command directed to a person requiring him to do a particular thing which pertains to his office which is in the nature of a public duty. In the case of Samarth Transport Company vs. Regional Transport Authority, AIR 1961 SC 93, it was held by the Supreme Court that where there was an inordinate delay on the part of the Issuing Authority in disposing of an application for renewal of license, a writ of mandamus can be issued. Thus, the assessee can approach the High Court by filing a writ of mandamus against the First Appellate Authority, seeking an order of mandamus from the High Court directing the First Appellate Authority to hear and decide the appeal within a particular timeframe.

Accelerating India’s March of Education with Technology

INDIA HAS SUCCESSFULLY BUILT CAPACITY, MUST NOW FOCUS ON QUALITY AND ENROLMENT

The Indian higher education system is, by far, among the largest in the world today. The latest available data from AISHE (All India Survey on Higher Education, Ministry of Education) for the academic year 2021-22 shows that 4.32 crore students are enrolled in the system, growing at a 4 per cent CAGR over ten years from 2.91 crore in 2011-12. There are 58,643 active institutions, including 1,168 universities, 45,473 colleges, and the remaining are stand-alone institutions. The total number of institutions has grown at a 2.3 per cent CAGR over ten years, indicating a significant increase in capacity. The Indian HE Gross Enrolment Ratio (GER) stands at 28.4, meaning that 28.4 per cent of the eligible 18-23-year-old population is enrolled in higher education.

Growth Parameter 2011-12 2021-22 10-yr CAGR 2030-31 (Projected) 2030-31 (Accelerated)
Enrolment 2,91,84,331 4,32,68,181 4.0% 6,16,71,661 7,00,90,500

(at 5.51% CAGR)
Number of Institutions 46,651 58,643 2.3% 72,050 –
Number of Universities 642 1,168 6.2% 2,002 –
Number of Colleges 34,852 45,473 2.7% 57,773 –
18-23 Year Population 14,03,17,069 15,24,52,016 – 14,01,81,000 14,01,81,000
GER 20.8 28.4 – 44.0 50.0

Table 1: Trend analysis of certain growth parameters in the Indian HE system with projections to 2031. Data from AISHE and Population Projection Report 2011-2036, projections computed by authors.

Projected enrolment growth at a 4 per cent CAGR suggests that student numbers will surpass 6 crore by 2030-31. According to India’s Population Projection Report 2011-2036, the population aged 18-23 will be just over 14 crore at that time, leading to a GER of 44. NEP 2020, FICCI, and other stakeholders have set an ambitious GER target of 50 for 2030. To reach an enrolment of 7 crore, which is 50 per cent of 14 crore, enrolment must increase at a 5.5 per cent CAGR from the current 4 per cent . With institutional capacity already sufficient, the focus must shift from expanding quantity to enhancing quality to improve the educational standards.

Gender parity in Indian higher education was achieved in 2019-20 and remains above 1. More women are entering higher education with greater aspirations. The 10-year enrolment CAGR for women is 4.7 per cent , compared to 3.4 per cent for men. In 2021-22, women constituted 48 per cent of total enrolment, up from 44.6 per cent ten years earlier. Women’s GER stands at 28.5, slightly higher than men’s at 28.3, and has grown more rapidly, from 19.4 in 2011-12 compared to 22.1 for men. This indicates that a growing number of women aged 18-23 view higher education as a pathway to a better quality of life. This positive trend points towards a significant increase in the qualified workforce. To fully leverage this, quality employment opportunities must be developed nationwide, enabling educated women to join the workforce near their homes and communities.

Enrolment 2011-12 2021-22 10yr CAGR
Total 2,91,84,331 4,32,68,181 4.0%
Male 1,61,73,473 2,25,76,389 3.4%
Female 1,30,10,858 2,06,91,792 4.7%
Female % 44.6% 47.8% –
Enrolment 2011-12 2021-22 10yr CAGR
Total GER 20.8 28.4 –
Male 22.1 28.3
Female 19.4 28.5
Gender Parity Index 0.88 1.01

Table 2: Higher education enrolment across male and female categories. Data from AISHE

 

SPECIALISATION AND DOMAIN EXPERTISE

Growing economies need expertise across all domains — science and technology, finance and commerce, culture and arts, education, healthcare and doctors, law, business administration, and so on.

Total number of graduates in 2021-22 exceeded 1 crore. Of these, the top fields studied by number are Bachelors degrees in Arts, Science, Commerce, Technology and Engineering, and Education. While the 5-year CAGR of total enrolment is 3.92 per cent, the CAGRs of these five top fields are 3.53 per cent, 1.46 per cent, 1.7 per cent, -1.21 per cent and 12.68 per cent. The negative trend in B.Tech + B.E. enrollment is disheartening at a time when technology has become ubiquitous in our daily lives and India needs more STEM graduates to drive R&D, intellectual property, and technological production. M.B.B.S enrolment is growing 8.7 per cent CAGR; an encouraging trend given the dearth of qualified medical personnel in the country. The Central Government’s push to increase institutional capacity in medical sciences is clearly working and more can be undertaken in this direction to respond to India’s medical and healthcare needs.

Graduates Total B.A.

(+ Hons)

 B.Sc.

(+ Hons)

 B.Com. B.Tech. B.Ed. M.B.B.S. Others
2021-22 1,07,38,573 28,19,421 13,89,106 11,07,966 8,46,613 6,63,862 54,547 38,57,058
Enrolment
2016-17 3,57,05,905 1,12,36,658 52,23,984 39,91,742 40,85,759 8,37,264 2,11,366 1,01,19,132
2021-22 4,32,68,181 1,33,67,637 56,17,138 43,41,916 38,45,332 15,20,715 3,20,149 1,42,55,294
5-yr CAGR 3.92% 3.53% 1.46% 1.70% -1.21% 12.68% 8.66% 7.09%

Table 3: Enrolment and graduates in top undergraduate HE fields studied. Data from AISHE

Specialisation is crucial for a growing economy. It enables productivity improvements in society, an increase in innovation, and the ability to produce world-class products and services domestically to, both meet our growing needs and capture global markets. Specialisation can be directly measured by the number of PhD and post-graduates. 2 lakh+ students were enrolled in PhD programs in 2021-22, having grown from 80,452 in 2011-12 at 10.2 per cent CAGR. PhD graduates have grown from 21,544 to 65,176 in the same period. Post graduate enrolment has increased from 27.9 lakh to 51 lakh in the same period, whereas PG graduates from 11 lakh to 35.5 lakh. While these numbers are encouraging, India must produce many more PhDs and PGs for a country with 1.44Bn population.

Table 4 gives a snapshot of some important fields of specialisation pursued by PhD and PG students. India needs more quality researchers with PhDs to lead research and innovation efforts across several disciplines. Agriculture innovation will be an essential factor in India’s reorganisation of sectoral workforces; commerce, in India’s financial infrastructure development strategies; education, in determining new ways to educate, upskill, and enable continuous learning; medical sciences, as we re-engineer our healthcare delivery; Scientific and technological development, and others. The low number in I.T. and Computers is troubling; with the world’s advancements in artificial intelligence, machine learning, quantum computing, data analytics, and others related to I.T. and Computers, India must be more aggressive in this field.

India must study domestic and global scenarios to understand domains that will be valuable going forward and invest in building competencies there. China has set a great example in the realm of quantum computing and artificial intelligence. With in-depth investment strategies and incentives for their top talent, China is surpassing even the United States in this field. If India doesn’t start investing in domain expertise, we risk being left behind in the new world.

Field PhD Post Graduates
Enrolled Graduated Enrolled Graduated
Agriculture 7,153 1,667 35,783 12,728
Commerce 7,112 1,058 5,18,631 1,89.765
Education 6,669 771 2,72,120 84,802
Engineering/Tech 52,748 6,270 1,73,950 62,178
IT and Computers 4,187 621 2,29,456 72,774
Medical Sciences 15,081 2,073 2,48,171 71,936
Science 45,324 7,408 7,52,807 26,402
Total 2,12,474 65,176 51,19,865 35,51,676

Table 4: PhD and post graduate scholars in select fields in 2021-22. Data from AISHE

AFFIRMATIVE ACTION HAS YIELDED RESULTS

Towards the objectives of inclusive enrolment and coverage, affirmative action has undoubtedly yielded results. Between 2012-13 and 2021-22, enrolment among various groups increased at astounding 9-year CAGRs – by 6.2 per cent (SC), 8.3 per cent (ST), 6.3 per cent (OBC), 6 per cent (Muslims) and 5.4 per cent (other minorities), all well over the average of 4 per cent. General enrolment is stagnating at 0.7 per cent. The Government’s focus on HE has enabled rapid development of previously deemed disadvantaged classes.

Community Enrolment (lakh) Population % HE Enrolment

9-yr CAGR
2012-13 2021-22 2021-22 (%) Census 2011
SC 38.48 66.23 15.3% 16.6% 6.2%
ST 13.2 27.11 6.3% 8.6% 8.3%
OBC 94.16 163.36 37.8% 40.9%* 6.3%
Muslims 12.52 21.08 4.9% 14.2% 6.0%
Other Minorities 5.64 9.05 2.1% 6.0% 5.4%
General 137.52 145.85 33.6% 13.6% 0.7%
All 301.52 432.62 100.0% 100.0% 4.1%

Table 5A: Population data from Census 2011, * from NSSO, HE data from AISHE

Enrolment proportions for the SC, ST and OBC communities in 2021-22 are close to their population composition –

For the SC community, 15.3 per cent enrolment against 16.6 per cent of the population; remarkably close

For the ST community, 6.3 per cent enrolment against 8.6 per cent of the population; this, too, is quite close

For the OBC community, 37.8 per cent enrolment against 40.9 per cent of the population; close, as well

Minorities, however, have not demonstrated the same progress. Minorities constitute 20.2 per cent of India’s population but only 7 per cent in HE enrolment. Low Muslim enrollment is a key issue, but the growth rates are impressive.
Disaggregating the social groups’ enrolment data by gender clearly revels Indian women’s aspirations.

Table 2 shows that across groups, women’s enrolment CAGR is ahead of men’s — 7 per cent (W) vs 5.6 per cent (M) among the SC community, 9.6 per cent (W) vs 7.2 per cent (M) among the ST community, and 6.8 per cent (W) vs 5.9 per cent (M) among the OBC community. Though the Muslim community’s representation in higher education is far lesser than its population composition, here too, women’s enrolment CAGR at 6.6 per cent is far higher than men’s at 5.4 per cent. The ‘other minorities’ group is the only one where this reversed — 4.9 per cent (W) vs. 6 per cent (M). In the general category, men’s enrolment has stagnated at 0 per cent CAGR as the enrolment in 2012-13 and 2021-22 is very similar. Women’s enrolment in this group is 1.5 per cent, higher than men’s here as well.

