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Year: 2025

Agricultural Income Revisited

Agricultural income has always been the subject matter of discussion among professionals. It has enjoyed an uninterrupted exemption for more than a century. The same is sought to be continued in the Income Tax Bill 2025. The bill makes some cosmetic changes in the concept of agricultural income as envisaged.

The objective of this article is to explore the idea of Agricultural Income and examine all the relevant provisions, key judgments, and Constitutional mandates. In the course of the article, the author has taken the liberty of sowing the seeds of his views.

CONSTITUTIONAL MANDATE AND DEFINITIONS

The story begins with Entry 82 of the Union List of the 7th Schedule of the Constitution of India, which empowers the Union to levy tax on Income other than Agricultural Income. Entry 46 of the State List makes tax on Agricultural income a State subject. In fact, many states (like Bihar, Odisha, Tamil Nadu, West Bengal, and Maharashtra) have passed legislation to this effect, making Agricultural Income taxable in those States, though the implementation or enforcement of those statutes could be a matter of debate.

Under Article 366(1) of the Constitution, Agricultural Income means “agricultural income as defined for the purpose of enactments relating to Indian Income Tax”. The Income Tax Act 1961 defines “Agricultural Income” but doesn’t define “Agriculture”. The meaning we ascribe to the term “Agricultural” is at the core of how we construe the expressions “agricultural purpose” or “agricultural income”.

Black’s Law Dictionary defines Agriculture as the art or science of cultivating the ground, including harvesting of crops, and in a broad sense, the science or art of production of plants and animals useful to man, including in a variable degree, the preparation of these products for man’s use. In the broad sense, it includes farming, horticulture, and forestry, together with such subjects as butter, cheese, making sugar, etc.

Merriam-Webster dictionary defines Agriculture as the science, art, or practice of cultivating the soil, producing crops, and raising livestock, and in varying degrees, the preparation and marketing of the resulting products.

If we go by the above definitions, a broader connotation emerges suggesting that it is not always necessary that some labour and effort are employed to plough the soil and sow the seeds for an activity to be called Agriculture. Even dairy farming or poultry farming can be considered as Agriculture within its expanded meaning.

If we further dig into the etymology of the word “Agriculture,” it is derived from the Latin word “agricultura”, which is a combination of the word “ager”, meaning “field”, and “cultura”, meaning “cultivation”. Therefore, the word “agriculture” literally means “cultivation in the field”. The word “cultivation” implies an active and intentional process of fostering growth and development. Land can be cultivated to foster any form of life, whether plants or animals. So, where there is an intentional plantation of a certain type of grass to feed the cattle and facilitate their healthy growth, it must fall within the literal meaning of the word “agriculture”.

AGRICULTURE UNDER EXISTING TAX LAW

However, such a wide interpretation of the term also gave rise to many disputes. One of them was with respect to scenarios where income was generated out of land without directly performing any labour or toil on the land, like ploughing, sowing, etc. For example, a question often arose whether the phenomenon of plants and fruits growing spontaneously and naturally in the forest, without the intervention of human agency, should be considered as Agriculture. This, in particular, and other disputes in general, were put to rest by the landmark judgment of the Supreme Court in the case of Benoy Kumar Sahas1. In the judgement penned by Bhagwati J, for the first time, a structure to interpret the term agriculture was laid down. In essence, the following principles emerged:

1. Basic Operations are Essential:

  •  Human Skill and Labour: Agriculture must involve basic operations on the land itself that utilise human skills and labour. This includes tilling, sowing, planting and similar efforts before germination.
  •  Not Just Subsequent Operations: Activities after germination, such as weeding, pruning, and harvesting, are not enough on their own to be considered agriculture. They must be carried out as an extension of the basic operation. It is only then that the whole of the integrated activity is considered as Agriculture.

2. Agriculture Includes all Kinds of Products Raised on Land:

  •  Regardless of the nature of the product – whether for humans or for the consumption of the beast.

3. Activities Must be Related to the Land

  •  Not Just Land-Related: The mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term. For instance, breeding and rearing of livestock, dairy farming, butter and cheese making, and poultry farming would not by themselves be agricultural purposes2.
1  (Raja Benoy Kumar Sahas (1957) 32 ITR 466 (SC))
2  (The Law and Practice of Income Tax, by Arvind P Datar, Eleventh Edition, Vol -1, p. 85)

However, this must be understood holistically along with this disclaimer from the judgement- “The question still remains whether there is any warrant for the further extension of the term “agriculture” to all activities in relation to the land or having a connection with the land including breeding and rearing of livestock, dairy-farming, butter and cheese-making, poultry-farming, etc.”.

Dairy Farming

While the general principle as emerged in Benoy Kumar Sahas is that Dairy Farming may not be considered as Agriculture for want of a direct connection with the land, however, this idea needs to be analysed in the light of judgement by the Rangoon HC in case of Kokine Dairy3.

Roberts, C.J., who delivered the opinion of the Court, observed:

“Where cattle are wholly stall-fed and not pastured upon the land at all, doubtless it is a trade, and no agricultural operation is being carried on: where cattle are being exclusively or mainly pastured and are nonetheless fed with small amounts of oil-cake or the like, it may well be that the income derived from the sale of their milk is agricultural income.”

This, however, is not in consonance with the ruling of the Supreme Court in Benoy Kumar Sahas (supra), where it was held that dairy farming by itself would not constitute agriculture.

3 (Commissioner of Income-tax, Burma v. Kokine Dairy, 6 ITR 502, 509, 1938)

Poultry Farming

While the central issue before the High Court of Andhra Pradesh High Court in the case of Mulakaluru Co-operative Rural Bank4 was not the classification of Poultry Farming as Agriculture, it formed a key component of the ratio decidendi. This judgement underscores the varied and variegated interpretation of the term agriculture and illustrates a potential departure from the established framework in Benoy Kumar. The court held that “No doubt, poultry farming being an extended form of agriculture, certainly qualified eggs to be treated as ‘agricultural produce’ for the purpose of section 80P(2)(iii ).”

4 (CIT v Mulakaluru Cooperative Rural Bank Ltd 173 ITR 629, 1988)

Slaughter Tapping of Rubber

Kerala HC, in the case of KC Jacob,5 held that income generated by the owner from the slaughter tapping on rubber trees was an agricultural income:

“Here, the slaughter-tapping was by the owner himself. The rubber obtained by him, in whatever manner he tapped his trees, is his, and the receipts by him from the sale of rubber obtained by such tapping is “income derived from land which is used for agricultural purposes”, within the meaning of Section 2(a) of the Kerala Agricultural Income Tax Act 1950.”

This takes us to an important question, whether income derived passively from standing trees, like that of rubber, mango, coconut etc., after their initial planting can be regarded as agricultural income.

As established, supra in the case of KC Jacob, income derived by the owner from the slaughter-tapping of a “standing” rubber tree is agriculture income. Thus, there is no requirement to perform the basic operation of tilling, sowing, etc. on land every year. This inference can be extended to mango, coconut and other such standing trees as well. But what would be the scenario where the existing owner did not originally plant the trees? E.g., if a ready mango farm were purchased by the assessee –would the income arising out of the sale of mangoes every year still be regarded as agricultural income? While the answer can vary depending on the facts of the case, but in general, where the sine qua non of agricultural operation, i.e. tilling of the land, sowing of the seeds, planting, and similar operations on the land are missing, courts may be more inclined to deem the same as originating from a commercial activity rather than an agricultural pursuit and treat the income as non-agricultural income. Figuratively – the person reaping the fruits may not be the same as the person who sowed the seeds, but the world appreciates only when the person reaping the fruits had himself sown the seeds.

5 (K.C. Jacob vs Agricultural Income-Tax Officer. 110 ITR 402, 1977)

SECTION 2(1A) OF THE INCOME TAX ACT 1961

With the above background, let us dissect the clauses. Broadly, Section 2(1A) splits the agricultural income into two parts – 1. Depending on the Source, It would either be from Land or Building 2. Depending on the type of Operations- it could be out of agriculture or operations necessary to render the produce fit for market.

Clause 2(1A)(a): This clause focuses on Land being the source of income. It has three mutually inclusive requirements:

(i) Rent or Revenue Derived from Land: The word ‘rent’ means payment of money in cash or kind by any person to the owner in respect of a grant of right to use land. The expression ‘revenue’ is, however, used in the broad sense of return, yield or income and not in the sense of land revenue only6. The Apex court’s decision in the case of Bacha Guzdar established the principle that the expression “revenue derived from land” envisages a direct association with the land. Thus, it was held that “Dividend received from a company earning agricultural income is not agricultural income in the shareholder’s hands7. One should bear in mind that to bring a certain income within the ambit of this clause, it is not necessary that such income should arise by the performance of any agricultural activity – e.g. the compensation received from the government for the requisitioned agricultural land was deemed to possess the character of rent or revenue derived from agricultural land, thus qualifying as agricultural income exempt from tax.8

6 (Raza Buland Sugar Co. Ltd. v. CIT, 1980, 3 Taxman 266 (Allah. HC))
7 (Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC))
8 (Commissioner of Income Tax v. M/S. All India Tea And Trading Co. Ltd. (1996) 8 SCC 478)

Land Situated in India: Thus, any revenue or rent from agricultural land situated outside India will be out of the purview. The point to note here is that there is no distinction made between urban and rural land. Similarly, the classification of the land in Govt records is also immaterial. This essentially means, e.g., even if the land is classified as Non-Agricultural (NA) it still qualifies for the exemption so long as the third condition is also fulfilled. By virtue of these conditions, income from Fishing in natural waters should ideally be out of the scope of agricultural income.

(ii) Land Used for Agricultural Purposes: We have already explored in detail the scope of meaning of Agriculture. It is the use to which the land is put that is to be seen and not the nature of the land. Very often, we come across parcels of land on the outskirts of big cities that were lush green fields just a few years ago, but now, on those lands, commercial shops have come up, and the owners are earning rent out of it. Though the land may still be agricultural lands in the revenue records, they are no longer used for agricultural purposes. Such rents cannot be treated as agricultural income. Mushroom farming is typically done in a controlled environment and not directly on land. Instead, the soil is placed on racks vertically, and the mushroom is cultured. The question before the ITAT Hyderabad was whether it is an agricultural activity. The gist of the decision is that while soil is an integral component of land, and land itself is a part of the earth, the act of cultivating soil in trays while retaining its fundamental characteristic as ‘land’ does not diminish the agricultural nature of activities conducted upon it. The essence of agriculture remains, even when the soil is separated from its broader terrestrial context9.

9 (Dcit, Circle-2(1), Hyderabad vs Inventaa Chemicals Ltd., 2018)

Clause 2(1A)(b): This clause focuses on the performance of the actual activity of agriculture. Only such income that arises from activities mentioned in the clause will be considered as agricultural income. Further, such activities must be performed on the land as mentioned in clause (b). It provides for three categories of activities:

(i) Agriculture: It is important to note the wording of sub-clause (b)(i)- it says any income derived “by Agriculture” and not “by sale of Agricultural Produce”. It clarifies the intention of the legislature to include even “produce” held by a farmer for self-consumption or produce lying in stock to be considered as “agricultural income”. The Madras HC judgement in the case of Vaidyanatha Mudaliar reinforces this understanding. The judgement was with respect to the issue raised under the Madras Agricultural Income Tax Act, 1955.

(ii) Performance of any process to make the produce fit to be taken to the market: Like in sub-clause (b)(i) above, here too, “sale” of the produce is not required to bring it into the ambit of “agricultural income”. It is the enhancement in the value of the produce after performing the said process that is considered as agricultural income. The process should be one as is ordinarily performed by other cultivators in the locality. The expression “ordinarily performed” is contextual to the locality/region. So, where in the concerned region in the case of Brihan Maharashtra Sugar10, sugarcane was generally sold as such without subjecting it to the process of converting it into gur (jaggery) or sugar, the same when applied in the given case, the income arising from such process was held to be non-agricultural. It is the cultivator or the receiver of rent in kind who alone should have performed such process, e.g., if the standing crop of tobacco is purchased by a trader and he performs “curing” (a process which is ordinarily employed by a cultivator of tobacco to render it fit for sale in the market) on the tobacco after harvesting the income so derived by curing cannot be considered as agricultural income because a trader in this example is neither a “cultivator” nor an owner who is “receiver of rent in kind”.

10 (brihan maharashtra sugar syndicate ltd v CIT(1946) 14 ITR 611 (BOM))

(iii) Sale of Agricultural Produce: In Clause 2(1A)(b), this is the only sub-clause that envisages the “Sale” of Agricultural Produce. However, the stage at which the produce is sold is restricted to the stage the produce is at after applying the process applied to make it fit for the market. e.g., a farmer is involved in preparing and selling ready to cook chapatis in packages. He performs all the agricultural processes for wheat cultivation, from tilling to harvest to threshing, cleaning and packaging chapatis. The sub-clause covers the stage only till threshing and cleaning, as at this stage, the wheat is fit to be sold in the market.

After studying clause 2(1A)(b), an obvious question emerges. Why is there a need to provide for the treatment of income at different stages? The answer to this is that there can be more than one stakeholder in the entire journey of produce, from tilling to making it fit for market. And often, every stakeholder may add value to the value chain. However, the intention of the legislature appears to be to give exemption only to defined contributors till a defined stage.

Clause 2(1A)(c ): The source of income here is the annual value of the House Property. It should meet the four criteria to be considered as Agricultural Income:

i) Used As: dwelling house, or as a store-house, or other out-building.

ii) Occupied By: receiver of rent/revenue or cultivator.

iii) Reason for Occupation: connection of occupier with the land used for agricultural purposes.

iv) Situation of Building: Immediate vicinity of the said Land, and it’s not located within the area specified limits with specified population.

It should be noted here that many buildings in or within the specified limits of municipalities or cantonments will not get the benefit of clause(c ) even if the other criteria are met. The limits are provided in the proviso to clause (c ) of sec 2(1A). The intention of the legislature seems to include only such buildings that are located in rural areas. And the legislature is mindful of the fact that the influence of urbanisation on the use of land is not restricted to the political limits of municipalities or cantonments but is extended even beyond. So, in order to arrest tax evasion by disguising the use of buildings for given agricultural purposes, the law provided for an extended limit of the urban area.

Explanation 1 to Section – 2(1A): Section 2(14), excludes, in general, Agricultural Land from the definition of Capital Asset. Thus, there cannot be Capital Gains on the transfer of such agricultural land. However, it provides for certain exceptions that cover land situated within defined municipal and cantonment limits. Thus, gains on the transfer of such land will be taxed as Capital Gains. A situation might arise where a person describes/discloses such gains are “revenue derived from land” under clause (a) of S. 2(1A) and claims the exemption as agricultural income. To pre-empt such situations, Explanation 1 makes it abundantly clear that such income will not be considered as “income derived from land”.

But this leaves us with an interesting question- while there will not be any Capital gains from the transfer of agricultural land (section – 2(14)), what about the potential of taxing it as non-agricultural income? Some cogent arguments against it can be:

It is Agricultural Income and hence exempt: Explanation 1 to section 2(1A) binds only the exceptions mentioned under section 2(14)(iii); thus, where agricultural land other than that falling within the ambit of clauses (a) and (b) of section 2(14)(iii) (a) and (b) is transferred, the gains could be “revenue derived from the land” and hence is agricultural Income.

It is a Capital Receipt: As a general principle, a receipt that doesn’t partake in the nature of Income cannot be brought to tax under the Income Tax Act. The latter view seems to be the better view.

EXPANDING SCOPE OF AGRICULTURAL INCOME

Explanation 3 to Section – 2(1A): The explanation provides that any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. However, a question arises whether income from the sale of flower bouquets by a person who owns and manages the nursery will also be agricultural income. The answer might depend on the extent and form of processing involved beyond the basic agricultural operations. So, where the bouquets are simple assemblages of flowers and foliage grown in the nursery, it could be argued that the income remains closely tied to agricultural activity. However, if the process involves significant value addition, such as elaborate flower arrangement, the value addition could be considered as non-agricultural in nature.

SEGREGATING AGRICULTURAL INCOME AND BUSINESS INCOME

How do we disintegrate a composite income which is partially agricultural and partially non-agricultural?

Under the authority of section 295, the Board may make rules for, inter alia, the manner in which and the procedure by which the income shall be arrived at in the case of income derived in part from agriculture and in part from business.

Rule 7 provides the portion that is taxable as business income is calculated by deducting the market value of the agricultural produce used as raw material in the business. No further deductions are allowed for expenses incurred by the assessee as a cultivator or receiver of rent-in-kind.

Market value is the average value at which the produce is sold in its raw form or after basic processing to make it marketable. And where the produce is not marketable, it will be a sum of,

i) Expenses incurred in cultivating the produce.
ii) Land revenue or rent paid.
iii) A reasonable profit as assessed by AO.

Rule 7 is a general rule that applies to all situations with composite income. However, there are specific rules with respect to certain businesses where, perhaps, determining the market value of the raw material is not feasible owing to some practical complications like heavy fluctuations in the rates, etc. Rules 7A, 7B and 8 provide for a fixed proportion of the total composite income to be considered as non-agricultural income and subjected to tax, removing any ambiguity.

Rule 7A- Income from Manufacture of Rubber

The rule outlines how to calculate income from selling certain rubber products (centrifuged latex, cenex, latex-based crepes, brown crepes, or technically specified block rubbers). If these products are made or processed from field latex or coagulum obtained from rubber plants grown by the seller in India, the income from their sale is treated as business income. Out of this business income, 35% is considered taxable.

Rule 7B- Income from Manufacture of Coffee

(1) If one grows and cures coffee in India and then sells it, the income from this sale is considered business income, and 25% of it will be taxed.

(1A) If one grows, cures, roasts, and grinds coffee in India and then sells it (even if one adds chicory or other flavourings), the income is also considered business income, but in this case, 40% of it will be taxed.

Rule 8- Income from Manufacture of Tea

If one grows and manufactures tea in India and then sells it, the income from this sale is considered business income, and 40% of it will be taxed.

EVIDENCES TO SUPPORT THE CLAIM OF AGRICULTURAL INCOME

Where agricultural Income is declared in the return of income, the assessee must maintain robust records to substantiate the claim if scrutiny arises. Ordinarily, these evidences includes,

  •  Proof of Ownership of Land
  • Proof of Cultivation Rights: These could be a Lease Agreement.
  • Proof of Actual Agricultural Operations: Bills of seeds and fertilisers,
  • Proof of Sale
  • Commission Agent’s Receipt etc.
  • Banks Statements

CONCLUSION

Though the concept of agricultural income was first introduced in the Indian Income Tax Act 1886 the same has evolved with time. And even today, determining its scope requires significant caution. While the interpretation is heavily influenced by the Benoy Kumar Sahas case, which insists on basic operations, in today’s fast-changing technological landscape, the very idea of “basic operations” can be challenged. For example, “Hydroponics” is the technique of growing plants using a water-based nutrient solution rather than soil11. It completely bypasses the need for tilling or sowing the land. Classifying the income generated through such a process would, perhaps, call for an amendment in the definition in the Act, which currently hinges on land.

Also, the assessee must be wary: merely deriving income from land or performing any process on land isn’t enough. Overlooking specific criteria for land use, building occupancy, or nature of processing can lead to reclassification of income and an unexpected tax burden.

11 (https://www.nal.usda.gov/farms-and-agricultural-production-systems/hydroponics, n.d.)

Rights of the Accused under PMLA for Obtaining Copies of the Records / Documents

This article deals with the Judgement of the Supreme Court in Sarla Gupta & Onr. vs. Directorate of Enforcement and the right of an accused to obtain copies of the Records / Documents collected by the Investigative Agencies under the PMLA.

INTRODUCTION

The saying that “Information is power” is age-old. Investigating agencies, while investigating a certain offence, tend to collect a large amount of data and information in the quest for justice. An investigation, as well as the resulting prosecution (if any), is supposed to be fair and unbiased. An officer administering certain provisions of an act also conducts inquiries from time to time. This also leads to the collection and compilation of a large amount of data. This data is relevant not only because it could be used to establish that a certain accused is involved in the offence of money laundering but also to give rise to reasonable doubt as to his complicity. The burden of proof to convict an accused in a criminal trial is “beyond reasonable doubt”. If the prosecution cannot prove its case beyond a reasonable doubt, the accused has to be acquitted. Just as the information conducted during an inquiry or an investigation forms the basis of the prosecution case, the same can also be pressed into service for defence. For a criminal trial to be fair to the accused, it is essential that the defence has access to all the material that is at the command of the prosecution. This is particularly relevant for the material that is relied on by the prosecution. The fundamental principle of criminal law is that an accused has the right to confront their accuser and also confront the evidence produced against them.

SECTION 207 & 208 OF CRPC AND PMLA PROCEEDINGS AND SUPPLY OF ‘RELIED UPON DOCUMENTS’

The three-Judge division bench judgement of the Supreme Court in Sarla Gupta & onr. vs. Directorate of Enforcement 2025 SCC OnLine SC 1063 strikes a win for fairness in prosecutions under the Prevention of Money Laundering Act, 2002 (better known as the PMLA).

In modern-day criminal law jurisprudence, due weightage needs to be given to fairness. After all, justice must not only be done but must also be seen to be done. Just like it would not be fair for a person to be made to participate in a fist-fight with one of his hands tied behind him, it would hardly be fair if an accused was not granted copies of the material relied on against him. There are two important provisions under the Code of Criminal Procedure (CrPC) which deal with the supply of documents – Sections 207 and 208. The corresponding Sections of the Bharatiya Nagrik Suraksha Sanhita (BNSS) are Sections 230 and 231 respectively. Section 207 of the CrPC applies when the proceedings have been instituted on a police report and are triable by the magistrate. Section 208 applies to a case that is instituted otherwise than on a police report, and the Magistrate is of the view that the case is exclusively triable by the Court of Session.

The complaint based on which the Special Court for the PMLA takes cognisance of an offence has documents annexed to it in order to support its contents. These are the documents ‘relied upon’ in this context to make its case. In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court held that “Both Sections 207 and 208, on the face of it, do not specifically apply to a complaint under Section 44(1)(b) of the PMLA. But, there is no reason why the principles laid down under Sections 207 and 208 should not be applied to a complaint under Section 44(1)(b) of the PMLA”. Relying upon the concept of fair play and Article 21 of the Constitution of India, the Supreme Court made sections 207 & 208 of CrPC applicable to cases under the PMLA. The Court went on to read in the protections that are afforded by sections 207 & 208 of the CrPC into the PMLA in the form of these Directions:

“Therefore, once cognizance is taken on the basis of a complaint under Section 44(1)(b) of the PMLA, the learned Special Judge must direct that along with the process, a copy of the complaint and the following documents must be provided to the accused:

a. Statements recorded by the learned Special Judge of the complainant and the witnesses, if any, before taking cognizance;

b. The documents, including the copies of the Statements under Section 50 of the PMLA produced before the Special Court, along with the complaint, and the documents produced subsequently by the ED till the date of taking cognizance; and

c. Copies of the supplementary complaints and the documents, if any, produced with supplementary complaints.

After cognizance is taken on the basis of the complaint, the ED cannot be heard to say that a document has been produced with the complaint or in the proceedings of the complaint, but it is not a relied-upon document. The copies of documents must be supplied along with a copy of the complaint as required by subsection (3) of Section 204 of the CrPC (sub-section (3) of Section 227 of the BNSS).”

Thus, the directions of the Supreme Court to the Special Court for the trial of PMLA offences is quite clear – documents, as mentioned in the directions reproduced above, must be made available to the Accused once the Special Court take cognizance of an offence under the PMLA. This would equip the accused to take an informed decision on the defence that they wish to take up during trial. But this by itself is not enough. The Judgement of the Court also makes it mandatory that copies of the document produced with the complaint or the proceedings of the complaint must be supplied to the Accused and that the Directorate of Enforcement cannot refuse to furnish any such document by stating that it is not a ‘relied upon document’ in the complaint. This act of the Supreme Court in bringing in these safeguards based on sections 207 & 208 of CrPC is a significant development in PMLA jurisprudence.

SUPPLY OF DOCUMENTS IN THE POSSESSION OF THE DIRECTORATE, NOT RELIED UPON

The ED does not need to rely upon all the documents that it collects during its investigation. There is no obligation on the investigating agency to rely upon all the data that it so collects. However, some of this data could be beneficial to the Accused in preparing their defence. Just like statutes, the interpretation or inferences drawn from data can be different by a different set of eyes. Our system of law administration is fundamentally adversarial in nature unlike in some of the countries that follow ‘civil law’ or the ‘continental system of law’. This gives rise to the danger of the prosecution withholding exculpatory documents from the accused while only relying upon the incriminating documents. The danger of this situation actually arising cannot be ruled out, and the consequences can be severe.

In the year 2021, another three-judge Division bench of the Supreme Court in Criminal Trials Guidelines Regarding Inadequacies and Deficiencies, In re, (2021) 10 SCC 598 observed, “The Amici Curiae pointed out that at the commencement of trial, accused are only furnished with list of documents and statements which the prosecution relies on and are kept in the dark about other material, which the police or the prosecution may have in their possession, which may be exculpatory in nature, or absolve or help the accused. This Court is of the opinion that while furnishing the list of statements, documents and material objects under sections 207/208 CrPC, the Magistrate should also ensure that a list of other materials (such as statements or objects/documents seized, but not relied on) should be furnished to the accused. This is to ensure that in case the accused is of the view that such materials are necessary to be produced for a proper and just trial, she or he may seek appropriate orders under CrPC”. This right was also reiterated in the case of Manoj vs. State of M.P., (2023) 2 SCC 353 where the Supreme Court reiterated its stand that “this Court holds that the prosecution, in the interests of fairness, should as a matter of rule, in all criminal trials, comply with the above rule, and furnish the list of statements, documents, material objects and exhibits which are not relied upon by the investigating officer. The presiding officers of courts in criminal trials shall ensure compliance with such rules”.

In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court observed these prior Judgements and agreed that these documents had to be furnished to the Accused. However, the Court proceeded to analyse at what stage the Accused is entitled to seek copies of the Documents not relied on by the prosecution. The Supreme Court observed that “at the time of hearing for framing of charge, reliance can be placed only on the documents forming part of the charge sheet. In case of the PMLA, at the time of framing charge, reliance can be placed only on those documents which are produced along with the complaint or supplementary complaint. Though the accused will be entitled to the list of documents, objects, exhibits etc. that are not relied upon by the ED at the stage of framing of charge, in ordinary course, the accused is not entitled to seek copies of the said documents at the stage of framing of charge.”

It is, therefore, rare that copies of all the documents are given to the Accused before the framing of the charge. To give or not to give would still be the discretion of the court. However, after the charge is framed, under Section 233 of the CrPC (Section 256 of the BNSS), there is less latitude given to the Courts to refuse the production of documents.

In Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, the Supreme Court observed, “On plain reading of sub-section (1) of Section 91, the power of the court is discretionary. The word ‘may’ appears in sub-section (1) of Section 91. However, if we peruse sub-section (3) of Section 233 and sub-section (2) of Section 243, the word ‘shall’ has been used. The reason is that these two provisions apply at the stage of the accused leading defence evidence. Therefore, it is provided that if the accused applies for the issue of any process for compelling the attendance of any witness or the production of any document or thing, the court must issue such process. The prayer for issue of such process cannot be denied unless the court, for reasons to be recorded, holds that the application is made for the purposes of vexation or delay or for defeating the ends of justice.”

The Court, therefore, went on to hold that “After carefully perusing the provisions of the PMLA, we did not find any provision of the PMLA which is inconsistent with Section 91 of the CrPC. The power under sub-section (1) of Section 91 can be exercised by a Court when the production of any document or any other thing is necessary or desirable for the purposes of any investigation, inquiry, trial or other proceedings under the CrPC. The consistent line of judgments of this Court hold that at the stage of framing of charge, the accused is ordinarily not entitled to apply under Section 91 of the CrPC for producing the documents which are not relied upon by the complainant. For the purposes of his defence, the accused has a right to seek production of a document or a thing at the stage of leading defence evidence as Section 233 of CrPC will apply to the trial of an offence under the PMLA, due to the fact that Chapter XVIII of the CrPC is made applicable to such trial in view of clause (d) of Section 44(1) of the PMLA.” It also observed that in the light of the negative burden of proof that is placed by Section 24 of the PMLA on the accused, Section 233(3) of the CrPC should be liberally construed in favour of the Accused. This is also because the constitutional validity of Section 24 of the PMLA has been upheld on the ground that the accused has full opportunity to show that he has not violated the provisions of the PMLA and rebut the presumption. If the Special Court refuses the prayer for documents u/s 233 of the CrPC, the accused will not be able to discharge the burden, and the Supreme Court, therefore, held that this right of the Accused must be protected.

CAN DOCUMENTS BE SOUGHT BY THE ACCUSED DURING BAIL PROCEEDINGS UNDER THE PMLA?

The primary reason why PMLA is so feared is the difficulty that an arrested accused faces in order to obtain bail. Getting bail under the PMLA is infamously difficult and is the primary reason that the PMLA is considered draconian. The offence of money laundering is non-bailable, i.e. bail cannot be obtained as a matter of right but is subject to judicial discretion. There are various factors that weigh in with a Court while deciding whether or not to release an accused on bail. The PMLA, through Section 45(1)(ii), adds the ‘twin conditions’ that must be fulfilled over and above this in order for the accused to secure bail. Therefore, if an accused makes an application for bail u/s 45 of the PMLA and the prosecutor opposes the grant of bail, the Court cannot grant bail to the Accused unless “the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail”.

The first of the twin conditions requires that the accused demonstrate to the court that there are ‘reasonable grounds’ for believing that he is not guilty of such offence. This can be very difficult to do if the Accused does not have access to the documents and data that can help him discharge the burden. The Supreme Court in Criminal Appeal No. 730 of 2024, which is a part of the common judgement reported in Sarla Gupta, held that “If a narrow view is taken, by denying this opportunity to the accused, he will not be in a position to discharge the burden on him, and therefore, it will affect his right to liberty as he may be denied bail. This denial will amount to a violation of his rights guaranteed under Article 21. Therefore, at the stage of hearing of a bail application to which stringent provisions of Section 45(1)(ii) of the PMLA are applicable, the accused must be allowed to invoke the provision of Section 91 of the CrPC for seeking production of the documents not relied upon by the ED. But, when the investigation is pending while permitting the accused to seek production of documents that are not relied upon by invoking Section 91 of the CrPC, care has to be taken to ensure that the investigation is not prejudiced. Therefore, when such an application is made, the ED is entitled to resist the production of documents that are not relied upon on the ground that if the said documents are disclosed at that stage to the accused, it may prejudice the investigation. Though the ED is entitled to raise the said plea, it will have to show the documents to the Court. The Court can, for reasons recorded, deny production of documents only if it is satisfied that the disclosure of the documents may prejudice the ongoing investigation. Needless to add that the ED cannot raise such an objection after the investigation is complete.” It is important to note that the Court considered Article 21 of the Constitution of India as the fountain from which the right to receive the documents springs. This Judgement, therefore, is a big step in defending the fundamental rights that have been guaranteed under the Constitution of India. The Court specifically observed that “ When the Legislature has felt a need to bring out a legislation like the PMLA, it is the duty of the Court to interpret Article 21 in such a way that the right of a fair trial available to the accused is not affected. The object of the provisions of Section 24 or 45(1)(ii) is not to take away the fundamental right of fair trial conferred on the accused. These provisions are different in the sense that they put a burden on the accused. When such a burden is put on the accused, it is all the more necessary that the right of fair trial guaranteed under Article 21 to the accused is protected by permitting the accused to lead defence evidence by seeking the production of witnesses and documents not relied upon by the prosecution. Similarly, for discharging the burden under Section 45(1)(ii), the accused has the right to invoke Section 91 of CrPC (Section 94 of the BNSS) for seeking production of documents at the stage of hearing of bail application.”

THE RIGHTS OF THE ACCUSED TO GET COPIES OF RECORDS / DOCUMENTS SEIZED AS PER SECTION 17 & 18 OF THE PMLA

The Supreme Court in Sarla Gupta was also concerned with the rights of the Accused under the PMLA to get copies of Records and Documents that have been seized u/s 17 (Search & Seizure) or Section 18 (Search of Persons). Section 21(2) of the PMLA, that deals with the retention of records, specifically mentions that the person from whom the records are seized or frozen shall be entitled to obtain a copy of the records. Section 2(b) of the PMLA includes deeds and instruments evidencing title or interest in property or asset.

The Supreme Court held that the order of retention under section 20 of the PMLA does not refer to the forfeiture of the property and that the seized property does not vest with the ED. The Supreme Court went on to hold that “There is no prohibition on providing copies of the deeds or instruments evidencing title to the person from whom or from whose premises the deeds or instruments are seized. If the provision is interpreted to mean that the person from whom such deeds or instruments are seized is not entitled to receive even copies of the same, the provision will be rendered arbitrary and violative of Article 14 of the Constitution. Therefore, as far as the seized documents and records are concerned, the person from whom or from whose premises the seizure has been made is entitled to get the true copies thereof. As far as the other property seized is concerned, the person from whom the property is seized is entitled to a copy of the seizure memo and the list of the properties seized.” It held that if the documents are bulky, then soft copies can be furnished and that even if seized records or documents are not relied upon in the Complaint, copies must be supplied, though the accused will not be entitled to rely upon them at the time of framing of charge.

CONCLUSION

In an adversarial system like ours, the ED has often resisted the furnishing of certain documents to the Accused, an example being the non-furnishing of grounds of arrest to the accused in writing, as remedied by the Supreme Court in the case of Pankaj Bansal vs Union of India, (2024) 7 SCC 576 where the Court held that “There is no valid reason as to why a copy of such written grounds of arrest should not be furnished to the arrested person as a matter of course and without exception. There are two primary reasons as to why this would be the advisable course of action to be followed as a matter of principle. Firstly, in the event such grounds of arrest are orally read out to the arrested person or read by such person with nothing further and this fact is disputed in a given case, it may boil down to the word of the arrested person against the word of the authorised officer as to whether or not there is due and proper compliance in this regard. In the case on hand, that is the situation in so far as Basant Bansal is concerned. Though ED claims that witnesses were present and certified that the grounds of arrest were read out and explained to him in Hindi, that is neither here nor there as he did not sign the document. Non-compliance in this regard would entail the release of the arrested person straightaway, as held in V. Senthil Balaji vs. State, (2024) 3 SCC 51. Such a precarious situation is easily avoided, and the consequence thereof can be obviated very simply by furnishing the written grounds of arrest, as recorded by the authorised officer in terms of Section 19(1) PMLA, to the arrested person under due acknowledgement, instead of leaving it to the debatable ipse dixit of the authorised officer.”

In fact, in the case of Arvind Kejriwal vs. Enforcement Directorate, (2025) 2 SCC 248, the Supreme Court specifically held that it is not only the grounds of arrest that need to be given to the Accused but also the ‘reasons to believe’ that have been recorded. The Court held that this is because “it would be incongruous, if not wrong, to hold that the accused can be denied and not furnished a copy of the reasons to believe. In reality, this would effectively prevent the accused from challenging their arrest, questioning the “reasons to believe”.. .. “It follows that the “reasons to believe” should be furnished to the arrestee to enable him to exercise his right to challenge the validity of arrest.”

The phrase ‘Information is power’ is especially relevant in the realm of criminal defence law in general and in special laws like the PMLA in particular. While economic offences are to be considered a class apart, it cannot be denied that the process of prosecution of one accused of a crime must be fair. Jurisprudence with regard to the PMLA has grown by leaps and bounds over the last few years. The Supreme Court has, from time to time, sought to balance the fairness of proceedings under the PMLA, which otherwise can be considered quite draconian. The Judgement in the case of Sarla Gupta shall undoubtedly be useful for those caught in the clutches of this law to get a fair trial.

GST Implications on Educational Institutions

INTRODUCTION

Education has long been hailed as the great equaliser—the ladder that lets ambitious minds climb to success. But in India, that ladder is getting steeper and pricier. With education costs skyrocketing, quality education has become less accessible for many. Recently, the CEO of a large asset management company shared that the academic expenditure of one child could amount to ₹10 crores in 16 years from now.

Does Goods and Services Tax (GST) on educational services add fuel to the fire? In this article, we break down the impact of GST on educational services, explore its implications for students and institutions alike, and ask the burning question: Should education really be taxed?

Educational activities by schools or colleges have been generally exempted from indirect tax. The term “education” is not defined under the CGST Act 2017 or even under the Constitution of India. But the flyer by the GST Council also refers to the Apex Court decision in Loka Shikshana Trust vs. CIT,1 wherein it was noted that education is a process of training and developing knowledge, skills and character of students by normal schooling.

1 CIT [1976] 1 SCC 25

But before delving into the interpretation nuances of the exemption, it is imperative to understand whether educational activity can be termed as “supply” per se. It is a settled principle that if an activity is outside the scope of the levy, then the discussion on “exemption” is of no relevance.

Whether the education service is covered under the scope of supply for GST purposes?

The GST levy is governed by Section 9 of the CGST Act 2017 and is a tax on the “supply” of goods or services. The definition of “supply” is given under Section 7 of the CGST Act 2017 and has the following attributes:

a. There should be a supply of goods or services.

b. There should be a consideration.

c. The supply is made by a person.

d. The activity should be in the course or furtherance of business.

While all other attributes may be satisfied, the phrase “in the course or furtherance of business” needs some discussion in the context of educational institutions [EI]. If the activity is not in the course or furtherance of business, then it would be outside the scope of “supply”.

In India, EIs generally operate in a “Trust/ Society” model. The objective of setting up such trusts/ societies is to render charitable activities by imparting education. For centuries, learning has been considered a charitable act, a noble pursuit meant to uplift society rather than generate profit. Gurukuls, temples, and community-run schools thrived on donations and goodwill, fostering an ethos that knowledge should be shared, not sold. Providing education from ages six to fourteen was made a Fundamental Right by the insertion of Article 21A in the Constitution of India by the 86th Constitutional Amendment Act, 2002. The National Policy for Education, 1986 and Programme of Action, 1992, envisaged free and compulsory education for all children up to the age of fourteen years.

Keeping aside the civil argument of modern-day EIs being overly commercialised, we should place emphasis on the letter and spirit of the law. The term business is defined under Section 2(17) of the CGST Act 2017 as under (relevant extract):

“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 incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
………
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

The term business is defined in an inclusive manner. Sub-clauses (b) and (c) are interdependent on sub-clause (a). Hence, it is important to analyse sub-clause (a), which states that business includes any trade, commerce, manufacture, profession, vocation, adventure or wager. Except for the term “manufacture”, none of the other terms are defined under the CGST Act 2017. To understand the meaning of these terms, reference is made to definitions from Black’s Law Dictionary as under:

Term Meaning Applicability for EI
Trade The act or the business of buying and selling for money. In general parlance, the activity of buying and selling is undertaken with the intention to earn markup or profit from the activity. EI is not primarily engaged in buying and selling.
Commerce The exchange of goods, productions, or property of any kind; the buying, selling, and exchanging of articles. The definition of this term means that the activity should be of buying and selling of things, i.e. goods. EI do not principally deal in the buying and selling of goods.
Profession

 

 

 A vocation or occupation requiring special, usually advanced, education, knowledge, and skill; e.g. law or medical professions. Both these terms relate to activity done by an individual or group of individuals. These terms do not relate to an organisation. The profession and vocation of a person depend upon the educational background, attributes and skill of the person, which cannot be equated with the activities of an organisation. EI is not engaged in any profession and vocation but in fact, imparts education to students who can choose a profession or a vocation based on their own individual calling, attributes and skill.
Vocation A person’s regular calling or business; one’s occupation or profession.
Adventure A commercial undertaking that has an element of risk These two terms mean a chance-based transaction for a reward. It is not at all related to the activities of EI.
Wager Money or other consideration is risked on an uncertain event; a bet, or a gamble.

Thus, it can be argued that educational activity does not fit under the term “business”. In the case of the State of Tamil Nadu and another vs. Board of Trustee of the Port of Madras [1999-VIL-27-SC], it was observed that “The word ‘business’ is wider than the words ‘trade, commerce or manufacture, etc’. The word ‘business’ though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession–which occupies time, attention and labour of a person, normally with a profit-motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive and not for sport or pleasure.”

The Hon’ble Bombay High Court, recently, in the case of Goa University,2 had the opportunity to refer to a catena of decisions explaining that education is fundamental to human existence. We refer to some of those decisions herein. In the Indian Medical Association vs. Union of India3, it was observed that education is one of the principal human activities to establish a humanised order in our country. In the T.M.A. Pai Foundation’s case4, the Hon’ble Court noted that it is the duty of the State to do all it can to educate every section of citizens who need a helping hand in marching ahead along with others.

2 2025 (29) Centax 281 (Bom.)
3  2011 (7) SCC 179
4 2002 (8) SCC 481

The Hon’ble High Court of Rajasthan, in the case of Banasthali Vidyapith,5 highlighted that education is essential for intellectual growth, progressive thinking, and personal development. Furthermore, the Court recognised education as a societal responsibility, crucial for developing mental capacity and fostering humanity. The High Court was deciding on the issue of whether EIs are “dealers” under the erstwhile Rajasthan Value Added Tax Act, 2003 and the definition of “business” thereto included “whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit”. Considering this aspect, the Hon’ble High Court of Rajasthan held that “imparting education” cannot be considered as a business.

5  2015 (55) taxmann.com 462 (Rajasthan)

Similarly, in some other cases, it has been held that education cannot be treated as a commercial activity:

a. Education is, per se, an activity that is charitable in nature6.

b. Imparting education cannot be allowed to become commerce. Making it one is opposed to the ethos, tradition and sensibilities of this nation. Imparting of education has never been treated as a trade or business in this country since time immemorial. It has been treated as a religious duty.7

c. Though the fees can be fixed by the educational institutions, and it may vary from institution to institution depending upon the quality of education provided by each of such institutions, commercialisation is not permissible.8

6  State of Bombay v. R.M.D. Chamar Baghwala (AIR 1957 SC 699)
7  Unni Krishnan v. State of Andhra Pradesh (AIR 1993 SC 2178)
8  Modern Dental College and Research Centre and Others [Civil 
Appeals No. 4060 of 2009 before Supreme Court of India]

Although the definition of the term “business” states that activities, “whether or not it is for a pecuniary benefit”, are included, fundamentally, it can be argued that profit-motive is very integral to “business”. The observations from the above judgments lead to a view that education is considered sacred in India. Education is regarded as a necessity for human existence. The very thought of
commercialising education appears to be against the spirit of the nation.

Hence, there is a case to argue that educational activity is outside the scope of “supply” as not being in the course or furtherance of business, and therefore, no GST is payable. It may however, be noted that the said line of argument may not be available in case of entities which are ‘for profit’ (for example, private limited company, LLP or partnership firm).

WHETHER THE EDUCATIONAL SERVICES ARE EXEMPT?

For the sake of further discussion, let us proceed with the notion that educational activity is a supply under GST. In this context, we can jump to Entry No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts educational services. While the entry per se provides for a “person” oriented exemption, the nature of “educational services” is embedded in the definition of “educational institution” given in the exemption notification itself.

Entry 66: Services provided –

(a) by an educational institution to its students, faculty and staff;

 

(aa) by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee;

 

 (b) to an educational institution, by way of,

 

(i) transportation of students, faculty and staff;

 

(ii) catering, including any mid-day meals schemes sponsored by the Central Government, State Government or Union territory;

 

(iii) security or cleaning or house-keeping services performed in such educational institution;

 

(iv) services relating to admission to, or conduct of examination by, such institution;

 

[The above exemption is available for pre-school education and up to HSC or equivalent]

 

(v) supply of online educational journals or periodicals:

 

[The above exemption is not for pre-school education and up to HSC or approved vocational course]

“educational institution” means an institution providing services by way of, –

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course;

Further, “approved vocational education course” is also defined in the same notification as under:

(i) a course run by an industrial training institute, or an industrial training centre affiliated to the National Council for Vocational Education and Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or

(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Education and Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship;

On a plain reading of the definition, it is understandable that the scope of “educational institution” is based on the curriculum and courses offered. The opening line contains the phrase “by way of” which restricts the scope to institutions that impart education. The institutions that give training to students for getting the education from schools/colleges will not get covered. In other words, while education imparted by schools and colleges themselves is covered, education by private coaching classes, tuitions, etc., is not covered.

The exemption is given to:

  •  Educational services for pre-school and up to higher secondary. This means that schools and colleges up to higher secondary are exempt under this limb.
  •  Educational services for obtaining a qualification only if the said qualification is recognised by any law in force. This means that only recognised courses are exempt. Most of the universities are created under a Central Act or a State Act. The courses offered by such Universities would get an exemption. It should be noted that section 22(1) of the University Grants Commission Act, 1956, provides for the right of conferring or granting degrees only by a ‘university’ or a ‘deemed university’.
  •  Educational services as a part of an approved vocational education course. The scope of the exemption is restricted to vocational courses that are specifically affiliated or notified.

The services provided by EI to students/ faculty/ staff are exempt. By the very fact that the exemption is given not only for services provided to students, but also to faculty/ staff, it is evident that the scope of this exemption is intended to be wider. Further, as explained earlier, the exemption is “person-driven”, and therefore, all services provided by EI should be exempt, even if some of the services are not direct in the nature of imparting education. Some of the clarifications issued by the Govt. place emphasis on this aspect:

Circular No. The crux of the clarification
85/04/2019-GST
dated 01.01.2019		 Supply of food and beverages by an educational institution to its students, faculty and staff is exempt.
177/09/2022-TRU

dated 03.08.2022

 The amount or fee charged from prospective students for entrance or admission, or for issuance of eligibility certificate to them in the process of their entrance/admission, as well as the fee charged for issuance of migration certificates by educational institutions to the leaving or ex-students, is covered by the exemption.

The above Circulars make it clear that the ambit of exemption should be construed having regard to the purpose and object it seeks to achieve. The Circular dated 03.08.2022 even extends the exemption to ex-students or prospective students. The schools or colleges generally have a variety of different charge heads for fee recovery. The scope of exemption would not only include admission / tuition fees but also charges like computer fees, extra-curricular fees, duplicate identity card fees, hostel fees, bus fees, library fees, workshop/ conference fees, etc. The purpose is to give GST exemption for the entire gamut of educational services.

WHETHER THE AFFILIATION SERVICES ARE COVERED?

The question arises whether the exemption is available only to “schools and colleges” or whether it can be extended to “Govt. Education Boards” and “Universities”. This doubt arises because the act of imparting education and training is undertaken by “schools and colleges”. The “Govt. Education Boards / Universities” give recognition to the curriculum/ course / institution, and then recover affiliation fees from the “schools and colleges”. It is also important to note that the purpose of providing affiliation by “Govt. Education Boards/Universities” is to monitor and ensure whether the institution possesses the required infrastructure in terms of space, technical prowess, financial liquidity, faculty strength, etc.

The Govt. issued a clarification vide Circular No. 151/07/2021-GST dated 17.06.2021 and stated that GST at 18% is payable for accreditation services provided by Education Boards. However, the GST Council exempted affiliation services provided by a Central or State Educational Board to “Government schools” and w.e.f. 10.10.2024 Entry No. 66A was introduced in the exemption Notification no. 12/2017. However, the exemption was very restrictive and only applicable for affiliation services to Government schools. The Govt. clarified vide Circular No. 234/28/2024-GST dated 11.10.2024 that affiliation services (other than to Govt. schools) provided by universities and educational boards to their constituent schools/ colleges are not covered within the ambit of exemptions because affiliation services are not related to the admission of students to such schools or the conduct of examinations by such schools.

The Hon’ble Karnataka High Court gave a decision on this subject under the service tax regime, in the case of Rajiv Gandhi University of Health Sciences9. It was held that Universities are established by the State for furthering the advancement of learning and pursuing higher education and research. The High Court noted that Universities regulate the manner in which education is imparted in the Colleges and also conduct examinations. Thus, it was concluded that services provided by the University by collecting affiliation fees should be considered as services by way of education as a part of a curriculum for obtaining a qualification recognised by any law.

However, the Hon’ble Telangana High Court, in the case of Care College of Nursing vs Kaloji Narayana Rao University of Health Sciences,10 stated that the exemption is not available to the Universities because the inspection of an institution is conducted and the affiliation is thereafter granted. The High Court held that the admission and the services rendered by the EIs to the students, the faculty and the staff are all services rendered subsequent to the affiliation. The Hon’ble High Court, in its determination, placed reliance on Circular No. 151/07/2021-GST dated 17.06.2021. However, the Court did not undertake an analysis regarding the status of Education Boards/Universities as statutory bodies, nor did it examine whether such entities are engaged in any business activities in the strict sense of the term. It should also be noted that this case was between the college and the university. The tax department was not a part of this case, and the Hon’ble Court also relied on the fact that the University did not object to the payment of tax.

9 2022 (64) G.S.T.L. 465 (Kar.)
10  2023 (12) Centax 216 (Telangana)

This judicial tug-of-war sent mixed signals, leaving everyone scratching their heads. This issue recently came before the Hon’ble Bombay High Court in the case of Goa University11. The Hon’ble High Court observed:

  •  The fees collected by the University are not a consideration as contemplated in section 7 of the CGST Act 2017. The fees are collected in the nature of statutory fees or regulatory fees in terms of the statutory provisions and are not contractual in nature. The same cannot be given a colour of commercial receipts, as there is no element of commercial activity involved in the subject transaction.
  •  The University is actively involved in imparting education to students, and it acts as a regulator of education. The Circular dated 11.10.2024 is erroneous. Affiliation is essentially an activity relating to the admission and examination of students.
  •  The university is also an educational institution and students of the university include students studying through affiliated colleges. Affiliation services by universities are exempt under clause (a) of entry no. 66.

Interestingly, the Hon’ble Court held that the university and colleges, both provide educational services to the same student. The Court also emphasised that affiliation enables the institution to secure qualifications. Moreover, it was also held that the affiliation fee is a statutory levy and, therefore, not a consideration.