Community Male Female Total
2012-13 2021-22 9-yr CAGR 2012-13 2021-22 9-yr CAGR 2012-13 2021-22 9-yr CAGR
SC 21.19 34.52 5.57% 17.29 31.71 6.97% 38.48 66.23 6.22%
ST 7.32 13.65 7.16% 5.88 13.46 9.63% 13.20 27.11 8.32%
OBC 51.00 85.18 5.87% 43.17 78.19 6.82% 94.16 163.36 6.31%
Muslims 6.67 10.69 5.38% 5.85 10.39 6.60% 12.52 21.08 5.96%
Other Minorities 2.53 4.27 6.02% 3.12 4.78 4.86% 5.64 9.05 5.39%
General 77.47 77.46 0.00% 60.05 68.39 1.46% 137.52 145.85 0.66%
All 166.17 225.76 3.46% 135.35 206.92 4.83% 301.52 432.68 4.09%

Table 5B: Gender Split in Enrolment Across Social Categories. Data from AISHE

Overall, social groups are faring well in higher education. Driving enrolment up in key groups and regions across India can be facilitated by expanding the capacity of existing institutions and setting up greenfield institutions in regions with low institutional capacity. Distance education can also be utilised to drive enrolment. The key point here is that increasing the cake will enable more people to partake, rather than slicing the existing cake any thinner.

ONE COMMON POLICY ACROSS INDIA WON’T WORK

India is an incredibly diverse country with high variance across economic indicators — state GDP, per-capita income, fertility and population growth rates, urbanisation, and education and skill development. The education profiles of 14 major states across India are represented in Table 6, showing vastly different institutional capacities, enrolment profiles and pupil-teacher ratios.

Zones Enrolment GER Graduates Teachers Pupil-Teacher Ratio Number of Institutions Fertility Rate
North-Central
Uttar Pradesh 69,73,424 24.1 16,37,026 1,78,193 36 9,660 2.4
Rajasthan 26,89,340 28.6 7,07,179 83,192 29 4,598 2
Madhya Pradesh 28,00,165 28.9 7,65,365 82,461 31 3,220 2
Punjab 8,58,744 27.4 2,37,990 50,992 17 1,451 1.6
East
Jharkhand 8,79,965 18.6 2,01,517 15,089 58 514 2.3
Odisha 10,73,879 22.1 2,43,070 43,730 25 1,858 1.8
Bihar 26,22,946 17.1 4,10,485 38,152 69 1,444 3
West Bengal 27,22,151 26.3 5,63,911 73,817 37 2,146 1.6
South
Tamil Nadu 33,09,327 47 9,82,656 2,08,736 16 3,790 1.8
Andhra Pradesh 19,29,159 36.5 4,77,861 1,06,538 18 3,371 1.7
Telangana 15,96,680 40 3,56,044 84,086 18 2,573 1.8
Karnataka 24,36,540 36.2 6,41,072 1,50,885 16 6,220 1.7
West
Maharashtra 45,77,843 35.3 12,01,050 1,67,692 27 7,003 1.7
Gujarat 17,97,662 24 4,13,866 61,803 28 2,813 1.9
All-India 4,32,68,181 28.4 1,07,38,573 15,97,688 26 58,643 2

Table 6: Snapshot of states’ HE bases in 2021-22. Data from AISHE, NFHS-5

Uttar Pradesh’s higher education base tops the country, by far, in enrolment, number of graduates, and number of institutions. The state accounts for a significant 16 per cent of India’s enrolled students (69.7 lakh of 4.32 crore), 15.2 per cent of graduates (16.3 lakh of 1.07 crore), and 16.5 per cent of HE institutions (9,660 of 58,643). Maharashtra comes next with 10.6 per cent of India’s enrolled students (45.7 lakh of 4.32 crore), 11.2 per cent of graduates (12 lakh of 1.07 crore), and 11.9 per cent of HE institutions (7,003 of 58,643). Tamil Nadu comes in third with 7.6 per cent of India’s enrolled students (33 lakh of 4.32 crore), 9.2 per cent of graduates (9.8 lakh of 1.07 crore), and 6.5 per cent of HE institutions (3,790 of 58,643).

The National Education Policy 2020 recommends the consolidation of fragmented institutions into multidisciplinary universities of 3000+ students (more details on NEP 2020 are below). States with active university systems can quickly grow them into large multidisciplinary universities.

In terms of GER, Tamil Nadu by far leads the country with 47. Apart from Telangana, no other large state has even crossed 40.0 in 2020-21. In general, all southern states including Maharashtra have good GERs much higher than the all-India average of 28.4. GER is calculated as the ratio of the number of enrolled students to the eligible 18-23-year population.

All the states in the north-central-east zones, and Gujarat in the west, have GERs below 30. Rajasthan (28.6) and Madhya Pradesh (28.9) impressively are maintaining GERs above the India average, given their large populations. Uttar Pradesh and Punjab were doing well earlier but seem to have slipped behind after the pandemic. Crucial states like Bihar and Jharkhand have not crossed GER of 20, which is worrisome. Eastern states also have a very low number of institutions, which contributes to low enrolment, and indicates a lack of drive to develop human capital. Immediate planning is required to bring GERs in these states to at least the all-India average of 28.4.

Tamil Nadu leads by teaching staff as well, with 2+ lakh, followed by Uttar Pradesh with 1.78 lakh, Maharashtra with 1.67 lakh, Karnataka with 1.5 lakh, and AP with 1+ lakh. These are the only states with lakh+ teaching staff base in HE. Southern states have impressive average pupil-teacher ratios (PTR) of below 20, led by Karnataka and Tamil Nadu at 16.

On the other end, eastern states like Jharkhand and Bihar have absurdly high PTRs of 58 and 69. Uttar Pradesh comes next at 36, but given the large population and enrolment base, the state is showing promising results compared to other population-dense states like Bihar and Jharkhand. States with moderate PTRs are Odisha (25), Maharashtra (27), Gujarat (28), and Rajasthan (29). Of these, Maharashtra is the only state that has moderate PTR despite having a great teaching base because its enrolment base is also large. The other three — Gujarat, Odisha, and Rajasthan — have moderate PTRs because their enrolment base is lower than average as indicated by low GERs, and their teaching base is also low. Intensive effort to improve both must commence soon.

One common education policy across the country clearly will not work, and each state must formulate a specific policy responding to the needs of its citizens and youth base. In general, states in the north and east have younger, larger populations and must focus on driving enrolment and accessibility to education. States in the south and west have ageing populations, drastically lowered fertility rates, and better enrolment ratios, and can focus largely on improving quality of education and education-industry linkages.

FUTURE OF INDIAN EDUCATION

National Education Policy (NEP) 2020 was a transformational framework, enacted 34 years after the previous outdated policy in 1986. The system needs overhaul because it is rife with rigid structures with low flexibility to innovate and respond to today’s needs, an increasing shift to the private sector across all levels of education due to dissatisfaction with government-provided education despite education spending at ₹5-6 lakh crore annually, and rote learning favoured over learning abilities and outcomes. India’s HE system does not prioritise research and innovation and, in general, has been teaching the same curricula for the last twenty years.

Data indicates India is solving the capacity problem of equity and access but must aim to vastly improve quality over the next 20 years. For this, the autonomy of the Top 200 universities, by national ranking, is critical to pursue radical strategies for providing world-class education and ensure greater transfer to public research. Indian universities must also be encouraged to expand overseas and set up campuses in other countries. Today, more than 750,000 students study abroad spending $20Bn+ in fees. Indian universities must be empowered to capture some of that value. Globalisation of Indian education must be supported by both outbound and inbound strategies. NEP 2020 provides a ground-breaking framework and the flexibility to achieve these goals and more:

  • Consolidation of the large number of standalone institutions into large multidisciplinary universities and educational clusters will enable superior specialisation and expand domain expertise.
  • Multiple certification options like undergraduate, certificate, diploma, etc. will improve accessibility and flexibility of education.
  • A central repository like an Academic Bank of Credit will help students who are returning after a hiatus or with continuous learning and upskilling.
  • Internationalisation by inviting the Top 100 global universities to open academic centres in India will create a pull-up effect on overall quality of education.
  • Expanding open and distance learning, especially with today’s technological tools will radically improve equity of access.
  • Changing governance and autonomy structures will break the rigidity and inflexibility and allow for innovation education models.
  • A steady research focus that will feed into the country’s science and technological leadership vision must be instituted. Towards this, the proposed National Research Foundation with an ₹50,000 crore outlay over five years will be a tremendous step forward.

Technology can significantly enhance education by making learning more engaging, accessible, and personalised:

  • Personalised Learning: Adaptive learning software uses AI-powered tools that adapt to each student’s learning pace and style, providing customised resources and feedback. Learning Management Systems track student progress, provide personalised resources, and facilitate communication between teachers and students.
  • Online resources and courses can be incredibly useful. Massive Open Online Courses (MOOCs) from providers like Coursera, edX, and Udacity offer high-quality courses from top global universities. In addition, digital libraries and databases provide access to vast information and research materials online, such as Google Scholar or JSTOR.
  • Virtual and Augmented Reality models can create interactive and immersive learning experiences, such as virtual field trips or 3D modelling for science subjects. Similarly, simulation software can provide realistic simulations for training in medicine, engineering, and aviation.
  • Artificial Intelligence has a growing influence on education. Chatbots and AI tutors can provide instant help and tutoring outside of classroom hours, assisting with homework and study questions. Educators can use data analytics to analyse student performance data to identify learning gaps and tailor instruction accordingly.
  • Interactive learning platforms are applications that turn learning into an engaging experience; leading examples are Duolingo for language learning and Khan Academy for various subjects. Gamification incorporates game-like elements such as points, badges, and leaderboards to motivate students and make learning fun.
  • Accessibility can be vastly improved with assistive tools like screen readers, speech-to-text software, and adaptive keyboards that help students with disabilities. Similarly, translation apps enhance access to educational content and classes in other languages.
  • Technology also allows for blended learning, such as flipped classrooms and hybrid models that combine online and in-person instruction to provide flexibility and maximise learning opportunities.
  • Professional development and upskilling of educators can be undertaken via online workshops and webinars where teachers can continuously improve their skills.

India hosts one of the largest education systems in the world and has successfully established equity and access. These metrics are steadily improving every year. Concurrently, India has succeeded in population-scale socio-economic development over the last decade and has set sights on becoming a Top 3 economy over the next few years. To maintain economic and technological leadership, it is imperative to inculcate a drive towards superior quality education and internationalisation. Increasing institutional autonomy and public funding of research will serve India well.

March of Law and Judiciary

INTRODUCTION

As we celebrate 75 years of our independence, it is a time to remind ourselves of our times gone by and the institutions of Governance set up to protect people and societies. The Judiciary is one such critical Institution of Governance.

The judiciary in India has a rich and complex history, marked by significant transformations from the ancient era through colonial rule to the contemporary period. This evolution has seen the judiciary adapt to changing socio-political landscapes and technological advancements. The Indian judiciary is often regarded as one of the most independent, innovative, progressive, and powerful judicial systems in the world. It plays a critical role in maintaining the rule of law, upholding democratic principles, and shaping public opinion in the country.

The history of the Indian judiciary dates back to ancient times, when village assemblies and local panchayats served as the primary adjudicating bodies. The earliest document throwing light on the theory of jurisprudence, which forms part of practical governance, is the Artha Shastra of Kautilya dating back to circa 300 B.C. In medieval India, this changed and as custodians of justice, the Muslim rulers made the Sharia court subservient to their sovereign power.

But the rulers also set up a Court known as Mazalim (complaints), a secular Court. These courts dealt with disputes relating to the non-Muslim communities. The same system was followed till the British took over the power of India.

The formal judicial system, as we know it today began to take shape during British colonial rule. The British established the Mayor’s Courts in Madras, Bombay, and Calcutta in 1726. The promulgation of the Regulating Act of 1773 by the King of England paved the way for establishing the Supreme Court of Judicature at Calcutta. The Letters of Patent was issued on 26th March, 1774 to establish the Supreme Court of Judicature at Calcutta, as a Court of Record, with full power & authority to hear and determine all complaints for any crimes and also to entertain and determine any suits or actions against His Majesty’s subjects in Bengal, Bihar, and Orissa. The Supreme Courts at Madras and Bombay were established by King George — III on 26th December, 1800 and on 8th December, 1823, respectively. The India High Courts Act 1861 was enacted to create High Courts for various provinces and abolish Supreme Courts at Calcutta, Madras and Bombay and the Sadar Adalats in Presidency towns, which had been set up under Warren Hastings in his implementation of the Regulating Act, 1772. These High Courts had the distinction of being the highest Courts for all cases till the creation of the Federal Court of India under the Government of India Act, 1935. The Federal Court had jurisdiction to solve disputes between provinces and federal states and hear appeals against judgements from High Courts.

SUPREME COURT OF INDIA — PROTECTOR OF THE INDIAN CONSTITUTION

After India attained independence in 1947, the Constituent Assembly of India, engaged in extensive debates about the judiciary’s structure and independence. Recognizing the judiciary as the cornerstone of a democratic society, the Assembly’s discussions highlighted its critical role in safeguarding the Constitution and protecting fundamental rights.

Members of the Constituent Assembly emphasized that an independent judiciary was essential to prevent abuse of power by the executive and legislative branches. They argued that without judicial independence, the rights enshrined in the Constitution could become meaningless. One of the most contentious issues was the method of appointing judges. Concerns were raised about the potential for executive overreach and politicization of the judiciary. The compromise reached involved the President of India appointing judges in consultation with the Chief Justice of India and several safeguards for Judges were provided with security of tenure; they could not be removed from office except through a rigorous impeachment process by Parliament. These provisions were crucial in ensuring that judges could make decisions free from external pressures, thereby maintaining the integrity and impartiality of the judiciary.

Despite the creation of the Courts under the Constitution, the struggle for independence of the judiciary with the Executive / Legislature continued. In the First Judges Case (1981), the Supreme Court ruled that “consultation” with the Chief Justice of India (CJI) in appointing judges did not mean “agreement”, and the Union Government had the final say. This was changed in the Second Judges Case (1993), where the Collegium of Judges would comprise the CJI and two senior judges, giving the CJI’s opinion more importance. The Third Judges Case (1999) expanded this group to include the CJI and four senior judges.

In 2016, the Supreme Court struck down the Ninety-Ninth Constitutional Amendment and the National Judicial Appointments Commission Act, which aimed to change the judge appointment system and reduce judicial independence. The Court ruled that these changes violated judicial independence and the separation of powers.

Though it has taken time to lay down the law widening the scope of liberties in 1950, soon after the setting up of the Supreme Court, while looking at the right to freedom of expression in Romesh Thappar vs. State of Madras, while dealing with the ban on dissenting media struck it down as unconstitutional. In Maneka Gandhi vs. Union of India (1978), the Supreme Court ruled that the “(T)he procedure prescribed by law has to be fair, just, and reasonable, not fanciful, oppressive or arbitrary.

In His Holiness Kesavananda Bharati Sripadagalavaru vs. State of Kerala, [1973] (decided by a Bench of 13 Judges) one of the most celebrated cases in the history of Indian Constitutional law, held that the “basic structure of the Constitution” could not be abrogated even by a constitutional amendment.”

Despite this, post the declaration of the Emergency, came a low point of the Supreme Court when in ADM Jabalpur vs. Shivakant Shukla it was ruled that while a proclamation of emergency is in operation, the right to move High Courts under Article 226 for Habeas Corpus challenging illegal detention by State will stand suspended. The dissenting opinion of Justice HR Khanna where said — “detention without trial is an anathema to all those who love personal liberty… A dissent is an appeal to the brooding spirit of the law, to the intelligence of a future day, when a later decision may possibly correct the error into which the dissenting Judge believes the court to have been betrayed” catapulted Justice H.R. Khanna into one of the most celebrated liberal judges and as the protector of democracy. The said judgement came to be set aside only recently in Justice K.S. Puttaswamy (retd.) vs. Union of India and Ors., (2017) (Nine Judges). The Supreme Court held— “The view taken by Justice Khanna must be accepted, and accepted in reverence for the strength of its thoughts and the courage of its convictions…”. Sanjay Kishan Kaul, J. in his concurring judgment said: “…the ADM Jabalpur case which was an aberration in the constitutional jurisprudence of our country and the desirability of burying the majority opinion ten fathom deep, with no chance of resurrection.”

The Supreme Court has always been the harbinger of the rights of the citizens It has from time to time included various rights as part of the right to life, be it a person’s right to die with dignity (Francis Coralie Mullin(1981); the right to die by Euthanasia within parameters which may be documented in a Living Will, (Common Cause (2018)); the liberty to choose their sexual orientation, seek companionship within private space (Navtej Singh Johar(2018)); “right to education” (Pawan Kumar Divedi, (2014)) and the Right to privacy (Aadhar case). It emphasised Gender Justice amongst all communities. In Shah Bano’s Case (1985) it held that the maintenance under Section 125 of the Cr.P.C., was truly secular in character and is different from the personal law of the parties and that a Muslim woman was entitled to maintenance too. The Gender Justice was further extended in 2017 when the Supreme Court held the Triple Talaq to be Unconstitutional or when it upheld the right of women to enter the Shabari Mala temple. It pushed for electoral reforms and information about the candidates to be informed to the voters.

Similarly, while dealing with Criminal Law and fundamental rights the Supreme Court has been provocative and regularly taking steps to protect the rights of the citizens. The Supreme Court has been crying hoarse about arresting a person only when necessary and not merely because there is a power to do so. It also lays the mechanisms for making arrests more transparent and the police more accountable for violations of rights and issued a number of requirements / guidelines to be followed in all cases of arrests and detentions as preventive measures in D.K. Basu as well as in Arnesh Kumar requiring the need to balance individual liberty and societal order while exercising the power of arrest, which has now been incorporated into the statute.

The creation of Public Interest litigation or the Curative jurisdiction where it could correct its own errors under exceptional circumstances the most innovative remedies possibly in the world. SC also came up with the Vishaka Guidelines which paved the way for legislation dealing with workplace sexual harassment. It has also played an active role in protecting the environment; by propounding the principle of “Absolute Liability” after the Bhopal Gas Tragedy or the concept of polluter pays principle as an integral part of sustainable development.

One of the other areas where the Supreme Court has played a significant role is in the area of bail in criminal law. The jurisprudence of bail in post-independent India is anchored on the bedrock of Article 21.

The presumption of innocence is a foundational postulate in India’s criminal jurisprudence. This is the main reason why an accused is released on bail pending investigation and trial. However, in the recent past much more is desired from the Courts in this field and the Supreme Court has been slow in upholding the personal liberty rights of the accused in high-profile cases.

Effective 1st July 2024, a significant change is being brought about in Criminal Law. The three laws foundational to the criminal justice system are being repealed and replaced with The Bhartiya Nyaya Sanhita (The Indian Penal Code), The Bhartiya Nagarik Suraksha Sanhita (The Criminal Procedure Code) and The Bhartiya Sakshya Adhiniyam (The Indian Evidence Act). Whilst investigative techniques are progressive and the introduction of technology is dispensation of justice is necessary, the Indian Judiciary will be tested in its ability to uphold the Constitutional Rights of citizens, victims and accused, considering the many fundamental, though unnecessary, changes brought about in these legislations which have stood the test of time. “Laws”, especially criminal law, must always be clear, certain, and predictable. The repealed legislations have been in existence for over a century and have been interpreted repeatedly to ensure clarity, conciseness, and certainty. That is now being disrupted to an extent.

CHALLENGES FACED BY THE INDIAN JUDICIARY SYSTEM

The Indian judiciary faces challenges such as a significant backlog of cases, delays in justice delivery, and concerns over judicial transparency and accountability. This is a combination of both a lack of infrastructure as well a lack of quality manpower. The backlog of cases and delays in the Indian judicial system often results in the process itself becoming a form of punishment. This prolonged wait for justice leads to significant emotional, financial, and social burdens on individuals involved in legal proceedings. Victims may face extended periods of uncertainty and stress, while accused individuals might endure prolonged pre-trial detention. Such delays undermine the principle of timely justice, eroding public trust in the judicial system and effectively punishing people through the very process meant to deliver justice.

The Government, which is the largest litigator in the Country, has proposed a National Litigation Policy to reduce Government litigation in courts so that so as to achieve the Goal of the National Legal Mission to reduce the average pendency time from 15 years to 3 years.