The decision of the Hon’ble Bombay High Court appears to be a better proposition and more aligned with the overall object of exempting educational services.

11 2025 (29) Centax 281 (Bom.)

WHAT IS THE TAXABILITY ON FEES PAID FOR ENTRANCE EXAMINATIONS?

The second limb of the exemption is specifically applicable to the entrance examination. Some institutions only conduct examinations and do not impart education per se. Under the service tax regime, an exemption similar to clause (aa) did not exist, and there was a view that the entrance examination services would fall under clause (a) itself. Arguably, examination is integral to education as it is one of the major means to assess and evaluate the skills and knowledge of a candidate. However, it appears that the government intended to avoid such interpretational issues, and a specific exemption is given under the GST regime.

The Government also sets up certain boards or authorities (like the National Board of Examination or National Testing Agency) for the conduct of examinations. There were doubts about the applicability of GST for the fees collected by such boards/ agencies. In fact, the National Board of Examination even collected GST from the students. The Govt. then issued a clarification vide Circular No. 151/07/2021-GST dated 17.06.2021 that the National Board of Examination is a central educational board, and thereafter, an Explanation (iva) was introduced in the Exemption Notification on 28.02.2023 to clarify that any authority, board or body set up by the Central Government or State Government for conduct of entrance examination shall be treated as EI. In the case of the National Board of Examination, the Hon’ble Delhi High Court12 instructed to refund GST to all the students.

12 2024 (14) Centax 201 (Del.)

WHETHER THE EXEMPTION IS PERSON-DRIVEN OR ACTIVITY-DRIVEN?

It is apparent from entry no. 66 that GST exemption is available to the “institution” for services to students, faculty and staff. The exemption entry is not based on the nature of services. The nature of “educational services” is implanted in the definition of “educational institution”. This could mean that if an institution primarily satisfies the definition of “educational institution”, then all its activities are exempt. This interpretation was taken by the Hon’ble High Court in the case of Madurai Kamaraj University,13 wherein it was held that allied services like renting of immovable property for purposes of bank, post office, canteen, etc., are included in the purview of educational services. Though the said decision was under the service tax regime but, the exemption entry under the GST regime is similarly worded. It should also be noted that the Hon’ble Court placed more emphasis on the “educational institution” instead of the “service recipient”. The first part of the exemption says that services provided to “students, faculty or staff”. In renting of immovable property for purposes of bank, post office, canteen, etc., the service recipient is not a student/ faculty/ staff. However, a purposive interpretation was made by the Court, and the argument of the petitioner was accepted that within the campus of the university, there are a number of students, teaching and non-teaching faculties and in order to provide the basic services, the bank, post office and canteen and those services in view of the expanded meaning provided under exemption notification.

However, in the context of income tax, the Hon’ble Apex Court has observed in the case of New Noble Education Society14 that where institutions provide their premises or infrastructure to other entities for conducting workshops, seminars or even educational courses (which the institution concerned is not actually imparting) and outsiders are permitted to enrol, then the income derived from such activity cannot be characterised as part of education or incidental to imparting education.

Based on the above decision (though in a different context), it appears that the allied or incidental activity should have a nexus with the educational activity of the concerned institution.

13 2021 (54) G.S.T.L. 385 (Mad.)
14 2023 (6) SCC 649

WHAT IS THE SCOPE OF EXEMPTION FOR SERVICES RECEIVED BY THE EDUCATIONAL INSTITUTION?

We now proceed to discuss the second basket of exemption which is from the perspective of inward supplies of EI. The purpose is to ensure that EI is not burdened with ineligible input tax credits on account of outward supplies being exempt.

This exemption is again bifurcated into two categories: a) services procured for pre-school education and up to HSC or equivalent, b) services procured for education for obtaining a qualification [not for pre-school education/ up to HSC/ approved vocational course].

The first category exemption is for the following services provided to EI:

  •  transportation of students, faculty and staff;
  •  catering, including any mid-day meals schemes sponsored by the Government;
  •  security or cleaning or house-keeping services;
  •  services relating to admission to or conduct of examination

The above exemptions are specific and only available when such services are provided to EI for pre-school education and up to HSC or equivalent. The exemption is not available if the service providers directly provide services to students, faculty or staff. In the case of Batcha Noorjahan15, the Advance Ruling Authority [AAR] categorically highlighted that exemption would not be available when consideration towards transportation activity was received by the applicant from students, and no consideration was received from school administration (even though the lease agreement was entered with school administration).

15 2025 (174) taxmann.com 130 (AAR – Tamil Nadu)

The services of catering, security, cleaning and house-keeping are apparently exempt. With respect to catering and mid-day meal scheme, the Govt. has clarified vide Circular No. 149/05/2021-GST dated 17th June, 2021 that “Anganwadi” provide pre-school non-formal education and serving of food to “Anganwadi” shall also be covered by above exemption, whether sponsored by the Government or through donation from corporates.

For “admission to or conduct of examination”, the phrase “in relation to” has been used, thereby expanding the scope of exemption entry. This means that in addition to admission / examination services, the exemption is available for services that are “connected” with admission/ examination services. This would include (i) pre-examination items such as printing of registration certificates, examination enrolment forms, and admit cards, ii) printing of exam papers, answer booklets, developing/ managing web applications for conduct of online examinations, iii) post-examination services of processing of examination results, generation and printing of mark sheets/ pass certificates. This position is also clarified vide Circular No. 151/07/2021-GST dated 17.06.2021.

The last limb of exemption for the supply of online educational journals/periodicals to EIs who provide recognised degree courses. The said exemption is not for services procured by pre-school education/ up to HSC/ approved vocational course.

It should be noted that online journals/ periodicals are generally accessed from websites / web-based applications by paying a subscription fee. An annual subscription fee is paid for access to the entire online database of journals/ periodicals. The CBIC press release dated 18.01.2018 also stated that the intention is to exempt the subscription of online educational journals/periodicals. Despite such clarity, the AARs have given contrasting rulings on this subject. In Manupatra Information Solutions Pvt. Ltd.16, AAR has held that exemption is not available for the subscription fee charged from EI to gain access to data available in the database and to download articles or information. In Informatics Publishing Ltd.17, Appellate AAR has held that a subscription by EI for access to a website providing access to millions of journals published across the world on various areas of study is exempt.

16 2023 (3) Centax 244 (A.A.R. - GST - U.P.)
17 2020 (40) G.S.T.L. 281 (App. A.A.R. - GST - Kar.)

CONCLUSION

Education in India has always been more than just a service — it’s a revered institution, a sacred tradition deeply woven into the country’s cultural and philosophical fabric. It is necessary that suitable clarifications are issued to avoid unwarranted toll on the pursuit of knowledge.

Article 13 of India-Ireland DTAA –Right entitlement to equity shares cannot be equated with shares – Under Article 13(6) of India-Ireland DTAA, taxing right in respect thereof vests with Resident State.

2. [2025] 172 taxmann.com 515 (Mumbai – Trib.)

Vanguard Emerging Markets Stock Index Fund vs. ACIT (IT) ITA No: 4657 (MUM) of 2023

A.Y.: 2021-22 Dated: 18th March, 2025

Article 13 of India-Ireland DTAA –Right entitlement to equity shares cannot be equated with shares – Under Article 13(6) of India-Ireland DTAA, taxing right in respect thereof vests with Resident State.

FACTS

The Assessee, a tax resident of Ireland, was registered with SEBI as a Foreign Portfolio Investor (FPI). During the relevant AY, the Assessee had earned short-term capital gain of ₹6.53 Crores from transfer of Rights Entitlement (RE). In respect thereof, the Assessee claimed benefit under Article 13(6) of India-Ireland DTAA without setting-off the same against other short-term loss of ₹42.95 Crores.

The AO held that RE was taxable and the total income was to be computed under the Act before claiming any relief under Section 90(2). Accordingly, the AO set off short-term capital gains against capital losses and denied exemption under DTAA.

The DRP held that RE and shares are related assets and the same are granted only to the existing shareholders to subscribe to shares at a discounted price. Hence, Article 13(5) has to be broadly interpreted to include any rights in respect of shares, alienation of which grants source taxation right to India.

Aggrieved by the final order, the Assessee appealed to ITAT.

HELD

As per Section 62 of the Companies Act, 2013, RE are not to be equated with shares. RE is an offer to subscribe to the shares of the Company that is granted to shareholders.

The SEBI Circular on process of rights issue provides that REs would be credited to demat account and a separate ISIN will be allotted. Trading of RE in demat form is made subject to Securities Transaction Tax at a rate different from shares.

Reliance was placed on the Supreme Court decision in Navin Jindal vs. ACIT [2010] 187 Taxman 283, where it was held that a right to subscribe to additional shares or debentures is a separate and independent right from shares. In terms of Section 55(2)(aa) of the Act, read with Section 2(42A)(d), cost of acquisition of renounced REs is deemed to be Nil.

The OECD Model Convention on Income and Capital, 2017 states that in terms of residual provision of capital gains Article, gains from alienation of capital assets not expressly covered under specific paragraphs ofArticle 13 are to be taxable only in resident state. The UN Model Convention, 2017 also provided the same. In 2017, UN Model Convention was amended to include the concept of other comparable interests, such as interest in partnership or trust in para 13(4) (which deals with share of company that derives value directly or indirectly from immovable property) and 13(5) (which deals with alienation of share of a company) of capital gains article.

The pre-MLI Article 13(4) dealt with alienation of shares of a company that derives significant value directly or indirectly from immovable property. Article 13(5) deals with alienation of shares of a company. In effect, Articles 13(4) and 13(5) of the India-Ireland DTAA do not include ‘other comparable interests’ to shares of a company. However, in 2019, Multilateral Instruments (MLI) amended the scope of Article 13(4) to include ‘comparable interest’ only in relation to partnership or trust. The MLI did not amend the scope of shares of a company to include comparable interest in Article 13(5).

The Tribunal applied Article 3(2) of India-Ireland DTAA, Section 90(3) of the Act and definition of shares as per Section 2(84) of Companies Act. It noted that shares mean a share in company’s capital and includes stock. Therefore, an asset that derives value or comes into existence from another asset cannot be equated with original asset.

In light of the foregoing, the Tribunal held that in terms of Article 13(6), transfer of REs was taxable only in Ireland. The Tribunal further held that capital losses computed under provisions of the Act r.w. Article 13(5) cannot be set-off against gains from Article 13(6) as India does not have taxing rights in respect of such gains.

Ss. 269SS, 271D– Where the loan sanctioned to the assessee was directly disbursed to its vendor by NBFC and the assesseerecognised the liability as a loan through journal entry, such transaction does not contravene section 269SS since the provision does not extend to cases where a debt or liability arises merely due to book entries.

12. (2025) 172 taxmann.com 739 (MumTrib)

Jeevangani Films vs. JCIT

ITA No.: 382 (Mum) of 2025

A.Y.: 2015-16 Dated: 6th March, 2025

Ss. 269SS, 271D– Where the loan sanctioned to the assessee was directly disbursed to its vendor by NBFC and the assessee recognised the liability as a loan through journal entry, such transaction does not contravene section 269SS since the provision does not extend to cases where a debt or liability arises merely due to book entries.

FACTS

The assessee was a partnership firm engaged in the business of film production, distribution, and related activities. It regularly dealt with a vendor M/s. “R” for distribution of film and other work related to promotion, etc. During financial year 2014-15, the assessee was sanctioned a loan of ₹15 lakhs from a Non-Banking Financial Company (NBFC). The said NBFC disbursed the loan amount directly to M/s. “R” through banking channels. The assessee also made a payment of ₹10 lakhs to the same party from its own funds. Consequently, the assessee recorded the loan from the NBFC in its books of accounts by way of a journal entry recognizing the liability amounting to ₹15 lakhs.

The assessment was completed under section 143(3). Subsequently, penalty proceedings were initiated under Section 271D. During these proceedings, the AO treated the journal entry reflecting the loan as contravening section 269SS and imposed a penalty of ₹15 lakhs under section 271D.

The assessee preferred an appeal before the CIT(A) against the penalty order, who dismissed the appeal.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) There was no dispute that the amount of ₹15 lakh was paid through banking channels and was duly confirmed by both the NBFC and M/s. “R”. The loan amount of ₹15 lakh was disbursed directly to the said party. Furthermore, the balance amount of ₹10 lakh was paid by the assessee to the same party towards film promotion and other incidental charges. In its books of accounts, the assessee recorded the said transaction through a journal entry, recognizing the liability as a loan. Since the assessee was responsible for repaying the said amount, the loan was duly reflected in its books of accounts.

(b) A plain reading of section 269SS reveals that the provision applies to transactions where a deposit or loan is accepted by an assessee otherwise than by an account payee cheque, an account payee draft, or other prescribed banking modes. The scope of this provision is restricted to transactions involving the acceptance of money and does not extend to cases where a debt or liability arises merely due to book entries. The legislative intent behind section 269SS is to prevent cash transactions, as is evident from clause (iii) of the Explanation to the section, which defines a “loan or deposit” as a “loan or deposit of money.” Consequently, a liability recorded in the books of accounts through journal entries—such as crediting the account of a party to whom money is payable or debiting the account of a party from whom money is receivable—falls outside the purview of section 269SS, as such entries do not involve the actual acceptance of a loan or deposit in monetary form. This is also supported by CIT vs. Triumph International Finance (I) Ltd. [2012] 22 taxmann.com 138 (Bom.), CIT vs. Noida Toll Bridge Co. Ltd. [2004] 139 Taxman 115 (Delhi) and CIT vs. Worldwide Township Projects Ltd. [2014] 48 taxmann.com 118 (Delhi).

Thus, the Tribunal held that the transaction entered into by the assessee was outside the ambit of section 269SS. Accordingly, the appeal of the assessee was allowed.

S. 56–Gift received by step-brother from his step-sister is exempt under section 56(2) since the term “relative” includes brother and sister by way of affinity.

11. (2025) 172 taxmann.com 855(Mum Trib)

Rabin Arup Mukerjea vs. ITO

ITA No.: 5884 (Mum) of 202

A.Y.: 2016-17 Dated: 21st March, 2025

S. 56–Gift received by step-brother from his step-sister is exempt under section 56(2) since the term “relative” includes brother and sister by way of affinity.

FACTS

The assessee, Mr. “R”, is an individual and non-resident Indian. He received a property located at Worli, Mumbai in 2016 as gift from Ms. “V”, his step-sister, by way of a registered gift deed wherein Ms. “V” had been referred to as “donor” and “sister”, and Mr. “R” had been referred as “donee” and “brother”.

Subsequently, Mr. “R” decided to sell the property and applied for certificate under section 197for lower rate of TDS. On the basis of this information, the AO issued notice under section 148 for AY 2016-17 on the ground that step-brother and step-sister cannot be treated as “brother and sister of the individual” under clause (e) of Explanation to section 56(2)(vii). Accordingly, he added ₹7.50 crores (being stamp value of the property) in the hands of Mr. “R” as income from other sources.

CIT(A) upheld the action of the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the question of whether the gift given by step-sister to step-brother falls within definition of “relative” under section 56(2)(vii), after noting the background of relationship between the assessee and Ms. “V” and the family tree, etc., the Tribunal observed that-

(a) To understand whether step-brother and step-sister can be treated as “relative” for the purpose of Income-tax Act, some inference can be drawn from the provisions of different Acts such as section 45S of the Reserve Bank of India Act, 1934 and section 2(77) of the Companies Act, 2013.

(b) According to the Black’s Law Dictionary, “relative” includes persons connected by ties of affinity as well as consanguinity and when used with a restrictive meaning refers to those only who are connected by blood. Individual related by affinity also include individual in a step or adoptive relationship. Thus, the term “relative” would also include “step brother and step sister”.

(c) Although Indian Succession Act is applicable for the right of inheritance where step child has no legal right to inherit the property of his or his step parent, but it does not lead to inference that step brother and step sister who are related by affinity because of marriage of the respective parents cannot be reckoned as brother and sister within the term “relative”.

(d) What is to be seen is whether the step brother and step sister can be said to be relative by way of affinity. Different dictionaries suggest that step sister and step brother are part of the family by affinity and in common sense they are related to each other as brother and sister.

(e) As per the Dictionary meaning of the term “relative”, it includes a person related by affinity, which means the connection existing in consequence of marriage between each of the married persons and the kindred of the other. If the Dictionary meanings are to be referred and relied upon, then the term “relative” would include step brother and step sister by affinity.

(f) If the term “brother and sister of the individual” has not been defined under the Income-tax Act, then, the meaning defined in common law has to be adopted and in absence of any other negative covenant under the Act, brother and sister should also include step brother and step sister who by virtue of marriage of their parents have become brother and sister.

Accordingly, the Tribunal held that gift given by step sister, that is, Ms. “V” to her step brother, that is, Mr. “R”, is to be treated as gift from sister to brother and therefore, falls within the definition of “relative” undersection 56(2)(vii) and consequently, property received by brother from sister cannot be taxed under section 56(2).

Accordingly, the appeal of the assessee was allowed on merits.

S.56–Where the assessee received a new flat in lieu of old flat surrendered under a redevelopment agreement, the transaction would not be regarded as receipt of immovable property for inadequate consideration for the purpose of section 56(2)(x).

10. (2025) 173 taxmann.com 51 (MumTrib)

Anil DattaramPitale vs. ITO

ITA No.: 465 (Mum) of 2025

A.Y.: 2018-19

Dated: 17th March, 2025

S.56–Where the assessee received a new flat in lieu of old flat surrendered under a redevelopment agreement, the transaction would not be regarded as receipt of immovable property for inadequate consideration for the purpose of section 56(2)(x).

FACTS

The assessee purchased a flat in financial year 1997-98 in “M” Co-op Housing Society. The Society underwent redevelopment as per the agreement entered with the developer. As per the terms and conditions of the agreement, the assessee got a new flat vide registered agreement dated 26.12.2017 in lieu of the old flat surrendered by him. The stamp duty value of the new flat was ₹25,17,700 and the indexed cost of the old flat was ₹5,43,040. The AO assessed the difference of ₹19,74,660 as income of the assessee under section 56(2)(x), which was confirmed by CIT(A).

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) The facts show that this was a case of extinguishment of old flat and in lieu thereof, the assessee got new flat as per the agreement entered with the developer for redevelopment of the Society. It was not a case of receipt of immovable property for inadequate consideration that would fall within the purview of section 56(2)(x).

(b) At the most, the transaction could attract the provisions relating to capital gains, in which case, the assessee was entitled to exemption under section 54 and thus, there would be no tax liability on the assessee on this count as well.

Accordingly, the appeal of the assessee was allowed.

Sec 69A r.w.s. 115BBE: Assessing Officer was not correct in invoking provisions of section 69A and section 115BBE, since assessee had recorded cash deposits of ₹10.75 lakhs during demonetization period in his books of account and source of cash deposits was also maintained by assessee.

9. [2024] 115 ITR(T) 624 (Ahmedabad – Trib.)

Dipak Balubhai Patel (HUF) vs. ITO

ITA NO.: 942 (AHD.) OF 2023

A.Y.: 2017-18 DATE: 22nd August 2024

Sec 69A r.w.s. 115BBE: Assessing Officer was not correct in invoking provisions of section 69A and section 115BBE, since assessee had recorded cash deposits of ₹10.75 lakhs during demonetization period in his books of account and source of cash deposits was also maintained by assessee.

FACTS

The assessee filed his return of income for the AY 2017-18 declaring total income of ₹5.73 lakhs. The return was taken up for scrutiny assessment. The Assessing Officer found that the assessee in his account with Bank of Baroda deposited a sum of ₹10.75 lakhs during demonetization period and issued show cause notice to explain the above source of cash deposit.

The assessee explained the source of cash deposit was withdrawal from four other banks accounts. The cash deposits were duly reflected in the return of income filed in ITR-2. The assessee was not having any business income but rental income and other sources income only, therefore he had not filed the profit and loss account and balance sheet along with return of income.

The Assessing Officer rejected the books of account by stating that on the verification of the return of income filed for the assessment year 2016-17, assessee had shown closing cash on hand as Nil and in the cash book of financial year 2016-17 i.e. assessment year 2017-18, assessee had shown opening balance to the tune of ₹10.10 lakhs which was not justifiable. Therefore addition was made as unexplained money under section 69A and the same was taxed under section 115BBE.

On appeal, the Commissioner (Appeals) confirmed the additions.

HELD

The ITAT observed that during the assessment proceedings, the Assessing Officer had rejected the explanation offered by the assessee. In the return of income, the assessee had shown closing cash on hand as Nil but in the cash book shown the opening balance for assessment year 2017-18 to the tune of ₹10.09 lakhs.

The ITAT observed that the assessee before Appellate Commissioner filed copies of previous three years Form 26AS, ITR, Statement of Income, Profit and Loss account and Balance Sheet and further explained the rental income with appropriate TDS under section 194I which was clearly reflected in Form 26AS.

The ITAT observed that after declaration of the demonetisation period, the assessee deposited the withdrawal amounts from his bank account which had been offered for tax by filing return of income as well as subject to deduction under section 194I.

The ITAT observed that in the present case, the assessee had recorded the above cash deposits in his books of account and source of cash deposits during demonetisation period were also maintained by the assessee. Therefore, the Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE. Thus, ITAT held that the addition made by the Assessing Officer was to be deleted.

Sec 115JB r.w.s. 2(26): Banks constituted as ‘corresponding new banks’ and not registered under Companies Act, 2013 would not fall under the provisions of section 115JB and, therefore, tax on book profits (MAT) would not be applicable to such banks.

8. [2024] 115ITR(T) 481 (Mumbai – Trib.)

Union Bank of India vs. DCIT

ITA NO.: 3740 (MUM.) OF 2018 &424 (MUM.) OF 2020

A.Y.: 2013-14 & 2015-16 DATE: 6th September, 2024

Sec 115JB r.w.s. 2(26): Banks constituted as ‘corresponding new banks’ and not registered under Companies Act, 2013 would not fall under the provisions of section 115JB and, therefore, tax on book profits (MAT) would not be applicable to such banks.

FACTS

For the A.Y. 2015-16, the AO asked the assessee to furnish the computation of book profit and also required theassessee as to why provisions and contingency, debited to the profit and loss account, should not be added back for the computation of book profit u/s115JB. In response, assessee submitted that even though in computation assessee had worked out MAT on book profit, the provision of Section 115JB was itself not applicable to the assessee bank.

However, the AO rejected the assessee’s plea on the ground that the amended provision of Section 115JB w.e.f. 01/04/2013 (by insertion of clause (b) to sub-section (2) to section 115JB), brings within its ambit even the banking companies. Thus, the AO concluded that now the amended provision provides that not only the companies governed by the Companies Act, but also other companies governed by other regulating act including Banking Regulation Act, 1949 are also covered by the provision of Section 115JB.

On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

HELD

The ITAT observed that according to clause (a) of amended section 115JB, the company has to prepare its profit and loss account in accordance with the Companies Act, 2013 and the first proviso to sub-section (2) requires that while preparing the accounts including the profit and loss account, the same should be in accordance with the provisions of section 129 of the Companies Act, 2013. Since the assessee bank has to prepare its accounts in accordance with the provisions contained in the Banking Regulation Act, Schedule III of the Companies Act is not applicable. Thus, clause (a) of section 115JB(2), will not apply.

The ITAT observed that for clause (b), following conditions need to be satisfied for applying section 115JB in the case of a company:-(i) the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 should be applicable; (ii) once this condition is fulfilled, it requires such assessee for the purpose of this section to prepare its profit and loss account in accordance with the provisions of the Act governing such company.

The ITAT observed that for an entity to qualify as a company, it must be a company formed and registered under the Companies Act. The assessee was not formed and registered under the Companies Act, and came into existence by a separate Act of Parliament, i.e., ‘Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970’. Hence, it does not fall in the first part of the said section.

The assessee bank was not formed or registered under the Companies Act. Once it is not a company under the Companies Act, then the first condition referred to in clause (b) of section 115JB(2) is not fulfilled, and consequently second proviso below section 129(1) of the Companies Act was also not applicable.

The ITAT observed that section 11 of the Acquisition Act specifies that the corresponding new bank is to be treated as an Indian company for the purpose of income-tax. However, clause (b) in sub-section 2 to section 115JB did not permit treatment of such bank as a company for the purpose of the said clause, because it should be a company to which the second proviso to sub-section (1) to section 129 of the Companies Act was applicable. The said proviso had no application to the corresponding new bank as it was not a banking company for the purpose of the said provision. The expression ‘company’ used in section 115JB(2)(b) was to be inferred to be company under the Companies Act and not to an entity which is deemed by a fiction to be a company for the purpose of the Income-tax Act.

Thus, ITAT held that clause (b) to sub-section (2) of section 115JB of the Income-tax Act inserted by Finance Act, 2012 with effect from 1-4-2013 (from assessment year 2013-14 onwards), is not applicable to the banks constituted as ‘corresponding new bank’ in terms of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Therefore, the provisions of section 115JB cannot be applied and consequently, the tax on book profits (MAT) are not applicable to such banks.

Important Amendments by The Finance Act, 2025- 3.0 TDS/TCS, Transfer Pricing and Other Important Amendments (The Budget That Whispered Instead Of Roared)

At a time when dinner table debates revolve around Trump Tariffs 2.0 and WhatsApp forwards are more obsessed with global geopolitics than GST, the Union Budget 2025 feels like last season’s fashion—forgotten, folded away, and faintly nostalgic. But leave it to a tax consultant to bring the spotlight back. Through this article, we proudly wave the India-first (and Budget-first) flag, reviving what should still be the nation’s favourite fiscal performance.

And what a curious performance it was. No frantic tinkering. No budgetary plot twists. No midnight notifications capable of inducing mild heart attacks in CFOs. Instead, we got a whisper of a Budget – a minimalist, polite fiscal note that gives rather than grabs. A ₹1 lakh crore tax cut that, depending on whom you ask, is either a bold growth push or a national stimulus for iPhone sales and premium coffee chains.

What we’ve done, true to tradition, is dive deep into the fine print—dissecting every explanation memo and every comma like it was Shakespeare. Because, in taxation, what is left unsaid often carries the heaviest implications.

Beneath this seemingly serene surface lies a quiet shake-up: tweaks in transfer pricing, restrictions on carrying forward losses in business reorganisations and—you guessed it—our beloved TDS and TCS amendments.

So, pour yourself a tax-free chai (while it lasts) and join us on this annual pilgrimage. The Budget may not have roared, but we’re here to make sure its whispers are heard loud and clear.

THE NEW 3-YEAR BLOCK TRANSFER PRICING SCHEME: CERTAINTY WITH A TWIST

Transfer pricing feels like an endless cricket series — you pad up every year, play the same shots, the department appeals every ball, and the final verdict rests with the third umpire at the appellate stage. Enter the Finance Act 2025’s new Block Assessment Scheme for transfer pricing, a provision that promises to break this cycle. Think of it as an “APA-lite” for the masses: a chance to lock in your TP dealings for three years without the Advanced Pricing Agreement (APA) saga typically reserved for large multinationals. As the Finance Minister noted, this aligns with global best practices in easing TP compliance.

KEY FEATURES OF THE BLOCK TP ASSESSMENT SCHEME

  •  Three-Year Block Option: Taxpayers can opt to have certain international transactions (and specified domestic transactions) assessed on a multi-year basis. If the Transfer Pricing Officer (TPO) determines an ALP for a particular year (the “lead year”), that same ALP can apply to the two subsequent years for similar transactions, as long as conditions are met. In effect, one TPO review can cover three assessment years in a row.
  •  Optional and Taxpayer-Initiated: The scheme isn’t automatic; taxpayers must elect to use it. An application has to be made to the TPO in the prescribed form and within a prescribed time limit (to be specified by CBDT).
  • Simultaneous ALP Determination: Once the taxpayer opts in and the TPO accepts the request (the TPO has a month to decide if the option is valid), the TPO will determine the ALP for the two subsequent years, together with the lead year’s assessment. Essentially, the TPO conducts a multi-year analysis: the same pricing methodology (and potentially the same comparables/ benchmark) is applied across the three-year span. This means the ALP for year 1 is “rolled forward” for years 2 and 3, providing continuity (but notably, there’s no backwards-looking benefit – it’s a roll-forward, not a rollback like in some APA cases).
  •  Fast-Tracked Litigation and Certainty: Perhaps one of the biggest draws is the promise of certainty and quicker dispute resolution. If there’s a dispute over the ALP, it effectively covers all three years, which means any appeal can address the block in one go. For instance, the Income Tax Appellate Tribunal (ITAT) could hear multiple years together, consolidating proceedings.
  •  Section References: The legal architecture for this scheme is set out via new provisions: Section 92CA(3B) (allowing the multi-year option and TPO’s validation of it); Section 92CA(4A) (requiring the TPO to determine ALPs for the subsequent years once the option is accepted); amendments to Section 92CA(1) (to prevent duplicate references to TPO); and Section 155(21) (enabling the AO to adjust/recompute income for the later years based on the block ALP). Additionally, the scheme is effective from Assessment Year 2026-27 (i.e., FY 2025-26) onwards as per the Finance Act 2025, and it won’t apply in search cases.

The block assessment scheme has been greeted as a positive development, almost a mini-revolution in Indian transfer pricing. Of course, as tax professionals, we know every silver lining may have a cloud – so next, we turn to the fine print and potential challenges lurking behind the optimism.

THE FINE PRINT: TECHNICAL ISSUES AND POTENTIAL CHALLENGES

As exciting as the new framework is, it comes with its share of technical complexities and unanswered questions. Seasoned practitioners will want to consider the following issues before jumping on the block assessment bandwagon:

1. Roll-Forward Only – No Retro Relief

The block scheme only works prospectively for future years. It’s explicitly a roll-forward, not a rollback. So, if you had disputes or open issues in prior years,  this scheme won’t magically resolve those – you’re  still on your own for past years. If issues are recurring, this mechanism is speed forward to consolidate litigation and get yourself heard together at the appellate level.

2. Timing of Exercising the Option

A critical practical question is when and how to opt in for the block assessment. The law says the assessee can exercise the option after the TPO has determined an ALP for an assessment year via an application in the prescribed form. But does this mean one must apply after the TPO’s order for year 1 or even earlier? Initial interpretations (and even a CBDT FAQ – Question 5) have caused confusion – suggesting the option might need to be exercised before the TPO determines the ALP for the first year. That would be counter-intuitive since taxpayers would be unlikely to commit to a three-year deal without knowing year one’s result. A fair position should be that the option should be available after the finalisation of the first year’s TP assessment. In such a case, the TPO will have to again start the proceeding for the next two years. The rules should clarify – when to pull the trigger. This clarification will, in turn, decide the success of the novel initiative.

3.Withdrawal and Flexibility (All-or-Nothing?)

Once you opt in, are you locked in for the full three-year block? The law, as written, doesn’t spell out any withdrawal mechanism or mid-course exit. It’s unclear if a taxpayer, having been elected for the block, can later change its mind (say, if year 2’s business circumstances change drastically). There is also an open question of whether the taxpayer must continue the option for both subsequent years or could selectively opt for just one additional year if conditions in the third year diverge. Until guidelines clarify this, opting in is a bit of a leap of faith – taxpayers should be confident that the next couple of years will broadly resemble the first. And if economic conditions or TP dynamics do shift, we may find ourselves testing uncharted waters (with possibly no easy way to unwind the block choice).

4. Defining “Similar Transactions”

The scheme hinges on the concept of “similar” transactions across the years. But how similar is similar enough? The Finance Act memorandum hints at criteria like the same associated enterprise (party), proportional volume, and geographic alignment (location of the AE) over the years. In essence, the transactions should be of the same nature with comparable functional profiles each year (think Rule 10B(2) comparability factors). For example, if you’re providing software development services to your US subsidiary at cost plus 10% in year 1, doing essentially the same in years 2 and 3 with the same subsidiary would qualify. However, this area is ripe for interpretation issues. What if, say, the volume doubles in year 2 – is that still “similar”, or does a scale change knock you out? What if the pricing model is the same, but the contract terms have minor tweaks? The law doesn’t define it, so we anticipate CBDT rules to lay down clear benchmarks for similarity. Ambiguities here could allow the TPO to reject the option if they believe transactions aren’t sufficiently alike. Bottom line: ensure your year 2 and 3 transactions truly mirror year 1 in nature – and watch for a formal definition of “similar” in the upcoming rules.

5. Impact on Comparables and TP Analysis Updates

A multi-year scheme raises the question of how to handle comparable data and analysis for the later years. One interpretation (and arguably the intent) is that the same ALP result or range determined for year 1 would simply carry over to years 2 and 3, giving the taxpayer certainty even if market benchmarks shift. For instance, if, in year 1, the TPO settles that an operating margin of 10-12% is arm’s length for your transaction, then as long as you’re in that range in years 2 and 3, you’d be fine – even if fresh comparables for those years might suggest a different range. This “lock-in” would indeed ease burdens. However, the TPO might choose to only lock in the methodology and comparable set, but still update the comparable companies’ financials for each year. In that case, year 2 and 3 ALPs could be adjusted if the comparables’ performance changes. The safer assumption is that the ALP (price or margin) is intended to be fixed for the block, because anything less wouldn’t truly reduce disputes. But consider practical hitches: databases get updated over time – what if one of your comparables from year 1 drops out in year 3 because it ceased operations or no longer qualifies? Or new comparables emerge? These scenarios could create confusion in applying the year-1 benchmark to later years. Similarly, financial metrics can fluctuate; for example, your working capital or receivables cycle might lengthen in year 2, affecting profitability. Would the TPO allow adjustments or stick to the original benchmark? All these issues underscore the importance of forthcoming guidance. Until then, taxpayers should do their own sanity check: if you are locked in year 1’s analysis for the next two years, would it still be reasonable? If your business is stable, likely yes. If not, tread carefully.

The real challenge lies not in the scheme, but in the very foundation of transfer pricing — a system built on constant external comparisons. As the Bhagavad Gita teaches, true measure lies not in competing with others, but in surpassing your own past self. Perhaps it’s time for transfer pricing too, to reflect inward rather than outward.

6. Handling Multi-Year Transactions (Loans, Guarantees, etc.)

Some related-party dealings naturally span multiple years – inter-company loans, credit lines, intellectual property licenses, long-term service contracts, and corporate guarantees for debt, to name a few. The block scheme seems tailor-made for such continuous transactions, but there are quirks. Take an inter-company loan: you may draw additional amounts in year 2 under the same loan agreement (increasing the outstanding principal). Or a corporate guarantee originally given for a $5 million loan might be upsized to $10 million next year. Are these considered the “same” transactions? Intuitively, yes (same loan or guarantee, just higher quantum), so they should fall under the block’s umbrella of similar transactions. The ALP principle (interest rate or guarantee fee) would remain the same even though the absolute interest or exposure grows. The key point is that such variations in volume under an ongoing arrangement shouldn’t invalidate the option, provided the nature of the service/asset (loan, guarantee) is unchanged. However, taxpayers should be ready to demonstrate that these are continuations of the original deal, not new transactions altogether. If conditions like credit rating or market interest rates shift materially, the TPO might scrutinise whether the pricing still holds arm’s length for later years. Again, clear guidance from CBDT would help confirm that normal ups and downs in volume don’t derail the block agreement for these financing transactions.

7. New or Additional Transactions in the Block Period

A practical challenge arises if a new type of related-party transaction crops up in year 2 or 3 that was not present in year 1. The law allows the block option to be exercised for “all or any” of the transactions in those years, implying you could cover some and exclude others. So, if you introduce, say, a brand new transaction (e.g., start selling machinery to your foreign affiliate in year 2 while year 1 only had service fees), that new transaction is obviously not “similar” to the ones covered by the block. In such cases, that new transaction would fall outside the block scheme and be subject to regular TP assessment for that year. But this bifurcation can get messy. Normally, if any international transaction exists, the AO can refer the case to TPO. Under the block scheme, the AO is barred from referring matters covered by a valid block option. Does the AO then refer only the new transaction to the TPO for that year? The legislation isn’t crystal clear, but presumably, yes – the AO could still trigger a limited scope TPO audit for the uncovered transaction. Moreover, what if the taxpayer simply didn’t report a transaction in year 1, but it comes to light in year 2? The TPO’s block order might have omitted it, and the AO, due to the block, might be handcuffed from referring it. These are procedural grey areas.

8. Adjustment of Income via Section 155(21)

Once a block option is approved and the TPO determines the ALPs for the subsequent two years, how exactly do those later-year assessments get finalised? The answer lies in Section 155(21) (newly inserted), which allows the AO to amend the assessment orders of the subsequent years to align with the TPO’s multi-year order. In practice, the TPO might issue a consolidated TP order covering years 1, 2, and 3 (or separate orders simultaneously). The AO will then recompute the total income for the years 2 and 3 on the basis of that order by passing amendment orders for those years. This mechanism is akin to how APAs are given effect (though APAs use section 92CD). It ensures the block ALP is implemented without needing fresh scrutiny in those years. However, this process raises a few sub-questions: Will the recomputation under 155(21) account for all consequential impacts like interest on shortfall (Sections 234B/C) or MAT calculations for each year? It should, as the law mandates the AO to consider all aspects while recomputing. Also, if those years were originally assessed and closed (say, in case the block option is exercised after assessments are done), the 155(21) route will reopen and amend them – one hopes in a timely manner to avoid any statute limitations issues.

9. Appeal Process and DRP vs Block Adjustments

The introduction of Section 155(21) brings an interesting twist to the appeals procedure. Normally, when a TPO proposes an adjustment, the AO issues a draft assessment order under Section 144C, and the taxpayer can go to the DRP for a quicker resolution before finalising the assessment. But an order under Section 155(21) – which is essentially a rectification/amendment order for the block years – does not have a draft stage; it’s a final order when issued. So, if the taxpayer disagrees with the ALP applied for the year 2 or 3, do they get to approach the DRP for those years? It appears not, since DRP is only for variations proposed in a draft order. The likely scenario is that any dispute on the block ALP will be funnelled through the year 1 draft order’s appeal. In other words, you contest year one’s draft order at the DRP (covering the proposed TP adjustment that will also govern years 2 and 3). The DRP’s directions would then have to be applied to all three years when the AO passes final orders. If one goes to the ITAT, the appeals for all three years could be clubbed (as noted earlier). What if the taxpayer misses the DRP route and goes to the Commissioner (Appeals) for year 1? Then, years 2 and 3, which were amended without draft orders, might each need separate appeals (likely directly to the Commissioner (Appeals) since there is no draft/DRP there). This is somewhat uncharted territory – procedural gaps exist. Additionally, if a TPO rejects the block option (says the transactions aren’t similar or conditions are not met), there’s no immediate way to appeal that decision alone– it would presumably become part of challenging the eventual assessment order.

10. Other Procedural and Administrative Gaps

Beyond the major points above, there are some miscellaneous uncertainties. For one, the law doesn’t specify the timeframe for the TPO to complete the assessments for the two subsequent years once an option is validated – will it be within the same timeline as the lead year’s assessment or some extension? Clarification on this is needed to ensure the benefit isn’t lost to delays. Another subtle point: the block scheme streamlines TP assessments, but regular corporate tax assessments for each year will still occur separately. There’s no mechanism to sync those up, meaning a company could still face scrutiny on other tax issues on an annual basis. So, it’s not a full consolidation of all tax matters, only the TP piece. This could lead to parallel proceedings in a given year – one dealing with block TP adjustment via amendment and another dealing with, say, domestic tax disallowances – which the tax authorities should coordinate to avoid confusion. Finally, consider the strategic angle: how the appeal mechanism will work as each year may have corporate and TP issues. Forms have a special place in appeal proceedings – which form to file, especially when an appeal is governed by a statutory limitation period.

Given the many moving parts in this scheme, the role of the Central Board of Direct Taxes (CBDT) in issuing detailed rules and guidelines cannot be overstated. Guidelines will determine the fate of the scheme.

SECTION 72A – LOSSES AREN’T IMMORTAL

A cat might boast nine lives, but under the new Finance Act 2025 amendment, tax losses barely get eight. Under the Income-tax Act, Section 72A traditionally lets a successor company “inherit” the accumulated losses and unabsorbed depreciation of a predecessor (in amalgamations, demergers, etc.) as if they were its own. In practice, this meant that when two companies merged, the merged (amalgamated) company treated the past losses as losses of the year of amalgamation – essentially giving the business a fresh eight-year run to utilise those losses.

Old Law: “Fresh” Eight-Year Clock

Before the Finance Act 2025, Section 72A worked in tandem with Section 72: no business loss could be carried forward for more than eight years from the year it arose. But an amalgamation effectively reset that eight-year clock. All accumulated losses of the merging entities became losses of the amalgamated entity in the year of amalgamation, allowing the merged company a brand-new eight-year window to set them off. In other words, legacy losses got a second lease of life every time there was a qualifying reorganisation.

Finance Act 2025 – New Section 72A(6B)

The Finance Act 2025 inserts a new sub-section 72A(6B), drastically curtailing this evergreen carry forward. From April 1, 2025 (effectively AY 2026 27) onward, losses must be carried only within the original eight-year span from the year they first arose. The provision states that for any amalgamation or other reorganisation on/after 1-Apr-2025, a loss that is carried to the successor company can only be used in the remaining assessment years of the original eight-year period. Put simply, amalgamation no longer resets the loss-clock: it merely transfers the remaining life of the loss to the new entity. The Finance Bill even introduces the concept of the “original predecessor entity” – the very first company in the chain of amalgamations – to anchor the clock. This prevents successive mergers from indefinitely extending the loss of life (“evergreening” of losses).

Scope and Effective Date

The new rule applies prospectively. By law, the amendment applies only to any amalgamation or reorganisation effected on or after 1st April, 2025. (In turn, the amendment itself takes effect from 1st April, 2026.) Thus, any merger where the appointed date is before 1-Apr-2025 is governed by the old Section 72A. For deals on/after that date, however, the loss must be traced back to its original computation year.

ILLUSTRATIVE EXAMPLES

To crystallise the change, consider:

1. Example 1 – Pre-Amendment Amalgamation: If Company X had losses and merged into Y on 1-Mar-2025 (before the 1-Apr-2025 cutoff), the pre-amendment rules apply. The losses (say, incurred in AY 2018-19) would be deemed Y’s losses in AY 2024-25, and Y would then have a fresh eight-year window (through AY 2031-32) to set them off. In effect, the merger “rebooted” the clock.

2. Example 2 – Post-Amendment Amalgamation: Suppose Company A incurred a loss in FY 2018-19 (AY 2019-20), and it amalgamates into B on 1-Apr-2026. Under the new rule, B treats that loss as its own, but can carry it forward only within eight years from AY 2019-20. That means the loss must be absorbed by AY 2027-28 (eight years after AY 2019-20). No new eight-year term is granted by the 2026 merger. B can only use whatever remaining years were left on A’s original timeline.

3. Example 3 – Chain Amalgamations: Consider a chain: A Ltd (with losses incurred in 2019-20) merges into B Ltd on 1-Apr-2026, and then B merges into C Ltd on 1-Apr-2028. Under 72A(6B), the “original predecessor entity” for C’s losses is still A Ltd. All of A’s losses must be set off within eight years of 2019-20 (i.e. by AY 2027-28). Neither merger (2026 or 2028) extends beyond that horizon. In practice, C inherits only the residual carry forward years from A’s original loss – the clock keeps ticking from the date of the first loss.

Only Losses (Not Depreciation) Affected

It is crucial to note that Section 72A(6B) speaks only of “loss forming part of the accumulated loss”. Unabsorbed depreciation allowances (also carried under Section 72A) are not curtailed by the new sub-section. It can be continued for an infinite period.

Other Conditions still apply.

All the existing safeguards in Section 72A(2)–(6A) remain intact. In particular, the successor company must still meet continuity conditions (e.g. carrying on the business, achieving the threshold of installed manufacturing capacity. maintaining requisite shareholding by the transferors, etc.) for the inherited losses to be allowable. The amendment simply shortens how long a loss can live; it does not relax the usual reorganisation conditions.

TDS/TCS PROVISIONS

The latest finance proposals have modestly raised a bunch of TDS/TCS thresholds, aiming to reduce compliance pain for small payments. For example, the annual rent threshold under Section 194-I jumps from ₹2.4 lakh annually to ₹50,000 per month (i.e. ₹6 lakh annually), and other sections saw smaller increment (e.g. commission and professional-fee limits rose from ₹15K–30K to ₹20K–50K). Threshold increase should be seen in the light of the overall increase in slab rates, and no tax till you earn ₹12 lakh. It puts more money in the hands of people.

FAREWELL TO SECTION 206AB (NON-FILER SURCHARGE)

Starting 1 April 2025, Section 206AB – which forced higher TDS on “non-filers” – will be repealed. In plain English, if the recipient didn’t file a tax return, payers no longer have to immediately apply a higher TDS rate on payments to him. This change was explicitly made to cut compliance headaches: under the old law, deductors had to check their filing status on the spot and withhold tax. Instances were seen where demands were raised on deductors for non-withholding at 20%. This, in effect, penalised payers for the fault of the recipient. The law has omitted this provision with effect from 1 April 2025. This is significant as the legal effect of the omission is that the provision never existed in law. Thus, the entire demand cannot be enforced. Consider the following observations of the Supreme Court in Kolhapur Cane Sugar Works Ltd. vs. Union of India AIR 2000 SC 811

“The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute –book as completely as if it had never been passed, and the statute must be considered as a law that never existed.”

194Q VS 206C(1H): ENDING DOUBLE TAXING OF LARGE PURCHASES

There’s often confusion when buying and selling large value of goods: should the buyer deduct TDS under Section 194Q, or should the seller collect TCS under Section 206C(1H)? Under prior rules, 206C(1H) already said no TCS if the buyer had to do some TDS. But in practice, sellers found it hard to know if buyers had actually done their TDS, so sometimes both got applied. To clear this up, the budget proposes that from 1st April, 2025, Section 206C(1H) simply “will no longer be applicable”. In effect, the onus shifts entirely to buyers (via 194Q), and sellers can drop the TCS on those ₹50 lakh+ transactions. This should end the TDS-versus-TCS tug-of-war and make compliance far simpler.

UPDATED RETURNS: MORE TIME, BUT WATCH THE CLOCK

The window to file an updated return (ITR-U) is being doubled. Under the old law, you had 24 months (2 years) from the end of the assessment year to fix omissions; now, it’s 48 months (4 years). That means, for example, an ITR for FY 2023–24 (AY 2024–25) can be updated up until March 31, 2029. This extension is meant to “nudge” voluntary compliance – essentially giving taxpayers more time to spot and report missed income.

However, the law also tacks on strict conditions. You cannot file an updated return after 36 months if reassessment has kicked in. In practice, if an officer has already issued a notice under Section 148A (essentially the show-cause for reassessment) after 36 months, your window closes unless that notice is later quashed. (If a 148A(3) order explicitly finds “no fit case to reopen,” then the 48-month door reopens.) In short, you get extra time only if the tax department hasn’t already started formal reassessment proceedings late in the game.

PENALTIES ON LATE ITR-U

Filing late just got pricier. Section 140B of the Act imposes an additional tax (a bit like a penalty) on updated returns, calculated as a percentage of the extra tax and interest due. Originally, it was 25% of the tax plus interest if you filed within 12 months of year-end and 50% if filed within 24 months. The amendments introduce two new tiers: now it’s 60% if you file after 24 up to 36 months, and a whopping 70% if you wait out to 36–48 months. In plain terms, the longer you stall, the stiffer the surcharge – so procrastinators face heavier hits.

CONCLUSION: A BUDGET THAT UNDERSTOOD THE BEAUTY OF RESTRAINT

If there’s a timeless lesson in tax policy, it is this: sometimes, the best amendment is no amendment at all. This year’s Budget seems to have embraced that wisdom — preferring fine-tuning over frenzy and choosing to strengthen the framework rather than constantly reshaping it. A “less is fair” philosophy quietly runs through the Finance Act 2025: thoughtful corrections, calibrated expansions, and a deliberate effort to simplify rather than complicate.

In that sense, this Budget has stood the test of time. Amidst the noise of global uncertainty, Trump Tariff and economic recalibrations, the Indian tax system was offered something rare — stability.

And as we write this, perhaps there’s a quiet sense of history too. This Budget series in the BCAJ may well become a nostalgic bookmark — the last commentary on the Income-tax Act, 1961. With the new Income-tax Act, 2025 on the horizon, we stand at the threshold of a new chapter — one that promises modernisation, new hope for a new India and, more importantly, admission of the ultimate truth – even law is not permanent.

For now, we raise a modest toast to a Budget that whispered instead of shouted — and to a law that, for one final time, chose elegance over excess.

Tech Mantra

Some new interesting apps to make our daily lives easier:

MyMind

This is an app which is an extension of your mind – it is called MyMind. It is one beautiful, private place for all your bookmarks, inspirations, notes, articles, images, videos and screenshots. You can share anything with MyMind and save it.

You can find it later with a simple search. No need to organize anything yourself, the app does it for you automatically! The in-built AI engine understands the stuff you have saved and retrieves it based on simple English keywords without the need for your tagging it. There are no folders, no collections, no wasted time in organizing. Just think of it as a search engine for your brain. Of course, if you like to tag stuff for any project or topic, you are welcome to do so!

Sharing to MyMind is simple on the phone – just tap on Share and select MyMind – that’s it! There is also a Chrome extension to clip stuff from the web and store it in MyMind. The more you use it, the more efficient it gets! Similar notes with images or videos or text will all be automatically linked to each other.

Just one place to save everything you care about and just one place to find it! Amazing – a game changer!

mymind is the extension for your mind.

Quick Compare

This simple app helps you to check prices and delivery time on Instamart, Zepto, Minutes, DMart, Blinkit, JioMart and Big Basket. With real-time price comparison and delivery estimates, you can make smarter shopping decisions.

Quick Compare thus helps you save on your grocery bills and find the fastest delivery option across multiple platforms instantly. Instead of opening multiple apps and manually comparing stuff, this app allows you to do this in one single app.

The comparison is also available on their website – quickcompare.in – just enter your delivery area and the product and it will get you full details of the price and the estimated delivery commitments.