The overburdened Indian judiciary, grappling with an overwhelming backlog of cases, underscores the urgent need for the use of alternate dispute resolution mechanisms such as arbitration and mediation. There has been a substantial push towards direction be it by way of amending the Arbitration Act from time to time to bring it on par with International Laws or by enacting a law to provide for the establishment and incorporation of the India International Arbitration Centre for the purpose of creating an independent, autonomous and world-class body for facilitating institutional arbitration, or even the amendment to the Commercial Courts Act in 2018 which provided for mandatory Pre-Institution Mediation and Settlement (PIMS) mechanism for certain commercial disputes or even the Mediation Act, 2023, which provides for institutional Mediation, but more needs to be done. Similarly, on the criminal side, the use of plea bargaining as a way of reducing the burden, though attempted, has not made much headway.

The burden on the criminal courts is equally heavy. The use of tribunals for criminal matters has not yet been looked at. It is worth considering shifting offences which are punishable with a fine only to tribunals thereby reducing the burden on the Court system and introducing AI methods in dispensing justice. In fact, even the cheque-bouncing cases, which are primarily a civil proceeding which has been given the colour of a criminal proceeding and forms a large number of pending criminal proceedings, could also be shifted to tribunals to reduce the burden on courts.

By aligning our legal framework with contemporary societal needs, we have embraced a more progressive, pragmatic, and humane approach, reflecting a nuanced understanding of justice and social change. In recent years, we have embarked on a transformative journey in our legal landscape, prominently featuring the decriminalization of various offences through legislative means such as the Companies Act amendments (done twice) and also under the Jan Vishwas Act.

USE OF TECHNOLOGY

The COVID-19 pandemic catalyzed the integration of technology into the judicial system, expediting access to justice and bringing legal services to everyone including the poor or those in rural areas. The Supreme Court and various High Courts swiftly adopted virtual court proceedings to ensure the continuity of access to justice. E-filing systems, virtual hearings, and video conferencing became the norm.

The advent of Artificial Intelligence (AI) marks a significant milestone in the evolution of judicial systems and is assisting in changing the landscape of Indian litigation. AI technologies are being developed and deployed to assist, replace, and even disrupt traditional judicial processes. Be it Supportive Technology where AI serves as an advisory tool, providing information and support to legal professionals or Replacement Technology where AI replaces some human interventions in judicial processes including automated document review, e-discovery, and the use of chatbots for initial consultations and routine legal inquiries or Disruptive Technology where AI fundamentally changes how justice is dispensed.

AI is poised to revolutionize dispute resolution by analysing legal documents and past rulings to predict outcomes, offering efficient and cost-effective alternatives to traditional litigation. Susskind, one of the foremost thinkers and proponents of AI and Legal infrastructure and who served as Technology Adviser to the Lord Chief Justice of England and Wales in his book “Online Courts and the Future of Justice,” predicts that global courts will undergo digital transformations, leveraging AI to enhance access to justice. Susskind argues that technology can address these problems by shifting court services online, making legal resolutions more accessible and efficient.

GLOBAL BEST PRACTICES

In December 2019, China announced that millions of legal cases are now being decided by “Internet courts” that do not require citizens to appear in court. The “smart court” includes non-human judges, powered by Artificial Intelligence (AI) and allows participants to register their cases online and resolve their matters via a digital court hearing.

The Chinese Internet courts handle a variety of disputes, which include intellectual property, e-commerce, financial disputes related to online conduct, loans acquired or performed online, domain name issues, property and civil rights cases involving the Internet, product liability arising from online purchases and certain administrative disputes. In Beijing, 98 per cent of the rulings have been accepted without appeal.

The Canadian commercial dispute process is paperless. A document management platform sifts through all parties’ documents to flag relevant vs. non-relevant documents. A subsequent platform reviews the relevant documents and tells you that your case has the stronger evidentiary background.

The Indian Income Tax Act is, in a sense, experimenting with Internet Courts. Having made its assessment proceedings not only faceless but technology-driven, this quasi-judicial function is now conducted by use of AI and data analytics.

INITIATIVES BY INDIAN JUDICIARY

India’s judiciary has begun integrating AI to address inefficiencies and backlogs. Notable initiatives include:

— SUPACE (Supreme Court Portal for Assistance in Court Efficiency): This AI-driven tool assists judges by summarizing case files and suggesting precedents, thereby expediting the decision-making process. Its functioning would be restricted to data collection and analysis.

— SUVAS (Supreme Court Vidhik Anuvaad Software): An AI-based translation tool that translates judicial documents into regional languages, ensuring wider accessibility.

Technology and AI have also been incorporated in relation to the Income Tax proceedings, where faceless assessment has been introduced to optimise resources as well as to use AI for standardised examination of draft orders, with a view to reduce the scope of discretion.

However, these are just the initial steps. Future plans include expanding AI’s role in predictive analytics for case outcomes and enhancing administrative efficiency. By analyzing historical case data and identifying patterns, AI would predict the likely outcomes of legal disputes with remarkable accuracy. This capability will not only assist lawyers in formulating strategies, but also bestow to clients a better understanding of their prospects of success. For example, lawyers can use predictive models to advise clients on whether to settle a case or proceed to trial, based on the probability of winning. This data-driven approach can lead to more informed decision-making and better resource allocation.

CHALLENGES IN THE USE OF AI

However, the accuracy and ethical implications of the predictions and information by AI remain a concern. Ensuring transparency in how these predictions are generated is crucial to maintaining trust in the judicial system. The integration of AI into the predictive process poses several challenges:

— Bias and Fairness: AI systems can perpetuate existing biases if they are trained on biased data. Ensuring fairness requires careful design and constant monitoring of AI algorithms.

— Transparency and Accountability: The “black-box” nature of some AI systems can hinder this, necessitating clear guidelines and explanations for AI-driven decisions.

— Empathy vs. Bias: While AI can ensure consistency, it lacks human empathy. Balancing AI’s data-driven approach with the empathy inherent in human judges is crucial for just outcomes.

Whilst the Chinese experience and other experiments need to be closely watched, in my view it is essential that there is always some human oversight that ensures that the AI never takes over the Judicial Process. AI should be to assist and not to Act. To this end it is necessary to establish clear guidelines for the use of AI in judicial processes, emphasizing transparency, accountability, and ethical standards implement robust monitoring mechanisms to regularly assess AI systems for bias and fairness; Provide training for judges and court staff on the effective use of AI tools; Engage with the public to build trust and awareness about AI’s role in the judiciary and also learn from international best practices and collaborate with global judicial bodies to adopt and adapt AI technologies effectively. Moreover, the rise of AI in law necessitates a shift in legal education and training. Future lawyers must be equipped with not only traditional legal knowledge but also an understanding of technology and its applications.

CONCLUDING THOUGHTS

The future in law is one of profound transformation. By automating routine tasks, enhancing access to legal services, and leveraging predictive analytics, AI has the potential to revolutionize the judiciary and legal profession. However, realizing this vision requires addressing ethical concerns and ensuring that legal professionals are adequately prepared for the technological shifts ahead. In essence, the legal landscape is where technology and human expertise coexist harmoniously, ultimately leading to a more efficient, accessible, and just legal system. As AI continues to advance, the legal profession stands on the cusp of a new era, one that promises to reshape the way judicial and legal services are delivered and experienced.

बालादपि सुभाषितं ग्राह्यम् ।

(Bālādapī Subhāṣitaṃ Grāhyam)

This line is often used as a proverb. Literally it means “Good ideas or good thoughts should be accepted even from a child”. We might have experienced that many times, innocent children unknowingly express a great thought which would even prove to be a solution to one’s problem.

The complete shloka

विषादप्यमृतं ग्राह्यं बालादपि सुभाषितम्।

अमित्रादपि सद्वृत्तं अमेध्यादपि काञ्चनम्॥

This is adopted from Manusmriti – 2.239

It means that if you receive any good thought or idea, accept it without any hesitation, irrespective of the source or medium through which it has come.

Thus, if you find that some drops of nectar (Amrit) are there in the poison take it out of the poison; if a child speaks something good or useful, consider it; if there are good qualities seen on the enemy’s side, adopt them in your own interest; and if some gold is seen fallen in a dirt or mud, don’t hesitate to pick it up!

This advice is very valuable. One should not underestimate the source or medium; nor should one have any prejudice about the source or medium.

Once I had been to my friend’s house. His grandson, maybe 4 to 5 years old, came running from another room. I stared at him and said, “Arey, your eyes are of your mother, and your nose is of your father”. The kid immediately reacted – “And this T-shirt is of my elder brother!” All laughed. But he gave a great message in his reply – Spiritually it meant there is nothing that is your own! and socially, it indicated the feeling of sharing among brothers. At present due to single-child custom, children are not aware of the concept of sharing.

Similarly, there may be a good thing (Amrit) surrounded by bad or dangerous things (poison). One should strive to get that good thing tactfully or skilfully if it is useful or valuable.

Sometimes, there are very good qualities in your rival or enemy, e.g., in sports, you can see and feel the talent of your rival, his skill, his discipline, timing and so on. Shivaji Maharaj invited many good Maratha warriors who had been fighting on behalf of their enemies. He made them loyal to his Swarajya and they even sacrificed their lives for the noble cause of Swarajya.

In a court case, your opponent’s lawyer may show a few good qualities or make brilliant points or present them much impactfully. One should immediately adopt them. Some good articles may appear in newspapers, which you otherwise hate since it belong to different ideologies. Still, you should read that article in your own interest.

Your valuable article, like a gold ring, fell down into mud or garbage or anywhere that is dirty (like a gutter!); yet you will put your hand into it and remove it.

It is interesting to note that Shree Datta Guru made 24 Gurus which included even every ordinary men, birds and insects! We need to develop a perception to grasp good things from anywhere and everywhere.

BCAS President CA Chirag Doshi’s Message for the Month of July 2024

As I pen down this message for the final time as the President of the Bombay Chartered Accountants’ Society, I am filled with a sense of gratitude and pride. It has been an honour to lead this prestigious institution during its 75th year, a milestone that stands testament to our enduring legacy and unwavering commitment to excellence. This journey has been marked by remarkable achievements, collaborative efforts, and the collective vision of our members, all of which have propelled us to new heights and has reaffirmed the Society as a thought leader in the finance/accounting/tax community. As we look to the future, I am confident that the foundation we have built over the years will continue to foster growth, innovation, and a spirit of camaraderie within our community.