Once you choose where you wish to purchase from, you can just tap on it and purchase through the app as usual!

Android :https://tinyurl.com/quickcompare

Website :https://quickcompare.in/

TapScanner

This is an AI-enabled scanner which does much more than just scanning your documents. Of course, scanning is the primary function – you can scan anytime with your phone. But it is after scanning that the real magic starts!

You can edit and sign your pdf files after scanning and then share the files to your preferred platform. IDs and passports can be scanned in Digital Format. After scanning, you can convert the scans to multiple formats – .jpg, .txt, .doc or .pdf. An eraser is in-built to remove unwanted material from scanned documents. And then, AI kicks in – if you take a scan of multiple objects, AI can count the number of objects and display the results. And, if you scan a food item, it will even calculate the number of calories in that dish! Scan plants and get AI plant tips, along with recommendations!

A very interesting way to scan using AI – there is a free trial and if you like what you experience – go ahead and buy it!

Android :https://tinyurl.com/tpscn

YouTube Create

Convert your phone into a dashcam with Droid Dashcam!

Droid Dashcam is a great driving video recorder (dashboard camera, BlackBox) app for car / vehicle drivers that can continuously record videos in loop mode, add subtitles with needed information directly on those videos and record in the background, auto start recording, and much more.

You can overlay captions directly on the Recording Video file, including Timestamp (Date), Location Address, GPS Coordinates, Speed (based on GPS data), etc. You can continue recording in the background and use other apps that don’t use camera. You can also use the notification panel to start/stop recording while this app is running in the background. You can use any camera for recording (rear / front) but only some devices allow you to choose a camera with a wide-angle lens.

Overall, it is a great app if you will use your dashcam sparingly and do not need it daily.

Android : https://tinyurl.com/ytcrte

Learning Events at BCAS

1. Indirect Tax Laws Study Circle Meeting on “Issues in the Hospitality Sector” held on Monday 14th April 2025 @ Virtual.

The 1st meeting of the Indirect tax study circle for 2025-26 was held on 14th April, 2025 and attended by 90 participants. The Group Leader CA. Ronak Gandhi, prepared case studies covering the following contentious issues in GST pertaining to the hospitality sector:

a) Issues in determining the GST Rate for hotel accommodation services & restaurant services based on the room rate and the impact of additional services, such as extra beds, on such classification.
b) Eligibility of ITC on capital goods used for restaurants and already put to use, if the hotel decides to opt in as specified premises.
c) Classification conundrum (sale vs. services) for bakery and other ready to eat items supplied by eating joints, not operating as a traditional restaurant.
d) Taxability of packaged food items, water bottles & other beverages sold by Quick Service Restaurants
e) Tax implications of combo deals involving supply of food with alcohol for a lumpsum consideration
f) Valuation issues for goods supplied below the cost by a restaurant
g) Valuation issues for goods supplied to franchise-owned outlets vs company-owned outlets

A detailed deliberation was held on the case studies, and the members appreciated the efforts put in by the group leader & group mentor CA. Yash Parmar, Mumbai.

2. International Economics Study Group — Trump’s Tantrums: Shaping & Shaking Contemporary Geopolitics & Geo-Economics held on Tuesday 8th April, 2025 @ Virtual.

In the meeting, CA Harshad Shah presented key global geopolitical & economic developments, prompting a lively exchange among the Group. The discussion addressed the ongoing tariff war and Trump’s territorial expansion agenda. Emerging trends such as de-dollarization, higher Bond yields, information warfare, and supply chain conflicts were explored alongside the escalating U.S.-China rivalry. Members argued that tariffs alone cannot fix the trade deficit, as they simply shift consumer spending rather than solve core problems. The Group highlighted negative outcomes of such policies, including higher consumer prices, reduced exports, and disruptions to global trade, all of which could weaken U.S. competitiveness and its financial leadership. With U.S.-China trade declining, India was seen as well-positioned to gain from new export opportunities. The meeting concluded with concerns about the risk of a U.S. recession or worse amid these turbulent dynamics.

3. Indirect Tax Laws Study Circle Meeting on “Issue In GST Refund” held on Thursday, 27th March, 2025 @ Virtual

Group leader CA. Nihar Dharod, prepared case studies covering various contentious issues around refunds under GST in consultation with Group Mentor AdvKeval Shah, Mumbai.

The material covered the following aspects for detailed discussion:

1. Implication of section 16 (5) on refund rejection orders that are not challenged
2. Is the claim for refund of tax paid on SEZ supplies subject to limitation?
3. Refund claims arising due to negative tax liability on account of credit notes
4. Interest on refunds delayed due to litigation.
5. Refund of tax paid on contracts cancelled after the time limit prescribed u/s 34.
6. Whether retention clauses in export contracts result in non-compliance with realization provisions?
7. Implications of amendments relating to rules 89 (4A), 89 (4B) and 96 (10).

Around 50 participants from all over India benefitted while taking an active part in the discussion. Participants appreciated the efforts of the group leader & group mentor.

4. International Women’s Day 2025 “EMPOWERED WOMEN = EMPOWERED LIVES” held on Monday, 24th March 2025 @ BCAS

The Women’s Day event for 2025 was held on 24th March 2025 at the BCAS Hall at Jolly Bhavan. The SMPR Committee and the HRD Committee jointly conducted the event. The theme for the event was Empowerment, and to celebrate this theme, three ladies who are themselves empowered in various capacities, addressed the gathering.

CA Shradhha Joshi Barde, who is an entrepreneur in the field of sustainable and slow fashion, shared her journey from numbers to fashion. She explained the concept of slow fashion and also elaborated on mindful consumption which can have a great ecological impact.

When we talk of empowerment, there are various enablers to this aspect, the key ones being a healthy mind and a healthy body. Ms Neha Pandit Tembe, who is a qualified nutritionist very well elaborated on the various aspects of health from the point of view of nutrition. She included the concepts of a healthy plate, healthy inventory shopping as also reading food labels, which was very insightful. Ms Prajakta Gupte conducted an interactive session where she made the audience do some exercises which they could do at their workplaces and avoid aches and pains. She also conducted breathing exercises and meditation.

The event was well received by the audience, whose feedback made it clear that they had great takeaways from the session.

Youtube Link: https://www.youtube.com/watch?v=LOH4XqgM2mw

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5. BCAS Nxt Learning and Development Bootcamp on Bank Branch Audit from Article’s Perspective held on Saturday, 22nd March, 2025 @ Virtual

The Human Resource Development Committee of BCAS organized a BCAS NXT Learning & Development Bootcamp on “Bank Branch Audit from Article student’s perspective” on Saturday, 22nd March, 2025. The session was led by Mr Atharva Joshi & Ms Sanskruti Nalegaonkar, CA Final students, who delivered a comprehensive presentation on the planning & preparation for bank branch audit. The presentation covered a wide range of topics, including Key concepts & Essential Terms, LFAR & compliance reporting, Core audit areas and Audit finalization & closure. They also shared practical experiences to help beginner article students navigate the complexities of Bank Branch Audits.

CA Rishikesh Joshi, the mentor for the session, provided valuable insights and guidance throughout, offering expert interventions as needed. The boot camp was held in person at the office of Kirtane&Pandit LLP, Chartered Accountants and streamed online, with active participation from students across India.

Youtube Link: https://www.youtube.com/ watch?v=Wdh075aF1O8

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6. XIIIth Residential Study Course on IND AS held from Thursday 20th March, 2025 to Saturday 22nd March, 2025@ The Rhythm Lonavala.

BCAS has always been a pioneer in equipping its members in particular and other stakeholders at large, with the knowledge of Ind AS. BCAS had started the subject specific Residential Study Course (RSC) for achieving the stated objective.

The Accounting & Auditing Committee organised its XIIIthInd AS Residential Study Course to address the practical challenges in IND AS and also share the experiences of experts in dealing with and addressing such challenges. This year, the format of the RSC included 3 papers for Group Discussion (GD) covering a very wide range of interesting issues, 2 papers for presentation, followed by the Panel discussion by eminent panellists. The RSC was held for 2 nights and 3 days from 20th March 2025 to 22nd March, 2025 at Rhythm Hotel, Lonavala.

The main objective of the RSC was to provide a platform to the Members in Industry and Practice to come together and get the opportunity to get deep insights into the practical challenges which they face while implementing the complex standards. The individual sessions were designed to give practical and case study-based insights to the participants on various topics.

RSC Programme Schedule included the following topics and speakers:

The RSC was inaugurated with the opening remarks from the President of BCAS, CA Anand Bathiya, followed by the Chairman of the Accounting and Auditing Committee – CA. Abhay Mehta, both of them underline the importance of knowledge sharing and the role of the BCAS in conducting such a Residential Study Course. To make the RSC interesting and engaging, domain expert speakers with relevant experience were invited to give participants practical insights and wholesome experiences.

The course started with the presentation session of CA Himanshu Kishnadwala, where he updated the participants on various NFRA orders, practical examples and issues and Learnings from the same. He also highlighted the NFRA Educational series which would be relevant for the Audit Committee to discuss the issues in Audit with the Auditors.

The first Group Discussion on Ind AS 116 on Lease &Ind AS 103 on Business Combination under common control was followed by the Session of the paper writer – CA Alok Garg who dealt with both the IND AS and critical case studies covering detailed concepts of both the standards besides sharing his practical experience of the industry with the participants.

The second Group Discussion on Ind AS 115 on Revenue from Contracts with Customers was followed by the Session of the paper writer – CA Archana Bhutani, covering the issues in Revenue Recognition and also covering concepts and issues in E-Commerce and Fintech platforms. The paper writer also made the presentation on Updates on Important Amendments in Ind AS Applicable to the March 2025 closure and also highlighted amendments in relevant IFRS.

The third Group Discussion on Case Studies on Intricacies in Financial Instruments (Ind AS 32 &Ind AS 109) was followed by the Session of the paper writer – CA R. Venkat Subramani, covering the issues in ECL and Hedge Accounting.

The Panel Discussion on Connectivity between Financial Statements and Sustainability was moderated by the Chairman of the Committee – CA Abhay Mehta, covering the relevant Issues and Questions for the eminent Panelists CA Himanshu Kishnadwala who shared his experience as a Member in Practice on the professional opportunities available to the members in the areas of ESG and CA Raj Mullick as Member in Industry sharing his experience and challenges in implementing ESG and sharing his views on Carbon Credits.
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The RSC provided excellent opportunity to gain valuable knowledge and practical insights on the topics covered and gave the chance to interact with the speakers and participants through informal chats. 70 participants from across India attended the course, and was well received, and the overall feedback from the participants was very encouraging.

7. Finance, Corporate and Allied Law Study Circle Meeting on “How to read and analyse Annual Report” held on Friday, 7th March 2025 @ Virtual.

The session was intended to highlight the need for a paradigm shift from financial literacy to financial intelligence, i.e. not only to be able to read the annual report but to attempt to understand and analyse the same and connect the dots to unlock the secrets of the annual report.

CA Pankaj Tiwari’s approach from concept to case studies made the session very enriching.

He took the participants through the regulatory framework contents of the annual report, including critical areas, identification of red-flags, key points for investors, ICAI’s AI tools for analysis, important aspects in analysis, and recent developments in India and globally in financial reporting. He emphasised to connect the dots between financial as well as equally important non-financial information.

He was joined by CA Meet Gandhi for certain case studies.

To summarise, the learned speaker, through his vast knowledge and experience, enlighted the participants about the intelligent analysis of the annual report.

Youtube Link: https://www.youtube.com/watch?v=WLxs8_S_BoA

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8. आDaan-Daan– BCAS Mentoring Circle – Season 4

The fourth season of ‘आDaan-Daan – BCAS Mentoring Circle’, an initiative of the Seminar, Membership and Public Relations Committee of BCAS, unfolded between January and March 2025, with 19 mentors and 20 mentees coming together for one-on-one online sessions.

This year, the program welcomed participants without any age restrictions, acknowledging the evolving nature of mentorship, including a few reverse mentoring requests received in the previous season.

Open to both members and non-members, the series continued its aim of fostering meaningful professional conversations.

Rather than a fixed format, mentees set the direction—sharing their background, aspirations, and challenges in advance—giving mentors the opportunity to prepare and personalise the interaction.

The strength of the series lay in its simplicity: guided conversations that encouraged reflection, direction, and clarity. Care was taken to pair each mentee with a mentor whose experience aligned with their goals.

Feedback from both sides pointed to the value of a safe space for exchange, where curiosity met experience. Mentors appreciated the platform to contribute meaningfully, while mentees walked away with new insights and confidence.

The Committee thanks all participants and looks forward to building on this growing community of shared learning.

9. Online Panel Discussion on Recent Developments in Taxation of Charitable Trusts held on Thursday, 20th February, 2025 @ Zoom

The webinar on the recent developments in the taxation of charitable trusts got more than 100 plus registrations.

Dr. Manoj Fogla discussed the background and implications of the two landmark Supreme Court decisions (New Noble Education Society and Ahmedabad Urban Development Society) that unsettled many settled legal positions regarding charitable trusts. He explained how charitable trusts traditionally generate income and the challenges posed by recent amendments and court rulings on the taxability of various types of income, including incidental business activities. He also provided insights into the spirit of the law concerning the application of income by trustees and the evolving interpretation under section 11 of the Income Tax Act.

CS Suresh Kumar Kejriwal took the lead in explaining the amendments proposed in the Finance Bill and the Income Tax Bill 2025, focusing on key concepts such as “substantial contributor,” “specified persons,” and the new rules affecting the exemption and business income of charitable trusts. He elaborated on how these amendments impact the compliance and tax planning for trusts, especially in light of the unsettled legal landscape after the Supreme Court decisions.

Mr Gautam Nayak moderated the session, introduced the panellists, and contextualized the discussion by highlighting the significance of the topic for the nonprofit sector. He emphasized the role of IMC and BCA in supporting professionals and organizations through knowledge dissemination and advocacy on taxation issues affecting charitable trusts.

This structured presentation helped clarify the complex and evolving tax framework for charitable trusts in India, addressing recent Supreme Court rulings, legislative amendments in 2023 and 2024, and the implications of the newly introduced Direct Tax Bill. The experts provided practical guidance on compliance challenges and strategic considerations for charitable trusts under the current tax regime.

Youtube Link: https://www.youtube.com/watch?v=l00dA2jYgf0

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10. Webinar on New Income Tax Bill, 2025 held on Tuesday 18th February, 2025 @ Zoom

The webinar on the new Income Tax Bill 2025 featured esteemed Chartered Accountants discussing the bill’s implications, structure, and expected impact. It got more than 600 plus registrations.

CA GautamNayak addressed some of the important points as enumerated below:

  •  Outlined the bill’s structural changes: reduction in sections (from 819 to 536), chapters (from 47 to 23), and word count (from about 512,000 to 260,000), with schedules increased from 11 to 16.
  •  Highlighted the removal of complex provisos and explanations, replaced by clearer subsections and clauses, and elimination of confusing alphanumeric section numbers.
  • Warned that frequent amendments may continue to complicate the law over time, potentially undermining the simplification effort.
  •  Noted the government’s provision of FAQs and a navigator tool to help users transition from the old to the new law.
  •  Stressed that the bill has been referred to a parliamentary Select Committee for further review, and its ultimate impact will depend on future amendments and implementation.

Some of the key points addressed by CA Bhadresh Doshi:

Budget Speech Expectations: Despite the Finance Minister’s indication that the new Income Tax Bill would carry forward the “spirit of Naya” (newness), similar to the changes in the Indian Penal Code, there were no significant decriminalization or dilution of penal provisions for offences like TDS/TCS defaults.

Commendable Effort with Side Effects: CA Doshi acknowledged the commendable effort of 150 officers who spent approximately 60,000 man-hours simplifying the six-decade-old law but pointed out potential “side effects” resulting in new complications.

Missing Punctuation and Language Issues: He highlighted instances where simplification led to issues due to changes in language.

Inconsistencies in Referring to Old Provisions: He pointed out inconsistencies in how the new bill refers to the Income Tax Act, 1961, and the Indian Income Tax Act, 1922, across different sections.

Income from Salaries: CA Doshi noted no changes in provisions related to income from salaries, except for government employees, where the entertainment allowance deduction under Section 16 has been omitted in the new bill (Section 19).

Income from House Property: CA Doshi discussed several changes in provisions related to income from house property:

Intentional vs. Unintended Changes: CA Doshi clarified that it is unclear whether the identified changes were intentional or unintended errors, and only time will reveal their true nature.

In summary, CA Doshi’s key points revolved around unintended complications arising from the simplification process, inconsistencies in referencing older laws, and specific changes in provisions related to house property and salaries. He emphasized the need for careful interpretation and potential rectifications in the future.

The webinar was very well received by the participants.

II. OTHER EVENTS

1. Session On Eye Health Care for the BCAS Staff held on Tuesday 8th April, 2025 @ BCAS

The Bombay Chartered Accountants’ Society (BCAS) organised a session on eye health care on 8th April, 2025. The session was conducted by Dr. Viram Agrawal, a renowned expert in eye care. It was held at BCAS premises from 5:30 p.m. onwards. The session aimed to educate staff members on maintaining good eye health and preventing eye-related problems.

Dr Agrawal shared practical tips on reducing eye strain, such as blinking regularly and palming. Staff members learned about best practices for protecting their eyes from potential hazards.

Staff members actively participated in the session, asking questions and engaging in discussions. Dr. Agrawal’s expertise and guidance were highly appreciated by the attendees. Staff members left with practical knowledge and awareness about maintaining good eye health.

The eye health care session reflects BCAS’s commitment to prioritizing staff well-being and promoting holistic growth and development. By organizing such initiatives, BCAS demonstrates its concern for staff’s overall health and well-being.

2. Session on Yoga for the BCAS Staff held on Monday 17th February, 2025 @ BCAS

As part of our ongoing staff development program, the Bombay Chartered Accountants’ Society (BCAS), CA Raman Jokhakar, Past President of the BCAS, conducted an informal session on Yoga and how it is beneficial for the staff working in BCAS, on 17 February 2025, at Churchgate Chambers from 5:30 p.m. onwards.

He informed about the yoga techniques and breathing exercises to reduce stress and improve productivity. He also highlighted the benefits of yoga for overall health. He suggested to invite a yoga expert who can show the yoga techniques to the staff. The session was informative, engaging, and well-received, boosting staff morale and productivity. BCAS continues to prioritise staff well-being and development, reflecting its commitment to holistic growth.

CA Raman Jokhakar also suggested a future session on eye health care with Dr Viram Agrawal, further demonstrating BCAS’s dedication to staff’s overall health and well-being. The session was a success, and the feedback was positive.

III. BCAS QUOTED IN NEWS & MEDIA

BCAS has been quoted in 113 esteemed news and media platforms, reflecting our thought leadership and commitment to the profession. For details

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

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High Value Debt Listed Entities – Corporate Governance Reforms

BACKGROUND

The Securities and Exchange Board of India (“SEBI”), in exercise of its powers under the SEBI Act, 1992 has introduced the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 (“LODR Amendments, 2025”) which has made a pivotal reform in corporate governance norms applicable to High Value Debt Listed Entities (“HVDLEs”)

SEBI has introduced a new governance regime under Chapter VA of the SEBI (LODR) Regulations, effective from 1st April, 2025, exclusively applicable to High Value Debt Listed Entities (HVDLEs)—defined as listed entities having outstanding listed non-convertible debt securities of ₹1,000 crore or more and does not have any listed specified securities. Notably, this chapter ceases to apply automatically if the outstanding listed debt falls below the ₹1,000 crore threshold for three consecutive financial years. In case outstanding debt equals or exceeds ₹1,000 crore during the financial year, the company shall ensure compliance with such provisions within six months from the date of such trigger.

This sunset clause introduces a dynamic compliance parameter, requiring ongoing monitoring of eligibility thresholds and continuity of governance obligations based on capital structure and market presence. This implies that secretarial, legal, and compliance teams must periodically reassess regulatory status and plan transition frameworks accordingly.

These reforms institutionalise greater transparency, board and committee efficacy, and stakeholder accountability, while introducing uniform compliance timelines and enhanced audit oversight. SEBI has reaffirmed its commitment to a resilient and investor-centric capital market framework that upholds market integrity and governance discipline.

BOARD COMPOSITION REQUIREMENTS

Chapter V-A mandates that the board of HVDLEs comprise of at least 50% non-executive directors and include at least one-woman director. Furthermore, directorship ceilings have been formalised—capping overall listed entity directorships at seven, and for whole-time directors acting as independent directors, the limit is set at three.

Where the Chairperson of Board of Directors is Non-Executive Director, at least one third of Board of Directors shall comprise of Independent Directors and where the listed entity does not have regular non-executive chairperson, at least half of Board of Directors shall comprise of Independent Directors. This structural alignment with entities having listed equity, promotes governance diversity, and encourages focused board participation.

For professionals advising on board constitution or holding multiple governance roles, this entails an essential review of existing mandates and directorship portfolios to ensure continued eligibility. Company Secretaries and Nomination and Remuneration Committees (‘NRC’) will be expected to institutionalise these checks through robust board database management and real-time compliance tracking tools.

MANDATORY CONSTITUTION OF BOARD COMMITTEES

The amended framework further strengthens mechanism by oversight by mandating the constitution of four key committees—Audit Committee, NRC, Stakeholders Relationship Committee, and Risk Management Committee.

The Audit committee shall have minimum of three directors as members out of which at least two-thirds of the members shall be independent directors. This brings HVDLEs in closer alignment with governance practices as applicable to entities having listed equity, but more importantly, it necessitates substantive engagement at the committee level.

Committee charters must be carefully formulated to reflect both statutory responsibilities and entity-specific risk environments. Professionals involved in board advisory, internal audit, and governance roles must support the formalisation of these committees through functional delineation, performance evaluation mechanisms, and governance reporting metrics.

RELATED PARTY TRANSACTION (RPT) POLICY AND APPROVALS

In a significant enhancement, the amendment mandates that HVDLEs formulate a policy on materiality of RPTs, to be reviewed at least once every three years. Notably, royalty or brand usage payments exceeding 5% of annual turnover are deemed material. All material RPTs as defined by the audit committee under sub-regulation (3) of regulation 62K, shall require prior approval from the audit committee and a No Objection Certificate from the debenture trustee.

Transactions entered with a related party individually or together with previous transactions during a financial year exceeding Rupees one thousand crore or ten percent of the annual consolidated turnover shall be considered material. While omnibus approvals are permitted, they are capped at a validity of one year.

This layered approval structure significantly strengthens the governance lens applied to inter-group or related party dealings. Professionals engaged in transaction advisory or guiding on setting up group governance frameworks must be mindful of procedural rigour, especially where prior approvals are required across stakeholders with differing interests. The compliance function must also be equipped to track omnibus approvals with adequate audit trails and expiry thresholds.

PERIODIC RPT DISCLOSURES

Entities are now required to submit half-yearly disclosures of all RPTs in a prescribed format alongside standalone financial statements to the stock exchanges. This increased disclosure frequency enhances transparency and reinforces market discipline around related party dealings.
It necessitates the integration of finance and secretarial functions to align reporting cycles, automate data extraction from accounting systems and ensure that all disclosures are reconciled with board approvals and audit committee records.

GOVERNANCE OF MATERIAL UNLISTED SUBSIDIARIES

To prevent governance arbitrage via unlisted arms, the amendment prescribes that material unlisted subsidiaries incorporated in India must have at least one independent director from the HVDLE on their board. Additionally, financials of such subsidiaries must be reviewed by the audit committee, and significant transactions must be disclosed by the holding company at the board level.

The Minutes of the meeting of the Board of Directors of the unlisted material subsidiary shall be placed at the meeting of Board of Directors of the HVDLE. Any disposal of shares or relinquishment of control in these subsidiaries requires a special resolution from shareholders.

This aligns group-wide governance structures and ensures that key strategic actions in subsidiaries receive full parent board visibility and shareholder scrutiny. From a legal perspective, this underscores the need for pre-transaction governance checks and documentation alignment between subsidiary and parent company.

OBLIGATIONS WITH RESPECT TO EMPLOYEES INCLUDING SENIOR MANAGEMENT, KEY MANAGERIAL PERSONNEL, DIRECTORS AND PROMOTER

A director cannot serve on board of more than ten committees or act as a chairperson on more than five committees across all listed entities which shall be determined as follows: –

a) For calculating the limit of the committees on which a director may serve, all public limited companies, whether listed or not, including HVDLEs and all other companies including private limited companies, foreign companies and companies under Section 8 of the Companies Act, 2013 shall be excluded

b) For the purpose of determination of limit, chairpersonship and membership of the audit committee and the stakeholders’ relationship committee alone shall be considered.

Directors must inform HVDLEs about their committee roles and updates. All board members and senior management must annually affirm adherence to the code of conduct. Senior management must disclose any financial or commercial transactions with potential conflicts of interest. Additionally, no employee, director, or promoter can enter into compensation or profit-sharing agreements related to securities dealings without prior board and shareholder approval. Such agreements, including those from the past three years, must be disclosed to stock exchanges and approved in upcoming board and general meetings, with all interested parties abstaining from voting.

SECRETARIAL AUDIT AND COMPLIANCE REPORTING

This regulatory amendment mandates secretarial audit not only for the HVDLEs but also for their Indian-incorporated material unlisted subsidiaries. Additionally, a secretarial compliance report must be submitted to the stock exchanges within 60 days from the end of each financial year. For practicing professionals in this space, this introduces an expanded scope of responsibility across the group and demands elevated diligence in maintaining verifiable documentation and audit evidence. Advisory teams must ensure that the governance processes implemented at the subsidiary level are harmonised with the parent’s frameworks and withstand regulatory scrutiny.

OTHER CORPORATE GOVERNANCE REQUIREMENTS

HVDLE must submit a periodic corporate governance compliance report, in a format prescribed by the SEBI, to recognized stock exchanges within 21 days of the end of the reporting period. This report should include disclosures of material related party transactions, any cyber security incidents or data breaches, and must be signed by either the compliance officer or the CEO.

Additionally, HVDLEs may include a Business Responsibility and Sustainability Report in their annual report, covering environmental, social, and governance (ESG) disclosures, as specified.

WAY FORWARD

These amendments, demand deeper engagement in board and committee processes, necessitate refined documentation and disclosure systems, and requires cross-functional alignment amongst legal, secretarial, finance, and strategy teams.

Implicitly, it raises the expectation of professionals, to act not just as compliance certifiers, but as enablers of robust governance architecture, particularly in a high-value debt context where stakeholder expectation and responsibilities are distinct from equity markets.

The following changes may be required way forward for effective implementation of the amendments:

  •  Shift From Reactive to Proactive Compliance

Listed entities must transition from reactive compliance to a proactive, technology-enabled governance framework, incorporating real-time dashboards and cross-functional coordination to ensure continuous regulatory alignment.

  •  Empowered and Data-Driven Board Committees

Board committees must be empowered with data-driven insights, independent expert access, and enhanced oversight capabilities to fulfil their fiduciary and statutory responsibilities with greater diligence and accountability.

  •  Elevating the Compliance Function

The compliance function must be redefined as a strategic pillar, with compliance officers, legal counsels, and corporate secretaries acting as proactive advisors on governance, ethics, and reputational risk.

  •  Reinforcing Transparency in KPIs and RPTs

Entities must implement robust protocols for KPI disclosures and related party transactions,  ensuring materiality, auditability, and arm’s-length standards in line with both domestic and global benchmarks.

Regulatory Referencer

DIRECT TAX : SPOTLIGHT

1. Order under section 119 of the Income-tax Act, 1961 for waiver regarding levy of interest under section 201(1A)(ii)/ 206C(7) of the Act, in specific cases – Circular No. 5/2025 dated 28th March, 2025

While making payments of TDS and TCS to the credit of the Central Government as per section 200 and 206C of the Act, the taxpayers have encountered technical glitches. Due to such glitches, the amount is credited to the Central Government after the due date. The CCIT, DGIP or PrCCIT may reduce or waive interest charged under section 201(1A)(ii) / 206C(7) of the Act in the class of cases where-

1) the payment is initiated by the taxpayers / deductors /collectors and the amounts are debited from their bank accounts on or before the due date, and

2) the tax could not be credited to the Central Government, before due date because of technical problems, beyond the control of the taxpayer / deductor / collector.

2. Income-tax (Sixth Amendment) Rules – Notification No. 21/2025 dated 25th March, 2025

a) Amendment to Rule 10TD(3B) – Safe Harbour Rules to apply to Assessment year 2026-27

b) Amendment to Rule 10TE(2) – specific safe harbour benefits apply to one assessment year only

c) Safe harbour margins for multiple international transactions have been revised

3. Amendment to clauses of Form 3CD – Income-tax (Eighth Amendment) Rules – Notification No. 23/2025 dated 28th March, 2025

4. Rule 114 is amended to provide that every person who has been allotted permanent account number on the basis of Enrolment ID of Aadhaar application form filed prior to the 1st day of October, 2024, shall intimate his Aadhaar number to prescribed tax authorities on or before the 31st day of December, 2025 or such date as may be specified by the Central Board of Direct Taxes in this behalf. –

Income tax (ninth Amendment) Rules, 2025 – Notification No. 25/2025 and No. 26/2025 dated 3rd April, 2025

5. No TDS is required to be deducted under section 194EE on withdrawals made by an individual from NSS accounts on or after 4th April 2025. – Notification No. 27/2025 dated 4th April, 2025

6. Insertion of Rule 12AE and Form ITR B – Income-tax (Tenth Amendment) Rules – Notification No. 30/2025 dated 7th April, 2025

The return of income required to be furnished by any person under section 158BC(1)(a) relating to any search initiated under section 132 or requisition made under section 132A on or after the 1st September, 2024 shall be in Form ITR-B.

7. 30th April, 2025 shall be the last date, to file declaration under Vivad se Vishwas Scheme, 2024 Notification No. 32/2025 dated 8th April, 2025

FEMA

1. RBI issues new Master Direction on “Compounding of FEMA contraventions”, updates it again in a couple of days

RBI had revamped the framework for compounding of contraventions in September 2024. A Master Direction on Compounding has now been issued on 22nd April 2025. While the Master Direction compiles the Instructions and underlying Notifications / Circulars, there have been important amendments made too on 22nd April 2025. The provision of linking of compounding amount to earlier compounding applications has now been removed. Further, while intimating the online payment of compounding application fees, certain additional details are now required to be mentioned in the email. These are – mobile number; Office of RBI to which payment is made; and the Mode of submission of application – Physical or through PRAVAAH Portal.

There has been a further amendment made to the Compounding Matrix on 24th April 2025. A cap of ₹12 lakhs per contravention of each rule/ regulation has been prescribed for compounding penalty considering the nature of contravention, exceptional circumstances and in wider public interest – as per the satisfaction of the Compounding Authority. An important point to note here is that this cap is applicable only to residual cases in Row 5 of the compounding matrix and not the other contraventions specified in Rows 1 to 4 of the matrix.

[A.P. (DIR Series) Circular. No 02/2025-26 dated 22nd April, 2025]

[A.P. (DIR Series) Circular. No 04/2025-26 dated 24th April, 2025]

2. RBI keeps FPI investment limits in G-Secs, SGSs, and corporate bonds unchanged for FY 2025-26.

The limits for Foreign Portfolio Investment remain unchanged for 2025-26 at six per cent for Government Securities (G-Secs), two per cent for State Government Securities (SGSs) and fifteen per cent for corporate bonds. All investments by eligible investors in the ‘specified securities’ shall be reckoned under Fully Accessible Route (FAR). The aggregate limit of the notional amount of Credit Default Swaps sold by FPIs shall be five per cent of the outstanding stock of corporate bonds.

[A.P. (DIR Series 2025-26) Circular No. 1, dated 3rd April 2025]

3. Bonus shares can be issued in FDI-prohibited sectors if pre-existing foreign shareholding doesn’t change: Government clarifies.

A clarification is inserted under Para 1 of Annexure 3 to the FDI Policy. It states that an Indian Company engaged in a sector/activity prohibited for FDI, is permitted to issue bonus shares to its pre-existing non-resident shareholder(s) if the shareholding pattern of the pre-existing non-resident shareholder(s) does not change on account of the issuance of bonus shares. This clarification will be effective from the date of amendment in the applicable FEMA Notification which is pending.

[Press Note No. 2 (2025 SERIES)]
[DPIIT F.NO. P-15022/1/2025-FDI POLICY], dated 7th April 2025]

4. IFSCA amends ‘Framework for Ship Leasing’; permits lessors to open SNRR accounts with authorised dealers outside IFSC.

“Currency for conduct of business” provisions of the “Framework for Ship Leasing” have been amended. Lessors are now permitted to raise invoice in any foreign currency specified in IFSCA (Banking Regulations), 2020. The lessor can open an SNRR account with an authorised dealer, even outside IFSC.

Further Clause 2 of circular on “Additional requirements for carrying out the permissible activities by Finance Company as a lessor under ‘Framework for Ship leasing’” is also amended. The restricted activities – transfer of ownership or leasehold right of a ship or ocean vessel, from a resident to an entity set up in IFSC, for the purpose of providing services solely to resident – shall not be undertaken in any single financial year. Further, this restriction shall not apply when a new ship or ocean vessel is acquired from a shipyard in India.

[Circular F. No. 496/IFSCA/FC/SLF/2025-26/01, dated 7th April 2025]

5. Requirement for meetings of Governing body of IFSC Banking Units relaxed: IFSCA.

The IFSCA has relaxed the requirement for meetings of the governing body of IFSC Banking Units (IBUs). The governing body must now meet at least once in each quarter of a financial year, and there is flexibility to hold additional meetings as needed. This replaces the earlier mandate of meeting at least once each quarter as well as six times in a financial year.

[Circular F. No. IFSCA-FMPP0BR/8/2025-Banking/001, dated 8th April 2025]

6. RBI issues draft unified export-import norms, seeks public input by 30th April 2025.

RBI had earlier released draft regulations and directions on Export and Import of Goods in Services in July 2024 and invited public feedback and comments on the same. Based on the feedback received, the RBI has made further changes. These drafts are open for public comments till 30th April 2025.

[Press Release No. 2025-26/41, dated 4th April 2025]

7. IFSCA notifies ‘Capital Market Intermediaries Regulations’ outlining framework for registration of intermediaries operating in IFSCs.

The IFSC Authority has replaced the IFSCA (Capital Market Intermediaries) Regulations, 2021 with IFSCA (Capital Market Intermediaries) Regulations, 2025. These regulations lay down the regulatory framework for registration, regulation, and supervision of capital market intermediaries operating in IFSCs in India. Further, the regulations cover norms relating to registration of capital market intermediaries, application procedures, net worth requirements, and the appointment of principal officer, compliance officer, and other human resources.

[Notification No. IFSCA/GN/2025/003, dated 17th April 2025]

8. IFSC Authority notifies KYC Registration Agency Regulations, 2025

IFSCA has notified the IFSC (KYC Registration Agency) Regulations, 2025. These regulations cover provisions related to the application for the grant of a certificate of registration, the legal form of the applicant, net worth requirements, and the appointment of a Principal Officer, Compliance Officer, and other human resources. Further, regulations cover norms related to registration requirements, code of conduct, maintenance of books of account, and functions of KRA & Regulated Entity.

[Notification No. IFSCA/GN/2025/004, dated 17th April 2025]

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.11/2025-Central Tax dated 27th March, 2025

By above notification, Rule 164 of CGST Rules, which is regarding waiver scheme granted u/s.128A, is amended to bring more clarity to the scheme.

ii) The Finance Act, 2025 (Act No.7 of 2025) dt. 29th March, 2025 has been enacted. Various amendments proposed in the Budget 2025 are incorporated in this Act.

B. CIRCULARS

(i) Clarifications on GST Amnesty Scheme u/s. 128A of CGST Act – Circular no.248/05/2025-GST dated 27th March, 2025.

By above circular, clarifications about GST amnesty scheme u/s.128A of the CGST Act, 2017 are provided.

C. ADVISORY

i) Vide GSTN dated 16th March, 2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Uttar Pradesh is provided.

ii) Vide GSTN dated 3rd March, 2025, the information regarding Enhancements in Biometric Functionality for allowing Directors to opt for Biometric Authentication in Their Home State is provided.

iii) Vide GSTN dated 21st March, 2025, an advisory has been issued in relation to filing of application (SPL01/SPL02) under waiver scheme and to clarify that if the payment details are not auto-populated in Table 4 of SPL 02, it is advisable to verify the same in electronic liability ledger on the portal.

iv) Vide GSTN dated 2nd April, 2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Assam is provided.

v) Vide GSTN dated 4th April, 2025, the information about the change in Invoice Reporting Portal (IRP) vis-à-vis generation of Invoice Reference Number (IRN) is provided..

D. ADVANCE RULINGS

CBIC, vide Instruction No. 03/2025-GST, dated 17th April, 2025, issued Instructions regarding processing of applications for GST registration. Thus, comprehensive instructions have been issued now to take care of the latest developments and to provide clarity to the officers for processing of registration application.

E. ADVANCE RULINGS

Composite Supply – Renting charges with separate electricity charges. Duet India Hotels (Hyderabad) Pvt. Ltd. (AAAR Order No. AAAR/02/2025 Dated: 20th February, 2025) (Telangana).

The facts are that Duet India Hotels (Hyderabad) Private Limited (Lessor) (Appellant) are engaged in the business of running hotels. M/s. The Curry House Food’s Private Limited (“Lessee”) is engaged in the business of operation of restaurants. A Leave and License Agreement (“Agreement”) has been entered between the Lessor and Lessee whereby, the Lessor has granted licence to the Lessee to use the specified area (“Licensed Premises”) of the hotel for operating a restaurant at an agreed consideration called as licence fees.
In addition to the license fees, the Lessor is collecting other charges separately from the Lessee like security charges as well as electricity and water charges. Lessor charged GST on all such collections but lessee objected to pay the GST on electricity and water charges on the ground that electricity and water charges are reimbursement of expenses by the Lessee to the Lessor and these do not qualify as a supply under GST and that even if they qualify as supply, they are exempt from payment of GST.

To resolve issue, appellant had filed application for AR. The AR was decided by ld. AAR bearing Order No: 48/2022 dt: 14th July, 2022 – 2022-VIL-265-AAR.

The members of the ld. AAR differed in their opinion and gave following ruling.

Since the Members of Advance Ruling Authority have expressed differing views as above, the matter was referred to the Appellate Authority (AAAR), in terms of Section 98(5) of CGST/SGST Act, 2017.

The ld. AAAR referred to various clauses in agreement. It was noted that in addition to licence fees there are clauses for bearing of electricity and water charges as per actual by the lessee. The ld. AAAR observed that the provision of facilities like electricity and water etc. are on account of lessor and are for effective and hassle-free enjoyment of the premises. It is observed that the Lessee cannot fully and realistically enjoy the rented / leased premises unless electricity and water are provided. Therefore, supply of electricity and water form part of a composite supply of renting services by the Lessor to the Lessee, held the ld. AAAR.

In this respect the ld. AAAR relied upon CBIC Circular no. 206/18/2023-GST dt: 31st October, 2023 and particularly on Para 3.2.

In this respect, the ld. AAAR also rejected the argument of the appellant that it is acting as ‘pure agent’ as it does not fulfil conditions of Rule 33 of the CGST Rules, 2017.

As per Rule 33 there must be an authorisation by Lessee on Lessor when he makes payment to Electricity Department. However, in the present case, there is no sub-meter in the name of Lessee. Accordingly, the question of Lessee authorising the Lessor to pay the charges does not arise and the prescribed conditions are not fulfilled for lessor (appellant) to be treated as a pure agent, observed the Ld. AAAR.

The further contention of exempt supply of electricity under entry at Sl. No.25 of Notification No.12/2017-CT(R) was also rejected, as appellant is not Transmission or Distribution Licensee under
the Electricity Act, 2003. The ld. AAAR further held that it being a case of composite supply, where ‘renting of immovable property’ is the principal supply, the supply in the present case has to be treated as a supply of service of ‘renting of immovable property’, as per section 8(a) of CGST Act and shall be leviable to tax accordingly and cannot be claimed exempt. Thus the ld. AAAR upheld view of Member-Central and disposed of appeal.

Classification – Aluminium Composite Panels (ACP)/Sheets – HSN 7606 Aludecor Lamination Pvt. Ltd. (AAAR Order No. AAAR/04/2025 Dated: 20th February, 2025) (Telangana).

Regarding issue of classification of above item, the ld. Members of AAR differed in their views while giving AR (Order no.05/2023 dt.12th April, 2023- 2023-VIL-83-AAR).

Therefore, an appeal proceeding was initiated as per section 98(5). The ld. respective members of AAR had passed following order:

In appeal, the ld. AAAR found that though the State Member opined that the said commodity is neither plastic nor aluminium wholly and as such cannot be classified either as plastic or aluminium (hence do not fall under any of the Tariff Headings 3920 or 7604 or 7610), he is silent on correct classification.

The ld. AAAR observed that, on the other hand, the Central Member has examined the matter in detail, in line with rules for interpretation of tariff and various case laws. It is further observed that the ld. Member has followed classification as per “tariff item”, “sub-heading”, “heading”, and “chapter” mentioned in the schedules to the relevant notifications, with further reference to the First Schedule to the Customs Tariff Act, 1975. The ld. AAAR favoured with findings of Central Member and also found that the reasoning of Central Member for holding of product as falling in 7606 is based on various decisions of CESTAT.

The ld. AAAR, accordingly, concurred with Central Member and ruled that the ACP falls in heading 7606.

Classification – Fish Finders vis-à-vis ‘Part’ of Fishing vessel Kunthunath Trading & Investments Pvt. Ltd. (AAR Order No. ARA-23-24/24-25/B-100 Dated: 28th February, 2025) (Mah)

The applicant M/s. Kunthunath Trading & Investments Pvt. Ltd. sought advance ruling in respect of the following question:

“Whether fish finders merit classification as ‘Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907’ falling Entry 252 of Schedule I to Notification No. 1/2017 – Central Tax (Rate) dated 28th June, 2017 (as amended from time to time) and taxable at 5%?”

The applicant is engaged in the business of sale and distribution of fish finders.

The fish finder is a device boatmen use to locate fish in the water. They work on the Sound Navigation and Ranging (SONAR) technology. It works by sending sound waves in water. These waves then strike an object and return to the device and relay important information like shape and size of the fish and so on.

The applicant was of opinion that Fish finders form an important part of fishing vessels and
hence merits classification under entry 252 of Schedule-I to Notification no.1/2017- CT (R) dt.28th June, 2017.

In support of its view that product is covered by entry 252, applicant has tried to prove that it is part of given vessel.

The judgments and dictionary meanings were relied upon.

It was emphasised that Fish finders are fitted on fishing vessels for the convenience of finding fishes in deep sea and hence, fish finders should be considered as an essential part of the fishing vessel which is classifiable under Entry 252 of Schedule I of rate notification.

The department objected to the above
submission on ground that a Fish Finder is not typically considered as a necessary part for the manufacturing of fishing vessel but rather an optional accessory or auxiliary equipment. The department supported its view with further explanation.

The ld. AAAR reproduced relevant entry as under:

The fishing vessels are covered by heading 8902.

The ld. AAR first dealt with meaning of ‘part’ as per dictionary.

The ld. AAR observed about nature of product that a Fish finder is a sonar instrument used on boats to identify aquatic animals, underwater topography and other objects by detecting reflected pulses of sound energy, usually during fishing activities. A modern Fish finder displays measurements of reflected sound on a graphical display, allowing an operator to interpret information to locate schools of fish, underwater debris and snags, and the bottom of a body of water.

The ld. AAR observed that Anchor, Bow, Bowsprit, Fore and Aft, Hull, Keel, Mast, Rigging, Rudder, Sails, Shrouds, Engines, gearbox, Propeller, Bridge, etc. are very essential parts of a ship or vessel and are quite clearly parts of a vessel/ship and a ship/vessel cannot be imagined to be in existence without these parts, but there can be additional equipments in a vessel. However, all such addition items cannot be considered to be part.

The ld. AAR further observed that ‘part’ is a separate piece of something or a piece that combines with other pieces to form the whole of something and even the second definition of ‘part’ also defines ‘part’ as one of the pieces that together form a machine or some type of equipment. Considering above scope of ‘part’, the ld. AAR held that Fish finder is not covered by scope of entry 252 and hence cannot be covered by tax rate of 5%.

Classification – “Transformers, Wind Operated Electricity Generators (WOEG),”

Suzlon Energy Ltd. (AAR Order No. GUJ/GAAAR/APPEAL/2024/08 (in application no. Advance Ruling/SGST & CGST/2022/AR/05) DT.30th December, 2024 (Guj)

The present appeal was filed by M/s. Suzlon Energy Ltd. (appellant). The brief facts are as under:

“- The appellant is engaged in supply of goods required for setting, up of power projects enabling generation of power through renewable sources of energy on its own & through its subsidiary companies;

– Appellant manufactures Wind Operated Electricity Generators [WOEG] falling under chapter 85023100; parts like Nacelle, Blades & Towers falling under chapter heading 8503; transformers falling under chapter heading 8504.
– Transformers for WOEG is installed on the ground adjoining WOEG & is a device to link the electricity generated by the WOEG to the distribution grid and make it usable for distribution / consumption;
– The appellant feels that the transformers are specially/specifically designed to be used along with WOEGs & is therefore to be treated as part of WOEG.”

Based on above facts, the appellant had sought Advance Ruling about classification of its product as falling under Sr. No. 234 in Schedule-I to Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017 liable to GST at the rate of 5% up to 30th September, 2021 and 12% from 1st October, 2021 under Entry No. 201A to Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017.

The ld. AAR, vide the impugned ruling dated 18.10.2021, held that Transformers are not part of WOEG and are leviable to CGST @ 18% vide Sr. No. 375 of Schedule-III of Notification No. 1/2017-CT (Rate) dated 28-6-2017.

Aggrieved by the aforesaid AR, the appellant has filed this appeal. Before the ld. AAAR, appellant put various contentions including citing of circulars and judgments.

The ld. AAAR observed that a clarification has already been issued on 20.10.2015 vide Circular No.1008/18/2015-CX by the Board, wherein details of parts on which exemption is available is specified.

The ld. AAAR concurred with AAR that transformers have not been included as parts of WOEG by the Ministry of New and Renewable Energy and hence, the contention of the appellant that they are parts of WOEG is not a legally tenable argument.

The ld. AAAR also held that the appellant has not produced any material before them which could lead them to a conclusion that transformer, in terms of their popular meaning /common parlance principle, is part of WOEG.

The ld. AAAR also held that exemption Notification should be read strictly and ambiguity, if any, should be resolved in favour of revenue.

Accordingly, the ld. AAAR held that the specially designed transformer for WOEG, which perform dual function of step down and step up, supplied by the appellant is not a part of WOEG and hence it would not be eligible for the benefit at Sr. No. 234 and Sr. No. 201A of exemption notification No. 1/2017-CT (Rate), as amended. The ld. AAAR confirmed AR and dismissed the appeal.

Time of Supply – Mobilization Advance

S. P. Singh Constructions P. Ltd. (AAR Order No. GUJ/GAAAR/APPEAL/2024/07 (in application no. Advance Ruling/SGST & CGST/2021/AR/04) DT.30th December, 2024 (Guj)

The facts of case are as under:

“- the appellant undertakes EPC [Engineering, Procurement, Construction] contract for construction of bridges & other projects for Government of India/State Government;

– as a sample, EPC contract dated 15th January, 2018, relating to construction of 4 lane Signature bridge between Okha and BeytDwarka on NH-51 is submitted, which has been entrusted by Ministry of Road Transport and Highways New Delhi [‘authority’/MORT&H] to the appellant.

– in terms of the EPC contract, the authority gives an interest-bearing advance equal to 10% of contract price for mobilization expenses, to extent financial assistance to mobilize resources for timely & smooth take off of the project;- this mobilisation advance, is in lieu of counter bank guarantee [BG] of 110% of the advance which would remain effective till completion and full repayment of the advance;

– the payment for construction work is done by the authority on completion of payment stage, as defined in the EPC contract & post this the appellant raises the invoice; a part of the mobilisation advance is reduced in proportion to the value of the work completed, as shown in the invoice; BG is also reduced in proportion to the mobilization advance adjusted in the invoices;
– the appellant, in his books, shows mobilization advance as a non-current liability, which is thereafter provisionally transferred to sale/consideration for service as and when proportionate amount is deducted from the invoices raised on the customers.”

With above facts, the appellant sought Advance Ruling on the question as to what is the time of supply for the purpose of discharge of GST in respect of mobilization advance received by it for construction services.

The GAAR vide Advance Ruling No. GUJ/GAAR/R/2022/06 dt.7th March, 2022- 2022-VIL-91-AAR held as follows:

“We note that SPSC does not contest the taxability on said Advance, but is before us for its deferment from date of its receipt to date of issue of invoice. We pass the Ruling based on Section 13(2) CGST Act read with its explanation (i).

Time of Supply, on said Advances received by SPSC for Supply of its Service, is the date of receipt of said advance.”

In appeal, the appellant made various submission and contentions.

The ld. AAAR noted various clauses about advance payment in EPC contract.

The ld. AAAR also referred to definition of ‘works contract’ in section 2(119) and observed that the EPC agreement between the appellant and MORT & H for construction of new 4-lane signature bridge connecting missing link between Okha and BeytDwarka, is a supply of service.

The ld. AAAR also referred to meaning of ‘consideration’ given in section 2(31), and section 13, which specifies Time of Supply of Services.

Reading sections 2(31) and 13, conjointly the ld. AAAR observed as under:

“liability to pay tax on services shall arise at the time of supply, which will be the earliest of the date of issue of invoice by the supplier, if it is issued within the prescribed period or the date or receipt of payment, whichever is earlier. The explanation to section 13(2) through a deeming, provision states that the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment & that “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. Further, the proviso to section 2(31) goes on to add that a deposit in respect of the supply of services shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.”