Recently, the election results took an unexpected turn when the NDA secured 293 seats, while the INDI Alliance won 234 seats in the Lok Sabha. Despite been a coalition government, the NDA quickly refocused on “Modi 3.0.” The NDA alliance acted in a very mature manner ensuring within just five days, Prime Minister Narendra Modi and his cabinet ministers took their oaths of office. The key expectation of both B2B sector and B2C sector entities are around ease of business, fast track digitisation, digital infrastructure improvements, faster and easier access to credit facilities, better governance and continuous support. Infrastructure development and research and development expenditure will be pivotal in taking Indian corporates, start-ups and MSME ahead.

This month we had the ICAI torch bearers President CA Ranjeet Kumar Agarwal and Vice President CA Charanjot Singh Nanda along with other Central and regional council members visiting our BCAS office and had an interaction with our office bearers, managing committee, past presidents and core group members. The discussion was very insightful, and many topics related to the profession like impact of technology, globalisation of practices, CA curriculum, articleship, policy related to aggregation of firms and many more relevant topics were also discussed.

During this month our society was also invited to interact with the Revenue Secretary Mr Sanjay Malhotra at the Income Tax Office Mumbai, and we presented our views and expectations in coming times from the Revenue Department.

Our Society concluded an extremely power packed power summit at the Alibaugh with the theme of Walk the talk – Leverage AI, technology capital and collaboration. It was well attended by 90+ CA and the topics ignited lot of requirements the new age practice needs to adopt in the given changing times.

BCAS has also submitted their pre-budget memorandum 2024 -25 to the Hon. Finance Minister of India, highlighting the key concerns affecting the common man and offering recommendations to address them. We recommended reducing the maximum tax rate for individuals to 30% to provide relief to high- income earners, reinstating the exemption for medical reimbursements up to Rs. 50,000 per annum which will help salaried employees cover small and outpatient medical expenses, increasing the threshold for advance tax payment from Rs. 10,000 to Rs. 1,00,000 which will reduce the burden on taxpayers, reinstating the 150% weighted deduction for in-house R&D expenditure to promote innovation and technological advancement, raising the exemption limit under Section 54EC from Rs. 50 lakhs to Rs. 2 crores to provide adequate relief in line with inflation and many other recommendations were submitted. These recommendations aimed to simplify tax compliance, reduce the financial burden on individuals, and promote overall economic growth. We hope they will be considered favourably.

Talking about my journey during this year, it started with a 5-year plan with 5 pillars. Various new initiatives were undertaken:

  1. Reach – Increase in Social media presence across all platforms, print media coverage, outstation members meeting, PM’s commendation letter praising 75 years journey of BCAS, special invitees to various meetings before current budget, faculty sharing MOU with Comptroller and Audit General of India, Joint events with American Association of Accountants, joint events with IMC, joint programs with BIA and much more.
  2. Professional Development – Adan Pradaan (Mentor-Mentee initiative) with 75 mentees in a year, youth CAMBA event with Atlas University, various seminars on technology, international webinars, seminar on Forensic Accounting & Investigation Standards (FAIS), 75 hours long duration course on Accounting and Auditing, Professional Accountancy courses, Full Day Workshop –Use of Technology in GST Compliance and many more to continuously upgrade the professional skills and many more.
  3. Networking – launch of BCAS Engage platform, Pan India Networking events for members, RRC and other events had networking focus initiatives, NFC cards at Reimagine Conference, Outstation members meet in various cities.
  4. Advocacy / Research and Publications – Research paper on “Ease of Doing KYC”, Study paper on “Disclosure Overload—Issues in Financial Statements”, various representations to regulators, Publication of 75 Laws Relevant for Direct Taxes.
  5. Yuva Shakti – Student event Tarang@75, CAs got talent – JhanCAr was back with a bang and maximum participation, Digital branding seminar, Vibrant BCAS youth WhatsApp group.
  6. CA for Change – Digitalisation of schools in tribal areas, providing science lab, and library cum reading room to schools, creating a BCAS Van by planting 7500 trees in the 75th year.

More than 75 events in one year were organized which included lecture meetings on current topics, webinars, outstation meetings, RRCs, NRRC, students’ events, study circle meetings, workshops, seminars and non-technical sessions and events.

Amongst many initiatives and events, we organised this year, the 75th year celebration event, ‘ReImagine’ stood out as a beacon of our commitment to innovation and forward-thinking. This event brought together thought leaders, industry experts, and our vibrant member community to explore the future of our profession. We delved into topics such as the impact of emerging technologies, the evolving landscape of corporate governance and the importance of sustainable practices in finance and more. The insightful discussions and collaborative sessions not only broadened our perspectives but also equipped us with the tools and knowledge to navigate the challenges and opportunities that lie ahead.

‘Reimagine’ was not just an event; it was a movement that underscored our resolve to stay ahead of the curve and lead with vision and purpose.

Reimagine was about opening vision of the members towards the upcoming vistas, which can be explored with renewed vigour to excel and thereby achieve greater heights in the profession.

The crux of creativity is seeing things from a new perspective. The greatest block to creativity is old judgements. It is time to reprogram your minds. So, try the untried – Mahatria Ra

As I conclude my tenure, I extend my heartfelt gratitude to each one of you for your unwavering support, dedication, and contributions. The milestones we achieved together are a testament to our shared vision and collective efforts. This role has been a transformative experience for me personally. I have learned, grown, and been inspired by the dedication and passion of our members. The camaraderie and collaboration within our society are truly exceptional, and I cherish the memories and relationships formed during this period.

Thank you once again for the incredible honour of serving as your President, I am confident that the incoming President Anand Bathiya and his team of office bearers and managing committee will continue to steer the Bombay Chartered Accountants’ Society towards greater success, nurturing the principles of excellence, integrity, and innovation. Let us continue to work together, fostering a legacy that will inspire future generations of chartered accountants.

To end, I will say:

“Goodbyes are not forever, are not the end.

It simply means I will miss you all until we meet again”.

Bharat and BCAS – The March Towards a Centenary

It is heartening to note that on 6th July, 2024, BCAS will complete 75 years. Even the CA profession in India is completing 75 years, as ICAI was established on 1st July, 1949. Two years back, India or Bharat completed its 75 years of independence. Therefore, the theme for this special issue is “Bharat and BCAS March Towards Centenary”. At the Government level, the period of 25 years from the 75th anniversary to the 100th anniversary is regarded as an “Amrit Kaal”, with the objective of “Viksit Bharat” which means “Developed India”.

With the above theme in mind, this issue of the Journal contains thought-provoking articles on important aspects of India by leading domain experts in the fields of Law and Judiciary, Education, etc. I hope that the thoughts expressed here will help set India on the road map towards becoming Viksit Bharat.

Turning to 75 years of the CA Profession and looking to the future, we can say that we have a glorious past, are witnessing a difficult present but are hopeful of a bright future. The entire world is passing through a tumultuous transition, and the CA Profession is no exception. Disruptive technologies, disruptive ideas and expectations rule the world. Let us look at two traditional core areas of CA practice: Audit and Taxation. Both these areas of practice have undergone significant changes, which are continuing at a huge speed and on an unprecedented scale.

AUDIT AND ASSURANCE PRACTICE

In the good old days, Auditors were expected to audit manually and express their opinion on the true and fair state of the financial accounts. However, over a period of time, expectations from Auditors have increased significantly. Today, the Auditor is expected to have a 360-degree view of the state of affairs and to give an assurance to all stakeholders. This requires reasonably sound knowledge of various statutes, which may not be his domains of expertise. If anything goes wrong in a company, the Auditor comes under the scanner. He may be charged with negligence, incompetence, etc., till such time he proves his innocence beyond doubt. Auditing has become a high risk and less rewarding job if measured in terms of health and mental peace.

Now the Auditor is answerable to multiple regulators and agencies such as NFRA, ICAI, SEBI, NCLT, RBI, CBDT, GST Authorities, Customs, MCA, and many others. The code of conduct prescribed by ICAI with good intentions puts onerous responsibilities on Auditors and conflicting obligations. For example, amendments to the Code of Ethics by ICAI, applicable w.e.f. 1st October, 2022, requires CA Employees and Auditors of Listed Companies to respond to Non-Compliance with Laws and Regulations (NOCLAR) about which they become aware during their engagement. The provisions of NOCLAR are quite onerous in nature1. The provisions of Tax Audit are now so framed that a Tax Auditor virtually does assessment of his client on behalf of the Assessing Officer, without being remunerated by the latter. He is expected not only to express an opinion on the true and fair view of the accounts but also to deliver his view on the import of various provisions where he and the auditee may have a genuine difference. System-driven reporting makes his job difficult and the AI-driven processing of his reports renders his life miserable.

1. Refer Editorial of June 2023 for the detailed discussion on the provisions of NOCLAR

The advent of ESG (Environment, Sustainability and Governance) Reporting has necessitated a different skill set from Auditors. An Auditor is supposed to assess the sustainability of the business and comment on the governance of the organisation. This shows a clear shift of auditing functions and expectations from the traditional role of assuring true accounting and opining on financials. The ever-increasing burden results in Auditors being cast with the title of “Conscience Keeper” for various stakeholders. The profession should be conscious of the heavy price that may have to be paid on account of this title, in terms of health and reputation. There is a limit to the responsibilities that one can shoulder.

THE ROAD AHEAD

Looking at the applicability of various statutes, varied expectations from stakeholders, sophistication in technology, numerous regulators, etc., in discharging audit function, it appears that very soon MSME firms will be out of this space. The time has come for multidisciplinary audit firms where different domain experts conduct audit as a team with joint and several responsibilities. Indemnity insurance will become a necessity for large audits and may be made compulsory.

Perhaps, additional pre-qualifications / requirements may be introduced for large private sector audits, just as prevalent today for audit of banks and PSUs. Once AI tools stabilise, their use may be made mandatory to eliminate human errors and ensure accuracy of data. The profession needs to accept, adopt and adapt to these challenges but with clarity on its role and responsibility. Dialogues need to take place with stakeholders (including regulators and agencies) and clarity needs to emerge as to the realistic expectations from Auditors, thus reducing or eliminating expectation gaps. It is here that the profession hopes that its alma mater, ICAI, will play a role.

TAX PRACTICE

Direct tax practice has been a stronghold of CA professionals since inception. However, here too, there is a significant shift, with more thrust on compliances. Readymade software has made computation of income easy. Information collated in the AIS form by the Income-tax department from various sources makes it impossible to hide any income. It also acts as a reminder and helps a taxpayer to disclose his income accurately. Online filing and e-compliances have made life quite simple.

Corruption in assessment and litigation was a major hurdle in tax practice. To address the menace of corruption, the government introduced Faceless Assessments and Faceless Appeals. Some experiences of Faceless Assessments have been really encouraging, despite difficulties in passive communication. A lot more still needs to be done. Possibly, a calibrated approach, with incremental coverage may help in solving the current crisis of huge pendency.

FUTURE OF TAX PRACTICE

The reopening of assessments based on audit objections, change of opinion and one-off Tribunal decisions continues to clog the judiciary with tax writ petitions. The objective of achieving early finality to tax assessments remains a pipedream, with the issue of summons by tax authorities to seek roving information which could form the basis for reassessment, in effect, assessment by the backdoor. The trust deficit between the government and taxpayers still continues, despite buoyancy in tax collections. Technology and the use of AI has enabled the Income-tax Department to collate information from various sources. Linking Aadhar with PAN will help in collecting various details of taxpayers / non-taxpayers, including investments and property dealings. India has signed a number of Automatic Exchange of Information Agreements, through which it seamlessly obtains details of overseas transactions of Indians.

Professionals too will have to adapt technology, use AI for preparing written submissions and be conservative in advising clients to avoid long drawn litigations and uncertainty. CAs should also be careful in advising clients and ensure that their advices are compliant with General Anti Avoidance Regulations (GAAR), Specific Anti Avoidance Regulations (SAAR), Prevention of Money Laundering Act (PMLA), Black Money Act (BMA) and any other applicable laws and regulations. The cost of litigation is increasing not only in terms of money but time and loss of opportunities. It is time the profession reminds its clients the age-old maxim, “Discretion is better than Valour”.

THE FUTURE OF THE PROFESSION

With India poised to become the third largest economy of the world, the demand for CAs will certainly go up. With a majority of CAs opting for industry roles, practicing CAs will be more in demand.

Realising the need for more CAs, ICAI has reduced the tenure of articleship from three to two years and will conduct CA exams thrice a year, instead of twice a year. CAs should continuously upgrade their knowledge and skills by attending educational programs offered by ICAI and voluntary professional bodies such as BCAS. The need of the hour for the CA profession is to introspect, raise standards by ethical practices, stop undercutting and continue to serve the Nation with vigor and enthusiasm, as CAs are torch bearers in Nation Building!

Wish you a happy CA and BCAS Founding Day!

Society News

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8th Residential Study Course on Service Tax & VAT


Mr. Naushad A. Panjwani (President) lighting the lamp

The Indirect tax and Allied Laws Committee of BCAS conducted its 8th Refresher Study Course on Service tax and VAT at Khanvel Resort, Silvassa from Friday, 13th June to Sunday, 15th June, 2014. Total 138 delegates attended, out of which 56 participants were from cities other than Mumbai viz., Pune, Nashik, Aurangabad, Jalgaon, Ahmedabad, Hyderabad, Telangana, Chennai, Delhi, Gurgaon, Agra, Jaipur, etc. It was inaugurated at the hands of the President Mr. Naushad A. Panjwani.

There were five papers – three discussion papers and two presentation papers as under:

Lecture Meeting – The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 on 4th June, 2014

The meeting was held at the Lotus Hall of Society’s Office. The Speakers were Senior Associate/Team Leader Mr. Abhijeet Sonawane, Solicitor, Senior Associate/Team Leader Ms. Viloma Shah, and Associate Ms. Tanisha Doshi.

The speakers explained the new Act which was enacted w.e.f. 9th December 2013. With Power Point Presentation, they covered important definitions viz. Sexual Harassment, Aggrieved Woman, who are covered under this Act, Responsibilities of the Employers.The speakers laid emphasis on formation of Internal Committee, comprising of the Independent Woman, and three other members. They also explained the importance of laying down policy guidelines, conducting appropriate training sessions and educating the members.In the interactive session, they addressed many questions from the audience.

In the opening remark, the President explained the relevance of the topic referring to the guidelines laid down in the judgement in Vishakha’s case.

Participants appreciated the relevance of the topic and felt it important to spread the qualitative education and awareness on the subject in the business environment.

Power Summit – Networking within and across Professions on 6th & 7th June, 2014


L to R : Ms. Nandita P. Parekh, Mr. Uday V. Sathaye, Mr. Narendra P. Sarda, Mr. Naushad A. Panjwani (President)

A 2-day Summit was organised by the 4i Committee of BCAS. The objective of the Power Summit was to bring together leaders of accounting firms to discuss and debate the changing paradigm of the profession and to explore whether the time for cross functional professional firms/ companies has indeed arrived. The Summit was for professional firms that want to contemplate growth through mergers, consolidation and networking and through strategic thinking and pro-active initiatives. CFO Round Table on 6th June 2014 The CFO Round Table was a unique event organised by the Managing Committee of the Society. The programme was sponsored by BCA Journal & Godrej Properties. The objective of the programme was to look at how CFOs being in the hot seat can better prepare themselves for what the future holds, and how they prepare themselves with effective risk management strategies, proper corporate governance, as well as a crystal ball to predict how an ever-changing landscape will impact the industry. Some of the Comments received are shared below:


L to R : Mr. Gautam Doshi, Mr. Naushad A. Panjwani (President), Mr. Y. H. Malegam, Mr. Nitin Shingala

• The session was very informative and I would have liked if Mr. Doshi could have spoken longer. Unfortunately, I cannot attend a similar workshop in Lonavala due to some prior commitments. Kindly let me know whether the literature discussed in this event can be made available. Thank you, Best Regards – Arnab Chakraborti, Head – Operations, Kotak Commodity Services Ltd.

• Thanks. It was my pleasure and honour to be part of the forum – Manish Jani, Great Ship Global

• Thank you for inviting me for the CFO Round Table. I benefitted greatly by listening to Gautam Bhai. Regards Sanjay Khetan, Khetan & Co.

• It was my pleasure to participate in the summit & meet with you & your colleagues. I am happy I was able to contribute to the event & learned quite a few things from other distinguished speakers as well as from the interactions at the CFO forum. All the best for BCA’s future programmes. Warm regards, Uday Phadke, Principal Advisor (Finance), Mahindra & Mahindra Ltd.

• It was a good experience Mr. Panjwani and look forward to further interactions. Would be glad if the presentations can be made available. Thanks & Regards Smriti Vijay, AKER Solutions

• Very happy to be with all of you – Shailesh Haribhakti, Chairman, DH Consultants Pvt. Ltd.

• Thanks for the invite and it was really a great value add in listening to these eminent speakers – Sunil Burde, Pidilite Co.

• It was indeed a good opportunity for me to present in BCAJ, one of the premier association of our profession, for the discussion on Companies Act, 2013. Hope this continues in years to come. Regards Nambi Rajan, Thirumalia Chemicals.

BCAS Referencer 2014-15 Release Function, 7th June, 2014

Membership & Public Relations Committee organised the BCAS Referencer 2014-15 Release function. The Referencer was released at the hands of the Society’s President Mr. Naushad Panjwani. This year the Referencer is being released in two parts. The Supplement and CD will be released in August 2014 after the presentation of the Union Budget, 2014.

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Society News

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Mega Lecture Meeting by N. P. Sarda on 10th June 2015

The meeting was held at the Jai Hind College Auditorium. The speaker Mr. Narendra P Sarda, Chartered Accountant dealt with the subject in his own inimitable style:

He explained the differences between AS and Ind AS, the issue between Adoption and convergence, Conceptual differences. He dealt between AS & IndAS, Conflict between reliability and relevance. Also, he mentioned that there are many situations which are not addressed in AS but are dealt with in IndAS. He also dealt with certain IFRS issues.

ICAI continued to keep abreast with the changes in IFRS by amending notified IndAS to continuously remain converged. He also stated, that the earlier schedule VI was not in compliance with the IFRS but the revised Section VI was made IFRS compliant

The speaker also elaborated on the concept for consolidation – things keep changing and hence, society’s dynamic concepts of accounting are also changing, to keep pace with society.

Full day Conference on Going Digital on 13th June 2015


A Full day conference was organized by the Infotech & 4i Committee of BCAS. The objective of the conference was to update professional to be with the Digital World of future.

46 participants attended and benefited from the

Workshop. Workshop on Business Etiquettes on 6th June 2015

Human Resources Committee of BCAS organized this workshop where the Faculty Mr. Mihir Sheth dealt with various aspects of business etiquette practices which can help the participants to carry effortlessly while dealing with their counter part from other countries. It is gave insight of different topics of business and social etiquette and also gave chance to actively participate by sharing their own experiences.

Etiquette topics that the workshop included were as follows:
Email etiquette
Mobile phone
Dining
Conducting a teleconference
Business Meeting protocol/Conducting negotiations
Gifts- Give appropriate gifts
Tips
Business practices of different countries
General protocols-Personal Hygiene

80 participants attended the workshop and gained immensely from the knowledge and experience shared by the faculty.

8th Jal Erach Dastur Students Annual Day on 30th May 2015

This is organized by the student members of BCAS for the CA students. This platform enables CA Students to come together and interact with each other and make new friends. It also gives them an opportunity to unwind into an evening of learning, singing, dancing and frolic.

The event commenced with a short prayer sung by Tej Bhatt followed by the anchors introducing the honorable Chief Guest, CA Dilip Desai, Chairman at DH Consultants Pvt. Ltd. along with the President, Chairman and Convenors of the HR Committee. The chief guest inaugurated the event with the lamp lighting ceremony and spoke to the CA Students about key aspects necessary for becoming a successful professionals. He explained that failure is not the end and quoted his own example of his journey from a primary school failure to a Gold Medallist CA. He stressed the importance of ‘excellence in service’ to be the ultimate objective and money should only be an incidental byproduct. President of the Society CA Nitin Shingala and Chairman of the Human Resources Committee CA Mayur Nayak also addressed the students and set the ball rolling. Mr. Narayan Varma, the Past President of BCAS and an ardent supporter of the students’ activities, conveyed his message through a video clip which was shot the earlier day. Mr. Varma could not remain present physically due to his ill health. the end, the judges gave mesmerizing performances gripping the audience with their singing and instruments. The true Maestros! As a gesture of team spirit and bonding towards the society, the entire Human Resource committee including the chair-man, the conveners and the chief coordinators together, sang an enchanting song for the audience.