The ld. AAAR referring to clause 19.2.7 of agreement also held that the mobilisation advance/advance payment, is adjusted as a consideration towards the said supply and the proviso to section 2(31) stands satisfied & hence, the mobilisation advance/advance payment is a consideration as defined under section 2(31) of the CGST Act, 2017. Accordingly, the ld. AAAR held that the time of supply in respect of the mobilization advance/advance payment received by the appellant in respect of supply of service, is the date of receipt of such advance.

The benefit sought to be availed by appellant of notification No.66/2017 dated 15th November, 2017, exempting payment of GST on advance paid on goods, also rejected by ld. AAAR, as transaction is of service and not goods.

The ld. AAAR dismissed appeal, confirming ruling of AAR.

Goods And Services Tax

I. SUPREME COURT

6. [2025] 29 Centax 10 (SC) Central Board Of Indirect Taxes And Customs Vs. Aberdare Technologies Pvt. Ltd.

Dated 21st March, 2025.

Right to amend GST returns for rectifying bonafide errors of tax payer beyond the statutory time limit of 30th November cannot be denied where there was no loss to Revenue.

FACTS

Respondent, taxpayer had timely filed its GST returns for the periods July 2021, November 2021 and January 2022. However, certain errors in the returns were noticed in December 2023 and request was made to GST Authorities for rectifying such errors. However, petitioner rejected the request made by respondent stating that deadline of 30th November to allow rectification had already lapsed. Respondent filed a Writ Petition before Hon’ble High Court where rectification of returns was allowed. Being aggrieved, petitioner i.e. the revenue preferred this Special Leave Petition.

HELD

The Hon’ble Supreme Court without interfering with the decision of Bombay High Court held that the respondent has right to correct clerical or arithmetical error when there was no loss to revenue and without proper justification. Software limitations cannot justify denial of corrections as the same can be configured for ease of compliance. Accordingly, Special Leave Petition was disposed of in favour of respondent.

II HIGH COURT:

7. M/s. ShrinivasaRealcon Private Ltd. vs. Deputy Commissioner AE Branch CGST & CE Nagpur & Others Bombay High Court –

Nagpur Bench in Writ Petition 7135/2024 order dated April 08, 2025.

Transfer of Land Development Right : Not covered by Entry 5B of amended Notification 13/2017 –C.T. (Rate) dated 28th June, 2017.

FACTS

a) Petitioner, a builder / developer entered into a development agreement in April, 2022 with landowner in terms of which, the petitioner was granted right to develop a plot of land in question by utilizing its present FSI or any increases thereof. In the execution of the said agreement, the petitioner pleaded that no TDR or FSI was purchased by the landowner or the petitioner from any person or entity. However, the petitioner was first issued a show cause notice dated 24/07/2024 whereby the petitioner was asked to pay GST considering the said transaction as transfer of TDR. The said show cause notice was followed by another show cause notice dated 14/08/2024 by which GST was claimed under Reverse Charge Mechanism on the above transaction by invoking entry 5B of Notification No.13/2017-Central Tax (Rate) dated 28/06/2017 as it stood amended by Notification No.5/2019-C.T, (Rate) dated 29/03/2019. The said Notification provides to impose service tax levy under Reverse Charge Mechanism when services are supplied by any person by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI) for construction of project by a promoter.

b) Petitioner contended that the agreement entered into by them with the landowner did not involve any transfer of development right as defined in Regulation 11.2 of Unified Development Control and Promotional Regulations for the State. It is to be noted importantly that GST Act does not define the “Transfer of Development Right” (TDR). At the other end, revenue contended that the agreement and more particularly, a specific clause thereof would contemplate that the transaction with the petitioner was one of transfer by the land owner and hence entry 5B of Notification 13/2017-C.T. (Rate) was attracted.

HELD

The Court observed that in terms of language of the said entry 5B, it relates to services which can be said to be supplied by any person by way of Transfer of Development Rights (TDR) or FSI for construction of a project by a promoter. The expression ‘TDR’ as contemplated by clause 11.2.2 under the regulations for grant of TDR in the Unified Development Control and Promotion Regulations for the State of Maharashtra and clause 11.2.1 of which defines transferable development right to mean compensation in the form of FSI or development rights which shall entitle the owner for construction of built-up area subject to the provisions in the said regulations. It thus follows that TDR/FSI as contemplated by entry 5B cannot be related to the rights which the developer derives from the owner under the agreement of development for constructing the building. This is because the specific clause relied upon by the revenue merely indicates that the owners shall sign and execute a deed of declaration under section 2 of the Maharashtra Apartment Ownership Act, 1970 submitting the entire scheme to the provisions of the said Act and execution of the apartments deeds in favour of individual buyers by the nominees of the developers. Hence the transaction in terms of the agreement does not get covered by entry 5B of duly amended Notification 13/2017-C.T. (Rate) dated 28/06/2017. Accordingly, both the show cause notices as well as the consequent order dated 10/12/2024 cannot sustain and are hereby quashed and set aside. The petition thus is allowed.

8. [2025] 28 Centax 287 (Guj.) Alfa Tools Pvt. Ltd. vs. Union of India dated 06.03.2025.

Assignment of leasehold rights over land is a benefit arising out of immovable property not liable to GST.

FACTS

Petitioner was engaged in manufacturing of cutting tools. In 1978, the petitioner had acquired leasehold rights over an industrial plot from GIDC for 99 years. In 2018, the petitioner transferred such leasehold rights over land for a consideration of ₹75 lacs. Subsequently, petitioner voluntarily applied for cancellation of its GST registration which was duly completed by a registration cancellation order. Subsequent to the cancellation of registration, respondent issued notice demanding GST on such consideration received towards such transfer of leasehold rights. Being aggrieved by such a notice demanding GST, petitioner filed a writ petition before this Hon’ble High Court.

HELD

The Hon’ble High Court after taking into consideration the facts and squarely relying on its decision in the case of Gujarat Chamber of Commerce and Industry vs. Union of India — 2025 SCC Online Guj 537, held that the assignment/transfer of leasehold rights over land represents a benefit arising from immovable property covered by Clause 5 of Schedule III of CGST Act, 2017 not liable to GST. Accordingly, petition was disposed of in favour of petitioner.

9. [2025] 28 Centax 215 (All.) Khaitan Foods India Pvt Ltd. vs. State of U.P. dated 19.02.2025.

Right to appeal cannot be deprived where payment was specifically made under protest for release of goods without accepting the demand.

FACTS

The vehicle carrying petitioner’s goods was intercepted on 29.08.2024 and due to a mismatch between goods and documents, petitioner’s goods were detained and SCN under section 129(1)(a) of the CGST Act was issued proposing a penalty of ₹22,37,220/-. Petitioner responded citing an inadvertent error and sought for release of perishable goods. On 05.10.2024, the petitioner deposited the penalty amount via DRC-03, stating that such payment was made “under protest and without prejudice to our legal right to appeal.” Order levying penalty was passed on 06.10.2024 and goods were released on 08.10.2024. After release of goods a suo-moto rectification order nullifying the demand and treating the payment as voluntary was passed by the respondent. Due to such an action, it hampered petitioner’s right of preferring an appeal option. Being aggrieved by such rectification order, petitioner preferred this writ petition before the Hon’ble High Court.

HELD

The Hon’ble High Court observed that petitioner’s “payment under protest” via DRC-03 preserved its statutory right to appeal against the original penalty order dated 06.10.2024. High Court further ruled that authorities improperly exercised rectification powers under section 161 of the CGST Act by treating the payment as voluntary and converting the demand as ‘Nil’, unlawfully depriving the petitioner of its statutory remedy of appeal. High Court restored the original penalty order dated 06.10.2024 and petitioner’s right to challenge the order imposing penalty.

10. [2025] 28 Centax 238 (Bom.) Xiaomi Technology India Pvt. Ltd. vs. Union of India dated 22.01.2025.

GST authorities from another state cannot raise demand leading to double taxation where stay was already granted by High Court on adjudication of earlier SCN for the same amount.

FACTS

Petitioner received an amount of ₹6,092 crores from its Hong Kong group company during F.Y. 2018-19 and F.Y. 2019-20. Respondent i.e. GST Authority located in Maharashtra State issued a SCN demanding tax of ₹75 crores on part of the same amount received by the petitioner. However, petitioner had already deposited ₹75 crores with the Karnataka GST authorities where the petitioner’s head office was located. Further, a stay had also been granted by the Karnataka High Court against those proceedings. Being aggrieved by demand raised on the portion of same amount under section 74 of the CGST Act, 2017 which was already in dispute, petitioner filed a writ petition under Article 226 of the Constitution of India before this Hon’ble High Court.

HELD

The Hon’ble High Court observed that Karnataka GST Authorities had already initiated proceedings for the entire ₹6,092 crore transaction where 75 Crores was deposited by petitioner and stay on earlier proceedings was granted by the Karnataka High Court. Accordingly, the Bombay High Court granted interim protection by staying further proceedings on the impugned show cause notice with a liberty to modify the order based on the outcome of the proceedings pending in the state of Karnataka.

11. [2025] 173 taxmann.com 562 (Bombay) Goa University vs. Joint Commissioner of Central Goods and Service Tax dated 15th April, 2025.

The fees collected by the University are in terms of the statutory mandate to undertake the activities as set out in the Goa University Act towards regulating the activity of colleges affiliated to the university cannot be brought under the GST net.

FACTS

The petitioner, Goa University, is a University established under the Goa University Act, 1984. The petitioner received a show cause notice demanding service tax on affiliation fee from the Deputy Director, DGGI, Goa. demanding service tax on certain incomes, such as affiliation fees collected by them for various programmes are meant for students and treated as student-related activity such as sale of prospectus, sale of old newspaper, various fees received towards sports, eligibility certificate, migration certificate, admission fee etc. from students. The petitioner challenged the same along with Circular dated 17/06/2021 and Circular dated 11/10/2024, where it was clarified that affiliation services provided by universities to their constituent colleges are not covered within the ambit of exemptions provided to educational institutions. The impugned circulars are challenged on the ground that they assume that the activity of affiliation/accreditation would amount to supply without clarifying as to how the same would be a supply of service.

HELD

The Hon’ble Bombay High Court held as under:

(i) The petitioner University is creature of statute i.e., the Goa University Act, 1984. The petitioner was established with a purpose of ensuring proper and systematic instruction, teaching, training and research. The fees such as affiliation fees, prospectus fees and migration certificate fees, sports fee etc. received by the petitioner are per se not commercial in nature. The State has a duty to provide education to the people of India. This duty is being discharged through the University.

(ii) The affiliation is undertaken by the University in terms of the requirement of the statute and in discharge of public functions, the fee so collected for affiliation fails to qualify as ‘consideration’. The fees collected by the University i.e. Affiliation fees, PG registration fees and convocation fees are not amenable to GST inasmuch as the fees collected by the University is not a consideration as contemplated in section 7 of CGST Act/GGST Act, as the fees are collected in the nature of statutory fee or regulatory fee in terms of the statutory provisions and not contractual in nature.

(iii) So far as University is concerned, the clarifications issued by the above Circular are contrary to the statutory provisions of sections 7 and 9 of the GST Legislations inasmuch as the said Circular assumes that the said activity of affiliation service provided by the University to their constituent colleges would qualify as supply. Thus, the said clarifications restrict the scope of exemption notification and makes the fee collected by the Board from the educational institution for the purpose of accreditation to such Board, liable for GST. It’s therefore contrary to the plain language of the notification which exempts services by educational institution to its students, faculty and staff and also services provided to educational institution.

(iv) The Hon’ble Court relied upon the decision of Apex Court in the case of Commissioner of Sales Tax vs. Sai Publication Fund, (2002) 4 SCC 57 holding that where the main and dominant activity of the University is education, demand of GST on sale of prospectus, sale of old newspaper, various fees towards sports, eligibility certificate, migration certificate, admission fee etc. received from students cannot be termed as business activity to demand tax.

(v) In light of the above reasoning, the Court quashed the show cause notice for the absence of jurisdiction to issue the same.

12. [2024] 169 taxmann.com 1 (Allahabad) A.V. Pharma vs. State of U.P dated 12th November, 2024.

The order passed under section 73(9) for F.Y. 2017-18 after 05-02-2020 (or as the case may be 07-02-2020) is invalid as the Notification dated 24-04-2023 with effect from 31-03-2023 (which is identical to Notification No. 9/2023-CT dated 31-03-2023) is effective from 31/03/2023 only and the period of limitation for F.Y. 2017-18 expired before 31/03/2023.

FACTS

The petitioner challenged the Order dated.05.10.2024 and the Order dated.02.12.2023 issued for F.Y. 2017-18 on the ground that as they have been passed beyond the time limit prescribed therein as calculated from the due date of filing annual returns prescribed in section 44 (1), which was extended to 05.02.2020, and the time limit of three years ended on 05.02.2023. Both the parties relied upon the Notification dated.24-04-2023, which was made effective from 31-03-2023, that extended the time limit for issuance of order under section 73(9) of the CGST/SGST Act to 31-12-2023.

HELD

The Hon’ble Court observed that the due date for filing the annual return for F.Y. 2017-18, ordinarily 31.12.2018, was extended by notification dated 03.02.2018 to 05.02.2020. The State of U.P. adopted this extension through a notification dated 05.02.2020. Consequently, the three-year limitation under section 73(10) expired on 05.02.2023, rendering any order under section 73(9) for F.Y. 2017-18 impermissible beyond this date. It was further observed that para no. 2 of the next notification dated.24-04-2023 says that the notification dated 24.04.2023 would be applicable retrospectively but only from 31.03.2023 meaning thereby that if the time limit of three years prescribed in sub-section 10 of section 73 read with sub-section 1 of section 44 expired prior to 31.03.2023 then the notification dated 24.04.2023 extending the time limit for passing of an order under sub-section 9 of section 73 would not be applicable.

Accordingly, the Hon’ble Court held that the impugned orders are beyond the time limit prescribed under section 73(10) as applicable for the financial year 2017-18 and hence are liable to be quashed.

Note: The above judgment is followed in Ambrish Chandra Arya vs. State of U.P [2025] 173 taxmann.com 232 (Allahabad) dated 25th March, 2025 & Anita Traders LKO. U.P. vs. State of U.P. [2025] 171 taxmann.com 853 (Allahabad).

13. [2025] 173 taxmann.com 296 (Jharkhand) TATA Steel Ltd vs. State of Jharkhand dated 3rd April, 2025

High Court quashes order rejecting refund claim for export of goods and insistence by the officers on proof of export proceeds realisation in case of export of goods, rejection based on not exporting goods within three months, and unwarranted declarations asked by the officer held non-compliant with legal provisions and guidelines in the circular.

FACTS

The petitioner manufactures steel and sponge iron, for which it requires coal as a raw material. Refund application was filed by the petitioner-company for the period F.Y. 2021- 2022 along with all relevant documents. However, a show-cause notice was issued to the petitioner for rejection of the refund application. Thereafter, the petitioner immediately filed the reply to the show cause notice; however, the refund application of the petitioner was rejected on the ground of non-furnishing of documents/certificates. Thereafter, the petitioner also filed an appeal, but that was also rejected. The rejection was on the following grounds:

  • Non-furnishing of the receipt of payment within 180 days of export;
  • Non-furnishing of proof of export within 90 days of the invoice;
  • Non-furnishing of a declaration of non-prosecution;
  • Non-furnishing of undertaking under proviso to section 11(2) of the Cess Act;
  • Non-furnishing of statement as per Para 43(C) of the 2019 Circular

HELD

The Hon’ble Court observed that for export of goods, only a reconciliation statement of the Shipping Bill and Export Invoices is required, which was annexed by the petitioner to its application. It was further observed that as per Para 48 of the circular of 2019, it was clarified that insistence on proof of realization of export proceeds for processing of refund claims related to export of goods has not been envisaged in the law and should not be insisted upon. It further observed as per Para 45 of the circular of 2019, it has been clarified that as long as goods have actually been exported even after a period of three months, payment of Integrated tax first and claiming refund at a subsequent date should not be insisted upon. Further Para 4.6 of the 2023 circular provides that “as long as goods are actually exported… even if it is beyond the time frames as prescribed in sub-rule (1) of Rule 96A… the said exporters would be entitled to refund of unutilized input tax credit.” The Court also observed that EGM (Export General Manifest) details are given and it is evident that export is within 90 days of invoice. As regards to the non-furnishing of a declaration of non-prosecution, the Hon’ble Court noted that no such requirement is prescribed under the Act, still the petitioner gave such declaration in response to the SCN. The Hon’ble Court pointed out that as per Para 46 of 2019 circular, asking for self-declaration with every refund claim where the exports have been made under LUT, is not warranted. The Court further observed that as per Para 42 of 2019 circular, stipulation under the proviso to section 11(2) of the Cess Act would only apply where the registered persons make zero-rated supplies on payment of Integrated tax. As regards to non-furnishing of statement as per Para 43(C) of the 2019 circular, the Court held that it only applies when there has been a reversal of credit, which is absent in the present case. The Court also observed that the petitioner had submitted CA Certificate stating that the incidence of Compensation of Cess has not been passed on to any person. In light of the above, the Hon’ble Court held that rejection order and appellate order has no legs to stand and is liable to be quashed.

Note: The decision gives very important references to Circular No. 125/44/2019-GST dated 18-11-2019 and Circular No. 197/09/2023-GST dated 17-07-2023.

14. [2025] 173 taxmann.com 418 (Allahabad)Vinayak Motors vs. State of UP dated 24-03-2025.

The service of notice electronically on portal after the suspension of the GST registration is against principles of natural justice as no physical notice was served.

FACTS

The petitioner’s registration was suspended on 03-01-2024 and was not revived and subsequently, the notice was issued on electronic portal and ex-parte order was passed.

HELD

The Hon’ble Court observed that the petitioner was not obligated to access the GST portal to receive electronic show cause notices for F.Y. 2017-18 prior to the adjudication order dated August 20, 2024. No physical notice was issued or served. Consequently, the Hon’ble Court set aside the order due to the lack of adherence to principles of natural justice, and the petitioner was directed to treat the said order as notice and submit its final reply within four weeks.

15. [2025] 173 taxmann.com 25 (Allahabad) Solvi Enterprises vs. Additional Commissioner Grade 2 dated 24-03-25.

Adverse inference against the petitioner unwarranted as both parties held valid GST registrations at the time of transaction and registration of supplier is cancelled from a date subsequent to the date on which transaction took place between petitioner and his supplier.

FACTS

The petitioner purchased the goods from a registered dealer which was generated by the seller from the GST portal. The date of transaction in question is of 6th December, 2018 and whereas the registration of the selling dealer was cancelled with effect from the GST Act, 2017 as the registration of the seller dealer was cancelled at subsequent date i.e. with effect from 29.01.2020 and order was issued under section 74 of the CGST Act disallowing the ITC.

HELD

The Hon’ble Court held that the GST authorities, while empowered to cancel registrations from the initiation date of proceedings, cancelled the seller’s registration at a later date. The Court noted that at the time of the transaction, both the purchaser and seller held valid GST registrations, and the seller’s registration was not retrospectively cancelled. The supplier’s filing of GSTR-01 and GSTR-3B, auto-populating GSTR-2A, was undisputed, yet authorities failed to verify this and incorrectly held that the petitioner was liable for proving the seller’s tax deposit, contrary to the Act. Hence, adverse inferences against the petitioner were held unwarranted.

बुद्धिनाशात् प्रणश्यति !

This is one of the most important and popular messages from the Shrimad Bhagavad Gita. There is a pair of shlokas from the second chapter of Gita – called ‘saankhyayog’.

The text is as follows:-

ध्यायतो विषयान् पुंस :  The man dwelling on sense objects

प्रकोपाय न शान्तये  results in his anger. (resistance) and not in peace.

संगस्तेषूपजायतें  Develops attachment for them.

संगात्संजायते काम: From attachment, springs up desire.

कामात् क्रोधोSभिजायतें !!62!! And from desire, (if unfulfilled) ensue anger.

क्रोधाद्भवति सम्मोह: From anger, arises delusion.

सम्मोहात् स्मृतिविभ्रम:! From delusion, confusion of memory.

स्मृतिभ्रंशाद् बुद्धिनाशो Loss of reason

बुद्धिनाशात् प्रणश्यति !!63!! And from loss of reason, one goes to complete ruin.

Readers may be aware that in our Indian philosophy, there are six biggest enemies of human beings [Known as “shadripu” (षड्रिपु)].

काम – Desire, क्रोध – Anger, लोभ – Greed, मोह – Delusion, मद – Ego or Arrogance, मत्सर – Jealousy.

The two stanzas describe this vicious circle as to how one ‘enemy’ gives rise to another. Sense objects means each of our five senses has its object. The Eyes have a vision and many objects to see; the Ears have many things to hear; the Nose has many things to smell; the Tongue has many items to taste; and The Skin has many things to touch.

If one constantly keeps on thinking of a particular object – e.g., bad and obscene images, spicy and intoxicating eats, sensual or luscious touch, one develops an ‘indulgence’ in those things. This indulgence or obsession (attachment) breeds ‘desire’ or ‘greed’. If this desire is not fulfilled, one loses one’s temper and gets angry.

Once you are angry, you lose control of your mind; you cannot discern between good and bad. The lust and anger drive your mind, and your intellect is side-lined. You forget who you are, what you are, what you are doing, who you are talking to. In short, you lose your memory and balance of mind.

This situation destroys your intellect. Ultimately, it ruins your life! Anger is considered as the most dangerous enemy. Therefore, there are courses on anger management. One should never lose one’s temper. Cool-headedness is a big strength. Ravana and Duryodhana, respectively, from Ramayana and Mahabharata, are the best examples of how the shadripu destroyed them. We find these examples even in movies, plays and serials.

Quite often, anger prompts you to take some suicidal steps. Every day crimes committed in the spate of anger are reported in the news. After one is pacified, one repents. But that is of no use.

That is why our spiritual idols like Gautam Buddha and Mahavir are always ‘cool’. They never got perturbed by anything. Shri Ram was to be coroneted the next morning, and the previous night, he was sent to exile! He accepted it willingly and coolly – free from attachment, anger and so on! He never lost his peace and balance of mind.

We in our profession, often have strong feelings against the perverse and adamant ‘actions of bureaucrats, politicians and even judges’. On the other hand, corrupt officials have temptations and lust for money. We need to keep our cool in tackling them. There lies our success and their failure!

Letter to The Editor

Dear Editor,

We have been reading articles from Dr. Anup Shah for last over 2 decades. The breadth of and canvas of large number of issues dealt with, in an expertly manner and dealing with large number of topics of interest for practicing chartered accountants has been useful and complementary in doing practice. The selection of subjects have been contemporary and meaningful. The dealing with subjects with its judicial background gives more credence and reliability to the subjects dealt with by him. His reference and dealing with any topic with accounting and auditing aspects touching the subjects make the articles meaningful even for accounting and auditing points of view. His depth of knowledge of  large number of applicable laws has been exemplary and outstanding. We congratulate him and BCAS for bringing out the 6th edition of his new book.

With regards

Mukesh Shah

Mumbai

Miscellanea

1. SPORTS

# AI Only Just Beginning to Revolutionise the NBA Game

It’s not a scene out of the future, but a reality on the hard courts of today.

Using artificial intelligence, a top basketball team found the right defensive strategy that made the difference to win the NBA championship.

Data specialist Rajiv Maheswaran declines to name the outfit that leveraged AI analysis to victory, saying in a corporate video only that it happened several years ago.

That was “the moment that sealed it,” added the co-founder of tech startup Second Spectrum, which provides the league with swathes of player positioning data gathered during crucial games.

Analytics have transformed the NBA over the past decade, with AI and other breakthroughs still ramping up.

Embryonic in the early 2000s, the revolution truly took hold with motion-capture cameras installed in every venue in 2013.

Ten years later, new tech upgraded renderings of the court from 2D to 3D, unlocking even more precious data.

Each player wears 29 markers “so you know not just where they are, but you know where their elbow is, and you know where their knee is,” said Ben Alamar, a sports analytics writer and consultant.

“You’re actually able to see, yes, that was a high quality (defensive) closeout,” said Tom Ryan, head of Basketball Research and Development at the NBA, describing an often-used manouvre.

“It’s adding more context to that metric.”

“Now all 30 teams are doing significant analysis with varying levels of success,” said Alamar.

Houston, Golden State and Oklahoma City were often cited among early adopters at the turn of the 2010s.

This season, Oklahoma City is on top of regular season standings, “and they play different,” said ESPN Analytics Group founder Dean Oliver.

“They force turnovers, and they have very few turnovers themselves. So there are definitely advantages to be gained.”

“It’s not going to turn a 25-win team into a 70-win team during the season, but it can turn a 50-win team into a 55, 56-win team,” according to Alamar.

AI allows for “strategic insights” like “understanding matchups, finding the situations where players perform well, what combinations of players,” he added.

None of the dozen teams contacted by AFP agreed to discuss their work on analytics.

“Teams are (understandably) secretive,” Oliver confirmed.

Even before 3D, motion capture data was already shifting the game, taking basketball from a more controlled pace to something looser and faster, he added.

The data showed that faster play secures more open looks and a higher percentage of shots — a development that some criticise.

On average, three-point shot attempts have doubled over the last 15 years.

“As a league now, we look deep into analytics,” Milwaukee point guard Damian Lillard noted at February’s All-Star Game.

While it perhaps “takes away the originality of the game… you’ve got to get in line with what’s working to win.”

The league is taking the issue seriously enough that Commissioner Adam Silver recently mentioned that “some adjustments” could be made to address it.

Even now, AI has “plenty of upside” yet to emerge, said Oliver.

“The data is massive, but converting that into information, into knowledge that can be conveyed to players, that they can absorb, all of those steps are yet to be done.”

The league itself is pursuing several analytics and AI projects, including for real-time refereeing.

“The ROI (return on investment) is very clear,” said Ryan. “It’s about getting more calls right, faster and in a transparent way to our fans.”

“We would love a world where if a ball goes out of bounds and you’re not sure who it went off of, rather than going to replay you look at high frame rate video in real time with 99.9 percent accuracy… That’s really our North Star.”

Spatial data can also extend the fan experience, shown off during the recent “Dunk the Halls” Christmas game between San Antonio and New York.

An alternative telecast rendered the game in video game-style real-time display, with avatars replacing live action images.

“We want to experiment with all different types of immersive media,” says Ryan. “We just want to be able to sell our game and present it in compelling ways.”

(Source: International Business Times – By Thomas Urbain – 10th April, 2025)

2. TECHNOLOGY

# How Atlas is using AI to turn accounts receivable into a strategic advantage

Despite the rapid advancements in financial technology, accounts receivable (AR) remains a starkly inefficient workflow, with many companies still relying on manual, error-prone processes to manage their contract-to-invoice and invoice-to-cash cycles.

As a result, finance teams struggle with data entry mistakes, delayed invoice reconciliation, and slow payment cycles, leading to unnecessary cash flow bottlenecks. They also lack sufficient real-time insights, which forces them to take a reactive rather than proactive approach to financial management — consequently making it difficult to anticipate late payments or assess a client’s ability to pay on time.

Recognizing these gaps in the market, Joe Zhou saw an opportunity to modernize AR using artificial intelligence. He’s the co-founder and CTO of Atlas, a proprietary automation system that’s redefining AR through agentic solutions and automation of contract-to-cash cycles. In doing so, Atlas is empowering businesses to save valuable finance time for finance leaders and increase cash-on-hand, fuelling business growth.

JOE ZHOU: A BACKGROUND OF EXCELLENCE

After graduating from the University of Pennsylvania with degrees in computer science, data science, and mathematics, Zhou started his career at industry-leading companies like Google and Snap. There, he led high-impact projects that improved user engagement and product performance for billions of users globally.

One of his biggest projects was with Snap, where he introduced an augmented reality engagement funnel designed to improve the user feedback loop and increase the adoption of Snapchat’s viral augmented reality (AR) lenses. Zhou’s team managed to achieve a 25% global increase in AR usage — the brand’s largest jump in six years.

Zhou also spent time at Intuit, working on QuickBooks and Mint transaction categorization. There, he saw how a lack of real-time insights into payment risks forced businesses into reactive financial management. Simultaneously, they had to handle a vast amount of financial data from diverse sources without robust systems of categorization and classification in place.

He realised that traditional AR systems, while accepted as the industry standard, didn’t measure up to the demands of modern business. It was this realization that formed the basis of Atlas.

AI-POWERED AUTOMATION: A SMARTER APPROACH TO ACCOUNTS RECEIVABLE

Atlas is an AI-powered AR automation platform that eliminates manual data entry errors, enables faster invoicing and reconciliation, gives finance leaders a source of truth for revenue, and increases cash on hand. The end goal is simple: Atlas is designed to get businesses paid.

It works by seamlessly integrating emerging tech like natural language processing, machine learning, various frontier models and predictive analytics to automate every stage of the AR workflow and save finance teams time, resources, and stress. For example, it can scan a contract and automatically generate a detailed, accurate invoice that you can quickly review and send.

Key to this approach is Atlas’ continuous learning model: The more invoices and contract data the system processes, the smarter it becomes.

One of its strongest benefits is that it plugs and plays with existing enterprise resource planning (ERP) systems like NetSuite, SAP, and Microsoft Dynamics. It also connects to Slack, email, and your CRM so that you can centralize customer communications and manage them easily. Atlas eliminates the need for manual invoice matching, accelerating cash flow and saving teams time and resources.

The result is a unified, AI-first approach that makes it easy to deploy and maintain highly configurable workflows for different industries.

THE IMPACT OF AI-DRIVEN AR ON FINANCE TEAMS

Businesses are already embracing Atlas and seeing powerful results, with customers leveraging it to eliminate manual invoice matching and free their teams to focus on other tasks. They’re also seeing accelerated cash flow, sometimes by days or even weeks.

“We are reshaping the $125 trillion B2B payments market and helping free up $3 trillion in annual locked cash flow that hinders global growth as a result of antiquated payment systems,” Zhou notes.

After implementing Atlas, one startup experienced a 43% reduction in days sales outstanding (meaning they were able to collect payments significantly faster) as their spreadsheet usage dropped by 71%.

“Atlas is about freeing teams from busywork so they can focus on real growth,” Zhou says.

“Innovating in AI isn’t about just increasing efficiency — it’s about enabling resource reallocations to focus on creative and strategic thinking.”

With Atlas, Joe Zhou has successfully found a way to consistently eliminate human errors and delays in payment cycles — allowing businesses trapped in outdated processes to finally reach their full potential.

(Source: International Business Times – By Chris Gallagher – 22nd April, 2025)

3. OTHER – CRYPTO

# Bitcoin, Altcoins pump after Federal Reserve Board withdraws Crypto notification rules for banks

KEY POINTS

  •  The board rescinded two supervisory letters and a third one jointly issued with the FDIC and Comptroller of the Currency
  •  Bitcoin traded above $94,000 at one point in the night, and all other top altcoins were in the green
  •  Some crypto users are concerned the move may result in short-term “uncertainty” among banks

Bitcoin and other major cryptocurrencies climbed Thursday night after the Federal Reserve Board (FRB) announced that guidance for banks related to crypto and stablecoin activities was being withdrawn.

The move comes just weeks after the Federal Deposit Insurance Corporation (FDIC) made a similar announcement, giving more leeway for banks across the country to engage with the crypto industry.

FBR opens a path for crypto and banking activities

The Federal Reserve Board said Thursday that it was rescinding three supervisory letters that played a major role in stunted adoption of crypto offerings among American banks and financial institutions.

“The Board is rescinding its 2022 supervisory letter establishing an expectation that state member banks provide advance notification of planned or current crypto-asset activities. As a result, the Board will no longer expect banks to provide notification and will instead monitor banks’ crypto-asset activities through the normal supervisory process,” the board said.

It also rescinded a 2023 supervisory letter “regarding the supervisory non objection process for state member bank engagement in dollar token activities.”

Finally, the FRB announced it was withdrawing two jointly issued statements with the FDIC and the Office of the Comptroller of the Currency that limited banks’ exposure to cryptocurrencies.

It also expressed commitment toward collaborating with other regulatory agencies to consider the possibility of providing further guidance that “support innovation, including crypto-asset activities.”

CRYPTO BOUNCES AMID THE FEDERAL RESERVE’S PIVOT

Following the announcement, crypto prices surged, signalling the market’s positive reaction to the news.

Bitcoin was up 1.2% in the day, climbing above $94,000 at one point before settling in at around $93,500.

Ethereum also saw a slight pump, increasing 0.4% in the day, and XRP was up 1.4% in the last 24 hours.

All other altcoins on Coin Gecko’s Top 10 largest crypto assets by market cap were in the green, with Cardano (ADA) leading the day’s rally (5.2% up).

QUESTIONS RISE OVER FRB’S MOVE

While many in the crypto community were ecstatic over the news, some crypto users raised questions on the short-term impact of the decision.

One user pointed out that the long-term effects may result in a more structured playbook under new legislation or unified regulation, but the short-term impact may produce “more uncertainty.”

The user argued that without formal guidance and only rescinded supervisory notices, “banks may be unsure what is or isn’t allowed.”

One user asked AI chatbot Grok on whether banks can now “just buy what they want,” to which the popular AI assistant responded that the announcement may have “relaxed” some crypto guidance but banks are still required to follow general regulations.

Uncertainty and a lack of clear rules of the road have hampered growth and adoption in crypto, but U.S. Securities and Exchange Commission Chair Paul Atkins has vowed it will be his administration’s priority.

(Source: International Business Times – By Marvie Basilan – 25th April, 2025)

Perception

Marathi Theatre has a rich tradition of more than 150 years.

It is very vibrant and progressive. In the good old days, purely ‘prose’ plays were very rare. There used to be 20 to 100 songs in a play – based on classical music. The shows often lasted overnight. It was known as ‘Sangeet Rang-Bhoomi’.

There were drama companies (Natak mandalis). Like we have in the circus today, the whole troop stayed and moved together like a family. Play wrights, actors, directors, musicians, singers, drapers, make-up men, helpers and so on. Many stayed with their families in the troops!

Weddings used to happen within the troops, and children also were born! It was a fascinating world, and many people are still having nostalgic memories of that era.

Shri Ram Ganesh Gadkari was the most prominent dramatist of his time. The square at Shivaji Park, Dadar, is named after him. He has written many short stories which are quite humorous.

As said earlier, a kid was born in a drama troop and did not have the occasion to see the outside world at all. The drama troop, travel and performances were the only experience that he had in life.

Once, the owner of the mandali was invited to attend a wedding. He was busy somewhere else. So, he sent this boy of 14 to attend the wedding on his behalf and give the present. The boy could view everything through his perception of’ drama’. On his return, he described the ceremony, treating it as a show of drama.

“I attended the show. It was called ‘Wedding of X with Y. The Theatre was full of a very well-dressed audience. No one was checking the tickets at the door. The show was performed in full light. The doors of the theatre were also kept open. Anybody could enter and leave anytime.

There was no curtain to the stage. Spectators were sitting around the stage, watching the drama. However, they were not attentive. They were chatting among themselves, moving here and there. They were also having drinks and snacks. Small kids were playing and enjoying while the drama was on!

Hero, heroine, their parents and sisters were the main cast. They did not have their dialogues by heart. The directors (priests) were interfering in between. They were also prompting the hero and heroine to speak their dialogues. Prompting was also done on Mike. He was also directing their actions like sitting, standing, bowing to God, moving around the fire, and so on.

The heroine was initially not on the stage. The director shouted and asked the heroin to come with her maternal uncle (mama). By mistake, the curtain was held between the hero and heroine. I think there was no villain in the drama.

Suddenly, some people came forward and sang something (mangalashtak). There was no musical accompaniment.

The musicians also did not know when to play music. The director shouted at them to play the instruments. Then they started.

There was total confusion. I could understand neither the story nor the dialogue. Songs also were strange…….. Hero and heroine did not sing any song!”

Likewise, the author has written it very beautifully. I wish to make it clear that while writing this feature, the text of that article is not in front of me. I have it in my memory. This is not a verbatim translation. The theme is interesting, and I am sure the readers can enjoy it and even add to what the boy would have perceived!

Gift Or Will Or Settlement – What’s The Difference?

INTRODUCTION

Is a Gift Deed the same as an Instrument of Settlement, and are both of them the same as a Will? The answer is a resounding No!! However, what are the metrics used to distinguish one instrument from another? What tests would the Courts apply to decipher this question? The answers to all these questions and many others were given by the Supreme Court in its decision in the case of N. P. Saseendran vs.N. P. Ponnamma, CA No.4312/2025 Order dated 24th March, 2025. This decision can be considered somewhat a landmark decision since it has laid down various tests and has threadbare analysed 21 other landmark Supreme Court judgements on this point. This Article seeks to analyse the salient points of this judgement.

FACTS OF THE CASE

In Saseendran’s case (Supra), a father executed an instrument of settlement transferring his immovable property in favour of his daughter but at the same time reserving life interest for himself. He reserved the right to income generated from the property and also during his wife’s lifetime. He also had the right to mortgage the property up to a certain amount. Possession was transferred to his daughter. The daughter donee got the registration of the instrument done. After a period of 7 years, the father unilaterally executed a Deed of Cancellation and claimed that this was only a Will and not a Gift / Settlement and hence, he reserved the right to deal with the property as he pleased. Thus, the legal issue before the Supreme Court was whether the document was a gift or a settlement or a Will? The Court proceeded to examine the requirements of each of these documents and then gave its verdict on the nature of the document.

GIFT DEED

The Court examined the requirements of a valid gift under the Transfer of Property Act, 1882.

A valid Gift refers to an instrument by which there is voluntary disposition of one’s existing property (movable or immovable) without consideration to another and the donee should accept the same during the lifetime of the donor, implying imminent vesting of the right upon acceptance. Insofar as an immovable property is concerned, registration is mandatory, whereas, it is not mandatory to register a gift of a movable property, it can be effected by delivery also. Unilateral revocation is not possible. The donor may impose any condition in the deed, which has to be accepted for the gift to take effect.

SETTLEMENT DEED

The Specific Relief Act, 1963, defines the same to be a non-testamentary instrument whereby, there is a disposition or an agreement to dispose of any movable or immovable property to a destination or devolution of successive interest. “Settlement” under the Indian Stamp Act, 1899 refers to a non-testamentary disposition of any movable or immovable property in writing, in consideration of marriage or for the purpose of distributing the property of the settlor among his family or to those to whom he desires to provide or for the purpose of providing for some person dependent on him or for any religious or charitable purpose and includes an agreement in writing to make such a disposition. For immovable properties, the registration of the deed is mandatory. A settlement means a disposition of one’s property to another directly or to vest in any such person after successive devolution of rights on other(s). Further, the circumstances and reasons that led to the execution of such a settlement deed are described as its consideration, which need not necessarily be of any monetary value. More often than not, it consists of love, care, affection, duty, moral obligation, or satisfaction, as such deed are typically executed in favour of a family member. Also, a settlor is entitled to reserve a life interest either upon himself or upon others and impose any condition.

WILL

A will is a testamentary document dealt under the Indian Succession Act, 1925 and is defined as a legal declaration of the intention of the testator to be given effect after his death. Such a declaration is with respect to his property and must be certain. A person may revoke or alter a will at any time while he is competent to dispose of his property by will. The will comes into effect only after the person’s lifetime and he is at full liberty to revoke or alter his earlier will any number of times as long as he is in sound state of mind. Chapter VI of Part VI of this Act deals with construction of wills. The provisions consider the various rules regarding the construction of wills to determine the true intention of the testator and to ensure that the object of such testament is achieved. The rules prescribe the remedy to deal with certain errors and circumstances like misdescription, misnomer and the need for casus omissus – if the law does not provide for a situation, then the caselaw will provide for the same. They also lay down that the meaning is to be discerned from the contents of the entire will and every attempt must be made to give effect to every clause. Later clauses would prevail in case of the two conflicting clauses of gifts in the will, if they are irreconcilable.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT AND SETTLEMENT

The primary difference between the Gift and the Settlement is the existence of consideration in the settlement. A gift is always without any element of consideration whereas in the case of a settlement, consideration is a must. The Court relied upon its earlier decision in Ramachandra Reddy vs.Ramulu Ammal, 2024 SCC Online SC 3304 and held that consideration need not always be in monetary terms. It can be in other forms also.

The Court observed that there were similarities also between a gift and a settlement. Both could not be unilaterally revoked. Creation of a life interest did not affect the nature of the document. Delivery of possession of immovable property was not mandatory, but registration was. It was sufficient if the donee had accepted the same during the lifetime of the executor. The Court analysed various earlier decisions on this point. In K. Balakrishnan vs. K. Kamalam, (2004) 1 SCC 581, the Court held that there was no prohibition in law that ownership in property cannot gifted without its possession and right of enjoyment. Once a gift has been duly accepted it becomes irrevocable in law. A donor cannot unilaterally cancel a completed gift. In Renikntal Rajamma vs. K. Sarwanamma (2014) 9 SCC 445, it was held that in order to constitute a valid gift, acceptance must be made during the donor’s lifetime and whilst he is still capable of giving. If the donee dies before acceptance, the gift is void. Gift of immovable property must be made by a registered instrument, but delivery of possession is not mandatory. In Daulat Singh vs. State of Rajasthan (2021) 3 SCC 459 / Asokan vs. Lakshmikutty (2007) 12 SCC 210, it was held that acceptance of a gift must be ascertained from the surrounding circumstances in each case. It can be inferred by the implied conduct of the donee. In Satya Pal Anand vs. State of MP, (2016) 10 SCC 767 it was held that even if fraud is pleaded, the Registrar cannot unilaterally cancel a document; that right is only with the jurisdictional Court.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT AND WILL

Every will has an element of gift since there is a bequest, but the bequest takes effect only once the testator dies. Till he is alive, he can revoke and revise his will an unlimited number of times.

INTERPLAY BETWEEN AN INSTRUMENT OF GIFT, SETTLEMENT AND WILL

The element of voluntary disposition is common to all the three deeds. The element of gift is traceable to both “settlement” and “will”. The nomenclature of an instrument is immaterial, and the nature of the document is to be derived from its contents. Reservation of life interest or any condition in the instrument, even if it postpones the physical delivery of possession to the donee/settlee, cannot be treated as a will, as the property had already been vested with the donee/settlee. The Court referred to Navneet Lal vs. Gokul, (1976) 1 SCC 630 wherein it was held that the Court while interpreting a will is entitled to put itself into the armchair of the testator. The true intention of the testator has to be gathered not by attaching importance to isolated expression but by reading the Will as a whole, with all its provisions and ignoring none of them. When apparently conflicting dispositions can be reconciled by giving full effect to every word used in a document, such a construction should be accepted instead of a construction which would have the effect of cutting down the clear meaning of the words used by the testator. The cardinal principle of construction of wills was that to the extent that it was legally possible effect should be given to every disposition contained in the will. In P.K. Mohan Ram vs. B.N. Ananthachary (2010) 4 SCC 161, the court referred to the broad tests or characteristics as to what constitutes a will and what constitutes a settlement? It held that the consistent view was that while interpreting an instrument to find out whether it was of a testamentary character, which took effect after the lifetime of the executant or was it an instrument creating a vested interest in præsenti in favour of a person, the Court had to very carefully examine the document as a whole, look into the substance thereof, the treatment of the subject by the settlor / executant, the intention appearing both by the expressed language employed in the instrument and by necessary implication. It held that a document which was not a will in form, may yet be a will in substance and effect. The line between a will and a conveyance reserving a life estate was a fine one. The main test to find out whether the document constituted a will, or a gift was to see whether the disposition of the interest in the property was in praesenti in favour of the settlees or whether the disposition was to take effect on the death of the executant.

If the disposition took effect on the death of the executant, it would be a will. But if the executant divested his interest in the property and vested his interest in praesenti in the settlee, the document would be a settlement. The general principle was that the document should be read as a whole, and it was the substance of the document that mattered and not the form or the nomenclature the parties had adopted. The various clauses in the document were only a guide to find out whether there was an immediate divestiture of the interest of the executant or whether the disposition was to take effect on the death of the executant. If the clause relating to the disposition was clear and unambiguous, most of the other clauses were ineffective and explainable and could not change the character of the disposition itself. The Court referred to an old English decision and held that “if I make my testament and last will irrevocable, yet I may revoke it, for my act or my words cannot alter the judgement of the law to make that irrevocable which is of its own nature revocable.” Thus, if an instrument is on the face of it a will, the mere fact that the testator called it irrevocable did not alter its quality. The principal test to be applied was, whether the disposition made took effect during the lifetime of the executant of the deed or whether it took effect after his death. If disposition was of the latter nature, then it was ambulatory and revocable during his life.

In Mathai Samuel vs. Eapen Eapen, (2012) 13 SCC 80, while examining a composite document, the Apex Court outlined the requirements for both a will and a gift. A will is, revocable because no interest is intended to pass during the lifetime of the owner of the property. In the case of gift, it comes into operation immediately. The nomenclature given by the parties to the transaction in question, is not decisive. The mere registration of “will” will not render the document a settlement. In other words, the real and the only reliable test for the purpose of finding out whether the document constitutes a will, or a gift is to find out as to what exactly is the disposition which the document has made. A composite document is severable and in part clearly testamentary, such part may take effect as a will and other part if it has the characteristics of a settlement, and that part takes effect in that way. A document which operates to dispose of property in praesenti in respect of few items of the properties is a settlement and in future in respect of few other items after the deaths of the executants, it is a will. In a composite document, which has the characteristics of a will as well as a gift, it may be necessary to have that document registered otherwise that part of the document which has the effect of a gift cannot be given effect to. Therefore, it is not unusual to register a composite document which has the characteristics of a gift as well as a will. Consequently, the mere registration of document cannot have any determining effect in arriving at a conclusion that it is not a will. A will need not necessarily be registered. But the fact of registration of a will would not render the document a settlement.

The Court held that the act and effect of registration depend upon the nature of the document, which was to be ascertained from a wholesome reading of the recitals. The nomenclature given to the document was irrelevant. In case of a gift, it is a gratuitous grant by the owner to another person; in case of a settlement, the consideration is the mutual love, care, affection and satisfaction. The document must be harmoniously read to not only understand the true intent and purport, but also to give effect to each and every word and direction.

INCONSISTENCIES IN DOCUMENTS

The Court laid down various principles to deal with inconsistencies in the same document. In Mauleshwar Mani vs. Jagdish Prasad (2002) 2 SCC 468, it was held that if there is a clear conflict between what is said in one part of the document and in another where in an earlier part of the document some property is given absolutely to one person but later on, other directions are given which are in conflict with and take away from the absolute title given in the earlier portion, then the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded. When it is not possible to give effect to all of them, then the rule of construction is well established that it is the earlier clause that must override the later clauses and not vice versa. Where under a will, a testator has bequeathed his absolute interest in the property in favour of his wife, any subsequent bequest which is repugnant to the first bequeath would be invalid. The object behind this principle is that once an absolute right is vested in the first beneficiary, the testator cannot change this line of succession. Where a testator confers an absolute right on anyone, the subsequent bequest for the same property in favour of other persons would be repugnant to the first bequest in the will and has to be held invalid.

In Sadaram Suryanarayana vs. Kalla Surya Kantham (2010) 12 SCC 147, it was held that if a clause was susceptible of two meanings, according to one of which it had some effect and according to the other it had none, the former was to be preferred. While interpreting a will, the courts would, as far as possible, place an interpretation that would avoid any part of a testament becoming redundant. Courts will interpret a will to give effect to the intention of the testator as far as the same is possible. The meaning of any clause in a will must be collected from the entire instrument and all parts shall be construed with reference to each other.

In Madhuri Ghosh vs. Debobroto Dutta (2016) 10 SCC 805 it was held that if a will contains one portion which is illegal and another which is legal, and the illegal portion can be severed, then the entire will need not be rejected, and the legal portion can be enforced. The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. The status and the training of the parties using the words have to be taken into consideration. It is well settled that in case of such a conflict the earlier disposition of absolute title should prevail and the later directions of disposition should be disregarded as unsuccessful attempts to restrict the title already given. An attempt should always be made to read the two parts of the document harmoniously, if possible. It is only when this is not possible e.g. where an absolute title is given is in clear and unambiguous terms and the later provisions trench on the same, that the later provisions have to be held to be void.

In Bharat Sher Singh Kalsia vs. State of Bihar (2024) 4 SCC 318, the Court observed that three Clauses of a will – 3, 11 and 15 were in apparent conflict. It perceived a conflict between Clauses 3 and 11, on the one hand, and Clause 15 on the other, and concluded that Clauses 3 and 11 would prevail over Clause 15 as when the same could not be reconciled, the earlier clause(s) would prevail over the latter clause(s), when construing a deed or a contract. It followed the settled principle:

“The principle of law to be applied may be stated in few words. If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later……….But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole”

VERDICT IN SASEENDRAN’S CASE (SUPRA)

In light of the above legal principles, the Court examined the instrument executed by the father in favour of his daughter. The opening phrase stated that the instrument was executed “In consideration of my love and affection towards you, the schedule below properties are herein conveyed to you ….. Till my lifetime, I shall be in possession of the schedule properties and shall take the yields from it and if necessary I shall have the right to pledge the schedule properties for a sum not exceeding `2000/- and to avail loan on that basis. After my lifetime, Janaki Amma, who is my wife and your mother, shall have the right to possess the property and take income from the property and utilize the same according to the will and wishes of the said Janaki Amma till the end of her lifetime and you have no right to restrain the said rights of Janaki Amma for any reasons. ”

The Court held that this demonstrated that there was consideration, conveyance, imposition of conditions and reservation of life interest by the father satisfying the requirements to classify the document as a “settlement”. The Court laid down that the postponement of delivery by creation of life interest was not an anathema to absolute conveyance in praesenti. Since life interest was reserved by the father and mother, he was holding only an ostensible possession while the true owner was the daughter. Reservation of life interest was permissible in a settlement but that did not affect the already vested rights. Hence, it concluded that the instrument was a settlement. It further held that delivery of possession is not mandatory to validate a gift or a settlement. All that is required to be proved is whether the gift has been acted upon during the lifetime of the donor. In the present case, the Apex Court found that the donee had unilaterally presented the deed for registration and this fact showed that the document was handed over by the father / donor to his daughter. Thus, the fact of acceptance could be derived from the conduct of the parties. The donee was in possession of the original title deed and had hence, accepted and acted upon the gift. Delivery of possession of the property was only one of the methods to prove acceptance but not the sole method. Receipt of original title deeds and registration of the instrument of settlement would amount to an acceptance of the gift and would satisfy all the requirements of the Transfer of Property Act. Once a gift has been completed, then the donor has no right to cancel the same in the absence of any reservation clauses in the deed. The Court thus held that the donor father had no rights to unilaterally cancel the transfer.