With the clock ticking, the suspense and wait was about to be over. The winners of the competition representing their firms were finally announced. The List goes as follows:

Mr. Raj Khona enlightened students about various students’ activities such as Study Circle, Monsoon Treks, Sports Day, etc. Thereafter, a small skit was performed by students on the theme of “Andh Vishawas”. The skit was a hit and kept the audience roaring with laughter till the end. Post this, “Chandanben Manganlal Bhat Elocution Competition” was held where the finalists of the elimination round battled it out with each other to win the coveted trophies. All the participants delivered their speeches emphatically and gave the judges a tough time to emerge victorious. The elocution competition ended with the start of the tea break where the students feasted on sumptuous samosa pav along with a cup of tea/coffee.

After savouring the hot served snacks and tea, the audience assembled back with amplified enthusiasm, ready and excited for the lucky draw round, this marked the beginning of the post-break session. Also, a special lottery was introduced this year wherein the winners were drawn from the box filled with the feedback forms which acted as a great stimulus for the students as well as the society. The winners of the draw were presented with some of the most amazing books by brilliant authors. However, the audiences’ zeal continued even after the lucky draw as Mr. Nishad Vora and Miss Virti Kothari began with audience quiz filled with fun and entertainment. Audience participation and spirit was overwhelming. The auditorium was filled with laughter, music and applauses.

Immediately after that, the auditorium echoed with the beat of drums and tapping of feet perfectly synced and enjoyed by the entire crowd as the hosts announced the most awaited segment, ‘The Talent Round’. Soon the stage was taken over by young and talented stars showcasing their extra-ordinary talents. In all 20 finalists performed and graced the stage with dancing, singing, playing instruments and mono-acting giving a tough challenge to the judges. All the singers were supported by the live background music fantastically played with the help of various instruments. Huge round of applauses and cheering came from the crowds the entire time. At The Jal Erach Dastur Students Annual Day is an event that is organized by Bombay Chartered Accountant Society (BCAS) every year. This year the event celebrated its 8th anniversary at Navinbhai Thakkar Auditorium at Vile Parle (East).

A hearty congratulation to all the winners and their firms.

Judges for the Various Competitions were as follows:

The entire evening was hosted fabulously by Mr. Mudit Yadav and Miss. Charmi Doshi with their outstanding performances keeping alive the excitement and spirits till the end.

The chairman of the H.R. Committee, CA Mayur Nayak along with the conveners praised the efforts and felicitated each and every student of the core committee for putting up an excellent show in a short span of time. Also, the hard work of all the group leaders of the Study Circle for 2014-15 was recognized. Mr. Raj Khona and Mr. Jigar Shahs’ efforts were acknowledged for coordinating students ‘study circles during the last year.

Mr. Sagar Desai proposed vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the Annual Day in the fond memory of his brother late Jal Erach Dastur, the family of the Chandanben Manganlal Bhatt for sponsoring the Elocution Competition, the chief guest for the evening, the conveners of the Annual Day, CA Anand Kothari and CA Kinjal Bhuta, Judges of various competitions, BCAS Staff, Caterers, Mr. Jayant Shah and other trustees of the Navinbhai Thakkar auditorium, parents and principals of students, guest instrument players, sound technicians, HR Committee members, the students core committee team and all the students for participating in big numbers.

With great pride and delight, we announce that a total number of 450 students registered for the Annual Day, setting an overwhelming benchmark.

Instrumental Category
The overall rotating trophy for ‘The Firm of Series’ went to SGCO & Co.

A hearty congratulation to all the winners and their firms. Judges for the Various Competitions were as follows:
 
A sumptuous dinner was arranged after the event for all those who marked their presence at the annual day. The motto of the event to not only develop and encourage skills and extra-curricular participation but to bring together the entire fraternity was very well achieved. The Jal Erach Dastur Students’ Annual Day provides a single platform to the students for showcasing their talents as well as interacting with each other. All in all, at the end of the 8th Jal Erach Dastur Students’ Annual Day, a feeling of achievement with some splendid memories were taken along by each and every person, rather, it is not the end but a promise for a new beginning !!

Society News

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The IT study circle on ‘Super Advanced Excel for professionals’ held on 24th May and 7th June 2016

The Technology Initiatives Study Circle of the BCAS recently held a multi-session workshop on ‘Super Advanced Excel for Professionals’ addressed by the learned speaker CA Nachiket Pedhnekar.

Nachiket is a Microsoft certified corporate trainer for MS Excel and Excel VBA. He is the founder & CEO of ViN Learning Centre, a corporate training institute based in Mumbai. Nachiket was shortlisted in the top 30% candidates across the world in the “Excel Model Off” competition (a global competition on financial modelling using MS Excel) in their 2015 edition.

The first session was held on Tuesday, 24th May 2016 whereas the second session was on Tuesday, 7th June 2016. Over the last two sessions, the speaker has covered interesting topics such as “Flash Fill”, “Datedif Function”, “Goal seek” for performing Trial and Error, “Scenario Manager” for simulations, Alternatives to “nested if”, “If error” & “Ifna functions”, Pivot Tables, Sparklines, “Fuzzy lookup” add-in, Data Table etc.

Both sessions witnessed a large audience and were interactive. All participants have benefited immensely through these enriching sessions.

The third session of the workshop is scheduled to be held on Tuesday, 28th June 2016.

Indirect Tax Study Circle Meeting on CENVAT Credit Rules held on 3rd June 2016
Indirect Tax Study Circle Meeting was conducted at BCAS on 3rd June 2016, to discuss various issues relating to amendments made to Rule 6 of the CENVAT Credit Rules. The Meeting was led by CA Shri Jinit Shah and chaired by Advocate Shri. Vipin Jain. The group held very extensive discussions and debated on case studies drafted for the subject.

Presentation prepared by CA Jinit Shah was appreciated by members and guidance provided by Shri Jain was very helpful in deciding some of the very complex issues that were taken up for consideration. Study Circle received encouraging response from the members, as more than 50 members participated in the meeting.

Full day workshop on Fraud Reporting & Tools for Data Mining & Analytics for Statutory/Internal Auditors held on 4th June 2016 at BCAS

(Organized by Human Development and Technology Initiatives committee jointly with Accounting and Auditing Committee).

CA Raman Jokhakar, President BCAS welcomed the participants. CA Nitin Shingala set the tone for the workshop by highlighting the relevance of the topic in the current regulatory perspective.


CA Chetan Dalal took up case studies and explained the nuances of forensic investigation. He shared some sample forged/ manipulated documents and requested the participants to identify the gaps in the audit evidence. This helped the participants to gain insights and better understanding of the concepts of forensic investigations.

CA Sarang Dalal took up case study on identifying fraudulent practice at a toll collection centre using data analytic techniques. The participants’ brain stormed on various ideas to identify red flags for fraudulent transactions.

CA RU Kamath explained the Auditors’ and KMPs (Key Management Personnel) responsibility on prevention, detection and reporting of fraud under The Companies Act, 2013, Rules framed thereunder, CARO Report and Director’s Report. He also highlighted the implication on auditor for failure to report fraud. Through various case studies and practical examples, he explained the participants, the process to identify a fraudulent transaction and its reporting methodology under The Companies Act, 2013

CA Nikunj Shah explained the concept of Data Mining and Assurance Analytics in the context of statutory and internal Audit. With the help of live demonstration, he explained how Pivot table can be used to:

Summarize data exceeding one million rows.

Prepare pivot table from CSV files without importing CSV files in excel

Get kaleidoscopic view by slicing and dicing data.

Conduct Pareto analysis (80-20 rule) to identify high value (and high risk) transactions

Quickly perform a ‘Time Dimension’ analysis on data.

Interpret results of analysis and apply it in decision making

CA Nikunj Shah explained the concept of dashboards like important questions to ask, before one starts working on a dashboard, the process to organize data thereby ensuring that it’s interactive, real time and flexible. He also explained which chart types work best for different data types and steps to use pivot tables with a dashboard.

The workshop was attended by 115 participants. The overwhelming response from diverse gamut of participants – industry and practice, local and outstation participants, BCAS member and non members showcased the interest in the subject cutting across wide spectrum of stakeholders.

CA Kinjal Shah proposed vote of thanks to all the speakers and participants for making this workshop a grand success.

Lecture Meeting on Filing of Income Tax Return held on 8th June, 2016

Like in earlier year, this year too, the Society organized a lecture meeting on Filing of Income Tax Return at IMC, to take the members through the nuances of the new Income Tax Return Forms prescribed in March, 2016 for the Assessment Year 2016-2017. The purpose of the lecture meeting was to demystify the filing process, throw light on potential issues and spread awareness about the precautions to be taken while preparing and filing the tax returns.

President Raman Jokhakar welcomed the young speakers CA Siddharth Banwat and CA Bhadresh Doshi and gave his opening remarks. The lecture meeting commenced with the launch of the Third Edition of the publication ‘Gita for Professionals’ authored by CA Chetan Dalal. The book was released by CA K.C Narang, Past President of the Society along with Book’s author CA Chetan Dalal and the speakers present CA Siddarth Banwat & CA Bhadresh Doshi.

CA. Bhadresh Doshi spoke about the key changes in the new Income Tax Returns Forms notified by the CBDT on 31st March 2016 for A.Y. 2016-17. He presented the key legal provisions related to the ITR Forms through a very systematically prepared presentation. He highlighted the key issues and challenges in each ITR form very meticulously.

CA Siddharth Banwat dealt with a very important amendment relating to disclosure requirements of Foreign Assets and Bank Accounts in the new ITR Forms. He talked about the impact of non-filing of Return of Income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2016 and also discussed issues concerning taxation for NRIs / Non Residents. He further touched upon the procedure of e-filing of tax returns for the A.Y.2016-17.

The speakers enthralled the audience at the venue which was filled to its capacity. It was attended by tax professionals and students in large numbers. The meeting concluded with the vote of thanks by Mr. Raj Khona who appreciated the well-articulated speech and excellent presentation given by the young speakers.

9th Jal Erach Dastur CA Students Annual Day held on 11th June 2016

The Jal Erach Dastur Students Annual Day is an event that is organized by the Bombay Chartered Accountants’ Society every year. The 9th Edition of the event was splendid and also got a new title ‘Tarang 2k16 – Tarasho Apne Talent Ke Rang.’ It was held at the K.C. College Auditorium, Churchgate on Saturday, 11th June 2016 from 2.30 pm onwards.

It is an event organized by the BCAS Students Forum under auspices of the Human Development and Technology Initiatives Committee of the BCAS for the CA students. The students are given an opportunity to showcase their talents and take a break from the daily routine activities. It is an excellent platform that enables students to come together, interact with each other and make new friends. The theme of the programme was ‘Start-ups & Entrepreneurship’ and the Chief Guest for the event was Mr. Vishal Mehta, Founder & CEO of Infibeam.

The event commenced with the participants showing respect and love for our motherland, by singing the National Anthem. It was succeeded by the members of the Managing Committee & HDTI Committee lighting the lamp of knowledge, tribute to Shri Jal E. Dastur and Shri Pradeep Shah guiding the future Chartered Accountants.

The Society lost a stalwart in Shri Narayan Varma who passed away on 24th December 2015. A tribute was paid to this great man who was the Past President of the Society and an ardent supporter of the student’s activities. For the first time, a mesmerizing Anthem ‘Let’s have fun at Tarang’ composed by CA. Devansh Doshi was prepared to promote the entire event.

The event this year was graced by Shri Soli Dastur, who ignited the future Chartered Accountants on why it is important to become not just a good Chartered Accountant but also a good person. He spoke of the importance of following ethics in the professional careers.

To keep up with the tradition, the student members of the organising team then presented a wonderful skit which was titled “Tarang – Pani da Rang” with a message about treating everyone with equal respect and honour.

The skit was followed by the Chandanben Maganlal Bhatt ‘Elocution Competition’ where six finalists battled it out with each other to win the coveted trophies. The difficulty bar was raised this time and the finalists were allotted the topics on random lot basis. All participants gave commanding performances on their respective topics which made the job of the judges a difficult one.
The Selfie Competition ‘Khinch Le’ was a new entrant in the Annual Day this year. Students were given themes on which they had to click creative selfies and mention an innovative tagline based on the theme selected. The CA students came up with some delightful and funny pictures for the audience to enjoy.

The final round of the Debate Competition ‘War of Words’ followed the Selfie Competition. The debate was moderated by CA Mudit Yadav with two teams of three students finalists, each coming up with very good points to defend their case. There was also an open house for the audience to ask questions to individual speakers of either of the teams. The competition was enjoyed by the entire audience and was a great hit.

President, CA Raman Jokhakar and the Chairman of the HDTI Committee CA Nitin Shingala then addressed the students, motivated them and also spoke about various initiatives taken by the society for student members. To keep up with the I.T. Revolution, the Co-Chairman of the HDTI Committee CA Mihir Sheth and Convener CA K.K

Jhunjhunwala addressed the students through a video clip.

The young and energetic student co-ordinators Mr. Raj Khona and Mr. Viren Doshi addressed the students and encouraged them to join the BCAS Students Forum and Students Study Circle. They also spoke about the various initiatives taken by the Students Forum during the year. This was followed by the break where the students were treated to a delectable samosa along with a cup of tea and coffee.

After savouring the hot snacks and tea, the audience gathered back with grander enthusiasm, ready and excited for the highlight of the event, The town hall Q & A Session with Mr. Vishal Mehta, Founder and CEO of Infibeam. com. CA Mihir Sheth gave a remarkable introduction of the keynote speaker. Mr. Vishal Mehta then addressed the audience and shared his start up story about how a professional from Silicon Valley, USA is now a CEO of his very own enterprise. He stressed how merely deciding to become an entrepreneur is not enough, it is essential to act on it. He also explained that becoming an entrepreneur is not about the glamour and status, one should believe in the opportunity and their business model and how the rest would follow. After the informative keynote address, Mr. Raj Khona along with Mr. Vishal Mehta began the Q&A round. The atmosphere in the auditorium was of motivation and energy after the session. Mr. Mayank Gosar proposed the vote of thanks to Mr. Vishal Mehta for giving an inspiring keynote speech and for sparing his precious time to interact with CA students.

Immediately after that, the beating of the drums, the strumming of the guitar, the melody of the keyboards and tapping of feet synced perfectly to the beats was enjoyed by the crowd, as the hosts announced the commencement of ‘The Talent Show’. The stage was then taken over by young and talented CA students who showcased their talent ranging from dance, singing, instrumental, stand-up comedy and mono-acting. In all 18 finalists gave marvellous performances with the judges facing a tough challenge to select the winners. All the singers were supported by the live background music fantastically played with the help of talented musicians. Huge round of applause and cheering came from the crowds all the time. At the end, the judges gave enthralling performances, gripping the audience with pitch perfect songs.

 With the clock ticking, the suspense and wait was about to be over. The winners of the competition representing their firms were finally announced. The list goes as follows:

The entire evening was hosted fabulously by Mr. Apurva Wani, Ms. Nidhi
Shah and Ms. Disha Unadkat with their outstanding performances, keeping
alive the excitement and spirit till the end.

The Chairman of
the HDTI Committee, CA Nitin Shingala and Convenor CA K.K. Jhunjhunwala
praised the efforts and felicitated each and every student volunteer for
putting up an excellent show in a short span of time. Also, the hard
work of all the group leaders of the Students Study Circle for the year
2015-16 was recognized. Mr. Raj Khona and Mr. Viren Doshi were
acknowledged for coordinating the Students Study Circle during the last
year.

Mr. Parth Patani proposed vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the annual day in the fond memory of his brother late Jal Erach Dastur, the family of the Chandanben Maganlal Bhatt for sponsoring the Elocution Competition, the Chief Guest for the evening Mr. Vishal Mehta, the members of the Managing Committee and HDTI Committee, the Coordinators of the Annual Day, the Event Moderators, Judges of various competitions, BCAS Staff, parents and principals of students, sound technicians, the vibrant team of student volunteers and all the students for participating in big numbers.

With great pride and delight, we announce that a total number of 516 students registered for the Annual Day, setting an overwhelming benchmark.

A sumptuous dinner was arranged after the event for all those who marked their presence at the annual day. The motto of the event, to not only develop and encourage skills and extracurricular participation but to bring together the entire fraternity was very well achieved. All in all, at the end, a feeling of achievement with some splendid memories were taken along by each and every person, rather, it is not the end but a promise for a new beginning!!!

Human Development Study Circle Meeting on “Eye Health and Eye Vision” held on 14th June, 2016.

Human Development Study Circle Meeting on “Eye Health and Eye Vision” was held on 14th June, 2016 at BCAS Conference Room, addressed by the speaker Mr Vikram Agrawal, Founder of Vision Yoga.

Viram Agrawal is working with a Vision “Better Eyesight at any age”. His organization promotes the cause of healthy natural vision for a lifetime.

Some of the insights received from his lecture are listed below:

Preservation of good eyesight is almost impossible without proper eye education and mental relaxation.

Keep your eyelids half closed, while reading or watching a distant object.

Shift your glance constantly from one point to another.

All errors of refraction are functional and therefore curable.

Mental strain creates an error of refraction and mental relaxation can cure it

Eyewash tones up the eye muscles

Vision Yoga is a holistic method of treating eye disorders, which is a part of the vedic tradition as given in the Chakshushopanishad and Netra Dwayam – Upanishads of the eyes.

At Vision Yoga, people from 5 years to 80 years are doing eye exercises. This course benefits all eye disorders like myopia, hypermetropia, presbyopia, squint, cataract, nystagmus etc.

The speaker is passionate about healing all eye problems:
– He believes that exercises can help to avoid Glasses, avoid Lasik Surgery and improve eye vision.

– He also spoke on some eye treatments for eye ailments.

– Acute eyesight problems need proper consultation

The participants felt they have learned a lot about eye care and eye health and recommended more similar programs for welfare of more individuals.

Lecture Meeting on ‘Recent Regulatory issues impacting Audit Finalisation for the year ended on 31st March, 2016’ held on 15th June 2016

A Lecture Meeting, covering various ‘Recent Regulatory issues impacting Audit Finalization for the year ended 31st March, 2016’, like the amendments in Companies Act 2016, Internal Financial Controls over Financial Reporting, IND AS, CARO 2016, Fraud Reporting, Changes in Audit report, SEBI updates and other Regulatory Changes impacting the Audit Finalisation was organized at Wallchand Hirachand Hall, IMC, Churchgate on June 15, 2016.

The speaker CA. Khushroo B. Panthaky shared his knowledge and practical experience. Various regulatory issue, intricacies of reporting requirements and expectations from auditors and preparers of financial statements were well covered and explained to the attendees by way of practical examples, well designed to understand the complexities of the regulatory issues in a simplest way. He talked on various aspects of audit and how it has moved from a sampling certification to a risk based confirmation. He highlighted the significance of thorough checks, Study of client business end to end, what precautions an auditor needs to take up right from accepting the audit assignment till the final signing of the report.

The lecture meeting was attended by more than 300 participants from various industries and the practice arena. The interactions between the participants and speaker were commendable.

Direct Tax Study Circle Meeting on ‘Equalisation Levy’ held on 16th June 2016

 Direct Tax Study Circle Meeting on Equalization Levy was held on 16th June, 2016, jointly with Suburban Study Cirle

The Group leader, CA Palav Shah Parekh, under the guidance of the Chairperson, CA Mayur Nayak commenced the meeting by showcasing a video of how House of Commons Public Accounts Committee, UK led by Margaret Hodge MP interrogated the Google Boss on UK tax dodging. Palav gave a brief background as to how digital commerce business has evolved during these years and how these companies dodge from paying income taxes by not having a physical presence in a particular jurisdiction.

Thereafter, she commented upon the 3 options given by the BEPS Action Plan 1 to tackle the tax issues relating to E-commerce transactions and the reason as to why Indian Revenue authorities had to select the option of Equalisation Levy. She thereafter explained the scope, applicability and the various provisions relating to Equalisation Levy brought about by the Finance Act 2016 and the corresponding rules. She educated the members with similar existing provisions in other countries. At the end, various issues which one could face while implementing these provisions were discussed by the group and the session was concluded by the Chairperson giving his concluding remarks.

Yoga session held on 19th June 2016

The Human Development and Technology Initiatives Committee organised a ‘Yoga’ Session, jointly with ISH foundation on Sunday 19th June 2016, at Direct-I-plex, Andheri(E), Mumbai-400069 between 8-00 a.m. and 9-00 a.m. That was to mark a celebration of the upcoming International Yoga Day on 21st June, 2016.

Pradeep Thakkar, a Professional Yoga teacher and also an active member of ISH Foundation guided about 21 participants who attended this programme. He demonstrated and guided participants to perform different Asanas with ease, comfort for healthy body and mind relaxation.

CA Mayur Nayak welcomed the participants and CA Mukesh Trivedi discussed in brief the meaning of the word Yoga and how to practise it in life for the self-less service at the highest altar.

Participants had good learning of Yogasanas for healthy body and peaceful mind.

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