EPILOGUE

This is a very good decision which has examined three vital documents ~ gift, settlement and will. The decision has also brought out the interplay and differences amongst these. It also explains how to construct various documents and how to resolve inconsistencies. Anyone interested in a masterclass on construing documents would be advised to study this decision along with the various decisions that it has followed!!

Indusind Bank – Strict Action Required To Eliminate Trust Deficit

Homo sapiens were neither the strongest species nor capable of flight, yet they outnumbered and outlasted many others. How, you ask? Consider chimpanzees—physically far stronger than humans—whose population remains below 300,000, while humans dominate the planet with 8.2 billion individuals. The key difference? Trust. Chimpanzee groups rarely exceed 200 members because, beyond that number, trust collapses and cooperation ends.

Humans, on the other hand, rely on trust in almost every aspect of life. We trust doctors with our health, auditors with financial integrity, management of the companies we are invested in, and banks, with our hard-earned money. But what happens when that trust is broken, and Jugaad becomes Jugaar? The impact can be catastrophic.

As Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it.” When crooks cheat with impunity, without fear of the law, their numbers only grow. If our laws remain weak and forgiving, they risk enabling more criminals to operate without consequences. Without strict action, trust in the system will be permanently eroded, threatening the very foundation on which businesses operate.

INDUSIND BANK – A CASE IN POINT

On 10th March, 2025, the bank made the following disclosure:

“During internal review of processes relating to Other Asset and Other Liability accounts of the derivative portfolio, post implementation of RBI Master Direction – Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023 issued in September 2023, including accounting of Derivatives, applicable from 1st April, 2024, Bank noted some discrepancies in these account balances. Bank’s detailed internal review has estimated an adverse impact of approximately 2.35 per cent of Bank’s Net worth as of December 2024. The Bank has also, in parallel, appointed a reputed external agency to independently review and validate the internal findings. A final report of the external agency is awaited and basis which the Bank will appropriately consider any resultant impact in its financial statements. The Bank’s profitability and capital adequacy remains healthy to absorb this one-time impact.”

IndusInd Bank’s share price crashed 27 per cent on March 11, hitting the new 52-week low mark, erasing ₹19,000 crore of market capitalisation. The stock hit three lower circuits, one after another, before 10 am on the National Stock Exchange. Imagine, how betrayed investors must have felt. Many questions emerged.

  • Is this just a tip of the iceberg? Are there more problems yet to be discovered?
  •  What led to this discovery?
  • Who committed the crime?
  • Will the perpetrators of the crime, be allowed to continue running the bank?
  • Is the depositor’s money safe, and could the bank collapse?
  • Is this an aberration and limited only to IndusInd?

The investor call held by the Bank, clarified a few things:

  •  The difference was accumulated over a period of time
  • The issue was identified by the Bank (Not clear, who in the Bank flagged it?).
  • The bank remains financially stable.
  • An Independent firm has been appointed to ascertain the full impact.
  • The CFO had resigned a couple of months ago.

Management’s response on the call with regard to the audit, was as follows: “So there are 4 types of audits which happened. So first of all, understand the structure of treasury. They have a front office, a mid-office and a back office and a concurrent audit, which continues to happen. Second, there is an internal audit, which happens. And also, they take support of external agencies before everything to do the audit. Then there is a statutory audit, which happens on these and then a compliance audit and then the RBI audit. All these audits continue to happen on treasury on a regular basis.”

Yet, a crucial question lingers: How was this discrepancy picked up only in the last three months despite multiple layers of audit over the years?

The Management’s response, “Those are questions which we will answer in detail once our review is complete by the external agency because it’s important. Based on this new circular, we did our own internal review. I would say that those questions, we are also, in process of finding out as to where was this missed from. So I’m sorry, I really can’t answer it right now. But once we have those answers, we’ll be absolutely transparent in getting back to you.”

The RBI quickly stepped in assuring depositors that their money is safe. RBI allowed the CEO to continue for another year (rather than 3 years, the board had sought), ensuring that the banks activity is not abruptly disrupted.

A CRISIS OF CONFIDENCE

This shocking revelation led to a flurry of analyst downgrades, exacerbating other concerns as well, such as stress in IndusInd Bank’s microfinance books. Curiously, one analyst still maintains
an outperform rating, which raises eyebrows and warrants an investigation—though that’s a story for another day.

There is significant regulatory overlap in this case. While the RBI is the primary banking regulator, SEBI governs market disclosures and insider trades, NFRA oversees auditors, and SFIO handles financial fraud investigations of a serious nature. They should all come together, though NFRA should spearhead this, as they have the appropriate accounting knowledge and investigative skills. Ultimately, each of these regulators will then have to consider stringent and punitive action, basis their jurisdiction, for e.g., NFRA can take action against the auditors, SEBI on the management for fraudulent practices as well as insider trading. SEBI should also look at the role of the independent directors and take stringent action on them. RBI too will need to coordinate with SEBI and NFRA.

It would be naive to dismiss this as a mere accounting error or attribute it to senior management succumbing to reporting pressures, especially when subsequent media reports highlighted substantial insider trades.

A CALL FOR ACTION

A full-scale and swift investigation is imperative. Not only should senior management be held accountable, but the role of auditors and independent directors must also be thoroughly scrutinized. If those responsible are not severely punished, it will embolden cheaters and criminals. As Mahatma Gandhi once said, “The moment there is suspicion about a person’s motives, everything he does becomes tainted.” The regulators must act decisively to restore faith in the financial system.

Trust is the bedrock of human connections and the very essence of our survival. When trust is violated—especially in financial integrity—it shakes the foundation of coexistence. Each breach is a perilous step toward the potential destruction of our shared economy and society. Upholding trust is not just a moral imperative; it’s a fundamental necessity for the well-being and continuity of our interconnected existence.

In conclusion, regulators must fire on all cylinders to make Indian stock markets safe for all. White-collar crimes should not be treated any differently than physical thefts. Some criminal who smuggles in a couple of gold biscuits, they are imprisoned, and life is made absolutely miserable for them. On the other hand, SEBI allows these white-collar crimes to go literally scot-free. At best there is disgorgement, some penalty, and some ban from the capital market. This is hardly any relief for investors who have lost tons of money, and the loss of trust in capital markets, which is a more serious thing. Moreover, for habitual wrong doers, the disgorgement and penalty is a cost of doing business!!

A system that fails to punish financial wrongdoers swiftly is a society destined for collapse, like the chimpanzees!! As Thomas Jefferson wisely said, “Honesty is the first chapter in the book of wisdom.” It’s time we enforce this principle in action, not just in words.

Section 36(1)(vii): Advances written off – Allowable: Section 10B – Deduction – Site Transfer Income : Tribunal last fact-finding authority ought to have given independent finding while reversing decision of lower authorities :

Pr. Commissioner of Income Tax-11 vs. Watson Pharma Pvt. Ltd.,

[ITXA No. 1770 OF 2017, Dated: 26th March, 2025, (Bom) (HC)]

AY 2010-11.

Section 36(1)(vii): Advances written off – Allowable:

Section 10B – Deduction – Site Transfer Income : Tribunal last fact-finding authority ought to have given independent finding while reversing decision of lower authorities :

The Assessee is a wholly owned subsidiary of M/s. Watson Lab., USA and is engaged in the business of manufacturing and R & D facilities in India and also renders contract manufacturing services to its associate enterprises.

During the year under consideration, the assessee wrote-off various advances which were given in earlier years in the course of its business and same could not be recovered. The claim was made under Section 36(1)(vii) of the Act, and in the alternative under Section 28 of the Act. The assessee vide letter dated 4th March, 2014 addressed to the Assessing Officer (AO) gave the details of such write off by way of enclosures. These details pertain to more than 50 parties on account of various transactions which were stated in the remarks column e.g., AMC lift maintenance, raw materials, professional fees etc.

The Dispute Resolution Panel (DRP) disallowed the claim under Section 28 on the ground of want of evidence. The Tribunal allowed the claim of the respondent-assessee. The Tribunal has given reason that the genuineness of the advances have not been doubted by the revenue and further books of account have been audited by the statutory auditors and, therefore, the write off should be allowed after setting off the credit balances. The net balance written off which were allowed by the Tribunal was ₹7,66,713/-.

The ld. counsel for the appellant-revenue relied upon the order of the DRP and submitted that the claim was not sustainable. Against this, the learned counsel for the respondent-assessee submitted that the respondent-assesseehad filed the details of these advances with the AO and DRP vide letter dated 4th March, 2014 and the Tribunal after considering the said letter has allowed the claim.

The Hon. Court observed that on a perusal of the letter dated 4th March, 2014 and its enclosures, these are advances to more than 50 parties against which either the advances are not recoverable or the respondent-assessee has not received any services. The amount ranges from ₹200 to ₹3 lakh, major amounts being in few thousands. The DRP has not considered this letter and, therefore, observations made by the DRP that the claim is without evidence is incorrect. The Tribunal has correctly considered the details filed along with letter dated 4 March 2014 and allowed the claim. Further, the total income declared by the respondent-assessee is more than ₹30 crore and the net balance written off is only ₹7,66,713/-. This comparison is only to show when the income offered is more than ₹30 crore, small amounts write off would constitute reasonableness and more so looking at the nature of the write off detailed in enclosure to letter dated 4th March, 2014. Therefore, the Tribunal was justified in allowing the claim of the respondent-assessee.

Regarding the second issue i.e. deduction under section 10B of the Act, it was observed that the respondent-assessee was eligible for deduction under Section 10B of the Act with respect to its Goa unit and Ambarnath unit. The respondent-assessee has claimed deduction under Section 10B on “Site Transfer Income” of ₹19,61,98,000/- with respect to these two units. The DRP denied the deduction under section 10B on “Site Transfer Income” on the ground that same does not represent the income derived from the business of eligible unit. The Tribunal has allowed the claim.

The Ld. Counsel for the appellant-revenue submitted that the Tribunal has not given any reasons for allowing the claim of deduction under section 10B on “Site Transfer Income”. Accordingly, the relief given by the Tribunal without giving any reason would be contrary to the well-settled principle that the appellate authority has to give reasons which constitute the heart of the decision. The department relied upon the decision of the Supreme Court in the case of Santosh Hazari vs. Purushottam Tiwari (deceased) by Lrs. (2001) 3 SCC 179 and more particularly paragraphs 15 and 16 of the said order.

The Hon. Court noted the operative part of the Tribunal on this issue which reads as under :-

“We have heard the counsels for both the parties at length and we have also perused the orders passed by respective authorities, judgments relied by the parties and while taking into consideration the facts of the case, we are of the considered view that the Site Transfer Income is a part of business income earned by the assessee and is eligible for deduction while computing deduction u/s 10B of the Income Tax Act.”

The Hon. Court observed that the approach of the Tribunal is not appreciable. The Tribunal has merely stated that after hearing both the parties and perusing the orders and judgments, the Site Transfer Income is eligible for deduction under Section 10B of the Act.

According to Hon. Court the Tribunal ought to have given the reasons as to how “Site Transfer Income” constitutes the income derived from the business of the undertaking. The said reasoning is totally absent. The operative part is only the conclusion but before coming to the conclusion, the Tribunal ought to have given its reasons, especially since it is the case of reversal of the order passed by the AO and DRP and the Tribunal being the final fact finding authority and first appellate authority in this case was expected to give the reasons before coming to the conclusion which are absent in the present case. There is no discussion as to how the said decision is applicable to the Site Transfer Income before giving relief to the respondent-assessee. The Tribunal has given independent reasoning when it came for various other income being eligible but did not give any reasoning on “Site Transfer Income.”

It is well-settled that the duty to give reasons in support of adverse orders is a facet of the principles of natural justice and fair play. In several cases, the necessity of providing reasons by a body or authority to support its decision was considered before the Hon’ble Supreme Court. The Hon’ble Supreme Court held that on the face of an order passed by a quasi-judicial authority affecting the parties’ rights must speak for itself.

The Hon. Court referred and relied on the decision of the Supreme Court in case of Assistant Commissioner, Commercial Tax Department, Works Contract and Leasing, Kota vs. Shukla and Brothers (2010) 4 SCC 785 , wherein it has held that a litigant has a legitimate expectation of knowing reasons to reject his claim / prayer. Only then would a party be able to challenge the order on appropriate grounds. Recording of reasons would also benefit the appellate court. As arguments bring things hidden and obscure to the light of reasons, reasoned judgment, where the law and factual matrix of the case are discussed, provides lucidity and foundation for conclusions or exercise of judicial discretion by the courts. The reason is the very life of the law. When the reason for a law once ceases, the law itself generally ceases. Such is the significance of reasoning in any rule of law. Giving reasons furthers the cause of justice and avoids uncertainty.

The Hon. Court held that the absence of reasons essentially introduces an element of uncertainty and dissatisfaction and gives entirely different dimensions to the questions raised before the higher / appellate courts. The Court noted that there was hardly any statutory provision under the Income tax Act or the Constitution itself requiring the recording of reasons in the judgments. Still, it was no more res-integra and stands unequivocally settled by different decisions of the Court, holding that the courts and tribunals are required to pass reasoned judgments / orders.

In Union of India vs. Mohan Lal Capoor (1973) 2 SCC 836, the Hon’ble Supreme Court explained that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They should reveal a rational nexus between the facts considered and the conclusions reached.”

 In view of the above observations, the Hon Court remanded the matter back to the Tribunal for deciding the ground of deduction under Section 10B qua “Site Transfer Income.”

Section 143(3) : Notice and Assessment order – Non-existing entity – fact of merger was intimated to the officer, prior to the assessment order – Order bad in law:

3. Commissioner of Income Tax-LTU vs. Shell India Markets Pvt. Ltd. (Erstwhile Shell Technology India Pvt. Ltd.)

[ITXA No. 2381 OF 2018,

Dated: 27th March, 2025 (Bom)

(HC)] AY 2007-08 :

Section 143(3) : Notice and Assessment order – Non-existing entity – fact of merger was intimated to the officer, prior to the assessment order – Order bad in law:

The Respondent-Assesseehad raised an additional ground before Tribunal that a notice and assessment order has been issued on a non-existing entity namely “Shell Technology India Private Limited” and therefore same is void. The Tribunal decided this ground in favour of the Respondent- Assessee and quashed the assessment order by accepting the submission of the Respondent-Assessee that the notice and order was issued in the name of a non-existing entity i.e. “Shell Technology India Pvt. Ltd.”, although the fact of the merger of this company into “Shell India Market Limited” was intimated to the officer, prior to the assessment order vide letter 21st September, 2010.

The learned counsel for the Appellant- Revenue, submitted that the appeal can be disposed of by following various orders of the Hon. Court, wherein the decision of the Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC)and PCIT (Central)-2 vs. M/s. Mahagun Realtors (P) Ltd. [2022 443 ITR 194 (SC) have been considered. He specifically relied on the order and judgment passed by the bench in the case of Reliance Industries Limited vs. P. L. Roongta And Ors. WP No. 772 of 1992 along with ors (Bombay)

The assessee contended that the notice and order ought to have been issued in the name of the transferee company “Shell India Market Private Limited” and not against the transferor company “Shell Technology India Private Limited”.

The Hon. Court held that the notice and order should have been issued in the name of the transferee company “Shell India Market Private Limited” and not the transferor company “Shell Technology India Private Limited”. The decisions relied supports that if the Assessing Officer has been intimated about the fact of merger, then the notice should have been issued in the name of the transferee company and not the transferor company. Since in the instant case the notice and the assessment order is passed in the name of the transferor company “Shell Technology India Private Limited” and not the transferee company “Shell India Market Private Limited”, same are bad in law.

The Hon. Court clarified that the present Appeal was dismissed only on the ground that the notice and assessment order has been passed in the name of the transferor company. However, this order would not preclude the Appellant-Revenue from initiating fresh proceedings against the transferee company, in accordance with law for assessing the income in the hands of the transferee company. The Appeal was accordingly disposed of.

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

13. Principal CIT vs. MiliaTracon Pvt. Ltd.:

[2025] 473 ITR 155 (Cal.):

Block period 01/04/1996 to 07/05/2002:

Date of order 3rd July, 2024:

Ss.132 and 158BD of ITA 1961

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

A search conducted at the premises of UIC group led to the discovery of certain share certificates issued in the name of the assessee. The Assessing Officer of the assessee initiated proceedings u/s. 158BD of the Income-tax Act, 1961, without recording a satisfaction note as mandated and the assessee denied any undisclosed income. Subsequently, summons were issued to four individuals u/s. 131 but could not be served. The Assessing Officer of the assessee communicated the reasons for initiation of proceedings through a letter. The assessee submitted block returns of income and contested the proceedings, asserting that they were improperly initiated.

The Assessing Officer passed an assessment order. The satisfaction note reproduced in the assessment order was prepared by the Assessing Officer of the assessee and not by the Assessing Officer of the searched person, as required u/s. 158BD.

The Commissioner (Appeals) upheld the validity of the initiation of proceedings but granted relief on certain additions. The Tribunal reversed the findings of the Commissioner (Appeals), concluding that the initiation of proceedings was without jurisdiction since the mandatory requirements of recording satisfaction and transferring documents by the Assessing Officer of the searched person to the assessee’s Assessing Officer were not followed.

The Calcutta High Court dismissed the appeal filed by the Revenues and held as under:

“i) U/s. 158BD of the Income-tax Act, 1961, satisfaction note has to be recorded by the Assessing Officer of the searched person and send it to the Assessing Officer of such other person, the third party.

ii) The initiation of proceedings u/s. 158BD was unauthorised and lacked jurisdiction. The satisfaction note required u/s. 158BD must be recorded by the Assessing Officer of the searched person and sent to the Assessing Officer of the third person assessee. This requirement was not met in this case, as the note was prepared by the Assessing Officer of the assessee, contrary to statutory provisions. Additionally, the mandatory procedure for transferring seized documents to the assessee’s Assessing Officer was not followed. There was no illegality in the order of the Tribunal.”

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

12. ESS Singapore Branch vs. DCIT:

[2025] 473 ITR 541 (Del.):

A. Y. 2014-15: Date of order 22nd August, 2024:

Ss.199, 240 and 244 of  ITA 1961

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

The Assessee filed return of income for AY 2014-15 and claimed a refund of ₹3,65,970. The case was selected for scrutiny wherein the Assessing Officer raised an issue as to whether the revenue earned by the assessee including the consideration for live feed, would constitute royalty and thus be taxable. The Assessing Officer framed the draft assessment order holding that the consideration received towards live feed was taxable as royalty under the Income-tax Act, 1961. The Dispute Resolution Panel (DRP), affirmed the view taken by the AO pursuant to which the final order was passed.

On appeal before the Tribunal, the Tribunal held that there was a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast was neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of royalty under Explanation 2 to Section 9(1)(vi) and decided the appeal in favour of the assessee. Further, the Tribunal gave directions to the Assessing Officer to verify and grant credit for tax deducted at source as claimed by the assessee. Pursuant to the direction of the Tribunal, the assessee filed application before the Assessing Officer. The Assessing Officer restricted the benefit of TDS to the amount which was claimed in the return of income on the ground that amount reflected in Form 26AS was not claimed by the assessee in the return of income. It was also held that for the purposes of refund, the assessee had to follow the procedure as laid out in section 239 of the Act.

The Delhi High Court allowed the petition filed by assessee and held as follows:

“i) The unquestionable mandate of section 240 of the Income-tax Act, 1961 , as would be manifest from a reading of that provision, is that in cases where a refund becomes due and payable consequent to an order passed in an appeal or other proceedings, the Assessing Officer is obliged to refund the amount to the assessee without it having to make any claim in that behalf.

ii) Tax deducted at source duly deposited becomes liable to be treated as tax duly paid in terms of section 199 and interest thereon would consequently flow from the first day of April of the relevant assessment year to the date on which the refund is ultimately granted by virtue of section 244A(1)(a) of the Act.

iii) The undisputed position was that the Assessing Officer was called upon to give effect to a direction framed by the Tribunal. Viewed in that light, the stand taken by the Assessing Officer was unsustainable in so far as it restricted the claim of the assessee to the disclosures made in the return of income. It was wholly illegal and inequitable for the Department to give short credit to the tax duly deducted and deposited based on the claim that may be made in a return of income.

iv) Direction issued to respondents to acknowledge the credit of tax deducted at source as reflected in form 26AS of the assessee amounting to ₹2,27,83,28,430 and to recompute the total refund at ₹2,03,40,32,090.”

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified

11. Associated Chambers of Commerce and Industry of India vs. DCIT:

[2025] 473 ITR 696 (Del.):

A. Y. 2016-17: Date of order 5th August, 2024:

Ss.11(2), 147, and 148A of ITA 1961

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified:

The Assessee is a company registered u/s. 8 of the Companies Act and holds registration u/s. 12AA of the Act. Re-assessment proceedings were initiated against the assessee for the A. Y. 2016-17 on account of failure to digitally file and upload Form 10 on or before the due date of filing return of income u/s. 139(1) of the Act. While the assessee filed Forms 10A and 10B after the due date of return of income, however, the same were submitted before the Assessing Officer prior to the completion of the assessment proceedings. Assessment order was framed on 1st December, 2018 and the accumulation u/s. 11(2) was accepted.

The re-opening of assessment was challenged in a writ petition filed before the High Court. The Delhi High Court allowed the Petition of the assessee and held as follows:

“i) Section 11(2) of the Income-tax Act, 1961, speaks of a statement in the prescribed form (form 10) being “furnished” to the Assessing Officer. The change in the “prescribed manner” u/s. 11(2)(a) for the submission of form 10 and which moved to a digital filing was introduced for the first time by virtue of the Finance Act, 2015 ([2015] 373 ITR (St.) 25) and the Income-tax (First Amendment) Rules, 2016 ([2016] 380 ITR (St.) 66). Prior to those amendments, all that section 11(2)(a) required was for the assessee to apprise the Assessing Officer, by a notice in writing, of the purposes for which the income was sought to be accumulated and the mode of its investment or deposit in accordance with section 11(5). The requirement of form 10 being furnished electronically was undisputedly introduced for the first time by way of the 2016 Amendment Rules. The electronic submission of form 10 is essentially a matter of procedure as opposed to being a mandatory condition which may be recognised to form part of substantive law. An action for reassessment would have to be based on the formation of an opinion that income chargeable to tax has escaped assessment. That primordial condition would clearly not be satisfied on the mere allegation of a delayed digital filing of form 10.

ii) The action for reassessment was not founded on income liable to tax having escaped assessment. The Department also did not question the acceptance of the accumulations in terms of section 11(2) in the assessment order dated 1st December, 2018. The entire action for reassessment was founded solely on form 10 having been submitted after 17th October, 2016 which was the due date in terms of section 139(1). The order u/s. 148A(d) dated 31st March, 2023 and the consequent initiation of reassessment proceedings through notice u/s. 148 of the Act of even date were not valid and were liable to be quashed.”

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed: Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

10. ATS Infrastructure Ltd. vs. ACIT:

[2025] 473 ITR 595 (Del.):

A. Ys. 2014-15 to 2016-17: Date of order 18th July, 2024:

Ss.147, 148, 148A(b) and 148A(d) of ITA 1961:

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed:

Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

Notice u/s. 148A(b) was issued on the ground that the assessee had received loan from its 100% subsidiary. In response to the notice, the assessee submitted that the assessee had not received any loan from its subsidiary but on the contrary it had repaid the loan. The Assessing Officer, vide order dated 23rd July, 2022 passed u/s. 148A(d) of the Act accepted the explanation of the assessee. However, he alleged that the assessee had not been able to completely explain the source of the money which was used to repay a part of the loan and therefore the amount towards loan of ₹25,53,42,435 was treated as income chargeable to tax which had escaped assessment.

The Assessee challenged the aforesaid order in a writ petition before the High Court mainly contending that the Department had changed their stand and sought to re-open the assessment on a ground which did not form part of the original notice.

The Delhi High Court allowed the petition, quashed the proceedings and held as follows:

“i) The validity of the reassessment proceedings initiated u/s. 147 of the Income-tax Act, 1961, upon issue of a notice u/s. 148, would have to be adjudged from the stand point of the reasons which formed the basis for the formation of opinion with respect to escapement of income. That opinion cannot be one of changing or fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. The court would be primarily concerned with whether the reasons which formed the basis for formation of the requisite opinion are tenable and sufficient to warrant invocation of section 147.

ii) The enunciation with respect to the indelible connection between section 148A(b) and section 148A(d) are clearly not impacted by Explanation 3. U/ss. 147 and 148 the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the Assessing Officer and which could be invoked once an assessment has been validly reopened. Explanation 3 which forms part of section 147, would apply only when it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in the light of the principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the Assessing Officer in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated and the assessment has been validly reopened. Explanation 3, cannot consequently be read as enabling the Assessing Officer to attempt to either deviate from the reasons originally recorded for initiating action u/s. 147 or section 148 nor can the Explanations be read as empowering the Assessing Officer to improve upon, supplement or supplant the reasons which formed the basis for initiation of action under these provisions.

iii) The proviso to section 147 linked the initiation of reassessment to the existence of information which already existed or was in the possession of the Assessing Officer which was the basis for formation of the opinion that income liable to tax had escaped assessment. The provision fortified the view that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers u/s. 147 were justifiably invoked. Accordingly, the reassessment proceedings were unsustainable. Considering the import of Explanation 3 as well as the language in which section 147 stood couched, there was no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. vs. CIT [2011] 336 ITR 136 (Delhi); which had been affirmed and approved subsequently in CIT (Exemption) vs. Monarch Educational Society [2016] 387 ITR 416 (Delhi); and CIT vs. Software Consultants [2012] 341 ITR 240 (Delhi). Consequently, the order u/s. 148A(d) and the subsequent notice u/s. 148 were quashed. The Department was granted liberty to take such action as may otherwise be permissible in law.”

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

9. Everest Kanto Cylinder Ltd. vs. Dy./ Asst. CIT:

[2025] 473 ITR 148 (Bom.):

A. Y. 2017-18: Date of order 4th July, 2024:

Ss. 147, 148, 148A(b), 148A(d) and 151A of ITA 1961:

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

On a writ petition challenging the initial notice issued by the jurisdictional Assessing Officer u/s. 148A(b) of the Income-tax Act, 1961, the order passed on such notice u/s. 148A(d) and the consequent notice issued u/s. 148 for the A. Y. 2017-18 for reopening the assessment u/s. 147 the Bombay High Court allowed the petition and held as under:

“The jurisdictional Assessing Officer did not have jurisdiction to issue the notice u/s. 148 to reopen the assessment u/s. 147 in view of the provisions of section 151A read with the notification dated 29th March, 2022 ([2022] 442 ITR (St.) 198) issued by the Central Government. The initial notice issued u/s. 148A(b) and the order u/s. 148A(d) were set aside. The consequent notice issued u/s. 148 was illegal and invalid.”

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3rd February, 2022 and assessment completed on 22nd March, 2022 — Held, assessment order barred by limitation:

8. CIT vs. Ramco Cements Ltd.:

[2025] 474 ITR 9 (Mad):

A. Y. 2017-18: Date of order 19th December, 2024:

Ss.143(3), 144B and 144C(13) of ITA 1961

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3rd February, 2022 and assessment completed on 22nd March, 2022 — Held, assessment order barred by limitation:

The order of the Dispute Resolution Panel (DRP) was uploaded on 31st January, 2022 in the Department’s portal of Income-tax Business Application for National e-Faceless Assessment Centre, Delhi. The order was received by the Assessing Officer on 3rd February, 2022 as per the case history data and the proceedings were completed by the Assessing Officer on 22nd March, 2022. On the questions of whether the date of receipt of direction of the DRP was 31st January 2022 or 3rd February, 2022 and whether the completion of proceedings by 22nd March, 2022 was within the time limit stipulated u/s. 144C(13), the Madras High Court, dismissing the appeal filed by the Revenue, held as under:

“i) The commencement of limitation for the passing of the final assessment order is 30 days from the end of the month when the directions of the Dispute Resolution Panel are received by the Assessing Officer. Section 144C of the Income-tax Act, 1961 is a code by itself that provides for very strict timelines for completion of an assessment. Hence the stipulation in regard to limitation cannot be reckoned in a manner so as to give rise to more than one interpretation, where either party can take benefit of a later date.

ii) The communication from the Dispute Resolution Panel to the Tribunal confirmed that the directions of the Dispute Resolution Panel had been uploaded in the Income-tax Business Application on 31st January, 2022 itself. Since the Income-tax Business Application portal could be accessed by both the assessee as well as the Assessing Officer on their furnishing necessary credentials, the point that remained to be determined was how there could be two dates, i. e., 31st January, 2022 and 3rd February, 2022, when the same order was served upon the Faceless Assessment Officer and which date was to be reckoned as the point of commencement of limitation.

iii) The internal processes followed by the Income-tax Department make it possible for the user to initiate proceedings in the Income-tax Business Application portal using two methodologies. According to the unmasking report, if the Dispute Resolution Panel user selects the option of “draft order u/s. 144C” in the screen, then a link is created with the assessment module such that the direction passed by the Dispute Resolution Panel would automatically be reflected in the case history or notings of the Assessing Officer, both the Faceless Assessment Officer and jurisdictional Assessing Officer. The second method is where the Dispute Resolution Panel user has initiated proceedings, by using the option of manually entering the details of the order u/s. 144C in the screen. In such circumstances, the Dispute Resolution Panel order does not reflect automatically in the case history or notings of the assessment proceedings. According to the report, the second option had been availed by the Dispute Resolution Panel user and hence though the order was uploaded by the Dispute Resolution Panel user in the Income-tax Business Application on 31st January, 2022 itself, such uploading was not noticed by the Assessing Officer. However, as far as the Assessing Officer was concerned, an advisory issued by the Income-tax Business Application team on visibility of orders passed by Dispute Resolution Panels to other Income-tax Business Application users, was relevant. Paragraphs 1 and 2 of the advisory stipulated the two methods or options for uploading of the order. However, whatever be the method chosen, the directions of the Dispute Resolution Panel would be visible in the 360-degree screen to the Faceless Assessment Officer, if any assessment work-item were pending with him, in relation to a permanent account number. In other words, in the event of pending assessment proceedings, he would have to key in the concerned permanent account number of the assessee, such that, panoramic, 360-degree visibility was available to him to view the Dispute Resolution Panel directions as and when uploaded, which in the assessee’s case was on 31st January, 2022. The order of assessment dated 22nd March, 2022 had been passed u/s. 143(3) read with section 144C(13) read with section 144B. This provision required an assessment to be framed only in faceless mode by a Faceless Assessment Officer and it was he who had framed the assessment. The advisory had made it clear that the Faceless Assessment Officer would be able to view the Dispute Resolution Panel order in the 360-degree screen, since the assessment was pending with him. This feature had evidently been provided to ensure that an officer could access or receive the directions of the Dispute Resolution Panel as soon as it was uploaded by the Secretariat of the Dispute Resolution Panel and the pending proceedings would be completed within the statutory limitation provided. Hence, there was no protection available to the Department by the Dispute Resolution Panel user having selected the second manual option, since an Assessing Officer, in order to ensure that the assessment proceedings were strictly in accordance with statutory limitation, had been given full and complete access to all inputs required for completion of the assessment including the directions of the Dispute Resolution Panel immediately on their uploading into the Income-tax Business Application portal by the Dispute Resolution Panel. Clearly, limitation could not be dependent on varying user functionalities which were nothing but internal processes. If such contention was accepted, the commencement of limitation would vary depending on the option exercised by the user which would defeat the purpose of statutory limitation. The starting point of limitation was thus to be reckoned from the earliest instance when the directions of the Dispute Resolution Panel would be visible to the officer and could not be taken to fluctuate from one methodology to another depending on the option exercised by the user. The concluding portion of the advisory stated that the Dispute Resolution Panel order would be visible in the 360-degree screen to the Faceless Assessment Officer for his ready access. Therefore, all that was required to gain complete and up-to-date access to all relevant data in regard to an assessment would be available on the 360-degree screen.

iv) The fact that the Faceless Assessment Officer had merely chosen to await intimation when the order u/s. 144C had admittedly been uploaded on the Income-tax Business Application by the Dispute Resolution Panel user, and his consequent belated response, could not lead to a situation of disadvantage to the assessee, particularly when the advisory provides a methodology by which the Faceless Assessment Officer could access the document uploaded by the Dispute Resolution Panel simultaneously. The Tribunal was right in holding that the date of receipt of the direction of the Dispute Resolution Panel by the Assessing Officer was 31st January, 2022 being the date of uploading of the order of the Dispute Resolution Panel in the Department’s portal or website though the intimation of the Dispute Resolution Panel’s order was received by the Assessing Officer only on 3rd February, 2022 as per the case history data and the completion of the proceedings by the Assessing Officer on 22nd March, 2022.”

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal: Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

7. Uttar Gujarat Vij Co. Ltd. vs. ITO:

[2025] 473 ITR 729 (Guj):

A. Y. 2010-11, 2012-13 to 2014-15:

Date of order 1st April, 2024:

S. 254 of ITA 1961

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal:

Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

The petitioner-company is owned by the Government of Gujarat and carrying on business of distribution of electricity. For the A. Y. 2013-14, the petitioner filed return of income on 30th September, 2013 declaring the total income at ₹nil after claiming set-off of brought forward business loss and unabsorbed depreciation. The case of the petitioner was selected for scrutiny assessment by issuing notice dated 4th September, 2014 u/s. 143(2) of the Income-tax Act, 1961 and final assessment order was passed u/s. 143(3) of the Act on 29th December, 2016. The Assessing Officer, while framing the assessment, treated the interest income received on staff loan and other advances along with the miscellaneous receipt as income from other sources as against the income from business or profession as declared by the petitioner. Other additions were also made by the Assessing Officer.

The CIT(Appeals) partly allowed the appeal filed by the assessee. In the appeal before the Tribunal the assessee had relied on the judgment of the jurisdictional Gujarat High Court which was not considered by the Tribunal. The Tribunal dismissed the Miscellaneous Application filed by the assessee seeking review of the order of the Tribunal.

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

“i) The decision of a High Court, is binding on all subordinate courts and Appellate Tribunals within the territory of the State and subject to the supervisory jurisdiction of the court. Not following the binding decision of the co-ordinate Bench and jurisdictional High Court rendered on identical facts would be a mistake apparent on record which could be rectified by the Appellate Tribunal u/s. 254 of the Income-tax Act, 1961.

ii) The Tribunal could not have taken a different view from what was already taken by the co-ordinate Bench under similar facts which was confirmed by this court in Gujarat Urja Vikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16th March, 2020 (Guj). The Tribunal in Gujarat UrjaVikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16th March, 2020 (Guj) had held that interest income on staff loans was required to be treated as “business income” instead of “income from other sources” which was confirmed on appeal by this court. The decisions of the co-ordinate Bench of the Tribunal and this court were binding upon the Tribunal. When the Tribunal had not followed the decision on the identical facts by the co-ordinate Bench which was confirmed by this court, there was a mistake apparent on the face of the record in the order passed by the Tribunal which ought to have been considered by the Tribunal and the miscellaneous application filed by the assessee could not have been dismissed.

iii) The order of the Tribunal was set aside. The matter was remanded to the Tribunal to pass orders afresh. [Matter remanded.]”

Glimpses of Supreme Court Rulings

2. Vinubhai Mohanlal Dobaria vs. Chief Commissioner of Income Tax and Ors.

(2025) 473 ITR 394 (SC)

Offences and Prosecutions – Offence under Section 276CC of the Act – Wilful failure by the Assessee in furnishing the return of income which he is required to furnish under Sub-section (1) of Section 139 – The date immediately following the due date for filing of return which is to be considered as the date of commission of the offence – Guidelines for Compounding of Offence, 2014 – The guidelines allow only those offences to be treated as the “first offence” which are committed by the Assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the Assessee to the Department before they come to be detected – The latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the Assessee comes forward on his own initiative and discloses the commission of the offence

The Appellant before the Supreme Court was an individual earning income by way of salary and also by way of share of profit of partnership firm engaged in the business of chemicals. He filed his income tax returns for the AY 2011-12 and 2013-14 on 4th March, 2013 and 29th November, 2014 respectively declaring his income to be  ₹49,79,700/- and ₹31,87,420/- respectively. The due dates for the filing of returns for AY 2011-12 and 2013-14 were 30th September, 2011 and 31st October, 2013 respectively and as such there was delay on the part of the Appellant in filing the return of income for the said assessment years.

On 27th October, 2014, a show cause notice was issued to the Appellant by the Commissioner of Income Tax – III, Baroda alleging violation of Section 276CC of the Act for the AY 2011-12. The notice stated that:

“On examination of records, it is seen that you have furnished your return of income for the assessment year 2011-12 declaring total income of ₹49,79,700/- on 4.3.2013. Further, after allowing credit of prepaid taxes, you were liable to pay self assessment tax of ₹0/- by due date of filing of return. Later, your return of income was processed Under Section 143(1) of the Act 20.3.2013 determining demand of ₹0/- out of which ₹0 is still pending.”

Although the due date for filing the income tax return for the AY 2011-12 was 1st August, 2011 yet the Appellant had filed the same with delay on 4th March, 2013. The notice further stated that after allowing for the credit of prepaid taxes, the Appellant was liable to pay self-assessment tax of ₹0/- which however remained unpaid by the due date prescribed for the filing of return of income. In the last, the Appellant was called upon to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him.

The Appellant replied to the aforesaid show cause notice along with the application for compounding in accordance with the Guidelines for Compounding of Offence, 2008 (hereinafter referred to as “the 2008 guidelines”). The application, along with application for compounding the delay in filing of return of income for two other years came to be allowed vide order dated 11th November, 2014.

Thereafter, on 12th March, 2015, the Appellant received another show cause notice as regards launching of prosecution under Section 276CC of the Act for the AY 2013-2014 issued by the Commissioner of Income Tax, Vadodara – III. The notice stated that the Appellant had furnished the return of income for AY 2013-14 declaring a total income of ₹31,87,420/- on 29th November, 2014 and after allowing for the credit of prepaid taxes the Appellant was liable to pay self-assessment tax of ₹2,78,740/-. The notice further called upon the Appellant to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him as he had filed his return of income after the expiry of the due date.

The Appellant replied to the aforesaid notice along with an application for compounding as per the Guidelines for Compounding of Offence, 2014 (hereinafter referred to as “the 2014 guidelines”). In his reply, the Appellant stated that he had filed the return of income belatedly because necessary funds were not available with him to enable him to pay the assessed amount of tax. He further stated that the delay in filing of the return of income was neither deliberate nor wilful.

By an order dated 14th February, 2017 passed under Section 279(2) of the Act, the Respondent No. 1 rejected the compounding application of the Appellant. The Respondent No. 1 took the view that the case of the Appellant was not fit for compounding as a committee comprising of Principal CCIT Gujarat, CCIT Vadodara, DGIT (Investigation) Ahmedabad and the CCIT – II Ahmedabad in the minutes recorded of the meeting dated 25th January, 2017 had opined that the Assessee had filed his return of income for AY 2013-14 after the show cause notice for the offence under Section 276CC for offence during AY 2011-12 had already been issued. Therefore, as per the committee, the offence committed by the Appellant under Section 276CC for the AY 2013-14 would not be covered by the expression “first offence” as defined in the 2014 guidelines.

The Appellant challenged the aforesaid order passed by the Respondent No. 1 before the High Court of Gujarat by way of Special Civil Application No. 5386 of 2017. The Appellant, who was the Petitioner before the High Court, contended that his compounding application had been rejected by Respondent No. 1 solely on the ground that the offence alleged to have been committed by the Appellant of belated filing of the return of income for AY 2013-14 was not covered by the expression “first offence” as defined in the 2014 guidelines. The Appellant further submitted that the show cause notice for the initiation of prosecution issued under Section 276CC of the Act for AY 2013-14 was issued on 12th February, 2015 whereas he had already filed the return of income for the said assessment year on 29th November, 2014, that is, much before the issuance of show cause notice on 12th February, 2015 and therefore it could not be said that it was not the first offence. It was also contended by the Appellant that the Respondent had erroneously computed the date of issuance of show cause notice for AY 2011-12 for the purpose of holding that the Appellant had committed the offence post that date. Lastly, it was argued by the Appellant that the 2014 guidelines are only general guidelines and are not in the nature of strict law and thus are to be construed accordingly. The Appellant submitted that the general nature of the guidelines was also suggested by the heading “offences generally not to be compounded” used in the said Guidelines.

However, the High Court rejected the Special Civil Application of the Appellant vide the impugned judgment and order dated 21st March, 2017 taking the view that the contention of the Appellant was based on a misreading of the Clause 8(ii) of the 2014 guidelines. The High Court held that although the show-cause notice for AY 2011-12 was issued on 27th October, 2014, yet the Appellant filed the return of income for the AY 2013-14 on 29th November, 2014 and thus could be said to have committed the offence under Section 276CC of the Act for the AY 2013-14 after the show cause notice for the AY 2011-12 had already been issued. It was further observed by the High Court that the circumstances surrounding the delay in the filing of return of income by the Appellant were not required to be considered in detail by the compounding authority and the same would be considered during the course of the trial.

In such circumstances referred to above, the Appellant approached the Supreme Court.

The Supreme Court noted that Section 276CC punishes the wilful failure by the Assessee in furnishing the following types of returns in due time:

a. Return of fringe benefits which he is required to furnish under Sub-section (1) of Section 115WD or by notice given under Sub-section (2) of the said Section or Section 115WH; or

b. Return of income which he is required to furnish under Sub-section (1) of Section 139 or by notice given under Clause (i) of Sub-section (1) of Section 142 or Section 148 or Section 153A.

The Supreme Court further noted that Section 139(1) inter alia provides that every person shall, on or before the due date, furnish a return of his income during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Sub-section (4) of Section 139 provides that if a person has failed to furnish the return of income within due time prescribed under Sub-section (1), then he may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

According to the Supreme Court, to fully understand the import of Section 276CC of the Act, it was necessary to understand the meaning of the expressions “wilfully fails” and “in due time” used in the said provision respectively.

The Supreme Court observed that in Prakash Nath Khanna vs. CIT reported in (2004) 9 SCC 686, it was called upon to look into the scope and meaning of the expression “in due time” appearing in Section 276CC of the Act and whether it refers to the time period referred to in Section 139(1) or the time period referred to in Section 139(4). The Supreme Court, after discussing the various methods of statutory interpretation, took the view that the legislative intent behind Section 276CC, undoubtedly, was to restrict the meaning of the expression “in due time” used in the said provision to the time period referred to in Section 139(1) and not to the time period referred to in Section 139(4). Explaining the meaning of the expression “wilful failure”, the Court observed that the same has to be adjudicated factually by the trial court dealing with the prosecution of the case. The Court further observed that by virtue of Section 278E, the trial court has to presume the existence of culpable mental state and it would be open to the Accused to plead the absence of the same in his defence.

According to the Supreme Court, what was discernable from the aforesaid decision of Prakash Nath Khanna v. CIT was that an offence under Section 276CC could be said to have been committed as soon as there is a failure on the part of the Assessee in furnishing the return of income within the due time as prescribed under Section 139(1) of the Act. Subsequent furnishing of the return of income by the Assessee within the time limit prescribed under Sub-section (4) of Section 139 or before prosecution is initiated does not have any bearing upon the fact that an offence under Section 276CC has been committed on the day immediately following the due date for furnishing return of income.

Thus, the Supreme Court was of the view that the Appellant was right in his contention that the point in time when the offence under Section 276CC could be said to be committed is the day immediately following the due date prescribed for filing of return of income under Section 139(1) of the Act, and the actual date of filing of the return of income at a belated stage would not affect in any manner the determination of the date on which the offence under Section 276CC of the Act was committed.

According to the Supreme Court, this could also be discerned from Section 139(8) of the Act. A perusal of the provisions of section 139(8) makes it clear that irrespective of whether the return of income is filed by an Assessee after the specified date or is not furnished at all, the Assessee shall be liable to pay simple interest at the rate 15% reckoned from the day immediately following the specified date notwithstanding the fact that the Assessing Officer has extended the date for furnishing of return.

According to the Supreme Court accepting the contention of the Respondents would mean that the commission of an offence under Section 276CC is made contingent upon the filing of the actual belated return by an Assessee. This could never have been the intention of the legislature in enacting the provision as such a reading would mean that no Assessee would file a return of income after the due date has expired and despite such failure would be able to escape any liability under Section 276CC of the Act.

The Supreme Court observed that in the present case, the due-date for filing the return of income for the AY 2011-12 was 30th September, 2011. The Appellant filed his return with delay on 04th March, 2013. Hence, as the return was filed beyond the due date for filing the return, an offence under Section 276CC could be said to have been committed by the Appellant prima facie.

Similarly, the due date for filing the return of income for the AY 2013-14 was 31st October, 2013, whereas the Appellant filed the return for the said year on 29th November, 2014. Hence, the Appellant once again breached the requirement of Section 276CC and thus committed an offence as defined under the said provision.

According to the Supreme Court, even otherwise, it has not been disputed by the Appellant that an offence under Section 276CC was committed by him for AYs 2011-12 and 2013-14 respectively, and he had preferred compounding applications for both the assessment years. While his compounding application for the AY 2011-12 came to be allowed, his compounding application for the AY 2013-14 was rejected by Respondent No. 1 and the rejection was upheld by the High Court vide the impugned order.

The Supreme Court noted that the Guidelines for Compounding of Offences under Direct Tax Laws, 2014 were issued by the Central Board of Direct Taxes, Department of Revenue, Government of India in supersession of the previous guidelines which were issued on 16th May, 2008. These guidelines were one in line of many guidelines which were issued by the Central Board of Direct Taxes from time to time to provide guiding principles for the exercise of the power conferred by Section 279(2) of the Act which allows compounding of offences by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General either before or after the institution of proceedings.

The Supreme Court noted that Paragraph 8 of the guidelines prescribes offences which are generally not to be compounded under the compounding guidelines. It provides that a Category A offence which is sought to be compounded by an applicant in whose case compounding was allowed in the past in an offence under the same Section for which the present compounding application has been made on three occasions or more shall not be compounded. Secondly, it prescribes that category B offences will not be generally compounded other than the first offence as defined in the guidelines.

A “first offence” has been defined as follows:
“First offence means offence under any of the Direct Tax Laws committed prior to (a) the date of issue of any show- cause notice for prosecution or (b) any intimation relating to prosecution by the Department to the person concerned or (c) launching of any prosecution, whichever is earlier;

OR

Offence not detected by the department but voluntarily disclosed by a person prior to the filing of application for compounding of offence in the case under any Direct Tax Acts. For this purpose, offence is relevant if it is committed by the same entity. The first offence is to be determined separately with reference to each Section of the Act under which it is committed.”

The Supreme Court noted that as per Paragraph 12.4 of the 2014 guidelines the compounding fee to be levied in the case of an offence under Section 276CC is to be reckoned from the date immediately following the date on which return was due. The Supreme Court opined that this is in consonance with Section 139(8) of the Act and further fortifies the argument of the Appellant that it was not the date of actual filing of belated return, but the date immediately following the due date for filing of return which is to be considered as the date of commission of the offence.

The Supreme Court observed that the show cause notice for the AY 2011-12 was issued to the Appellant on 27th October, 2014. However, the offence under Section 276CC of the Act could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively. Thus, the offence for the AY 2011-12 could be said to have been committed on 1st October, 2011 and the offence for the AY 2013-14 could be said to have been committed on 1st November, 2013. Therefore, according to the Supreme Court, it could be said that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution.

The Supreme Court noted the Respondents had contended that even if the offences committed by the Appellant for AY 2011-12 and AY 2013-14 could be said to have been committed before the issuance of the show cause notice dated 27th October, 2014, the Appellant would still be covered by the subsequent part of the definition of “first offence” as the Appellant had voluntarily disclosed the commission of the offences for the AY 2011-12 and 2013-14 respectively by filing belated return of income for the said assessment years. In other words, the Respondents contended that the very act of filing belated return of income by the Appellant amounts to voluntary disclosure of commission of offence for the purpose of Paragraph 8 of the 2014 guidelines which defines the expression “first offence”.

The Supreme Court found it difficult to agree with the contention advanced by the Respondents that even if the Appellant is not covered by the first part of the definition of the expression “first offence”, he will still be covered by the latter half.

The Supreme Court observed that the scheme that permeates Paragraph 8 of the 2014 guidelines allows only those offences to be treated as the “first offence” which are committed by the Assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the Assessee to the Department before they come to be detected. The latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the Assessee comes forward on his own initiative and discloses the commission of the offence. The meaning as sought to be given by the Respondents to Paragraph 8 of the 2014 guidelines would turn the very purpose of having a two-fold definition of “first offence” on its head and thus cannot be accepted for it would take away the incentive of coming forward and voluntarily disclosing the commission of offences from erring-Assessees.

The Supreme Court further observed that Paragraph 4 of the 2014 guidelines specifies that compounding is not a matter of right of the Assessee and the competent authority may allow the compounding application upon being satisfied that the applicant fulfills the eligibility conditions and keeping in mind the conduct of the applicant, nature and magnitude of the offence and the facts and circumstances of each case. Further, Paragraph 7 of the guidelines prescribes the eligibility conditions and Paragraph 8 provides those cases which are generally not to be compounded. Paragraph 9 carves out an exception and empowers the Minister of Finance to relax the conditions laid down in Paragraph 8 of the 2014 guidelines and allow compounding in a deserving case.

According to the Supreme Court, a plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 of the Act which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the Appellant and nature and magnitude of offence. Seen thus, it becomes clear that the restrictions laid down in Paragraph 8 of the guidelines are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application.

The Supreme Court also had the benefit of looking at the Guidelines for Compounding of Offences under Direct Tax Laws, 2019 and the Guidelines for Compounding of Offences under Direct Tax Laws, 2022 issued by the CBDT. In both the said Guidelines, the offence under Section 276CC has been made a Category A offence instead of a Category B offence and is compoundable up to three occasions. According to the Supreme Court, although this would not have any direct implication on the case at hand since the same is governed by the 2014 guidelines, yet what it indicates is that there is a clear shift in the policy of the Department when it comes to the compounding of offences under Section 276CC in particular and in making the compounding regime more flexible and liberal in particular.

For all the aforesaid reasons, the Supreme Court held that the High Court fell in error in rejecting the writ petition filed by the Appellant against the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the application for compounding. The offence as alleged to have been committed by the Appellant under Section 276CC of the Act for the AY 2013-14 was, without a doubt, covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the Appellant could not have been rejected by Respondent No. 1 on this ground alone.

The Supreme Court set aside the impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara dated 14th February, 2017 rejecting the compounding application of the Appellant.

The Supreme Court directed that the Appellant shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment and the same shall be adjudicated by the competent authority having regard to the conduct of the Appellant, the nature of the offence and the facts and circumstances of the case within a period of four weeks from the date on which the application is filed by the Appellant. The proceedings pending before the Trial Court shall remain stayed pending the decision of the competent authority on the compounding application of the Appellant. In the event the fresh compounding application of the Appellant is accepted by the competent authority, the proceedings pending before the Trial Court shall stand abated. If the compounding application is rejected by the competent authority, then the trial shall continue and be brought to its logical conclusion.

The appeal was disposed of in the aforesaid terms.

From The President

Dear Members,

The term ‘profession’ traces its roots to the Latin word professio, meaning a public declaration or vow. Historically, this denoted a commitment to a higher ideal beyond personal interest—such as a vow to truth, justice, or service. Classically, professions embodied this ethos, combining specialised knowledge with a binding ethical code and a deep public responsibility.

For centuries, the distinction between a Profession and a Business has been clear. The earliest known explicit distinction of profession ≠ business comes from Plato’s Republic, circa 375 BCE, being clear in its emphasis that profession = service bound by ethics, whereas business = private gain.

The sociologist Émile Durkheim argued that professions emerged as ‘moral communities’ that filled the vacuum of trust in complex, modern societies. Similarly, Max Weber emphasised that professions are not mere occupations but vocations (Beruf)—a calling to serve society through competent and principled action.

The modern accounting profession emerged in the 19th century as industrial economies demanded credible, independent assurance on financial statements. Our own The Chartered Accountants Act, 1949, framed after Independence, enshrines this dual role: to be technically competent and ethically upright, serving both the client and the public interest. Thus, we are heirs to a proud legacy that combines specialised knowledge, ethical codes, and a public fiduciary role—the very definition of a profession.

Over the past few decades, fuelled by the forces of globalisation and perhaps the increasing scale and complexity of global business, the lines between the realms of profession and business have become increasingly blurred. These trends have, over the years, metamorphosed into a section of professionals operating their practices in a business-like manner, aka professional business firms. Whilst a commercial outlook does bring scale, efficiencies and processes, it runs the risk of Profits preceding Purpose and Big overshadowing Good, thereby compromising greater good over personal good.

Max Weber warned that over-bureaucratisation and commercialism can lead to the “iron cage”—a disenchanted profession stripped of its soul. Durkheim emphasised that professions should counterbalance market forces with moral solidarity and not succumb to being a part of it.

Even whilst structured as professional business firms, the ownership interests in such entities continued to be held by professionals. Through a recent wave of change, this fundamental assumption has also changed on its head, as Private Equity (‘PE’) investment finds momentum in accounting and consulting firms. The trend of financial investors owning professional business firms has the potential to rewrite the century-old distinction of Profession: Business, which has been the bedrock of our professional existence. While these developments promise new opportunities and growth, they also present ethical dilemmas and existential questions about who we are, what we stand for, and what future we envision for our profession.

In the calendar year 2024, global PE and venture capital-backed deals in accounting, auditing, and taxation services totalled $6.31 billion across 24 deals, the highest in any year in amount as well as number terms. As of March 2025, 12 of the top-30 U.S. accounting firms had received PE investments, with more firms in discussion. Several significant PE transactions have reshaped the accounting landscape:

– Grant Thornton LLP, a top 10 U.S. firm, announced a significant growth investment from New Mountain Capital, marking one of the largest such deals in the profession.

– Baker Tilly US LLP, another top 10 firm, secured a strategic investment from Hellman & Friedman and Valeas Capital Partners, representing the largest private equity investment in the U.S. CPA profession to date.

– Citrin Cooperman, a mid-sized U.S. firm, was acquired by a Blackstone-led investor group in a deal valuing the firm at over $2 billion. This transaction underscores the increasing valuation and attractiveness of accounting firms to private equity investors.

– In the UK, Unity Advisory, founded by former EY and PwC executives, launched with up to $300 million in backing from Warburg Pincus. Unity aims to challenge the dominance of large firms by offering tax, technology consulting, and M&A advisory services.

– Moore Global, a British mid-tier accountancy group, achieved record revenues of $5.1 billion in 2024, with private equity investments significantly contributing to this growth.

Several mid-tier and regional accounting firms have partnered with PE firms to access capital for technology upgrades, market expansion, and service diversification. The trend is now finding resonance in India. In the Indian context also there have been investments which illustrate the growing trend of private equity investment in accounting firms, bringing both opportunities and challenges.

As stewards of the profession, it is imperative to appreciate this trend and leverage it to advantage through a proactive framework that strikes the right balance between progressive gains and the structural tensions that private equity introduces into a profession like ours. As much as outside financial capital promises scaling-up, consolidation and value-creation, the perils of misalignment of goals, loss of professional autonomy and erosion of ethics and public trust warrant a much deeper debate on its efficacy.

Should professions be treated as businesses governed by market forces and investor returns? Or as ethical practices guided by codes, communities, and public responsibilities? Or an approach that balances both these important considerations?

Closer home, Indian philosophical traditions have long emphasised dharma—the righteous duty of each profession or varna to uphold societal harmony and welfare. Kautilya’s Arthashastra (4th century BCE) provided elaborate ethical guidelines for financial administrators, auditors (samaharta), and treasurers long before modern accounting emerged. The idea was clear: artha (wealth) must be pursued within the framework of dharma (righteous conduct).

Let us ensure that capital serves the profession and the profession serves the public—not the other way around.

With warm regards and steadfast faith in our collective wisdom,

 

CA Anand Bathiya

President

From Published Accounts

COMPILER’S NOTE

Given below is reporting on material weakness in internal controls for a large financial entity headquartered in Europe where it has been reported that the group has not maintained effective internal control over financial reporting based on COSO criteria.

UBS Group AG: (year ended 31st December, 2024)

From Independent Auditors’ Report:

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of UBS Group AG

Opinion on Internal Control over Financial Reporting

We have audited UBS Group AG and subsidiaries’ internal control over financial reporting as of 31st December 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the COSO criteria, the UBS Group AG and subsidiaries (“the Group”) has not maintained effective internal control over financial reporting as of 31st December 2024, based on the COSO criteria.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Group’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment related to the Group’s acquired Credit Suisse business. Prior to the acquisition, Credit Suisse management had identified and disclosed three material weaknesses, one of which related to controls to design and maintain an effective risk assessment process over internal controls. Management concluded that as of 31st December 2024,changes made to the Credit Suisse risk assessment process were designed effectively, but that additional evidence of operation of the remediated controls, in part due to the broader integration and migration efforts, is required to conclude that these controls are operating effectively on a sustained basis.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Group as of 31st December 2024 and 2023, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended 31st December, 2024, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2024 consolidated financial statements,and this report does not affect our report dated 14th March, 2025, which expressed an unqualified opinion thereon.

Basis for Opinion

The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We area public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

Not reproduced

From Management’s report on internal control over financial reporting:

Management’s responsibility for internal control over financial reporting

The Board of Directors and management of UBS Group AG (UBS) are responsible for establishing and maintaining adequate internal control over financial reporting. UBS’s internal controls over financial reporting are designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with IFRS Accounting Standards, as issued by the International Accounting Standards Board (IASB).

UBS’s internal controls over financial reporting include those policies and procedures that:

– pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets;

– provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and

-provide reasonable assurance regarding the prevention or timely detection of unauthorised acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

UBS management has assessed the effectiveness of UBS’s internal control over financial reporting as of 31st December, 2024 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment for the reasons discussed below, management believes that, as of 31st December 2024, UBS’s internal control over financial reporting was not effective because of the material weakness described below related to the Credit Suisse business acquired in 2023.

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a registrant’s financial statements will not be prevented or detected on a timely basis.

Prior to the acquisition, Credit Suisse management had identified and disclosed three material weaknesses, one of which related to controls to design and maintain an effective risk assessment process. Management concluded that as of 31st December, 2024, changes made to the risk assessment process were designed effectively, but that additional time, in part due to the broader integration and migration efforts underway, is required to conclude that these controls are operating effectively on a sustained basis.

The effectiveness of UBS’s internal control over financial reporting as of 31st December, 2024 has been audited by Ernst & Young Ltd, UBS’s independent registered public accounting firm, as stated in their Report of the independent registered public accounting firm on internal control over financial reporting, which expresses an adverse opinion on the effectiveness of UBS’s internal control over financial reporting as of 31st December, 2024.

Remediation of Credit Suisse material weaknesses

In March 2023, prior to the acquisition by UBS Group AG, the Credit Suisse Group and Credit Suisse AG disclosed that their management had identified material weaknesses in internal control over financial reporting as a result of which the Credit Suisse Group and Credit Suisse AG had concluded that, as of 31st December 2022, their internal control overfinancial reporting was not effective, and for the same reasons, reached the same conclusion regarding 31 December 2021. Following the acquisition and merger of Credit Suisse Group AG into UBS Group AG in June 2023, Credit Suisse AG concluded that as of 31st December 2023 its internal control over financial reporting continued to be ineffective. As permitted by SEC guidance in the year of an acquisition, UBS Group AG excluded Credit Suisse AG from its assessment of internal control over financial reporting for the year ended 31 December 2023 and concluded that its internal control over financial reporting was effective as of such date.

In May 2024, Credit Suisse AG and UBS AG merged with UBS AG as the surviving entity. Although Credit Suisse AG is no longer a separate legal entity, numerous of its booking, accounting and risk management systems remain in use for activities that have not yet been exited or migrated to UBS systems.

The material weaknesses that were identified by Credit Suisse related to the failure to design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities relating to (i) providing sufficient management oversight over the internal control evaluation process to support Credit Suisse internal control objectives; (ii) involving appropriate and sufficient management resources to support the risk assessment and monitoring objectives; and (iii) assessing and communicating the severity of deficiencies in a timely manner to those parties responsible for taking corrective action.

These material weaknesses contributed to an additional material weakness, as the Credit Suisse Group management did not design and maintain effective controls over the classification and presentation of the consolidated statement of cash flows under US GAAP.

Since the Credit Suisse acquisition, we have executed a remediation program to address the identified material weaknesses and have implemented additional controls and procedures. As of 31st December 2024, management has assessed that the changes to internal controls made to address the material weaknesses relating to the classification and presentation of the consolidated statement of cash flows as well as assessment and communication of the severity of deficiencies are designed and operating effectively.

The remaining material weakness relates to the risk assessment of internal controls. We have integrated the Credit Suisse control framework into the UBS internal control framework and risk assessment and evaluation processes in 2024. In addition, UBS has reviewed the processes, systems and internal control processes in connection with the integration of the financial accounting and controls environment of Credit Suisse into UBS, and implementation of updated or additional processes and controls to reflect the increase in complexity of the accounting and financial control environment following the acquisition.

Management has assessed that the risk assessment process was designed effectively. However, in light of the increased complexity of the internal accounting and control environment, the remaining migration efforts still underway and limited time to demonstrate operating effectiveness and sustainability of the post-merger integrated control environment, management has concluded that additional evidence of effective operation of the remediated controls is required to conclude that the risk assessment processes are operating effectively on a sustainable basis. In light of the above, management has concluded that there is a material weakness in internal control over financial reporting at 31st December, 2024.

Testing Times Ahead

As I write this Editorial, my heart is broken, and my eyes are filled with tears because of the ghastly terror attack on innocent tourists at Pahalgam, Kashmir, claiming 26 lives with many more seriously injured. Each story of death and injury is heart-rending. What is most disturbing is killings in the name of religion. It will derail the progress and prosperity of Kashmir as tourists will be afraid to go there. Already, many tourists have cancelled their tours, and those in the valley are returning. The Government has taken steps to neutralize terrorists. Pakistan-based terror groups are believed to be behind this attack with active state support, and therefore, the Government has suspended the Indus Waters Treaty with immediate effect. Citizens of Pakistan are asked to leave India; SAARC Visas are cancelled, the Atari border is closed, and diplomatic ties with Pakistan are pruned. Many more steps are anticipated. The entire world is shocked with major world powers declaring support to India. Indeed, we have a testing time ahead, as such barbaric terror attacks tear the basic fabric of unity, humanity and brotherhood.

Tariff / Trade Wars

On 28th March, 2025, Myanmar experienced a devastating earthquake, the tremors of which were experienced in Thailand and other neighbouring countries.

However, the entire world experienced tremors when the Trump Administration in the USA announced a sweeping tariff hike on 2nd April, 2025, which he described as a “Liberation Day.”

It reminded the world of the Smoot-Hawley Tariff Act of 1930 in the USA, which triggered the global trade war then and was believed to have deepened the Great Depression. The objective then was to bolster domestic employment and manufacturing. However, “the punitive tariffs raised duties to the point that countries could not sell goods in the United States. This prompted retaliatory tariffs, making imports costly for everyone and leading to bank failures in those countries that enacted such tariffs. Some two dozen countries enacted high tariffs within two years of the passage of the Smoot-Hawley Tariff Act, which led to a 65 per cent decrease in international trade between 1929 and 19341 .”

1 https://www.britannica.com/question/Why-did-the-Smoot-Hawley-Tariff-Act-have-such-a-dramatic-effect-on-trade

The “Liberation Day” tariffs are intended to bolster US manufacturing and retaliate against perceived unfair trade practices by some nations in terms of trade and non-trade barriers, which have resulted in large and persistent annual US goods trade deficits. Another objective of high tariffs seems to be to raise revenue to finance the expected sweeping tax cuts. However, there is a fear that these tariffs will increase inflation in the US and reduce international trade considerably. The USA has a significant trade surplus in services as, over the years, it transitioned significantly towards banking, finance, healthcare, education, technology, professional services, etc. With low or zero import duties, sourcing goods manufactured by other countries helped Americans to get cheaper products without the headaches of manufacturing. However, this resulted in the erosion of its manufacturing base and whopping goods trade deficits.

The new tariff hike is significant and differs from country to country. A universal 10 per cent tariff on all imported goods is imposed w.e.f. 5th April. However, the proposed additional reciprocal tariffs on various countries are kept in abeyance till 9th July, 2025, giving countries time to negotiate bilateral agreements. India is also negotiating a bilateral agreement and is expected to sign it soon. The USA has imposed a whopping 145% tariff on imports from China, implemented right away. Indian imports will suffer a 26% tariff in the USA, while imports from Vietnam will face an import duty of 46% in the USA from 9th July, 2025 subject to trade deals, if any. News reports suggest that Samsung and Alphabet are exploring shifting their manufacturing base to India. Thus, it appears that the Liberation Day Tariffs will help India to attract FDI in the manufacturing and other sectors and thereby generate employment, provided we play our cards well. With many countries levying counter-tariffs on the USA (e.g., China clamped a retaliatory import tariff of 125% on all US goods), the biggest fear is a reduction in international trade and commerce, which may lead to a worldwide depression. Will history repeat itself with the Great Depression of the 1930s in 2030? Indeed, we are heading for challenging times ahead.

Testing Time for the Profession

The ICAI has prescribed the revised “Format of Financial Statements for Non-Corporate Entities” (Revised 2022), effective from the financial year 2024-25 onwards, to align the reporting practices of Non-Corporate Entities (NCEs) — including sole proprietorships, partnerships, LLPs, trusts. This will facilitate better presentation, greater and more transparent disclosures, and enhance comparability. Members will have to equip themselves with these new requirements.

A testing time is ahead for partnership firms with the increased and complex TDS requirements under section 194T of the Income Tax Act, 1961.

As such, CAs are always in a testing mode with new tax filing utilities coming every year, studying and interpreting complex, ever-changing laws, keeping pace with technology and so on. The proposed new Income Tax Act will make all of us students once again, as the revised Act is expected to contain substantial policy changes.

This issue carries articles with an in-depth analysis of the important amendments by the Finance Act 2025, the provisions of TDS under section 194T of the Income Tax Act, 1961 and the New Format of Financial Statements for NCEs. We hope readers will find them useful.

Let me end on a positive note by quoting some interesting figures from the latest World Bank Reports2 on India, which states that Poverty at the lower-middle income (reflecting an earning of USD 3.65 per day) fell from 61.8 to 28.1 per cent between 2011-12 and 2022-23 (2017 PPP) and the extreme poverty (reflecting an earning of USD 2.15 per day) rate decreased from 16.2 per cent to 2.3 per cent between this period. Since 2021-22, employment has grown faster than the working-age population and growth rates for India are estimated at 6.5 per cent for FY 2024-2025 and 6.3 per cent for FY 2025-2026 despite the global headwinds.

2https://thedocs.worldbank.org/ 

(Based on Information available as on 10th April 2025)

Well, before the next season begins and before we are put to the test, let’s take out some time to rejuvenate and refresh ourselves with a good vacation with the family.

Best Regards,

 

Dr CA Mayur Nayak,

Editor

Issue/ Service & Communication in Digital Era

Communication methodologies have evolved from hand-written/ delivered letters to typed/printed and postal communication, to the recent email communication and now venturing into an era of automated / BOT communication. The principle of “audi alteram partem” will nevertheless prevail and requires that none should be convicted/ condemned unheard. Thus, effective communication between the revenue officer and its taxpayers ensures that the parties concerned are duly heard. Many safeguards have been implemented by progressive administrations to improve the effectiveness and efficiency of communication. However, every change in status-quo brings along certain challenges on account of inherited practices. One such relevant change is the manner of delivery of statutory notices/orders through email or portal upload which has resulted in lack of awareness by the intended recipients.

Under the GST scheme, the phrase ‘Service of notice’ has generally not been used alongside a statutory time limitation. Generally, the time limitation is linked to ‘issuance’ or ‘communication’. Therefore, it is imperative that the legal connotation behind these terms is understood and applied contextually.

WHEN IS A NOTICE/ORDER ISSUED I.E. COME INTO FORCE/ EXISTENCE?

The GST law at many instances (such as section 73/74) mandates that the notices/ orders are ‘issued’ before a prescribed time limit. Once they are issued, the service of the notice is prescribed u/s 169. Therefore, before going into the ‘service of a notice/ order’ it is imperative to also understand when a notice/ order comes into force/existence. The Kerala High Court in Government Wood Works vs. State of Kerala1 relying upon settled citations of the Supreme Court stated that any order of an authority cannot be said to be passed unless it is in some way pronounced/ published or the party effected has the means of knowing it. It is not enough if the order is made, signed and kept in the file because such order may be liable for change in hands of the authority who may even modify or destroy it before it is made known based subsequent information. To make the order complete and effective, it should be issued to be beyond control of the issuing authority. This should be done before the prescribed period though actual service is beyond that period. Similar views have been emphatically expressed by the Supreme Court in case of Delhi Development Authority (DDA) vs. H.C. Khurana2, where despatch has been held as a sine-qua non to complete the act of ‘issuance’. The Court clarified that service on the recipient was not a condition precedent for satisfying the act of issuance. In the context of a digital environment under Income tax, the Delhi High Court in Suman Jeet Agarwal vs. Income-tax Officer3 held mere generation of the notice on the database does not amount to issuance unless, it leaves the database and goes outside the control of the ITBA software. The analysis in subsequent paragraphs is on the basis that the proper officer issues and puts into motion a notice / order, without any inordinate delay, within the prescribed time limits, though service need not be complete within the said time frame.

1 1987 SCC Online Ker 697 (Ker)

2  [1993] 3 SCC 196

3 [2022] 143 taxmann.com 11 (Delhi)

WHAT ARE THE MODES OF SERVICE OF NOTICE/ ORDERS ?

Because of the sheer increase in tax-payer base and technology driven administration, the scheme of service of notices/ orders u/s 169 was amplified enlisting exhaustive modes of communication. Section 169(1) empowered the proper officer to serve notices in any one of the following modes:

i. Direct Delivery – Physically tendering through a messenger, courier partner, authorised representative or any family member;

ii. Post or Courier – Sending it through registered post or speed post at his last known address;

iii. Electronic Communication by e-mail address as per the registration details;

iv. Common Portal – Making it available on common portal;

v. Publication – in the local newspaper; and

vi. Affixation – If none of the above modes is practicable, by affixing in the place of business

On plain reading, the provision empowered the officer to pick and choose any of the five alternative modes of service and continue to persist with the said mode even if the recipient was unaware of the communication. The use of the phrase ‘any one’ inclined the officer to only upload the notice/ order on the common portal and avoid any email/ postal communication. This resulted in large scale notices concluding into adverse orders in context of cancellation of registration, assessments or adjudications on an ex-parte basis. In the era of excessive information, Taxpayers were agitated on account of the contentious service through uploading of orders, they were forced to knock the doors of the Court for such procedural matters which could have otherwise been addressed if the communication was effective and targeted to ensure the taxpayer is well informed. This article analyses the nuances of the section and whether there is any play in the said provisions which could safeguard interests of taxpayers.

WHAT IS SUBJECT MATTER OF SERVICE – NOTICE/ ORDER (OR) FORM DRC-01/07 ?

Section 169 is applicable to a decision, notice or order or communication to the taxpayer. Having understood the date of issuance of the said notice/ order, it is also important to ensure that we are looking at the right document for examining its ‘date of issue’ and ‘date of service’. In the context of adjudication, the notices are issued u/s 73(1)/74(1) and concluded by virtue of issuance of an order thereof under 73(10)/74(10). Now, Rule 142(1) requires that the summary of such notice (in Form DRC-01) and corresponding summary of the order (in Form DRC-07) are to be communicated electronically. The said DRC-01 could be issued for any proceeding under section 122, 129, 130, etc and concluded in an order under the respective section. The summary of such orders is then uploaded in form DRC-07 on the common portal.

It is thus very important to differentiate the issuance of the ‘notice’ or ‘order’ under a parent section from that of uploading the ‘summary thereof’ on the common portal. Once this distinction is noticed, it would be easier to understand and apply section 169. To reiterate, the forms in DRC-01/07 are not the notice/ orders per-se but only a summary (quantification) which needs to be uploaded on the common portal for the purpose of updation of the electronic ledgers of the taxpayer. The summary of such documents by its own does not have legal consequence over proceedings and are mere consequential documents for updating the GSTN portal, and nothing more than that. Having understood this important legal distinction, and contrary to popular perception, section 169 is to be applied onto notice/ order and not to the summary thereof which is available on the common portal.

‘COMMUNICATION’ TO TAXPAYER

There is also a third terminology ‘communicated’ which is used in the context filing of appeal u/s 107/108, where the time limit is said to commence from the date of ‘communication of order’ concerned. Though this date of communication is popularly treated as the date of service of the order and the time limit is said to have started ticking, use of a different phraseology from that specified in section 169(1), (2) and (3), suggests some different understanding to be attributed to such provision. The interpretation of the phrase ‘communicated to the person’ which is the start point of limitation, arose for consideration in SS Patel Hardware v. Commissioner, State G.S.T4. where the court while examining the provision held as under:

4. [2021] 127 taxmann.com 284 (All)

“8. Keeping in mind the fact that the delay in filing the appeal may not be condoned beyond the period of one month from the expiry of period of limitation, the phrase “communicated to such person” appearing in Section 107(1) of the Act commend a construction that would imply that the order be necessarily brought to the knowledge of the person who is likely to be aggrieved. Unless such construction is offered, the right of appeal would itself be lost though a delay of more than a month would in all such cases be such as may itself not warrant such strict construction.”
Similarly, Singh Traders vs. Additional Commissioner5 regarding satisfaction of service in accordance with the provisions of Section 169, it was stated that handing over the order to the driver of the conveyance could not be considered as valid service and hence the order itself was set aside. While the SS Patel judgement did not invalidate the order itself and merely ascertained the start time of communication of the order for the filing of appeal, the Singh Traders judgement clearly invalidated the order by holding that handing over the order to the driver (who is not an authorised person) is not valid service and hence there is no order is served on the taxpayer. This eventually leads to the conclusion that service of notice can be said to be complete only when communicated to the taxpayer or his authorised person for necessary action at its end.

5 [2021] 124 taxmann.com 295 (All)

COMPREHENSIVE READING OF SECTION 169

Coming back to the primary point of service of notice u/s 169, after specifying the modes u/s 169(1), sub-section (2) and (3) provided for a deeming fiction for completion of ‘service’ for certain modes of service i.e. placed a presumption about service and consequently casting an onus on the recipient to prove the contrary (if any). This emphasises that service of a notice/ order need not only be set in motion by the proper officer but also be complete at the recipient’s end. Under the presumption in sub-clause (2)/(3), service through hand delivery is considered as complete when duly signed and received by the concerned person; postal delivery is considered as received based on normal time taken for its delivery. The section not only provided for initiation of the service of a notice/ order at the officer’s end but also provided for presumption as to its completion based on certain events. This clearly implies that service u/s 169 needs to be viewed from the perspective of both the officer (as a sender) as well as the tax payer (as a recipient). Interestingly, there was no such deeming fiction over the mode of service via ‘email’ or uploading on ‘common portal’. This issue was highlighted in Udumalpet Sarvodaya Sangham vs. Authority6, where the Hon’ble Madras High Court interpreted section 169 and held that,

6 [2025] 170 taxmann.com 655 (Madras)

“A conjoined reading of Sub-Section (1)(2) & (3) of Section 169 would amply make it clear that the State is obliged to comply with the Clauses (a) to (c) alternatively and thereafter, comply with Clauses (d) to (f). Further, even though Clause (f) has also been proceeded with the word ‘or’ indicating it to be disjunctive / an alternative mode of services, a reading of the Clause (f) would indicate that Clause (f) could be resorted to by the State, if any of the Clauses preceding it, was not practicable. Here also, Clause (f) makes it imperative that such affixure shall be in a conspicuous place and the last known business or residence of the assessee. Therefore, the object of Section 169 is for strict observance of the principles of natural justice.”

Thus, Courts applied the analogy of sub-clause (2) and (3) and interpreted that mere sending by email or uploading on common portal did not absolve the officer from proving that the notice had been effectively served to the intended recipient and there must be a strict observance of natural justice principle. In the absence of any statutory presumption on this aspect, courts have generally been liberal in approaching the issue when the taxpayer claimed lack of knowledge over the proceedings/ orders.

THREADBARE ANALYSIS OF SECTION 169

The provisions of section 169 would thus have to be examined holistically along with other procedural provisions of the Act. While this section has specified multiple modes of service, the email communication as well as uploading notices/ orders has been the core area of dispute. Among the two as well, uploading of notices/ orders on the common portal has been the more contentious matters since taxpayers have claimed complete lack of knowledge about the existence of any such proceedings resulting in ex-parte orders.

Section 146 prescribes the common portal for functions such as registration, return filing, e-way Bill, and such other functions as stated in the corresponding Rules. The Government has also vide Notification 9/2018 dt. 23-01-2018 notified www.gst.gov.in (as amended) as the common portal u/s 146 for carrying out registration, returns and other the functions prescribed in the GST Rules. Accordingly, the prevalent GST Rules at many places have prescribed uploading forms electronically through the notified common portal. But there are also instances where the rules do not specify that the forms should be ‘uploaded on the common portal’ and merely prescribes that they should be communicated ‘electronically’. In the rest of the cases, the rules neither prescribe uploading on the common portal nor furnishing it electronically and is silent on the mode of communication. A simple tabulation of the relevant forms and the mode prescribed has been prepared below:

It may be observed that taxpayer-side forms have been specifically provided to be uploaded on the common portal and hence any other mode of communication would not be legally tenable. But in many cases where the forms are to be initiated by the proper officer, the law merely states that the same may be issued electronically or does not prescribe any mode.

We are all aware of the popular dicta in Taylor vs. Taylor and host of other decisions7 that when the statue requires doing a certain thing in a certain way, the thing must be done in that way and not using other methods. Other modes of performance are impliedly and necessarily forbidden and hence if the statute requires some form to be uploaded electronically on the common portal, the form would be considered legally filed only when the said manner as prescribed is followed (‘Expressio unius est exclusion alteris’). But where neither the statute nor the notification-9/2018 prescribes the mode specifically, is the mere uploading of the order on the common portal a sufficient and valid service?

7 Taylor vs. Taylor [1876] 1 Ch.D. 426 ;

Nazir Ahmed vs. King Emperor AIR 1936 PC 253;

 Ram Phal Kundu vs. Kamal Sharma [2004] 2 SCC 759; and 

Indian Banks Association vs. Devkala Consultancy Service [2004] 

137 Taxman 69/267 ITR 179/AIR 2004 SC 2615 = [2004] 11 SCC 1, 

Gujarat UrjaVikas Nigam Ltd. vs. Essar Power Ltd. [2008] 4 SCC 755

For instance, the process of application for registration requires the taxpayer to use the ‘common portal’ for filing/ uploading the required forms. However, the notices seeking clarification, documents, etc during the registration process are to be performed ‘electronically’. Once the registration is granted, provision of rejection/suspension of any registration merely direct the officer to issue a notice to this effect but does not specify any mode of issuance/ service. Similarly, the refund process requires the applicant to use the common portal for uploading the forms, but the adjudicatory process in form of SCN/ orders in the refund process, does not specify that the officer must upload the same on the common portal. Even during the adjudicatory process of demands, the Rules prescribe that the DRC-01 (being only a summary of the quantum specified in notice and not the notice per-se), etc to be communicated electronically and the orders are not stated to be uploaded on the common portal. It is only for DRC-07 (which is also a summary demand raised in the order) which is required to be uploaded on the common portal in order to update the Electronic Liability Ledger. The law is silent on the mode of communication of the detailed notice/ order.

Now juxtaposing the provisions of section 169 r.w.s.146 and other specific provisions of registration, refund, adjudication, etc, it seems that law does not mandate uploading the adjudication notices/ orders on the common portal. Notification 9/2018 (as amended) prescribes the common portal for specific function based on the requirements under the respective rule. But where there is no prescription of uploading/ making available certain notices orders on the common portal, the said Notification is not invocable and the common portal cannot be used as a medium for performing the said function. It is only where the common portal is designated for a specific purpose in terms of a specific rule/notification would the same be considered as the designated place of uploading the notices/ orders.

Given this legal picture, it could be argued out that the taxpayer should not be expected to view the notices/ orders section of the ‘common portal’ for the notice or order. Even if they are uploaded as an attachment to the summary, the notice/ order cannot be termed as ‘served’ u/s 169 as section 146 does not prescribe the common portal for such purposes. At best the common portal can be considered as a repository of the notice/ order along with the summary thereof. While the uploaded notices/ orders can be considered as informative in nature, the revenue cannot contend that ‘making available the notice / order on common portal’ (clause (d)) is legally recognised service when the common portal has itself not been designated for this purpose. This then requires the proper officer to serve the same through other modes including that of ‘email communication’ or ‘physical modes of email/ post’ as alternatively prescribed u/s 169.

Therefore, section 169 and 146 should be interplayed with the respective parent provisions and mere summary cannot be used to decide the service of such notice/ orders. The true purport of the alternatives provided in section 169 is that proper officer would be required also refer the relevant rule/ form and the manner prescribed therein. If the manner is prescribed therein, the proper officer ought to serve the notice by the manner specified therein. Where the manner is not prescribed therein, the service would have to be in the manner which ensures that the details are brought within the knowledge of the taxpayer (principles of natural justice).

One should also be mindful of the provisions of section 160(1) and (2) which presumption valid service where the recipient takes responsive action. Thus, the above analysis could be applied only where the proceedings are ex-parte and the taxpayer can establish the bonafide of being unaware of the proceeding. But where the taxpayer has downloaded the notice and taken reciprocal action by filing reply or other actions, section 160(2) grants shelter to such proceedings unless the taxpayer in its first instance specifically argues that the service of the document itself is not valid. The taxpayer cannot blow hot and cold at the same time and would be under a legal obligation to participate in the proceeding despite the service of such notice/ order not being in conformity with the respective rule, if they have acted upon the same.

ELECTRONIC COMMUNICATION UNDER IT ACT, 2000

The next question that arises is in respect of forms where rules are silent on uploading the notices/ order on the common portal. Whether e-mail communication to the registered email address would be a valid service of such notices/ order? Section 169(2)/(3) are silent on the completion of service of the said email communication and one would have to refer to ancillary enactments.

Section 4 of the Information Technology act grants legal recognition to electronic records notwithstanding that the primary enactment requires anything to be done physically. Now section 13 of the said Act speaks about the timing of receipt of documents despatched by the originator (in our case the proper officer). Where the addressee has a designated computer resource for the purpose of receiving electronic record, the receipt is said to occur when the electronic record ‘enters’ computer resource and if the electronic record is sent to computer resource of the addressee that is not designated for this purpose, then receipt occurs at the time the addressee retrieves the record from the computer resource. Where the addressee does not have a designated computer resource along with specific timings, receipt occurs when the electronic record enters the computer resource of the addressee.

In the context of uploading, can the GSTN log-in at the common portal be considered as a ‘designated computer resource’ of the addressee? Computer resource is defined under the IT Act 2000 to mean computer, computer system, computer network, data, computer data base or software. The common portal hosted on the server is owned and managed by the GST network and not strictly a computer resource ‘of’ the taxpayer. While there is no immediate answer, even if the account created therein can be said to be designated for the use of taxpayer, the said common portal has not been designated for the purpose of adjudication, cancellation, suspension, etc (refer discussion above). Therefore, there may still be an argument to not consider the GSTN portal as a ‘designated computer resource’ of the taxpayer for purpose other than those specified in the notification/ respective rule (refer table). In which case, the communication of the notices, orders etc which are required in law to be uploaded on common portal would be governed by clause 169(d) but in all other cases they can be said to be served only when the addressee retrieves (downloads) them from the GSTN portal in terms of section 169(c) read with the IT Act, 2000.

Now with respect to notices/ orders communicated via email (such as Gmail, private servers, etc), such webservers can be designated computer resources of the taxpayer. As stated earlier, though service is initiated by ‘sending an email communication’ there is no presumption u/s 169 about the completion of service in case of email communication. Therefore, in the absence of a specific presumption about the service of documents via email, the date of receipt of email in Gmail/web-server may be considered as service. But if the email account is not logged-in from a private computer, the said recipient does not acquire knowledge about it and may be caught unaware. This particular issue was examined in the context of section 13 of the Information technology Act.

What is receipt in a computer resource was analysed by Bombay High Court in Pushpanjali Tie Up Pvt. Ltd vs. Renudevi Choudhary8 where the court analysed ‘receipt of an electronic record’ u/s 13(2) and held that although a person may be said to have received an electronic record when it enters his computer resource, it does not necessarily mean or follow that he had knowledge either of the receipt or of the contents of the same at that time viz. at the very moment of the receipt of the electronic record. Even assuming that the legislature could enact a deeming provision fixing the time when a person is deemed to have acquired knowledge of an electronic record, section 13(2) does not contain such a deeming provision. In any event section 13 of the IT Act is not relevant for deciding whether a party had knowledge of an order for the purpose of the proceedings for contempt of court or for taking action for contempt of court, whether under the Contempt of Courts Act or under Order 39 Rule 2-A of the Code of Civil Procedure. Section 13(2), determines “the time of receipt of an electronic record”. It does not determine the time of knowledge of the contents of the electronic record or even of the receipt of the electronic record. It would be difficult to have a statutory provision to determine the time when a person acquires knowledge of something. That would depend on the facts of a case. Even if there is such a deeming provision in a statute, a person cannot be held guilty of committing a breach of an order on the basis thereof although he in fact had no knowledge of the contents of the electronic message. Take for instance a case where a person establishes that although an electronic record was received in his computer resource on a particular date, he in fact did not access the same till much later. He cannot then be held guilty of having committed a breach of the order for he had no knowledge of the same. A person may not be in a position to access the electronic record much after it was received in his computer for a variety of reasons. For instance, he may have been ill, he may have lost his computer, he may not have access to the computer or there may be an area where there is no internet access. Questions of contempt stand on an entirely different footing. Thus merely because an electronic record is deemed to have been received at the time when it enters a persons computer resource, it does not necessarily follow that he had knowledge of the communication at that point of time especially in proceedings for contempt or while deciding whether the person committed wilful breach of an order of a court. The time of receipt of an electronic record may, at the highest raise a presumption of the knowledge of the receipt and/or the contents thereof but nothing more in contempt proceedings.

82014 SCC OnLineBom 1133

There is also a decision as well in the case of Rapiscan Technologies9 which was examining whether uploading of orders on the income-tax portal by the Dispute Resolution Panel (DRP) would amount to ‘receipt by the assessing officer’ for completion of the assessment at his end within the prescribed time frame. The court held that uploading of the order by DRP on a resource designated for the Income tax department is receipt and hence the time limitation for this purpose triggers from that day onwards.

9 [2025] 170 taxmann.com 753 (TELANGANA) 
Rapiscan Systems (P.) Ltd. vs. ADIT (Int.Tax)-2

FAVOURING JUDICIAL TREND

There has been a favourable judicial trend (though very summary orders) in granting relief to taxpayers where the communication was limited only to uploading on common portal. The legal citations which emerged on this subject can be clubbed into two baskets (a) decisions which analysed the section with emphasis on natural justice; (b) decisions which merely examined the deviation of portal from the law and granted relief based on taxpayer’s bonafides;

Category 1 – The Madras High Court has been particularly firm on this subject matter. In its decision10, the Court categorised the modes of service into primary and secondary. The first three clauses of physically tendering/ post or email was considered as the primary mode of service. The remaining three clauses were considered as secondary modes of service which could be resorted if the primary mode did not elicit any response from the taxpayer. The court acknowledged that the traditional modes of post were ideal for taxpayers who were yet to acclimatise to the modern digital environment. In another decision11, the Court examined that while recognising the law permits service of notice/order via email, it also stated that in reality it would be onerous for small traders to expect them to monitor the emails on a regular basis; leaving a strong possibility that the communication goes unnoticed. It re-emphasised the need for a postal communication to avoid any ambiguity on the service of documents. Ultimately, the Court relied upon the legal intent to encourage compliance of the notice rather than curtail taxpayer’s response. Basing its decision on principles of natural justice, the court held that efforts should be made to serve the notice by post and elicit a response from the taxpayer.

10 Sri Balaji Traders vs. Deputy Commercial Tax Officer 
[2025] 173 taxmann.com 15 (Madras)

11Sakthi Steel Trading vs. Assistant Commissioner (ST) [2024] 159 taxmann.com 233 (Madras)

Category 2 – The Madras high court in another decision12 recognised the complex architecture of the GSTN portal and the manual. The court observed that uploading the notices/ orders in “Additional Notices and Orders” section in contrast to the “Notices and Orders” section raises a possibility of missing the notices by taxpayers. Similar view was adopted by the Allahabad High Court13 and the Court held that the taxpayers are entitled to the benefit of doubt in cases where the orders are uploaded under the “Additional Notices and Orders” section. The Patna High Court14 observed that as per the website manual, the notices, orders are communicated to be posted on the “Notices and orders” section and the “Additional notices and orders” section does not find any mention in the manual. Moreover, since there is no deeming fiction in 169(3) in so far as the uploading the notices/orders in the portal, the taxpayer is entitled to the benefit of being unaware of the proceedings. These decisions grant relief to taxpayers without laying down any definite legal proposition on this subject.

12 [2023] 154 taxmann.com 147 (Madras) Sabari Infra (P.) Ltd. 
vs. Assistant Commissioner (ST)

13 [2025] 170 taxmann.com 482 (Allahabad)  National Gas Service 
vs. State of U.P. relying upon Ola Fleet Technologies (P.) Ltd. 
v. State of U.P. [2025] 170 taxmann.com 66 (All.)

14 [2025] 172 taxmann.com 794 (Patna) Lord Vishnu Construction (P.) Ltd.
 vs. Union of India

CONTRARY CITATIONS

In the midst of these decisions, there are certain contrary decisions of Courts15 which have specifically relied upon the plain language and stated that any of the modes of services u/s 169 could be adopted as they are not conjunctive but alternative. Accordingly, email communication has been treated as a legally valid mode of communication though the taxpayer was ultimately granted interim relief on grounds of uploading DRC-07 in the Additional Notices section. In a batch matter before the Single Member of Madras High Court in Poomika Infra Developers16, relying upon an erstwhile law decision of the division bench and distinguishing the other Single member decisions, it was held that uploading the notice/ order on the common portal is valid service u/s 169. In reaching this conclusion, the court observed that (a) section 169 is clear as it directs any mode of service and there is no reason to categorise the first three clauses and the remaining into two separate baskets; (b) reference of rule 142 prescribed under section 146 is independent of section 169 which is specific to service and despite rule 142 limiting itself only to ‘summary of notice/ order’ uploading of the notice or order is valid form of service in light of section 169; (c) section 13 of Information Technology Act, 2000 could be applied to treat the log-in credentials on the common portal as the designated computer resource and hence receipt of the notice/ order on the specific account is valid service. The said decision summarily wipes out certain arguments discussed above and contrary to other decisions that views mere uploading as not being sufficient service. This also goes against the analysis of the section and decision of Bombay High Court in Pushpanjali Tie Up Pvt (supra) which elaborates ‘receipt’ in context of IT Act, 2000. Having said all this, the Court in its conclusive part still directed the revenue to introduce a practice of sending email/ SMS communication intimating the taxpayer about the upload on the common portal with a caveat that this email would not be used for deciding service of the notice/ order. With due respect, this decision needs to be examined further and appealed to arrive at the correct legal position.

15  [2023] 148 taxmann.com 9 (Madras) New Grace Automech Products (P.) Ltd. vs.
 State Tax Officer ; 
[2024] 167 taxmann.com 228 (Calcutta)  Jayanta Ghosh vs. 
Union of India & [2024] 
167 taxmann.com 7 (Calcutta) Delta Goods (P.) Ltd. vs. Union of India; 
Koduvayur Construction vs. Asstt. Commissioner [2023] 153 taxmann.com 333 
(Ker.)

16  W.P. Nos.33562 &Ors of 2025

COMPARISON WITH ERSTWHILE LAWS

The applicability of section 169 to notices/ order varies from that specified under the erstwhile Central Excise law which contained a waterfall mechanism of service of notices/orders, etc (section 37C of Central Excise Act). Service of any document by tendering it through registered post (subsequently including speed post) was considered as the most preferred methodology. In case of failure, affixation in the factory/ warehouse or usual residence was considered as the next alternative; and as a last resort, publication on the notice board of the officer was considered as a completing the service of notice by the concerned authority. The intention of such a mechanism was to ensure that the administrating authority takes honest efforts to engage with the taxpayer and the intended recipient is conferred its due opportunity. Even in postal service, the relevant officer was mandated to retain a copy of the acknowledgement of receipt by the recipient. Naturally, a well-defined process in section 37C experienced very limited litigation on the ‘mode of service’. Previously disputes were limited and now in GST era, a relatively short timeframe of 8 years have generated far greater litigation than its erstwhile laws.

CONCLUSION

Thus, uploading of notices/ orders in many instances are not specified to be necessarily performed on the common portal. In such cases the taxpayer is rightful in its plea to expect either an email communication or a postal delivery of the relevant document. The various communications which are entirely conducted on common portal do not seem to be the legally apt approach Consequently, the persistence of the revenue in sticking only to the common portal for legal notices needs to be reviewed. Tax payers on the other hand may consider widening the scope of their tracking of notices/ order even to portal dashboard to avoid any undesired incidents in the adjudication proceedings.

Part A | Company Law

4. Caparo India Limited

Registrar of Companies, NCT of Delhi & Haryana

Adjudication Order: ROC/D/Adj/2022/Section 149(1)/6647

Date of Order: 24th November, 2022

Adjudication order for violation of section 149 of the Companies Act 2013 (CA 2013): Failure to appoint woman director

FACTS

  •  As per the financial statements filed by the company for the financial year ended 31st March, 2021, the paid-up share capital of the company was R195.80 Crores.
  •  The company is clearly required to appoint a woman director based on Rule 3(ii) of Companies (Appointment and qualification of Directors) Rules, 2014 as the paid-up share capital of the company was more than R100 Crores.
  •  A Show Cause Notice was issued to the company and its officers in default on 27th July, 2022 in this regard. The company vide letter dated 9th August, 2022 submitted its reply and as per request of company an opportunity of personal hearing was also given. The authorised representative of the company appeared and made submissions on behalf of the company.
  •  It was submitted that there was a woman director who had resigned from the company w.e.f. 19R March, 2020 due to some reasons. The date of the Board Meeting held immediately subsequent to the resignation of the previous woman director was 23rd March, 2020. The company made its efforts to appoint an appropriate person, but those efforts were not fruitful. However, subsequent to the issue of show cause notice, a woman director was appointed. It was submitted that in any case non-executive directors should not be liable to any penalty on this account.

EXTRACT OF THE RELEVANT PROVISIONS OF THE ACT:

Section 454(6):

(1) …………………………

Second Proviso:

Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director.

Rule 3 of the Companies (Appointment and qualification of Directors) Rules, 2014: The following class of companies shall appoint at least one-woman director-

(ii)Every other public company having- (a) Paid-up share capital of one hundred crore rupees or more; or (b) Turnover of three hundred crore rupees or more:
…………………………………..

Provided further that any intermittent vacancy of a women director shall be filled-up by the Board at the earliest but no later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

Explanation- For the purposes of this rule, it is hereby clarified that the paid-up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.

Non compliance of section 149 r/w Rule 3 of Companies (Appointment and qualification of Directors) Rules, 2014 would give rise to liability under section 172 which read as under:

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

  •  As per second proviso to Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, the company had a period of three months from the date of resignation to appoint a woman director, however, the company failed to do so.
  •  Further, as per explanation to Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, the paid-up capital is being reckoned from the next date of latest audited financial statement i.e. one day after 26th November, 2021 (date of auditor report) and the period of default would continue till the issue of Show Cause Notice on 27th July, 2022 (this period is referred as default period).
  •  For the purpose of determination of penalty, the following data is to be considered :
  •  Duration of the default is from 27th November, 2021 to 27th July, 2022 i.e. period of 243 days
  •  Initial Penalty of ₹50,000 and ₹1,21,500 being Penalty for continuing default aggregating to ₹1,71,500 was levied.
  •  No penalty was levied for officers in default since the company had only non-executive directors.

5. M/s APTIA GROUP INDIA PRIVATE LIMITED

Registrar of Companies, NCT of Delhi & Haryana

Adjudication Order No – ROC/D/Adj/Order/Section 56(4)(a)/APTIA/4831-4833

Date of Order: 30th December, 2024

Adjudication order issued against the Company and its Director for contravention of provisions of Section 56 of the Companies Act, 2013 with respect to delay in issue of share certificate to shareholders post incorporation of the Company.

FACTS

M/s AGIPL suo-moto filed an application with regard to violation of provisions of the Section 56(4)(a) of the Companies Act, 2013 stating that the company was required to issue the share certificate to both the Subscribers of Memorandum within 2 months of its incorporation i.e. till 7th September, 2023 but failed to do so due to delay in receipt of the subscription money in company’s bank account. Hence, there was a delay in issuance of share certificate to subscribers of 105 days.

Thereafter, office of Registrar of Companies, NCT of Delhi & Haryana i.e. Adjudication Officer (AO) issued Show Cause Notice for the said default to M/s AGIPL and its officer. A response against the notice was received wherein M/s AGIPL re-iterated the facts and also submitted that the delay in issuance of share certificates was unintentional and due to external factors beyond its control and the company had also taken steps to rectify the error.

Further Ms. C J, Company Secretary being the authorized representative of M/s AGIPL appeared for oral submission in the matter and requested to take a lenient view while levying penalty on the company and its officers as the company is newly incorporated.

PROVISIONS

Section 56 – Transfer and Transmission of Securities

(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum.
….
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

ORDER

AO after consideration of the reply submitted by M/s AGIPL concluded that M/s AGIPL had failed to issue the share certificate to both subscribers of memorandum within 2 months of its incorporation which was not in compliance with the provisions of Section 56(4)(a) of the Companies act 2013. Hence, penalty of ₹50,000/- was imposed on M/s AGIPL and penalty of ₹50,000/- was imposed on each of its officers in default.

Thus, a total penalty of ₹1,50,000/- was imposed on M/s AGIPL and its Directors.

Section 194T – When Taxman Becomes A Silent Partner

Just as partners were settling into their cozy routines of profit-sharing (and occasional stationery disputes), Section 194T stormed into their lives like an uninvited relative at a family dinner—bringing along uncomfortable questions on mismatched Form 26AS entries, accidental GST invitations and sleepless nights for accountants. So, before your accountant contemplates early retirement, dive into this article and decode how to stay friends with the taxman (without losing your partners).

Budget Day in a Chartered Accountant’s life is no less dramatic than the final episode of a Netflix thriller—filled with suspense, sudden twists, and characters (read: taxpayers) you genuinely root for. WhatsApp groups explode faster than popcorn in the microwave, Excel sheets open quicker than umbrellas in Mumbai rains, and suddenly, everyone becomes a tax guru on LinkedIn. Gone are the nostalgic days when earnest CAs gathered in packed study circles, scribbling meticulous budget notes—today, they’re all busy crafting witty LinkedIn posts that get more likes than actual attendance at study circles! Tax professionals, lawyers, and CAs sharpen their keyboards (farewell, pencils!) to dissect, decode, and divine the implications—hoping, praying, and often failing to figure out: who gets hit this year?

This time, it was the humble partnership firm and its partners who found themselves at the receiving end of a legislative surprise—Section 194T, introduced via the Finance Act (No. 2) of 2024. It came in like an uninvited guest at a birthday party: no warning, no cake, just impact. As memes were made and coffee mugs cracked, tax teams scrambled to understand how this provision would affect the sacred bond between a firm and its partners. Many firms (including ours) realised—perhaps for the first time—that the best way to understand the law is to feel its full weight… personally.

However, before we cry over spilt revenue, let’s take a step back and admire the beauty of partnerships. A partnership is a living, breathing embodiment of the phrase Vasudhaiva Kutumbakam—the world is one family—except here, the family files a return, divides profits, and sometimes fights over stationery expenses. While firms operate with collective force, the moment profit-sharing discussions begin, the kumbaya turns into a Game of Thrones episode. Seniority, goodwill, rain-making ability, negotiation prowess (and sometimes just how loud one can argue in partner meetings) all go into deciding who gets how much of the pie.

In this article, we set out to explore how one provision will trigger far reaching impact. The conventional story of a pound of flesh holds good – there will be pain, there will be scar, but no drop of blood. Moreover, of course, all this against the backdrop of traditional issues faced by firms: the perennial people crunch (more humans, fewer hands), client fee pressure, and the age-old CA paradox—“Why is my own assignment never billable?”

So, brace yourself as we untangle the interwoven threads of tax, teamwork, and turf wars. After all, when the firm is the stage, and profits are the script, Section 194T might just rewrite the title to: “To be or not to be a partner.” If you are the managing partner or heading compliance, expect your phone to buzz soon—your partners, after reading this, are likely typing a WhatsApp message right now: “Have you read this? We need to discuss!” You might as well stay ahead—block out 15 minutes to finish this article before their queries land in your inbox.

PARTNERSHIP TAX BASICS

Before diving into case studies, it’s important to understand how partnerships are taxed and how partners are compensated under the Income-tax Act. Here is a quick refresher:

  •  Meaning of Partnership firm, partner – firm

“Partnership” is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.

Partner and partnership stems from legal agreement. The scheme of taxation will accordingly apply to partners who are partners in the agreement. People who are designated as partners to external stakeholders but who are not parties to the partnership deed will not be governed by the scheme.

  •  Firm as a Separate Entity

A partnership firm (including an LLP) is a separate person for tax purposes (per Section 2(31)). The firm files its own return and pays tax on its income like any other assessee, with a flat tax rate for firms of approximately 34.944%. It is possible that partners may be taxed at 39% or upwards. Given that the share of profit is exempt, this tax rate arbitrage is significant.

  •  Share of Profit – Tax-Free for Partners

After the firm pays tax on its profits, those profits can be distributed to partners as their share of the profit, which is exempt in the partners’ hands under Section 10(2A). This avoids double taxation of the same profit. Notably, this exemption holds true even in unusual scenarios – for instance, if the firm’s taxable income is nil due to brought-forward losses, a partner’s share of profit is still exempt. The same applies if the partner is not an individual, but another firm – a partnership firm receiving profit from another firm also enjoys a Section 10(2A) exemption1.

1. Jalaram Transport vs. ACIT [2025] 170 taxmann.com 303 (Raipur - Trib.); 
Radha Krishna Jalan vs. CIT [2007] 294 ITR 28 (Gauhati High Court)

In short, once the income has suffered tax at the firm level, it is not taxed again when passed through as a profit share.

One ongoing controversy is the meaning of share of profit, i.e. what is exempt. Is profit credited in books of account exempt, or is profit computed in accordance with profit and gains of the business or profession exempt, or is profit computed based on firm total income exempt? The difference between book profit and taxable profit is for a variety of reasons: depreciation charge, computation of capital gain (say due to 31st March 2018 grandfathering), tax exemption for GIFT City unit, disallowance under Act, etc. This issue has been the subject matter of controversy in under-noted decisions2 Share of profit would also include income not taxable in the hands of the firm.3 The conclusion of this controversy will be important as the amount paid in excess of the share of profit will be remuneration, which will be subject to TDS under section 194T.

2. Circular No. 8/2014 dated 31-3-2014; S. Seethalakshmi vs. ITO [2021] 128
taxmann.com 175 (Chennai - Trib.); Explanation to section 10(2A);
3. Vidya Investment & Trading Co. (P.) Ltd vs. UOI [2014] 43 taxmann.com 1
(Karnataka).
  •  Remuneration & Interest – Taxable for Partners

In addition to profit share, many partners receive remuneration from the firm – this can be called salary, bonus, commission, monthly drawings, etc. – as well as interest on capital if they’ve invested capital in the firm. These payments are taxable in the hands of the partners (not as “Salaries”, though, but as business income). Section 28(v) specifically treats any salary, bonus, commission or interest from the firm as a partner’s business profit. For the firm, such payments are deductible expenses, but only if they meet the conditions of Section 40(b). Section 40(b) imposes an upper cap on how much partner’s remuneration can be deducted by the firm, linked to the “book profit” of the firm. For example, for a firm with low profits, there is a ceiling (e.g. ₹3 lakh or 90% of book profit or 60% of book profit, etc., as per 40(b)) on deductible remuneration. Amounts beyond the 40(b) limit, if paid, will be disallowed – meaning the firm can’t deduct them (and will pay firm-level tax on those). This excess is not taxable as remuneration in the hands of the partner as per Explanation to section 28(v)

  •  Reconstitution of Firm – Special Rules

When a firm is reconstituted (say, a partner retires, a new partner joins, or profit-sharing ratios change), there can be additional tax implications under Sections 9B and 45(4). In essence, these provisions tax certain capital assets or money distributions that happen upon reconstitution or dissolution. Section 9B deems the firm to have sold any assets or inventory distributed to a partner (triggering capital gains or business income at the firm level). Section 45(4) then may tax the firm on any money or asset given to a partner in excess of that partner’s capital account balance (a formula essentially taxing the firm for paying out accumulated reserves or goodwill). The key point is that these provisions tax the firm, not the partner. The partner’s receipt in such cases (be it cash or assets during retirement or reconstitution) is typically not taxed in the partner’s hands (it is treated as a realisation of their capital interest). Thus, if a partner gets paid during a reconstitution event, that payment might trigger tax for the firm under 45(4)/9B, but the partner doesn’t separately pay income tax on it. As we’ll see, Section 194T specifically carves these situations out of its scope, recognising that those payouts are not in the nature of taxable remuneration to the partner.

With this groundwork laid, let’s introduce the protagonist of our story: Section 194T – the new TDS provision that has sent partnership firms back to the drawing board.

SECTION 194T – THE TAXMAN JOINS THE PARTNERSHIP

Effective from 1st April, 2025, any partnership firm or LLP making payments to its partners now faces a tax withholding duty. In plain language, the firm must deduct tax at source (TDS) at 10% on most forms of partner payouts. Here are the key features of Section 194T:

  •  Scope of Payments

“Any amount in the nature of salary, remuneration, commission, bonus or interest” paid or credited to a partner is covered. The law uses broad terms (“by whatever name called”), ensuring that whether you label it monthly salary, annual bonus, commission for bringing in clients, or interest on capital, it’s all under Section 194T’s umbrella.

  •  Exclusions:

Notably, genuine profit distributions are not mentioned in that list – so the taxman isn’t taking a bite out of the exempt share of profit. Similarly, withdrawals of capital (like when a partner takes out some of their capital or upon retirement) are outside Section 194T. In other words, Section 194T targets what we might call “partner compensation” but not the return of capital or after-tax profit share. The Memorandum to the Finance Bill and subsequent analysis clarify that payments on dissolution or reconstitution (governed by 45(4)/9B as discussed) are not subject to TDS under 194T. The firm doesn’t have to withhold tax when merely giving a partner his own capital or post-tax accumulated profit – those are more like balance sheet transactions, not income payments.

  •  Threshold – A Whopping ₹20,000

Yes, twenty thousand rupees per year, aggregated per partner. If the total of covered payments to a partner is ₹20,000 or less in the financial year, no TDS is required. However, if it likely exceeds ₹20,000, then TDS applies from rupee one. Practically, ₹20k is a very low bar – even a small firm paying token interest on capital will breach it.

  •  Timing of Deduction

Like most TDS provisions, it’s whichever is earlier – the moment of credit to the partner’s account (including credit to their capital account) or actual payment. This prevents clever timing tricks. For example, if a firm accrues a bonus to the partner’s capital account at year-end instead of paying it out, that credit is enough to trigger TDS in that year.

Practically, some elements of remuneration, like bonuses or commissions, are linked with firm performance. Typically, books are finalised towards September, i.e. near to tax audit due date. Now, the law requires a deduction of TDS on the said amount which is determined later. The TDS for March needs to be deposited by April 30, and the TDS return needs to be filed by May. Practically, the firm will have to deduct tax on a provisional basis and thereafter amend the TDS return to reflect accurate figures.

  • Residents, Non-Residents, Working, Non-Working – All Partners

Unlike some sections that distinguish non-residents (section 195) or require the payee to be a “specified person,” Section 194T casts a wide net. There’s no exception for non-resident partners (so resident firm paying, say, interest to an NRI partner must deduct 10% plus applicable surcharge/cess, subject to treaty relief later). If a partner is non-resident, it may be better view to treat such partner as having business connection in India and deduct tax at 30% plus cess and surcharge under section 195.

Even minor partners or partner’s representatives are covered. Also, it doesn’t matter whether the partner is a “working partner” taking an active part or a sleeping partner – interest paid to a dormant partner is equally subject to TDS. Essentially, if you have a “partner” label, any taxable payment from the firm triggers the tax withholding – period!

  • No Escape via Lower TDS Certificate

Interestingly, Section 194T was drafted without a provision to allow lower or NIL deduction certificates under Section 197. Tax professionals noted that you cannot approach the Assessing Officer to reduce the 10% rate, even if the partner’s final tax liability may be lower. Perhaps the logic was simplicity (10% is reasonably moderate). In any case, each partner will have to claim a refund or adjustment when filing returns if 10% TDS overshoots his actual tax liability (for example, if a partner’s income falls below the basic exemption or he has sizeable deductible expenditure against his partnership income).

  •  Compliance Burden & Consequences

Firms now have to obtain TAN, deduct 10% every time a partner’s pay is credited/paid, deposit the TDS by the due date, file TDS returns, and issue TDS certificates to partners. Non-compliance has teeth: the usual disallowance under Section 40(a) (ia) will apply. That means if a firm fails to deduct or pay the TDS, 30% of the corresponding partner payment will be disallowed as an expense, adding to the firm’s own taxable income, plus interest and penalties on the TDS default itself. In short, the cost of ignoring 194T is far heavier than the pain of compliance.

KEY CHALLENGES IN IMPLEMENTATION OF SECTION 194T

Section 194T (introduced w.e.f. April 1, 2025) brings partnership firms into the TDS net for payments to partners. While the intent is to improve reporting, it has thrown up some quirky tax compliance and reporting challenges. Below, we unpack the major issues.

MISMATCH BETWEEN FORM 26AS AND PARTNERS’ INCOME (SECTION 28(V) VS 10(2A))

One immediate challenge is the mismatch between the income shown in Form 26AS and the income the partner actually offers to tax under Section 28(v). Section 28(v) taxes a partner’s remuneration, interest, bonus or commission from the firm as business income, while Section 10(2A) exempts the partner’s share of profit from the firm. Trouble arises when a firm, in an abundance of caution, deducts TDS on conservative estimates – including amounts that might eventually be just the partner’s profit share. For instance, firms often allow partners to take profit draws (interim withdrawals of anticipated profits) during the year. If the firm treats these draws as potentially taxable payments and deducts 10% TDS on them, the partner’s Form 26AS will reflect a higher “income” (under Section 194T) than what the partner actually needs to declare as taxable income in return.

Such a scenario is not just theoretical – it is expected in practice. Consider an example: A partner withdraws ₹30 lakh over the year from the firm against upcoming profits. By year-end, the firm’s books decide that out of this, ₹20 lakh is salary (allowable under the deed and taxable for the partner), and the remaining ₹10 lakh is adjusted against the partner’s share of profit. Under Section 194T, the firm, being conservative, might have deducted TDS on the full ₹30 lakh during the year. Consequently, Form 26AS for the partner shows ₹30 lakh credited (with TDS of ₹3 lakh). However, in the partner’s return, only ₹20 lakh is offered as income under Section 28(v) (the ₹10 lakh profit share is not taxable, thanks to Section 10(2A)). This “26AS vs. ITR” mismatch can set off alarm bells in the tax processing system.

Why does this mismatch happen? Section 194T requires TDS at the time of credit or payment, whichever is earlier. If the firm hasn’t definitively credited any salary/interest until year-end, any mid-year withdrawal is technically a “payment” and attracts TDS by law. In our example, every withdrawal got hit with TDS in real time. However, at year-end, when the dust settled, part of those withdrawals were not taxable income at all. The result: Form 26AS shows more income than the partner’s taxable business income. TDS ends up being “deducted where it is not actually deductible,” leading to tax being collected on amounts that never became taxable income. In short, the partner cannot make “income” from himself/herself, yet the TDS mechanism temporarily pretends that they did.

TDS CREDIT WOES UNDER SECTION 143(1)(A) AND RECTIFICATION NEEDS

The mismatch above isn’t just academic – it has real cash flow implications for partners. The Income Tax Department’s CPC (Centralized Processing Center) loves matching figures. When the partner’s return is processed under Section 143(1)(a), the system may notice that the income reported under Profits and Gains from Business/Profession is lower than the amounts on which TDS was deducted per Form 26AS. A straight-laced algorithm does not automatically grasp that the “missing” amount was exempt under Section 10(2A). Instead, it may treat it as under-reported income or disallowance. The immediate effect could be a denial of a portion of the TDS credit – the tax on the “mismatched” amount – in the intimation. In our example, the CPC might allow credit of TDS only proportional to the ₹20 lakh income acknowledged and hold back credit for the ₹10 lakh portion unless that income is brought into the computation. This leaves the partner with a tax-due notice or reduced refund, quite an unwelcome surprise.

Such partial credit denials have been observed whenever income–TDS mismatches occur. It often falls under the umbrella of a “mistake apparent from the record” that requires fixing. The partner then must file a rectification application under Section 154 to resolve the issue. In the rectification, one would cite that the seeming income shortfall was actually exempt profit income (backed by Section 10(2A) and the partnership firm’s audited accounts). Only after this hoop is jumped can the full TDS credit be restored. This procedure is about as enjoyable as watching paint dry – an additional compliance burden that eats up time for both the taxpayer and the department.

The irony is not lost on anyone: the department issues speedy refunds nowadays, yet much of that could be avoidable if the tax were not over-collected in the first place. So, partners finding only partial TDS credit in their 143(1) intimations should not be shocked; instead, gear up to file for rectification, citing the exempt income rationale. It is an extra step in implementing 194T, almost built-in by design.

THE GST ANGLE: WHEN TDS DATA TRIGGERS INDIRECT TAX TROUBLE

Section 194T’s fallout isn’t limited to direct tax. It has an indirect tax twist, thanks to data sharing between departments. Generally, a partner’s remuneration is not considered a “service” and thus not subject to GST – the logic being that a partner isn’t an employee but also isn’t exactly an outside service provider to their firm. In fact, the CBIC has clarified that the salary paid by a partnership firm to its partners “will notbe liable for GST.”. So far, so good on paper – the partner’s income from the firm should be outside GST’s scope.

However, practical reality can differ, especially when compliance data is picked up blindly. GST authorities have started leveraging Form 26AS and income-tax data to smoke out cases where they believe someone exceeded the GST registration threshold without registering. A partner’s receipts under Section 194T could inadvertently light such a beacon. Here’s how: Form 26AS might show substantial “payments to Mr X (Partner) from ABC Firm”, say ₹25 lakh in a year, with TDS under Section 194T. To a GST officer scanning data, that looks like Mr X provided services worth ₹25 lakh (crossing the ₹20 lakh threshold for services) without GST registration. The risk is higher if the nomenclature in the TDS records or books hints at something like “commission” or “professional fees” rather than just “partner’s salary.” Descriptions matter – a label like “partner’s commission” could be misread as if the partner acted as an outside agent to the firm rather than in the capacity of the partner. And crossing ₹20 lakh in any “service” receipts is like waving a big red flag in front of GST authorities.

In short, Section 194T can unintentionally invite the GST inspector to the party. The partner and the firm then have to prove a negative – that these receipts were not for any independent service. It is an added challenge to ensure that tax compliance in one law (TDS) doesn’t create confusion in another. One might quip that a partner now needs not only a good CA but also a good GST consultant on speed dial, just in case the left hand (direct tax) doesn’t tell the right hand (indirect tax) what it’s actually up to.

ACCOUNTANT – THE UNSUNG HERO (OR VILLAIN?) OF SECTION 194T COMPLIANCE

In the whirlwind of partner withdrawals, the accountant emerges not just as someone who balances books, but as the narrator who clearly categorises each payment. Indeed, an accountant capable of distinguishing between withdrawals from previous capital, share of profit, bonus, remuneration, interest, reimbursements, loans from the firm, or simply advances against future payments is nothing short of a rare gem. If your firm happens to have such a precious resource, my advice: keep it secret and keep it safe!

The sheer variety of payment nomenclatures is enough to confuse even the most diligent AO—leading to scenarios where the Taxman may meticulously scrutinise partner capital accounts, placing the horse firmly before the cart and demanding justification for TDS compliance decisions. Accurate accounting thus becomes the saving grace, the ultimate shield against unwarranted scrutiny.

Of course, this is far easier said than done. For most CA firms, self-accounting typically resembles a frantic race against the year-end – where many (or the majority) of the firms finalise the books and file tax returns almost on the eve of the compliance due date. Perhaps, if technology ever advances sufficiently, BCAJ could even host a live poll among readers—if only to humorously reaffirm the author’s suspicion that accountants who excel in accurate partner payment narratives are as common as multi-bagger sightings in Dalal Street!

PRACTICAL TIPS TO MITIGATE THE CHAOS

Implementing Section 194T need not be a nightmare scenario. Firms and partners can take practical steps to mitigate these issues and smooth out the rough edges:

  •  Align Income Reporting in the ITR

To pre-empt mismatches, partners may consider reporting the gross amount of firm-related receipts in their income tax return and then separately deducting/exempting the share of profit. In practice, this means if Form 26AS shows ₹30 lakh under Section 194T, the partner can report ₹30 lakh as gross receipts under business/profession in the ITR computation, then claim the ₹10 lakh (in our example) as exempt under Section 10(2A). This way, the income reported matches Form 26AS, and the exempt portion is clearly disclosed as such. It’s a bit of a workaround – effectively telling CPC, “Yes, I got ₹30 lakhs, but ₹10 lakh is tax-free” – but it can save you from the CPC’s automated mismatch adjustments.

Bottom line: mirror the Form 26AS in your ITR to the extent possible, and then claim your lawful exemptions within the return.

  •  Smart TDS Strategy for Firms

Firms can reduce mismatches by timing and characterising partner payments carefully. One approach is to credit partner remuneration and interest only at year-end (when profits are ascertained) and treat all interim withdrawals as drawings against capital or anticipated profits. If no specific portion of a draw is designated as “salary/interest” during the year, arguably, no TDS is required on mere drawings. The TDS can be deducted when the remuneration is actually credited (i.e. when it becomes income in the sense of Section 28(v)). Of course, firms must be cautious – this works best when the deed or mutual agreement supports it, and there is confidence that by year-end, some remuneration will indeed be authorised. If the firm ends up not crediting any salary due to losses or low profits, then no TDS on drawings was needed at all – avoiding the scenario of “tax paid without corresponding income”. In essence, don’t let the TDS tail wag the dog: deduct tax when income is crystallised, not simply whenever a partner taps the firm’s ATM. This requires discipline and documentation but can save everyone from unnecessary refund / reconciliation workouts.

  •  Partnership Deed Clauses – Clarity is King

It all starts with the deed – A sacred document which, before this amendment, was in some drawer which is today difficult to locate. To prevent misunderstandings, the partnership deed should explicitly define the nature of partner withdrawals and payments. For instance, include a clause that “any drawing by a partner during the year shall be treated as an advance against that partner’s share of profit unless specifically characterised as salary or interest by a resolution/entry.” This makes it clear that until the year-end decision, a withdrawal is not a salary payment, thereby strengthening the case for not deducting TDS on it (since it isn’t “income” yet in Section 28(v) sense). Similarly, for retiring partners, the deed (or retirement agreement) should spell out that any lump sum paid is in settlement of the retiring partner’s capital, share of accumulated profits, and goodwill. Use terms like “share of profit till the date of retirement” rather than calling it a “fee” for departure. This not only helps direct tax (by clarifying that Section 10(2A) covers the profit portion) but is also a shield against GST misinterpretation. If a GST officer inquires, a well-drafted deed allows the response: “This amount was a capital/share settlement as per deed clause X, not a consideration for any service.” In short, paperwork can prevent peril – document the intent so that no one later can recharacterise the nature of the payment.

  •  Communication and Consistency

Partners and finance teams should maintain clear communication regarding these payments. Internally, everyone should know what the firm’s policy is on drawings and TDS, so that a lower-than-expected credit or a surprise GST query does not catch a partner off guard. Externally, if a notice does arrive (be it a 143(1)(a) intimation or a GST notice), respond promptly and factually. For a tax credit mismatch, a brief Section 154 rectification application with a note referencing “TDS on the exempt share of profit (Section 10(2A) not included in total income)” usually suffices to set things right. For a GST notice, a well-reasoned reply citing the CBIC clarification that partner remuneration isn’t taxable, along with a copy of the partnership deed and Form 26AS, should clarify the situation.

By taking these steps, firms and partners can turn Section 194T from a head-scratcher into a manageable routine. As the saying goes (with a 194T twist): “Deduct your tax and credit it too – but keep the paperwork straight to avoid a boo-boo!” And that, in essence, captures the balancing act now required in the post-194T era of partnership taxation.

CONCLUSION

The broader message for firms is clear: adapt and move on. Review your partnership agreements. Educate your partners – especially those accustomed to tax-free profit shares – that henceforth, their bank alerts will show slightly lighter credits (but not to worry, it’s their own tax being prepaid).

Ultimately, Section 194T doesn’t change how profits are split in theory – rainmakers will still rain, team players will still team – but it adds a new layer of accountability and cash-flow management to the mix.

One can end on a lighter note: if you thought partner meetings were intense when debating billable hours or client receivables, wait until someone brings up who’s contributing what to the firm’s TDS deposit each month! The silver lining is that this provision has united every kind of partner – from the golf afternoon equal sharer to the midnight oil grinder – in a single cause: figuring out how to comply. The takeaway for practitioners is to embrace Section 194T as just another business reality, as our clients did when it came to section 194Q and section 194R.

Keep calm, deduct on, and let’s get back to doing what we do best – serving clients – while the TDS Challan gets its regular date with the bank.

Implications Arising Out of New Format of Financial Statements for Non-Corporate Entities

The Institute of Chartered Accountants of India (ICAI), through its Accounting Standards Board, issued the revised “Format of Financial Statements for Non-Corporate Entities” (Revised 2022), effective from financial year 2024-25 onwards. This move aims to align the reporting practices of Non-Corporate Entities (NCEs) — including sole proprietorships, partnerships, LLPs, trusts, and others to facilitate better presentation, greater and more transparent disclosures, and enhance comparability. This article analyses the implications of the revised format and outlines the challenges and opportunities together with the way forward, both for the NCEs as well as the regulators arising out of its implementation.

INTRODUCTION

India’s financial reporting landscape has significantly evolved in the past decade. While corporate entities governed by the Companies Act, 2013 (“the Act”) have long followed standardised formats for financial reporting in the form of Schedule III (erstwhile Schedule VI), NCEs were governed largely by inconsistent legacy practices or were following formats prescribed by the tax authorities or other regulators like the Charity Commissioner. Considering the large number of such entities and their contribution to the GDP and tax base, a standardised financial reporting framework is desirable.

The Institute of Chartered Accountants of India have prescribed Accounting Standards for different type of entities. These Accounting Standards apply with respect to any entity engaged in commercial, industrial or business activities. For the applicability of Accounting Standards (AS) on entities other than companies, these entities are classified into four categories viz., Level I, Level II, Level III and Level IV non-company entities. Level I, being large size non-company entities, are required to comply fully with all the AS. Level IV, Level III and Level II non-company entities are considered Micro, Small and Medium Sized Entities (MSMEs) that have been granted certain exemptions/relaxations by the ICAI.

Recognising this, the ICAI had earlier released the Technical Guide on “Revised Format of Financial Statements for Non-Corporate Entities (2022)” followed by a Guidance Note on Financial Statements of Non-Corporate Entities in August 2023 (“Guidance Note”), which is applicable to all financial statements from 1st April, 2024 (i.e. for financial statements from financial year 2024-25 onwards)1. Since NCEs will have to start preparing financial statements, they must be aware of the implications and challenges and other related matters arising from the adoption of the revised formats.

1   The Technical Guide on Financial Statements of Non-Corporate Entities 
stands superseded by the Guidance Note issued by the ICAI.

SCOPE AND APPLICABILITY

The Guidance Note specifies that all Business or Professional Entities, other than Companies incorporated under the Companies Act and Limited Liability Partnerships incorporated under the Limited Liability Partnership Act, are considered to be Non-Corporate entities. Accordingly, the revised format applies to:

  •  Sole proprietorships
  • Partnerships
  • Hindu Undivided Families (HUFs)
  • Trusts
  • Association of Persons (AOPs)
  • Societies (not covered under the Companies Act)

It goes on to state that any formats/principles which are specifically prescribed under a particular statute or by any regulator/authority, e.g. trusts under the Maharashtra Public Trusts Act, 1956 or other autonomous bodies established by the Government can follow the said formats and also specific Guidance Notes / Technical Material issued earlier for educational institutions, political parties, NGOs etc. Accordingly, in the case of Trusts, AOPs and Societies to which there is no regulatory format prescribed, it appears that they have to follow the revised format, which, as indicated later, is almost aligned on the lines of Schedule III of the Act and hence may present challenges. The ICAI can consider issuing a clarification that the formats would apply only to commercial non-corporate entities.

The revised formats are applicable to financial statements prepared for periods beginning on or after 1st April, 2024. As per the ICAI announcement on ‘Clarification Regarding Authority Attached to Documents Issued by the Institute’ amended in August 2023, a member of the ICAI, while discharging his/her attest function, should examine whether the recommendations in a Guidance Note relating to an accounting matter have been followed or not. If the same has not been followed, the member should consider whether, keeping in view the circumstances of the case, a disclosure in his report is necessary in accordance with Engagement Standards. Further, though not expressly mentioned, it is presumed that the formats are applicable to general-purpose financial statements for which the audit needs to be conducted and reports to be issued as per the Standards of Auditing issued by the ICAI.

SALIENT FEATURES OF THE REVISED FORMAT

The revised format is almost entirely aligned with the formats prescribed under Schedule III of the Act, except for minor changes taking into account the operations of NCEs. However, they do not address specific operational features applicable to non-commercial / non-profit NCEs.

The following are certain salient features of the revised format:

Uniform Presentation

The revised format introduces a standardised structure for the Balance Sheet and the Profit & Loss Account, similar to those used by corporate entities under the Act. This ensures a consistent and familiar layout for stakeholders, improving readability, comparison, and analytical evaluation.

Classification of Assets and Liabilities

Entities are now required to distinguish between current and non-current assets and liabilities based on a 12-month operating cycle. This aligns with common accounting standards and helps in better liquidity and solvency assessments. It enhances the understanding of an entity’s short-term vs long-term financial obligations.

Disclosure-Oriented Approach

The revised format includes detailed disclosure requirements, extending beyond basic numerical data to cover related party transactions, contingent liabilities, and significant judgments or assumptions made, amongst other matters.

Notes to Accounts

Narrative and tabular notes are now emphasised. These provide clarity on the accounting policies adopted, detailed breakdowns of figures in the financial statements, and explanations of items such as provisions, asset valuations, and legal contingencies.

Alignment with AS Framework

The financial statements are to be prepared in line with the Accounting Standards issued by ICAI (not Ind AS) whilst maintaining relevance and feasibility for small and medium-sized non-corporate entities not governed by the Companies Act. This makes the standards accessible without being overly complex.

Transparency

Uniform formats encourage fuller and more accurate disclosures, thereby enhancing stakeholder confidence.

Creditworthiness Assessment

With standardised presentation, lenders and financial institutions can more reliably assess the risk profile and repayment capability of non-corporate borrowers, leading to improved access to finance.

Compliance Culture

The revised format will enable non-corporate entities to be ready for more structured and regulatory-compliant operations, facilitating easier transitions to corporate structures or public disclosures if needed in the future.

MAJOR CHANGES AND THEIR IMPACT

The revised format contains some major changes which will have far-reaching impact on non-corporate entities. These are briefly analysed hereunder:

Presentation of Shareholders’ / Owners / Partners Funds

There is a clear distinction between capital contributions, current account balances, and retained earnings which will help in understanding partner interests and fund movements.

Borrowings and Loan Disclosures

All borrowings must be classified as current or non-current and disclosed with details of security, terms of repayment, interest rates and nature (secured/unsecured). This will provide visibility on future commitments and repayment obligations and allow users to evaluate the entity’s leverage and funding structure.

Trade Payables Ageing Schedule

A detailed ageing analysis discloses the time-wise breakup of outstanding payables, specifically distinguishing amounts due to MSMEs. This would provide insights into the payment culture and vendor management practices, as well as working capital management policies. This also promotes compliance with MSME payment timelines and helps assess liquidity pressure.

Trade Receivables Ageing Schedule

Entities are required to present receivables based on due dates (e.g., less than 6 months, over 6 months). This identifies potential bad debts and inefficiencies in collection cycles, aiding in credit risk management.

Revenue and Other Income

Entities are required to provide a clear demarcation between operational revenue and other income streams such as interest, rent, and dividend income. This helps in assessing the core vs ancillary sources of income and facilitates better performance analysis.

Expenses Classification

Expenses must be grouped under predefined heads as per their nature. Further, any major items (exceeding 1% of turnover or ₹1 lakh, whichever is higher) must be individually disclosed. This improves cost transparency and helps in better variance analysis.

Related Party Disclosures

Entities are now required to follow tabular disclosure formats for related party disclosures. Non-corporate entities must reassess their definition of related parties under AS 18, which includes:

  •  Individuals with control or significant influence (e.g., proprietors, partners)
  • Relatives of such individuals
  • Entities under common control (including group firms, HUFs, trusts, etc.)

This will formalise the presentation of disclosures, reducing subjectivity and increasing uniformity in reporting across entities and will enhance the depth, clarity, and consistency of related party disclosures and improve the credibility and transparency of financial reporting.

Disclosure of Contingent Liabilities

The new format formalises the disclosure of contingent liabilities via specific note formats, requiring entities to explicitly categorise and quantify such liabilities under the following broad heads, as against scattered and unstructured disclosures earlier.

  •  Claims against the entity not acknowledged as debts
  •  Guarantees provided to banks or third parties
  • Disputed tax and other statutory demands pending before authorities Entities must now assess the following in terms of AS-29:
  •  Probability of outflow of resources
  •  Reliability of estimation
  •  Legal and contractual basis of such obligations

This would lead to improved comparability across reporting entities and a more accurate representation of financial risk.

BENEFITS AND IMPLEMENTATION CHALLENGES

Benefits

Adopting the revised formats provides several benefits not only for the entities but also for stakeholders, some of which are highlighted below:

Enhanced Credit Access

A clear, standard format makes financial statements more understandable to bankers and investors, improving creditworthiness assessments and enabling faster loan processing.

Improved Tax Compliance

Accurate and detailed reporting reduces mismatches with tax filings and enhances credibility, lowering the chances of tax disputes or penalties during assessment proceedings.

Professional Image

Entities with standardised, audited financials are more likely to attract partners, investors, and vendors, enhancing their brand perception and business prospects.

Better Internal Control

The need for enhanced disclosure and segregation coupled with more granular data collection
enforces tighter financial controls, better record-keeping, and informed decision-making. This would eventually translate into a better Compliance culture.

Challenges

In spite of the above benefits, there are several implementation challenges which can act as hurdles in the effective transition to the new financial reporting regime for such entities, some of which are briefly discussed below:

System and Template Overhaul

Many of these entities operate on basic or customised accounting systems that may not support the new classification and disclosure requirements. Significant effort may be required to update
software or manual reporting templates, the benefits of which may not be commensurate with the cost involved.

Data Availability

Entities may not maintain the level of detail required by the new format. For example, ageing analysis or related party disclosures might require significant historical data reconstruction or adjustments.

Lack of Awareness

Owners and managerial staff may not fully understand the relevance or implications of the new reporting format, leading to resistance or poor adoption.

Audit and Review Complexity

Auditors will need to verify new disclosure items, such as the classification of debtors, related party balances, and security on borrowings, which may involve additional work efforts, audit procedures, and reconciliations. Further, the additional effort and documentation may not result in a commensurate increase in their fees. Finally, the auditors may be exposed to greater scrutiny by the regulators.

WAY FORWARD

For Stakeholders

The new formats will have far-reaching implications primarily for ICAI and other Regulators, Chartered Accountants, Tax authorities, banks and other lenders.

ICAI and Other Regulators

Additional Guidance Notes / Technical Material-

  • Since non corporate entities take diverse forms and structures, ICAI could consider issuing further guidance on sector-wise illustrative financial statements, especially for non-commercial/non-profit entities, FAQs and implementation guidance to assist preparers and auditors.

Phased Implementation

  • ICAI and/or the regulators may consider introducing a simplified version of the format or a phase-wise implementation to reduce the initial compliance burden while maintaining reporting integrity.

Capacity Building

  • ICAI and/or the regulators should undertake capacity-building measures by organising webinars, workshops, and training for small practitioners, especially in Tier 2 and Tier 3 cities, which will enhance the quality of the overall adoption ecosystem.

Regulatory Synchronisation

  • Efforts should be made to harmonise financial statement formats with those used in tax return forms (ITRs) and other statutory filings like GST, charity commissioner, etc., thereby reducing duplication and reconciling mismatches. Finally, steps should be taken to harmonise the format with the filing under Tax Audit, especially for related party disclosures and contingent liabilities.

Chartered Accountants

CAs will have to play a greater and more proactive attest or advisory role than what is currently done, covering the following aspects:

  • Helping entities to restructure financial data, align ledgers, understand classification norms, adhere to structured accounting policies and maintain detailed financial and accounting records and MIS, as relevant.
  • Audit and review procedures will become more detailed and disclosure-focused, and greater emphasis will have to be placed on compliance with accounting and auditing standards and maintaining more robust documentation.

Tax Authorities

Tax officials and banks will benefit from structured and detailed financial statements, enabling quicker assessments and due diligence, reducing the scope for disputes, and promoting transparency in compliance and lending.

Banks and Other Lenders

Banks and others will benefit from structured and detailed financial statements, enabling proper and focused due diligence, reducing the scope for disputes, and promoting transparency in compliance and lending and monitoring the usage of funds

For Non-Corporate Entities

Entities will need to take several far reaching measures to align themselves with and gear up to the new financial reporting regime. The key matters in connection therewith are briefly discussed hereunder:

Transition Planning

Entities should map their existing reporting systems to the new format and create a migration plan, identifying gaps in account groupings and disclosures. Special efforts will be required to compile a master-related party register and revisit inter-firm and family group structures to identify indirect relationships. Similarly, entities would have to create a contingent liability register updated at each balance sheet date and obtain legal or expert opinions where outcome probability is uncertain.

Staff Training

Finance personnel and bookkeepers must be trained in the classification of accounts as per the formats, drafting of notes to accounts and accounting policies as per the Accounting Standards. Similarly, they need to be trained to maintain proper records and to improve the documentation, thereby ensuring accuracy and consistency in reporting. This will assist them in complying with the increased audit requirements.

Use of Technology

Entities will be required to use compliant accounting software or ERP systems to streamline compliance, reduce manual errors, and simplify periodic reporting and audit preparation. In certain cases, this may involve significant one-time implementation costs as well as additional recurring costs for employing persons with relevant skills who understand such systems.

CONCLUSION

The new format for financial statements for non-corporate entities will mark a significant step in the formalisation of India’s financial reporting ecosystem. While the journey to full adoption may be gradual and initially meet with some resistance, the long-term gains in credibility, compliance, and consistency will be substantial. Chartered Accountants, as custodians of financial integrity, have a vital role in driving this transition through proactive engagement, hand-holding of clients, and embedding best practices in the profession. To conclude, any short-term pain always paves the way for long-term gain!

Tribute to Shri Haren Bhalchandra Jokhakar, Past President of the Society

On 11th April 2025, an icon of our profession, CA Haren Jokhakar — affectionately known as Haren Bhai — breathed his last and left his mortal body.

Born on 10th September 1939, Haren Bhai was a one-man institution. He was a gentle giant. His presence commanded respect, not because he demanded it, but because he earned it through unwavering integrity, wisdom, and humility.

For Haren Bhai, the Society was like his very own child. He was the youngest president of the Society when he served the Society as its President. In fact, all the OBs were much older to him and yet they supported him like their younger brother. Some of those colleagues at BCAS remained closest friends all his life. He was involved in every activity in those early formative years of the Society when much of work was done from office of the President and few others who supported the Society, nurturing it with care, commitment, and vision. He served as the President of BCAS in the year 1971-1972 leaving behind a legacy that continues to inspire generations.

While BCAS was close to his heart, his contributions were not confined to one institution. He extended his energy and expertise to several professional and social causes. His role as a Chartered Accountant was marked by brilliance and integrity, and earned him respect of both his peers and students. He had a deep sense of fairness and balance, always striving to bring visibility and respect to a profession he believed was under-recognized in those decades.

One of the most endearing qualities of Haren Bhai was that despite his towering personality, he was always careful not to overshadow others. He made space for everyone to grow and even stopped coming to Society at some stage to make way for next generation.

If we are truly to pay our respects to this great soul, let us follow his ideals — to not only become better professionals but also responsible citizens and above all good human beings.

-BCAS

Important Amendments by The Finance Act, 2025 – 2.0 Block Assessment in Search Cases

Introduction

The procedure of block assessment to be made in cases where a search has been conducted under Section 132 or a requisition has been made under Section 132A was earlier introduced in 1995. Under this erstwhile scheme of block assessment, in addition to the assessments which were to be conducted in a regular manner, a special assessment was required to be made assessing only the ‘undisclosed income’ relating to the ‘block period’ in a case where the search has been conducted.

In 2003, these provisions dealing with block assessment in search cases were made inapplicable for the reasons as stated in the Memorandum explaining the provisions of the Finance Bill, 2003 which are reproduced below –

The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. The main objectives for the introduction of the Chapter XIV-B were avoidance of disputes, early finalization of search assessments and reduction in multiplicity of proceedings. The idea was to have a cost-effective, efficient and meaningful search assessment procedure.

However, the experience on implementation of the special procedure for search assessments (block assessment) contained in Chapter XIV-B has shown that the new scheme has failed in its objective of early resolution of search assessments. The new procedure postulates two parallel streams of assessment, i.e., one of regular assessment and the other for block assessment during the same period, i.e., during the block period. Controversies have sprung up, questioning the treatment of a particular income as ‘undisclosed’ and whether it is relatable to the material found during the course of a search etc. Even where the facts are clear, litigation on procedural matters continues to persist. The new procedure has thus spawned a fresh stream of litigation.

Thus, the experience was that providing for two parallel assessments; one for undisclosed income and the other for regular income, had resulted in a lot of litigation. As a result, the new Sections 153A, 153B and 153C were introduced wherein it was provided that the assessments pending as on the date of initiation of search would abate and only one assessment would be made wherein the total income of the assessee, including undisclosed income, was required to be assessed. Further, separate assessment was required to be made for every year involved unlike the single assessment for the entire block period as provided under Chapter XIV-B. In 2021, these provisions for making the assessment in the cases of the search were merged with the provisions dealing with reassessments in general, as provided in Sections 147 to 151 with the appropriate amendments.

Thereafter, in the last year, the Finance Act (No.2), 2024, had once again restored the scheme of ‘block assessment’ as provided in Chapter XIV-B but in a revised form. This was made effective from 1-9-2024, i.e. when the search was initiated on or after 1st September, 2024. Unlike the erstwhile scheme of block assessment, which had provided for making parallel assessments of the undisclosed income of the block period and of the regular income, the revised scheme of block assessment provided for making only one assessment of the block period wherein the total income was required to be assessed including the undisclosed income as well as the other regular incomes.

However, the Finance Act, 2025 has made further amendments to the provisions of Chapter XIV-B having retrospective effect from 1st September, 2024, i.e. the date from which these provisions were reintroduced by the Finance Act (No. 2) 2024. One of the major amendments which have been made by the Finance Act 2025 is that the scope of the block assessment has been restricted to the assessment of only the ‘undisclosed income’ instead of the ‘total income’. Although the amended provisions do not provide expressly that the assessment of the undisclosed income and of the regular income would be made separately, it implies that there would be two parallel assessments once again as were being made under the erstwhile scheme of the block assessment, which was in force till 2003. Therefore, the provisions which were considered to be highly litigation prone in 2003 have been reintroduced in the Act by the Finance Act, 2025, with effect from 1st September, 2024. Further, it is worth noting that this amendment was made at the time of passing of the Finance Bill, and, therefore, there is no mention of the reasons for making such an amendment in the Memorandum explaining the provisions of the Finance Bill 2025.

In this article, the important amendments to Chapter XIV-B made by the Finance Act 2025 have been discussed and analysed.

Restricting the scope of assessment to the undisclosed income

Section 158BA provides that the Assessing Officer shall make the assessment of the block period in accordance with the provisions of Chapter XIV-B in a case where the search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A on or after 1st September, 2024. Under this provision, the Assessing Officer was required to make the assessment of the ‘total income’. Now, this section has been amended to provide that the Assessing Officer shall make the assessment of the ‘total undisclosed income’ of the block period. The marginal heading of this section has also been changed appropriately by replacing the words ‘assessment of total income’ with the words ‘assessment of total undisclosed income’.

The consequential changes have also been made to the other provisions of Chapter XIV-B by replacing the reference to the assessment of total income with the assessment of total undisclosed income.

Thus, as mentioned earlier, the basic principle of the scheme of block assessment itself has been changed with retrospective effect from 1st September, 2024 restricting it now to the assessment of only undisclosed income.

It is worth noting that surprisingly no changes have been made to the provisions dealing with the abatement of the assessments under the other provisions of the Act pending as of the date of initiation of the search. Section 158BA(2) has remained unamended which provides that the assessment or reassessment under the other provisions of the Act pertaining to any assessment year falling in the block period on the date of initiation of search or making of requisition shall abate and shall be deemed to have abated on the date of initiation of search or making of requisition. Although these pending assessments are considered to have been abated, the Assessing Officer is going to make the assessment of only the undisclosed income while making block assessment under the amended provisions. There is no clarity as to whether and how the Assessing Officer would be assessing the income other than the undisclosed income in respect of those assessment years in respect of which the assessments were in progress but have abated as a result of the search being conducted. Therefore, it appears that this particular aspect has remained to be considered while making the amendments to the provisions dealing with the block assessment.

Further, under the erstwhile provisions dealing with the block assessment (as it was in existence prior to 2003), in which assessment was required to be made of only the undisclosed income in the manner same as which is provided now, there was an Explanation to Section 158BA(2) by which the position of the block assessment vis-à-vis the assessment under the other provisions was being clarified as under –

Explanation.—For the removal of doubts, it is hereby declared that—

(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;

(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;

(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.

Under the current provisions as amended by the Finance Act 2025, no such clarity has been provided expressly as to whether the block assessment would be in addition to the regular assessment to be made under the regular provisions or there would be only one assessment, i.e. the block assessment. The very fact that the block assessment only deals with the undisclosed income implies that it is intended that the regular assessment can be made in addition to the block assessment for the purpose of making the assessment of the income other than the undisclosed income. However, if that is the case, then the question arises as to why such regular assessments, which were pending as of the date of initiation of the search are considered to have been abated.

Computation of the total undisclosed income of the block period

Section 158BB provides the manner of computing the income which needs to be assessed by the Assessing Officer under Section 158BA. Since this section was providing for the computation of the total income, it has also been amended consequentially to provide for the computation of only undisclosed income.

The amended provisions of Section 158BB provide that the total undisclosed income of the block period which is required to be assessed shall be the aggregate of the following –

(a).Undisclosed income declared by the assessee in the return furnished under Section 158BC;

(b).Undisclosed income determined by the Assessing Officer under Section 158BB(2).

The ‘undisclosed income’ has been defined in Section 158B(b), and there has been no change in this definition except for the inclusion of the virtual digital asset in the list of several assets like money, bullion, etc., which can be regarded as the undisclosed income if they are representing the income or property which has not been or would not have been disclosed for the purposes of the Income-tax Act.

Further, the provisions of Section 158BB have also been amended to specifically provide that the following income shall not be included in the total undisclosed income of the block period –

(a).The total income determined under the applicable provisions of the Act (like Section 143(1), 143(3), 144, 147, 153A, 153C, 158BC(1) etc.) prior to the date of initiation of the search or the date of the requisition, in respect of any previous year falling within the block period. Therefore, the income already assessed will not be included in the total undisclosed income.

(b).The total income declared in the return of income filed under Section 139 or in response to a notice under Section 142(1) prior to the date of initiation of the search or the date of requisition in respect of any previous year falling within the block period, if it is not covered by (a) above.

(c).The income as computed by the assessee in respect of the period as specified below and subject to the condition as mentioned below –

However, if the Assessing Officer is of the opinion that any part of such income referred to in the above table as computed by the assessee is undisclosed, then he may recompute such income accordingly.

Undisclosed income of any other person

Section 158BD provides for the assessment of the undisclosed income of any other person, i.e. the person other than a person in whose case the search was initiated under Section 132 or requisition was made under Section 132A. Such other person is required to be assessed when the Assessing Officer is satisfied that any undisclosed income emanating from the search belongs to or pertains to or relates to that person.

It was provided that the block period for the purpose of making the assessment of such other person would be the same period which has been considered to be the block period in the case of the person in whose case the search was conducted. However, it is quite possible that multiple persons are covered by the same search which has been conducted. In such case, the last of the authorisations for the search in the case of such different persons might be executed on different dates. As a result, the block period would not be the same and it would differ from person to person who has been searched. Therefore, in such a case, difficulty will arise in determining the block period for the purpose of making the assessment of the other person who was not covered by the search but the undisclosed income belonging to him has been found.

Therefore, the provisions of Section 158BD have now been amended to provide that where more than one person was covered by the search, then the block period for such another person would be the period which has been considered to be the block period in the case of such person amongst all the persons in whose case the search was conducted which is ending on a later date.

Extension of the time limit for furnishing the return of income in response to the notice issued under Section 158BC

As per Section 158BC, the concerned person is required to submit the return of income in response to the notice issued by the Assessing Officer in this regard. Consequent to the shift in the scheme of the block assessment from the assessment of the total income to the assessment of only undisclosed income, the amendment has also been made in this Section to provide that the return of income shall be filed declaring only the undisclosed income and not the total income.

Further, this return of income is required to be submitted within a period, not exceeding sixty days, as may be specified in the notice issued in this regard. The amendment has been made to provide that the time allowed for furnishing the return of income may be extended by a further period of thirty days if the following conditions are satisfied –

i. In respect of the previous year immediately preceding the previous year of search, the due date for furnishing the return has not expired prior to the date of initiation of such search;

ii. The assessee was liable for audit under Section 44AB for such previous year;

iii. The accounts of such previous year have not been audited on the date of issuance of such notice; and

iv. The assessee requests in writing for an extension of time for furnishing such return to get such accounts audited.

Other amendments

A few other amendments have also been made in Chapter XIV-B, which are summarised as under –

  •  The ‘undisclosed income’ as defined in section 158B shall now even include ‘virtual digital asset’ in addition to any money, bullion, jewellery or other valuable article or thing, etc.
  •  Section 158BA(4) provides that any block assessment which is pending in a case where a subsequent search has been initiated, or requisition has been made shall be duly completed, and thereafter, the block assessment in respect of such subsequent search or requisition shall be made. This provision has been amended to refer to the assessment ‘required to be made’ instead of the assessment which was ‘pending’. Therefore, not only the block assessment which was commenced and pending but also the block assessment required to be made consequent to the search already conducted earlier shall be completed first before making the block assessment in respect of the subsequent search.
  • Section 158BA(2) provides for the abatement of the assessment or reassessment or recomputation which is being conducted under any other provisions of the Act other than the block assessment and which is pending on the date of initiation of the search or making of the requisition. Also, section 158BA(3) provides for the abatement of reference made to the Transfer Pricing Officer under section 92CA(1) or the order passed by the Transfer Pricing Officer under section 92CA(3) during the course of such pending proceeding for assessment or reassessment or recomputation.

Further, section 158BA(5) provides for the revival of such pending proceeding under any other provisions if the proceeding initiated for the block assessment under Chapter XIV-B or the order of assessment passed under section 158BC(1) has been annulled in appeal or any other legal proceeding. However, this provision providing for revival was referring only to the ‘assessment’ or ‘reassessment’ which had been abated under sections 158BA(2) or 158BA(3). Now, this provision has been amended to refer not only to the ‘assessment’ or ‘reassessment’ but also to ‘recomputation’ or ‘reference’ or ‘order’.

  •  Section 158BE provides that the assessment order in respect of the block period shall be passed within twelve months from the end of the month in which the last of the authorisations for the search was executed or requisition was made. This provision has been amended to provide the period of twelve months shall be reckoned from the end of the quarter in which such last authorisation was executed or requisition was made.
  • Section 158BI provided that the provisions of Chapter XIV-B shall not apply where the search was initiated, or the requisition was made before 1st September, 2024, and proceedings in relation to such search or requisition shall be governed by the other provisions of the Act. This section has been completed and omitted with retrospective effect from 1st September, 2024.

Important Amendments by The Finance Act, 2025 -1.0 Charitable Trusts

Important Amendments by the Finance Act, 2025 are covered in three different Articles. It is not possible to cover all amendments at length, and hence, the focus is only on important amendments with a detailed analysis of their impacts. This in-depth analysis will serve as a future guide to know the existing provisions, current amendments, their rationale and impact. We hope that the detailed analysis will enrich the readers. – Editor

The Finance Act, 2025 carried out four amendments in the provisions relating to the exemption of charitable or religious trusts. All these amendments have somewhat relaxed the harshness of the provisions providing partial relief to charitable and religious trusts.

PERIOD OF REGISTRATION FOR SMALL TRUSTS

Every charitable or religious trust seeking exemption under sections 11 and 12 of the Income-tax Act, 1961, is required to be registered under section 12A. The procedure for this is laid down in section 12AB. There are 7 types of applications laid down under section 12A(1)(ac). One of these is a case where an application is made by a trust which was not registered so far under section 12A and which has not yet commenced its activities at the time of making the application [clause (vi)(A) of section 12A(1)(ac)]. Such a trust is granted a provisional registration for a period of 3 years. In all other cases [clauses (i) to (v) and (vi)(B)], registration is currently granted for a period of 5 years by the Commissioner of Income Tax (CIT) or Principal CIT.

By insertion of a proviso to section 12AB(1) with effect from 1st April, 2025, the Finance Act 2025 now grants a longer period of registration of 10 years to certain types of small trusts in all these cases where the period of registration was earlier 5 years, except for one category – clause (vi)(B), i.e. trusts which have commenced their activities and which have never been allowed exemption under clause (iv), (v), (vi) or (via) of section 10(23C) or under section 11 or section 12 before the date of the application since commencement of their activities. These trusts [clause (vi)(B)], even if they are small trusts, will continue to be granted registration only for a period of 5 years. Similarly, the period of registration of trusts covered by clause (vi)(A) remains unchanged at 3 years. There is also no change in the period of section 80G approval, even for eligible small trusts, which remains the same at 5 years.

The small trusts which are eligible to be granted the benefit of the longer period of exemption of 10 years are those trusts whose total income (before considering the exemption under sections 11 and 12) during each of the two previous years preceding the date of application does not exceed ₹5 crore. If income in any of the two years exceeds this limit, the benefit of such a longer period of registration would not be available.

The Finance Minister, in her Budget Speech, has stated:

“I propose to reduce the compliance burden for small charitable trusts / institutions by increasing their period of registration from 5 years to 10 years”.

The Explanatory Memorandum explains the rationale behind this amendment as under:

“2. It has been noted that applying for registration after every 5 years increases the compliance burden for trusts or institutions, especially for the smaller trusts or institutions.

3. To reduce the compliance burden for the smaller trusts or institutions, it is proposed to increase the period of validity of registration of trust or institution from 5 years to 10 years, in cases where the trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of section 12A, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed ₹5 crores during each of the two previous years, preceding to the previous year in which such application is made.”

In the FAQs issued, the amendments have been explained as under:

Q.2. What amendment has been carried out in respect of registration of trusts?

Ans. The period of validity of registration of a trust or institution with income below ₹5 Crore has been increased from 5 years to 10 years in certain cases.

Q.3. Which cases shall benefit from the above amendment?

Ans. The amended provisions shall be applicable to certain small trusts or institutions whose total income does not exceed ₹5 crores in each of the two previous years, preceding the previous year in which application is made.

In computing income for this limit of ₹5 crore:

i.  The income of the trust has to be considered on a commercial income basis based on the method of accounting followed by the trust;

ii. all incomes of the trust, including donations, have to be considered;

iii.  in case the trust is carrying on a business, the net business income of the trust is to be considered;

iv. Corpus donations are also to be considered, adopting a conservative view, as the tax authorities are of the view that such donations are income which may be exempt under section 11(1)(d);

v.  Administrative expenses are not to be deducted, unless such expenses are incurred to earn the income;

vi. Only profit on the sale of assets as per books of account is to be considered as income, and not the entire sales proceeds nor the capital gains as computed under the head “Capital Gains”.

Since the amendment is with effect from 1st April, 2025, and is a procedural amendment, it applies to all cases where registration is granted on or after 1st April, 2025. There is a doubt as to whether it would apply to extend existing registrations automatically, since it also applies to cases covered by clause (i) of section 12A(1)(ac). From the manner in which the proviso is drafted, the amendment will not extend to cases of existing registrations – it will apply only to approvals granted after that date. All those cases where the registration was granted for a period of 5 years from 1st April, 2021 to 31st March, 2026, including such small trusts, would now need to apply for renewal of their registration on or before 30th September, 2025. The renewed registration, when granted, would then be for a period of 10 years if the trust qualifies for such a longer period of registration.

A large number of trusts (approximately 2,50,000 trusts) with existing registration as of 31st March, 2021, would have been granted registration for a period of 5 years till 31st March, 2026. The applications of all these trusts would have to be processed within a period of 6 months by 31st March 2026, a mammoth task indeed, if all documents and activities of each such trust have to be scrutinised. Not only that, during the same period, section 80G renewal applications of the vast majority of trusts having such approval would also have to be processed. Since a large number of such trusts are small trusts with a total income of less than ₹5 crore, it would have been better had the amendment extended the existing 5-year registration automatically to a period of 10 years, in the case of all such trusts whose total income is less than ₹5 crore for the 2 years ending 31st March 2024 and 31st March 2025. This would have ensured that the focus of the renewal process would then be on the larger trusts.

One aspect which needs to be kept in mind by such small trusts is that after the next renewal period of 10 years, at the time of subsequent renewal, details would have to be provided of activities, etc., over the longer time period of the last 10 years. It would, therefore, be essential for such trusts to maintain a year-wise record of such activities on an ongoing basis to avoid a situation where the trust is unable to provide details of activities carried out from the date of the last renewal till the date of a subsequent application for renewal. Similarly, the records of the trust would have to be maintained for such a longer period, so as to facilitate reply to any query that may be raised during the process of scrutiny of the renewal application.

SUBSTANTIAL CONTRIBUTOR – SECTION 13(3)

Under section 13(1)(c), if any part of the income or property of the trust is utilised for the benefit of a person specified in section 13(3), such income is subjected to tax at the rate of 30% under section 115BBI, besides attracting a penalty at 100% of such amount under section 271AAE for the first offence, and at 200% of such amount for subsequent offences.

The persons specified in section 13(3) include a person who has made donations exceeding ₹50,000 in aggregate to the trust since its inception till the end of the relevant year (a substantial contributor). This limit was ₹5,000 from 1976 to 1984, ₹25,000 from 1985 to 1994 and ₹50,000 thereafter till 2025. Effectively therefore, this limit, which was earlier being modified every 10 years, had remained unchanged for 30 years. The absurdity of such a low limit resulted in a situation where most large trusts were unable to keep a list of such donors (which is one of the documents required to be kept by a charitable trust), and therefore, in cases of the audit reports (Form 10B or 10BB) in most of the trusts, there was a qualification to the effect that the trust had been unable to identify and maintain a list of such substantial contributors.

This limit of ₹50,000 in aggregate has now been increased with effect from 1st April 2025 (i.e. AY 2025-26) to a more reasonable aggregate limit of ₹10,00,000, with an additional alternative limit of donations exceeding ₹1,00,000 for the year. Therefore, a person would be regarded as a substantial contributor either if he has made aggregate donations exceeding ₹10,00,000 over the years or has made a donation exceeding ₹1,00,000 during the relevant year. Hitherto, since there was only an aggregate limit, a person who became a substantial contributor in one year would always remain a substantial contributor for future years, since he had already crossed the aggregate limit of ₹ 50,000. Now, given the two alternative limits, it is possible that a person who is a substantial contributor in one year on account of donations exceeding ₹1,00,000 in that year may not be a substantial contributor in a subsequent year due to the fact that he may not have contributed more than ₹ 10,00,000 in aggregate over the years.

Unfortunately, many trusts, particularly large trusts which have been in existence for many decades, would continue to face difficulty in compiling a list of such substantial contributors with accuracy, since the list has to take into account the aggregate donations received over the past many decades, an impossible task. It would perhaps have been better if the limit of aggregate donations had been made applicable only to donations made in the last few years – maybe 5 years or 10 years, which would have ensured proper compliance by all trusts.

RELATIVE AND CONCERN OF SUBSTANTIAL CONTRIBUTORS – SECTION 13(3)

The list of specified persons in section 13(3) also included:

♦ any relative of persons referred to in clauses (a) – author or founder, (b) – substantial contributor, (c) – any member of the HUF if a HUF was an author, founder, or substantial contributor, and

♦any concerns in which any of the above (including trustees and relatives of such persons) has a substantial interest.

The definition of “relative”, contained in Explanation 1 to section 13, was fairly vast, as under:

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) any lineal ascendant or descendant of the individual;

(v) any lineal ascendant or descendant of the spouse of the individual;

(vi) spouse of a person referred to in any of the above clauses;

(vii) any lineal ascendant or descendant of a brother or sister of either the individual or of the spouse of the individual.

Here also, obtaining such details of relatives, particularly from substantial contributors, was an impossible task for the trust, as no donor would want to give so many personal details to an organisation to which he was doing a favour by donating. Similarly, obtaining details of concerns in which donors or their relatives have a substantial interest was again almost impossible.

The Finance Act 2025 has amended the definition of specified persons in section 13(3) by excluding relatives of substantial contributors and concerns in which substantial contributors or their relatives have substantial interest from this definition.

The Explanatory Memorandum has also recognised the practical difficulty as under:

“Suggestions have been received that there are difficulties in furnishing certain details of persons other than author, founder, trustees or manager etc. who have made a ‘substantial contribution to the trust or institution’, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees. These details are about their relatives and the concerns, in which they are substantially interested.”

However, relatives of the author or founder, trustees or manager, and concerns in which the author or founder, trustees or manager or their relatives have a substantial interest would continue to be regarded as specified persons. The FAQs clarify this as under:

“Q.7. Whether the relaxation provided to specified person also covers author, founder of trust, trustees, member or manager of the trusts?

Ans. It is clarified that the relaxation shall not apply to author, founder of trust, trustees, member or manager of the trusts”.

Unfortunately, there has been no amendment to the definition of “relative”, which is fairly wide and ropes in even a person not closely related; to illustrate, a brother-in-law’s or sister-in-law’s granddaughter would also be covered. Fortunately, her husband would not be covered! Even for a trustee, to provide such a detailed list of relatives and concerns in which they are substantially interested is indeed a tall task. Getting new trustees today is, as it is, a difficult proposition for most trusts – such detailed compliance adds to the reluctance of persons to take on what is often an honorary and thankless post. One wishes and hopes that the definition of relative is aligned with that under the Companies Act 2013, which only extends to first-degree relatives – spouse, member of HUF, father, mother, son, son’s wife, daughter, daughter’s husband, brother and sister. Unfortunately, even in the draft Income Tax Bill 2025, the same definition of “relative” is continued.

CANCELLATION OF REGISTRATION – SECTION 12AB

Section 12AB(4) provides for cancellation of registration of a trust, if it has committed specified violations. The list of specified violations is contained in the explanation to s.12AB(4). Clause (g) of the explanation refers to a situation where the application referred to in s.12A(1)(ac) (i.e. application for registration or renewal of registration under s.12A) is not complete or contains false or incorrect information.

This clause has been amended by the Finance Act 2025, to remove the reference to application not being complete with effect from 1st April 2025. The amended specified violation would now cover only a situation where the application contains false or incorrect information and would apply to situations where the cancellation order is being passed after 1st April 2025.

The Explanatory Memorandum states that:

“ It is noted that even minor default, where the application referred to in clause (ac) of sub-section (1) of section 12A is not complete, may lead to cancellation of registration of trust or institution, and such trust or institution becomes liable to tax on accreted income as per provisions of Chapter XII-EB of the Act.

It is, therefore, proposed to amend the Explanation to sub-section (4) of section 12AB so as to provide that the situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section.”

In the FAQs, it is clarified as under:

“Q.4. What amendment has been carried out in provisions relating to ‘specified violation’ in the case of trusts or institution?

Ans Under current provision an ‘incomplete’ application for registration is treated as specified violation. This may result in cancellation of registration and consequently, fair market value of the assets becomes chargeable to tax under the Act.

In order to prevent harsh consequences for default of filing incomplete application, the above amendment has been carried out. The trust or institution shall be able to complete the application and the same shall be considered for the purposes of registration.”

This amendment really rectifies a drafting mistake made when the provision was introduced, as if an application was incomplete, under rule 17A(6), the Commissioner has the power to reject the application and cancel the registration. While processing the application, the fact that it is incomplete would be obvious, resulting in a rejection, which may not always be the case with respect to incorrect or false information provided in the form, which may come to light later. Hence, the provision for cancellation was perhaps justified for false or incorrect information, but not for incomplete application.

Post amendment, an issue that may arise is whether an omission to provide certain information may amount to giving false or incorrect information. To illustrate, a practical situation often faced is when the Commissioner has cancelled the registration of a trust, and the Appellate Tribunal has set aside such an order of cancellation. One of the questions to be answered in Form 10AB is whether any application for registration made by the applicant in the past has been rejected. This question has to be answered only with a “yes” or “no”. If the trust states “no”, would this amount to giving false or incorrect information? This should not amount to giving incorrect or false information, as when the Tribunal sets aside the order of rejection of the Commissioner, that rejection order ceases to exist. At best, it can be said to be a provision of incomplete information, though that too may not hold good, as the form itself merely requires ticking of the appropriate box without any further details.

CONCLUSION

These amendments, though providing some relief to charitable trusts, do not really address all the issues and problems being faced in these areas by charitable trusts, as discussed above. These amendments have also been incorporated in the draft of the Income Tax Bill 2025, which has been introduced in Parliament, and therefore, one may have to wait for some time for any further amendments in this regard unless the Income Tax Bill 2025 is appropriately amended before being enacted.

Allied Laws

6. Inder Singh vs. The State of Madhya Pradesh

Special Leave Petition (Civil) No. 6142 of 2024 (SC)

21st March, 2025

Condonation of delay – Mere technicalities –Substantial justice – Merits to be examined – Liberal approach – Delay of 1537 days is condoned. [S. 5, Limitation Act, 1963].

FACTS

The Appellant had instituted a suit for declaration of title of the suit property/land. The suit property consisted of 1.060 hectares of land situated in Madhya Pradesh. According to the Appellant, the said land was allotted to him in 1978. The Respondent refuted the claim of the Appellants and contended that inter alia, the said property was part of government land. The learned Trial Court, after going into the merits of the claims made by both parties, dismissed the suit. Aggrieved, an appeal was filed before the First Appellate Authority. The First Appellate Authority allowed the appeal and directed the State (Respondent) to hand over the suit property to the Appellant. The Respondent, thereafter, filed a review petition which was dismissed on the grounds of inordinate delay in filing the review petition. Thereafter, the State filed a regular appeal before the Hon’ble Madhya Pradesh High Court with a delay of 1537 days. The State attributed the delay towards review applications pending before the Appellate Authority and corona virus pandemic. The delay was accordingly, condoned.

Aggrieved, a special leave petition was filed by the Appellant before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court observed that the suit property, according to the State, was a government property allocated for public purposes. Further, the Hon’ble Court observed that the claims made by both parties required thorough examination. Therefore, the Hon’ble Court opined that the appeal preferred by the State should not be dismissed only on the grounds of delay when its merits needed examination. Further, the Hon’ble Court noted that though delay should normally not be excused without sufficient cause, mere technical grounds of delay should also not be used to undermine the merits of a case. Thus, a liberal approach must be adopted while condoning the delay. The Hon’ble Court also relied on its earlier decision in the case of Ramchandra Shankar Deodhar vs. State of Maharashtra (1 SCC 317). Thus, the decision of the High Court was upheld, and the appeal was dismissed.

7. Arun Rameshchand Arya vs. Parul Singh

Transfer Petition (Civil) No. 875 of 2024 (SC)

2nd February, 2025

Registration – Stamp duty – Suit Property – Compromise between parties – No stamp duty payable. [Art. 142, Constitution of India; S. 17, Registration Act, 1908].

FACTS

Two separate applications were filed by both, Petitioner – husband and Respondent – wife under Article 142 of the Constitution of India for dissolving their marriage by mutual consent. The only contention was with respect to the source of funds utilised by the parties for acquiring the suit property. However, post counselling sessions as mandated by the Hon’ble Court, the Petitioner–husband consented to relinquish his entire rights in the suit property in favour of the Respondent–wife. Therefore, the only question of law that remained to be answered by the Hon’ble Court was whether the Respondent–wife had to pay any stamp duty for the transfer of the said suit property in her name.

HELD

The Hon’ble Supreme Court observed that as per Section 17(2)(vi) of the Registration Act, 1908, no stamp duty is payable if any compromise relates to any immovable property for which the decree is prayed for. The Hon’ble Supreme Court noted that indeed the suit property was the subject matter before it. Thus, the Hon’ble Court, after relying on its earlier decision in the case of Mukesh vs. The State of Madhya Pradesh and Anr.(2024 SCC Online 3832) held that the Respondent–wife is not entitled to pay any stamp duty on the transfer of the property. The applications were accordingly disposed of.

8. Mohammad Salim and Ors. vs. Abdul Kayyum and Ors.

S.B. Civil Writ Petition No. 4561 of 2025 (Raj) (HC)

26th March, 2025

Registration – Unregistered document –Admissible as evidence – Collateral purpose – To be taken as evidence subject to payment of requisite stamp duty and penalty. [O. VIII, R. 1A (3), S. 151, Code for Civil Procedure, 1908; S. 17, Registration Act, 1908].

FACTS

A suit was instituted by the Respondent (original Plaintiff) for the declaration of title of the suit property. During the Trial Court proceedings, the Petitioners (Original Defendants) filed an application under Order VIII, Rule 1A (3) r.w.s. 151 of the Code for Civil Procedure, 1908 for admission of certain documents including one partition deed allegedly entered between the parties. The admission of the said partition deed was objected by the Respondent on the ground that the same is an unregistered document and thus, cannot be accepted as evidence. The Petitioner (Original Defendant) contended that the said document, though unregistered, can be accepted as evidence for collateral purposes. The Trial Court, however, rejected to take the partition deed on record.

Aggrieved, a writ was filed under Articles 226 and 227 of the Constitution before the Hon’ble Rajasthan High Court (Jodhpur Bench)

HELD

The Hon’ble Rajasthan High Court observed that the partition deed, indeed required proper registration as mandated by Section 17 of the Registration Act, 1908. However, the said unregistered document could be used as evidence for any collateral purpose.

Relying on the decision of the Hon’ble Supreme Court in the case of Yellapu Uma Maheswari and another vs. Buddha Jagadheeswararao and others, (16 SCC 787), the Hon’ble Rajasthan High Court held that the said partition deed shall be taken into evidence subject to payment of stamp duty, penalty, its proof thereof and relevancy. Thus, the Petition was allowed.

9. Amritpal Jagmohan Sethi vs. Haribhau Pundlik Ingole

Civil Appeal No. 4595-4596 of 2025 (SC)

1stApril, 2025

Mesne Profits – Eviction of tenant – Calculation of mesne profits – Date of decree till handover of possession of the property [O. XX, R. 12, S. 2 (12) Code for Civil Procedure Code, 1908; Maharashtra Rent Control Act, 1999].

FACTS

The Respondent (landlord) had filed a suit for eviction of the Appellant (tenant) under various provisions of the Maharashtra Rent Control Act, 1999. Accordingly, the learned Trial court had granted for eviction of the tenant. Thereafter, a decree was passed for the possession of the property. In the said decree, the learned Trial Court had inquired into the ‘mesne profit’ to be received by the landlord. According to the directions given by the Trial Court, the mesne profits were to be calculated from the institution of the eviction suit till the date of handover of the possession of the property.

The tenant challenged the said calculation before the Hon’ble Supreme Court. According to the tenant, the calculation of mesne profits ought to have been calculated from the date of the decree being passed till the date of handover of the possession of the property.

HELD

The Hon’ble Supreme Court observed that mesne profits, as per Section 2(12) of the Code for Civil Procedure, 1908, refers to profits earned by a person who is in wrongful possession of the property. In the present facts of the case, unless and until the final decree was passed, there existed a legal relationship of landlord-tenant between the parties.

It is only after the decree is passed that the landlord can be said to be in wrongful possession of a property. Thus, the calculation of mesne profits was modified from the date of the decree till the date of handover of possession of the property.

The appeal was, therefore, allowed.

10. Union of India vs. J.P. Singh

Criminal Appeal No. 1102 of 2025 (SC)

3rd March, 2025

Money Laundering — Retention of records and Electronic documents — Even if the person is not an accused in the complaint — Seizure of property to continue till disposal of the complaint. [S. 8, 17, 44 Prevention of Money Laundering, 2002 (PMLA)].

FACTS

Based on an Enforcement Case Information Report (ECIR) against the respondent, a search and seizure took place wherein electronic records, cash and other documents were seized. Subsequently, a complaint was filed by the Enforcement Department on which cognizance was taken by the special court.

On appeal by the respondent, the appellate authority and High Court took a view that the order dealing with seized property would cease to exist after 90 days. The Department filed an appeal before the Supreme Court.

HELD

On the contention of the Respondent that he was not named in the complaint, it was held that for the purpose of section 8(3) of PMLA, he was named in the ECIR based on which the complaint was made. Therefore, he was not required to be named as an accused in the complaint. Further, it was held that even after the competition of 90 days, the order under the amended section 8(3) of PMLA was to continue till the disposal of the complaint.

The Appeal was allowed.

A Series of Articles on NRIs – Tax and FEMA Issues

The BCAJ published an “NRI Series” of 12 articles (December 2023 – April 2025) covering Income Tax and FEMA issues for NRIs. The index below provides details of the topics, authors, publication month, and page numbers for easy access.

Please send feedback on the “NRI Series” to editor@bcasonline.org or publicationofficer@bcasonline.org.

Sr. No. Topic Author Publication Month / Year Page Nos.
1 NRI – Interplay of Tax and FEMA Issues – Residence of Individuals under the Income-tax Act Ganesh Rajgopalan, Chartered Accountant December, 2023 25
2 Residential Status of Individuals — Interplay with Tax Treaty Mahesh G. Nayak, Chartered Accountant January, 2024 19
3 Decoding Residential Status under FEMA Rajesh P. Shah, Chartered Accountant March, 2024 19
4 Immovable Property Transactions: Direct Tax and FEMA issues for NRIs Namrata R. Dedhia, Chartered Accountant April, 2024 11
5 Emigrating Residents and Returning NRIs Part I Rutvik Sanghvi | Bhavya Gandhi, Chartered Accountants June, 2024 11
6 Emigrating Residents and Returning NRIs Part II Rutvik Sanghvi | Bhavya Gandhi, Chartered Accountants August, 2024 13
7 Bank Accounts and Repatriation Facilities for Non-Residents Hardik Mehta | Arwa Mahableshwarwala, Chartered Accountants October, 2024 39
8 Gifts and Loans — By and To Non-Resident Indians: Part I Harshal Bhuta | Naisar Shah, Chartered Accountants November,2024 21
9 Gifts and Loans — By and To Non-Resident Indians: Part II Harshal Bhuta | Naisar Shah, Chartered Accountants December,2024 17
10 Investment by Non-Resident Individuals in Indian Non-Debt Securities – Permissibility under FEMA, Taxation and Repatriation Issues Prashant Paleja | Paras Doshi | Kartik Badiani, Chartered Accountants February, 2025 11
11 Non-Repatriable Investment by NRIs and OCIs under FEMA: An Analysis – Part – 1 Bhaumik Goda | Saumya Sheth | Devang Vadhiya, Chartered Accountants March, 2025 11
12 Non-Repatriable Investment by NRIs and OCIs under FEMA: An Analysis – Part – 2 Bhaumik Goda | Saumya Sheth | Devang Vadhiya, Chartered Accountants April, 2025 23

Letter To The Editor

To,

The Editorial Board,

BCAJ.

Subject: Article “परोपदेशेपांडित्यम्” in the March 2025 issue

Thank you for publishing C.N. Vaze’s deeply thought-provoking article “परोपदेशेपांडित्यम्” in the March 2025 issue. It struck a powerful chord. The observation that we are often eloquent in advising others yet lax in applying those very principles to our own lives is not only accurate but uncomfortably familiar.

Mr. Vaze has written with great clarity on professional ethics in the past, and this piece continues that important reflection. A typical case in this context is when a peer, who shares the same ethical vows, enables the filing of frivolous complaints—not out of a sense of duty, but from rivalry, resentment, or plain indifference. These aren’t just baseless grievances; they are missiles launched from the silos of personal angst, and once fired, they initiate a procedural chain reaction. Long-drawn ethical proceedings are set in motion. Time, energy, and resources are drained not in pursuit of justice, but in managing shadows. And while these cases often crumble under scrutiny, their residue lingers—on reputations, on mental health, on the very fabric of professional dignity.

Genuine breaches must be pursued with rigor—I fully support that. But unchecked misuse erodes trust. Ethics and values must be more than just talk; they should guide our choices, especially when faced with personal agendas.

The line चित्तेवाचिक्रियायांचसाधूनाम्एकरूपता encapsulates a rare ideal—that of harmony between thought, speech, and action. As professionals, that alignment should be our guiding star. And though we may falter, striving toward that integrity gives our journey its meaning.

Warm regards,

CA Rajeev Joshi

Mumbai

 

The Editor

BCAJ

Mumbai

Dear Sir,

I refer to Ms. Kunjal Parekh’s article “ A Chartered Accountant’s guide to writing…”. She has written like a veteran writer and not as some one who is writing her first article. With liberal doses of humour (self-deprecating at times), the article is a good read. Having made a start, hope Ms. Parekh writes more often. After all, writing, as the author says, is about starting.
Congratulations to the author for scoring a century on debut.

Warm regards.

S.Viswanathan

Bangalore

Article 7(3) of India-UAE and Section 44Cof the IT Act – Prior to amendment with effect from 1st April, 2008, while computing the profits of PE, expenses incurred by HO were allowable without any restriction as per domestic tax law governing computation of income

1- [2025] 171 taxmann.com 230 (SB)

Mashreq Bank Psc vs. DCIT

ITA No:1342 (MUM) of 2006

A.Y.:2002-03Dated: 6th February, 2025

Article 7(3) of India-UAE and Section 44Cof the IT Act – Prior to amendment with effect from 1st April, 2008, while computing the profits of PE, expenses incurred by HO were allowable without any restriction as per domestic tax law governing computation of income

FACTS

The Assessee, a tax resident of the UAE, was engaged in banking business in India through branches. The branch claimed deduction towards expenses incurred by HO without any restriction on the quantum of deduction. Further, it claimed certain expenses that were directly incurred outside India by HO as they were related to business operations of Indian branch.

Applying Section 44C, the AO restricted deduction of HO expenses to 5% of average adjusted total income. Further, the AO denied deduction for certain expenses (such as, SWIFT charges and global accounting software maintenance expenses) that were directly incurred by HO for branch operations.

CONSTITUTION OF SPECIAL BENCH

In Assessee’s case for AY 1996-97, ITAT held that Article 25(1) provided for computation of income and Article 7(3) of India-UAE DTAA should not be interpreted in a manner to restrict the application of domestic law. For AY 1998-99 and 2001-02, ITAT did not follow its earlier order and held that Article 7(3) did not restrict deduction of head office expenses. Therefore, provisions of DTAA should prevail over domestic law. ITAT further noted that amendment to Protocol to India-UAE DTAA with effect from 01 April 2008 restricted allowability of HO expenses.
Given the conflicting view in the Assesses’ own cases and other cases, a Special Bench was constituted at department’s request.

HELD

Head Office Expenses

Article 7(3) deals with determination of profits of PE. It provides for deducting all expenses incurred for PE business, including general and administrative expenses. Prior to amendment of India-UAE DTAA vide Protocol (Notification no. SO 2001(E) (NO) 282/2007, dated 28-11-2007), the Article did not restrict quantum of deduction or provide for reference to domestic law.

The first part of Article 25(1) provides that domestic law provisions deal with income and capital taxation arising in respective states. The later part provides that if any express provision under DTAA is contrary to domestic law, taxation shall be governed by DTAA and not by domestic law. This position aligns with interpretation of Section 90(2) namely, DTAA provisions shall override domestic law provisions to the extent beneficial to Assessee.

The scope of Article 25(1) as regards computation of business profits cannot be interpreted in a way that imposes restrictions on the manner of computing tax liability under Article 7(3), or to read restrictions under domestic law into DTAA. There was no need to introduce limitation via the Protocol if Article 25(1) was to be interpreted otherwise. Article 25(1) and Article 7(3) operate differently as the former deals with eliminating double taxes and later deals with determining business profits.

Provisions contained under DTAA must be interpreted in good faith in accordance with the terms employed by the contracting states. Prior to its amendment, Article 7(3) did not restrict allowability of expenses. This position was changed after re-negotiation of India-UAE DTAA. The amended Article 7(3) was intended to be applied w.e.f. 1st April, 2008. Hence, in absence of an express provision, it could not be applied retrospectively.

India has entered into certain DTAAs, such as those with UK and Germany, which impose restrictions on allowability of expenses, and certain DTAAs, such as those with France, Mauritius, and Japan, which do not impose any such restrictions. This indicates that conditions imposed under respective DTAAs are based on bilateral negotiations between the partners and consideration of economic and political factors.

Therefore, Article 7(3) is an express provision that overrides the provisions of Section 44C of the Act.

DIRECT EXPENSES BY THE HO FOR BRANCH OPERATIONS

Section 44C defines the term ‘head office expenditure’. These are common expenses incurred by HO for HO and various branches and are subsequently allocated to respective branches.

Circular No. 649 dated 31st February, 1993, provides that while computing business profits, the expenditure covered by Section 44C must be allowed without imposing any restriction.

Therefore, an expenditure exclusively incurred outside India for Indian branches must be allowed as a deduction without any limits.

Unravelling The Forensic Accounting And Investigation Standards

1. INTRODUCTION:

Investigations in the corporate landscape are referred to by a multitude of typologies, such as workplace, fraud, forensic or ethics investigations, to name a few and these typologies are representative of the myriad methods, techniques and processes deployed to achieve a singular objective i.e. discovery and determination of facts relating to an alleged violation. Given this context, the Forensic Accounting and Investigation Standards (“FAIS” or “Standards”)1 issued by the Institute of Chartered Accountants of India (“ICAI”) is a salient endeavor as it seeks to amalgamate a multitude of complex and divergent topics to provide a simple and unified framework for practitioners. However, applying a reductive approach to a complex matter can sometimes introduce unforeseen challenges. This note explores issues which stakeholders ought to consider apropos the services which fall within the ambit of FAIS.

1 Paragraph 1.2 of the Framework governing Forensic Accounting & Investigation 
(“FAIS Framework”) read with Paragraph 1.2 of FAIS 110 – Nature of Engagement

2. SCOPE:

The FAIS which took effect on 1st July, 2023, comprise of 20 standards addressing core topics such as fraud risk and fraud hypothesis, engagement acceptance, planning, and reporting and apply when a Professional renders services falling within the definition of Forensic Accounting, Investigation or Litigation Support services (“FAIS Services”). The definition of “Professional”2 encompasses not only members of ICAI but also other professionally qualified accountants engaged in forensic accounting and investigation. However, while compliance with the FAIS is mandatory for Chartered Accountants (“CA”), whether in practice or employment, it remains voluntary3 for qualified professionals who are not members of the ICAI.

2  Paragraph 3.1 of FAIS Framework
3  Paragraph 3.1.2. of the Implementation Guide on FAIS No 000


3. DEFINING & DISTINGUISHING FAI SERVICES: OVERLAPPING BOUNDARIES AND CONSEQUENCES

Formulating a precise definition can be especially challenging when a term aims to cover a wide range of scenarios or straddles multiple domains. This difficulty is apparent in the FAIS, which seeks to capture all possible subject matter and objectives of investigations, including investigations into financial, operational matters or in connection with litigation. As discussed further, while striving to remain sufficiently broad, these definitions run the risk of being so expansive that they become unwieldy.

3.1. FAIS DEFINITIONS

  •  Forensic Accounting4 :This term is defined as “gathering and evaluation of evidence by a professional to interpret and report findings before a Competent Authority5” and is further explained as “The overriding objective of Forensic Accounting is to gather facts and evidence, especially in the area of financial transactions and operational arrangements, to help the Professional6 report findings, to reach a conclusion (but not to express an opinion) and support legal proceedings”.
    4 Paragraph 3.2.1 of FAIS Framework read with Paragraph 3.3.1 of FAIS 
Framework
    5 Competent Authority is defined as “Competent Authority refers to a court of law 
(or their designated persons), an adjudicating authority or any other judicial 
or quasi-judicial regulatory body empowered under law to act as such” - 
Refer Page 155 of FAIS - Glossary of Terms
    6 Professional is defined as a professionally qualified accountant, 
carrying membership of a professional body, such as the ICAI, 
who undertakes forensic accounting and investigation assignments using accounting, 
auditing and investigative skills. Refer Paragraph 3.1 of the FAIS Framework.
  •  Investigation7: Investigation is defined as “the systematic and critical examination of facts, records and documents for a specific purpose” and is explained as “a critical examination of evidences, documents, facts and witness statements with respect to an alleged legal, ethical or contractual violation. The examination would involve an evaluation of the facts for alleged violation with an expectation that the matter might be brought before a Competent Authority or a Regulatory Body8”.
    7 Paragraph 3.2.2 of FAIS Framework read with Paragraph 3.3.2 of FAIS Framework.

8 Regulatory Body is defined as “Regulatory Bodies are established to govern 
and enforce rules and regulations for the benefit of public at large”.- 
Refer Page 160 of FAIS – Glossary of Terms
  •  Litigation Support9: While this term is undefined, it has been explained as “may include mediation, alternative dispute resolution mechanisms or the provision of testimony”10. Litigation is defined as “a process of handling or settling a dispute before a Competent Authority or before a Regulatory Body. Litigation could include mediation and alternative dispute resolution mechanism11”. Examples of Litigation Support include scenarios where a CA is asked to provide evidence in support of the observations made in a forensic report to an Investigation Agency or Competent Authority or a valuation exercise which may be used in settlement negotiations in context of a dispute12.
    9 Paragraph 3.2.3 of FAIS Framework – Page 17

    10  Paragraph 1.2.(c) of FAIS 110 – Nature of Engagement

    11  Paragraph 3.2.3 of FAIS Framework

    12 Paragraph 5.4 of the Implementation Guide on FAIS 110 –
      Nature of Engagement

While at first blush, Forensic Accounting and Investigation appear to be similar in coverage as they envisage evaluation of evidence in connection with reporting to a Competent Authority. However based on a conjunct reading of FAIS 11013 – Nature of Engagement read with the Implementation Guide on FAIS 11014 it appears that matters involving review of transactions and accounts with a definitive objective to report to a Competent Authority would be classified as Forensic Accounting. The clear implication here is that this exercise should be taken to gather evidence which is admissible in front of a Competent Authority. On the other hand, considering that Forensic Accounting presupposes reporting to a Competent Authority, it appears that any internally initiated exercise including review of financial transactions, would be classified as an Investigation, even though the underlying issue may be subject to the jurisdiction of a Competent Authority or Regulatory Body.

13  Paragraph 3.2, 3,3,4.2 & 4.3 of FAIS 110 – Nature of Engagement.

14  Paragraph 3.2, 3.3 and 3.4 of the Implementation Guide on FAIS 110 – 
Nature of Engagement

However, the examples cited in the FAIS15 do not appear to support the aforesaid reasoning. For instance, the estimation of loss of assets or profits for an insurance claim or the assessment of pilferage of inventory, which would not necessarily entail reporting to a Competent Authority are classified as Forensic Accounting, whereas alleged manipulation of stock prices or an exercise to identify misutilisation of funds consequent to loan defaults, are placed under the umbrella of Investigations. Furthermore, although the term Litigation Support suggests services where a CA represents a client in legal proceedings, its broad scope and varied applications, as can be inferred from the inclusive meaning and examples, can blur the lines between Litigation Support and Investigation.

15 Paragraph 5.2 and 5.3 of the Implementation Guide on FAIS 110 –
 Nature of Engagement

In conclusion, the imprecision and overlap in the definitions of Forensic Accounting, Investigation, and Litigation Support create an interpretational haze that is difficult to resolve.. Without more precise and harmonized guidelines, these definitions risk being stretched to a point where they offer little functional clarity, thereby leaving CA uncertain about the exact nature of their engagements and the requirements to be met before a Competent Authority or a Regulatory Body.

3.2. BROADENING THE SCOPE: BEYOND FRAUDULENT ACTS

Although fraud16 has been defined in the FAIS, the definitions of Forensic Accounting and Investigation (“Forensic Investigation”) do not explicitly reference it. The Implementation Guide on FAIS 110 – Nature of Engagement, which is advisory, notes that an Investigation aims to “uncover potential fraud…” and “check for fraudulent intent…”17, yet the definition of Investigation, which refers to “legal, ethical or contractual violation”, strongly suggests that fraud is not a predicate element. Collectively this implies that even matters where fraud, misrepresentation, or misappropriation (collectively “Fraudulent Acts”) is not suspected might fall under the FAIS.

16  Paragraph 3.2.4 of FAIS Framework

17  Paragraph 3.3 of Implementation Guide on FAIS 110 – Nature of Engagement

The Cambridge dictionary describes the term Forensic as “related to scientific methods of solving crimes”18. The American Institute of Certified Public Accountant’s Statement on Standards for Forensic Services (“AICPA FS”) specifies wrong doing 19 as predicate element of an investigation. On a similar note, SEBI’s LODR which mandate reporting of Forensic Audits by listed companies reference an element of wrongdoing by referring to “mis-statement in financials, mis-appropriation / siphoning or diversion of funds” as a prerequisite element20. Collectively, this implies that wrongdoing or misconduct ought to be an essential aspect of a Forensic Investigation.

18 Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/english/forensic?q=Forensic, 
Last accessed on March 25, 2025.

19  Para 1 of AICPA FS

20 “Frequently Asked Questions (FAQ) On Disclosure of Information Related 
to Forensic Audit of Listed Entities”, SEBI, https://www.sebi.gov.in/sebi_data/faqfiles/nov-2020/1606474249513.pdf, 
Last Accessed on March 25, 2025.

As such, it appears that FAIS diverges from the norm. To cite an example, the AICPA FS stipulate that valuation exercises not rendered in context of a litigation or investigation, would not be considered as a forensic service21. However, the examples cited in the FAIS22 suggest that exercises in nature of valuations and loss estimations are classified as Forensic Accounting, including even where litigation is not anticipated or wrongdoing is not suspected.

21 Para 2 of AICPA FS

22 Annexure 1 of FAIS 210 – Engagement Objectives read with Paragraph 5.2

 and 5.3 of the Implementation Guide on FAIS 110 – Nature of Engagement

By not requiring Fraudulent Acts as a starting point and by using undefined terms like “operational arrangements” or broad phrases such as “legal, ethical or contractual violations,” the FAIS potentially and may be inadvertently extend their scope to a wide array of fact-finding engagements. Even routine engagements can fall under the FAIS definition of an Investigation. For instance, if GST authorities flag discrepancies in sales data, hiring a CA to verify these discrepancies, even without any suspicion of wrongdoing could fall within the ambit of FAIS, as it involves a critical examination of records for a potential legal violation. Similarly, if a buyer alleges discrepancies in supply of goods, any assistance provided in evaluating the claims, may qualify as an Investigation, given the alleged breach of contract.

The decision not to explicitly require an allegation or indication of fraudulent activity in the definitions of Forensic Accounting and Investigation under the FAIS has significant practical implications. Although this breadth appears designed to accommodate a wide range of factual inquiries, it can lead to confusion and dissonance among both CAs and stakeholders as to whether a particular engagement would fall within the ambit of FAIS.

CAs are bound to assess whether an engagement falls within the FAIS and report compliance in their reports23. However, clients would be wary of labelling ordinary fact-finding exercises as a “forensic” exercise as this characterisation may lead to an inference of suspected misconduct triggering governance and reporting obligations as well as potential reputational risks. This approach may translate into more extensive documentation, enhanced reporting standards, and greater administrative overhead, placing a disproportionate burden on clients for lower-risk assignments. The same poses practical challenges which the CAs and client will have to proactively work together to address appropriately.

23  Paragraph 4.3 of FAIS 510 – Reporting Results

Furthermore, if Fraudulent Acts are not a predicate element, then the application of topical standards relating to fraud (such FAIS 120 – Fraud Risk) would be irrelevant. And since fraud is the predicate theme which binds the various FAIS, this incongruity may lead to potential complexities in the application of the FAIS leading to deficient outcomes.

3.3. DETERMINING FAIS APPLICABILITY

The FAIS ties its applicability to the purpose for which a service is rendered, yet its broad definitions may make it difficult to classify engagements. In particular, the terms “alleged legal, ethical or contractual violations” and “expectation” of litigation remain undefined, allowing multiple interpretations of whether an engagement qualifies as an Investigation or a general fact-finding exercise.

For instance, examining financial records for improper payments can serve markedly different objectives; from a straightforward risk assessment to probing suspected impropriety. If the client’s stated goal is merely to assess risk, the FAIS may not apply. However, if concerns of wrongdoing trigger the exercise, then FAIS could be applicable. In practice, determining which scenario applies can be challenging and, while dependent on the Client’s stated objectives, would also require a CA to assess the potential outcomes which would arise thereon.

Making a consistent and defensible classification often calls for legal expertise to interpret complex facts and predict potential outcomes; tasks that may extend beyond the CA’s traditional skill set. In high-stakes situations with uncertain or evolving circumstances, this lack of clarity poses a significant risk of non-compliance, underlying the need for more precise guidance in the FAIS.

4. INDEPENDENCE – UNREALISTIC PRESCRIPTIONS

The Basic Principles of FAIS (“Principles”) mandate that a CA should be “independent” and should “be free from any undue influence which forces deviation from the truth or influences the outcome of the engagement”24 and that the CA “needs to resist any pressure or interference in establishing the scope of the engagement or the manner in which the work is conducted and reported”25. A CA who is unable to establish the scope or the way the work is conducted would be violating the principle of independence26, which in turn would necessitate a qualification in the CA’s report27 or withdrawal by the CA from the engagement. At the same time ‘FAIS 210 – Engagement Objectives’ indicates that scope should be agreed upon with the client. Based on a conjunct reading, it appears that a CA should primarily determine the scope but with the consent of the client.

This strict independence requirement would be reasonable where the mandate to investigate is derived under law, such as an investigation initiated by regulators like SEBI but would appear to be excessive in case of client-initiated mandates, such as internal investigations, where a CA is rendering a contractual service at the client’s request. It may be noted that he AICPA FS do not prescribe independence as a requisite standard for forensic service28.

24 Paragraph 3.1 of Basic Principles of Forensic Accounting
 and Investigation (“Basic Principles”)

25  Paragraph 3.1 of Basic Principles

26  Paragraph 3.1 of the Basic Principles

27Paragraph 5.3 of the Preface to the Forensic Accounting 
and Investigation Standards (“Preface”)

28  Paragraph 6 of AICPA FS

5. ADHERENCE TO FAIS BY IN-HOUSE CAs

As explained above, the Basic Principles of FAIS (“Principles”) mandate that a CA should be “independent” and “needs to resist any pressure or interference in establishing the scope of the engagement or the manner in which the work is conducted and reported”29. FAIS appear to be mandated for CAs in employment (“CA-E”) and it is obvious demonstrating this extent of independence in an employer-employee relationship is infeasible given the nature of the relationship.

29  Paragraph 3.1 of Basic Principles

CA-Es operate in a different work construct when compared to CAs in practice. In fact, independence standards stipulated in the Code of Ethics issued by the ICAI apply to CAs in practice only. If FAIS are considered to be applicable to CA-Es, the potential conflicts and issues which would arise, may discourage CA-Es in undertaking any task in the nature of a FAIS Service. To illustrate, FAIS presupposes that the lifecycle of a FAIS engagement would be structured starting with engagement acceptance and culminating with a report, a structure which may not be practical or realistic in certain respects in the context of Forensic Investigations performed by a CA-E. As such, FAIS Services rendered by CA-E may be challenged as being non-compliant with FAIS and this deficiency may be used to discredit the outcome or findings of FAIS Services.

6. ATTORNEY CLIENT PRIVILEGE – DISHARMONIOUS CONSTRUCTION

Attorney-client privilege, in the context of investigations, is a legal doctrine that protects communications, including the work product, between a client and their legal counsel from disclosure to third parties including regulators, ensuring that sensitive information exchanged for obtaining legal advice remains confidential. In many Forensic Investigations, a CA may be retained under the direction of legal counsel specifically to maintain this protective umbrella, thus preserving privileged communications and related work products from forced disclosure.

However, the FAIS presupposes that the CA independently determines the scope and procedures of the engagement, without explicitly acknowledging the role of legal counsel over the investigatory process. This oversight can create tension: on one hand, the CA must comply with the FAIS; on the other, she is expected to operate under legal counsel’s instructions to maintain privilege. The resulting ambiguity raises serious questions about whether adherence to FAIS could inadvertently undermine attorney-client privilege, potentially compelling a CA to disclose information that would otherwise remain protected.

While the FAIS provides that CAs should consider the applicability of privilege while sharing evidence, the application of independence standards prescribed under FAIS may mean that umbrella of privilege may not be available, even if the CA is working under the directions of legal counsel. It is suggested that the ICAI should provide clarification that in relation to all work products protected by privilege, CA engaged through legal counsel may heed to the advice of the legal counsel, especially considering the applicable law which confers privilege on persons engaged by advocates under Section 132 (3) of Bhartiya Sakshya Adhiniyam, 2023.

7. SHARING INFORMATION WITH GOVERNMENT AGENCIES: BALANCING OBLIGATIONS AND CONFIDENTIALITY

“FAIS 240 – Engaging with Agencies” (“FAIS 240”) prescribes the standards in connection with interactions with Law Enforcement Agencies30 and Regulatory Bodies31 (collectively referred to as “Agencies”) in connection with FAIS Services. FAIS 240 clarifies that testimony32 is a statement provided to a Competent Authority33 such as a court, and is not included in the scope of FAIS 240. As such, it appears that any interaction with Agencies such as CBI or the ED, which are distinct from a Competent Authority, would fall under the scope of FAIS 240.

FAIS 24034, when read with Implementation Guide on FAIS 24035, appears to stipulate that a CA should provide information and / or clarifications to Agencies in connection with FAIS Services when called upon do so. FAIS 240 also stipulates that CAs should, in their engagement letters36, include clauses relating to sharing of information with Agencies without prescribing any guardrails on the nature or extent of information which is to be shared or any due processes to be followed, such as approval of or communication to the client, before sharing such information.

30 Defined in Paragraph 1.3 of FAIS 240 – Engaging with Agencies as 

“typically Central or State agencies mandated to enforce a particular law with the power to prevent,

 detect and investigate non-compliances with those laws. Their powers may be restricted

 by jurisdiction or by the law they are entrusted to enforce.”
31 Defined in Paragraph 1.3 of FAIS 240 -- Engaging with Agencies as

 “established to govern and enforce rules, laws and regulations for the benefit of public at large”

32 Defined in Paragraph 1.3(b) of FAIS 360 – Testifying before a Competent Authority - 

 as “A statement of the Professional whether oral, written or contained in electronic form,

 testifying before the Competent Authority on the facts in relation to a subject matter.”

33 Defined in Paragraph 1.3(d) of FAIS 360 – Testifying before a Competent Authority as 

“Competent Authority refers to a court of law (or their designated persons), an adjudicating 

authority or any other judicial or quasi-judicial regulatory body empowered under law to act as such.”

34 Paragraph 1.4(b) FAIS 240-Engaging with Agencies

35 Paragraph 3.2 of Implementation Guide on FAIS 240

36 Paragraph 4.4 FAIS 240-Engaging with Agencies

It also appears that FAIS 240 conflicts with the Basic Principles which prohibit the sharing of confidential information without the approval of the client, unless there is a legal or professional responsibility to do so and it can be argued that FAIS 240, which is specific, would take precedence over the Basic Principles, which are generic. Agencies can potentially use this argument to seek information from CAs, including that protected by attorney-client privilege, as refusal to share may be construed as non-compliance with FAIS which would in turn may lead to grounds for initiating disciplinary action against the CA.

It would be beneficial for the FAIS to explicitly provide exemptions for CAs from disciplinary action in situations where they refrain from sharing information to uphold attorney-client privilege, as outlined in FAIS 240. This clarification would further reinforce the principle of client primacy established in the Basic Principles.

8. CONCLUSION

While the FAIS are a laudable initiative to standardize and elevate forensic engagements, certain ambiguities and unrealistic requirements risk creating confusion and compliance challenges. The likely outcome and forum of a FAIS Service is litigation where it would be subject to extensive rigor and scrutiny. However, as discussed, the inherent ambiguities and sometimes, incompatible standards may impact the defensibility of a FAIS Service in a legal setting. Greater precision in defining key terms, a more realistic approach to independence in client-engaged scenarios, explicit accommodation for attorney-client privilege, and clearer guidance for in-house CAs are needed. By addressing these issues, the ICAI can ensure that the FAIS supports effective and credible investigative work.

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

7 [2024] 116 ITR(T) 261 (Mumbai – Trib.)

Piramal Enterprises Ltd. vs. DCIT

ITA NO.:3706 & 5091(MUM.) OF 2010

AY.: 2005-06

Dated: 11th January, 2024

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

FACTS I

The assessee had sold a flat at Malabar Hills during the year under consideration and for computing the cost of Acquisition of the said flat the assessee adopted the fair market value as on 1-4-1981 based on valuation report of government valuer. The AO after rejecting the valuation made by the valuer, calculated the cost of acquisition by assessing the rate at ₹1480 per sq. ft. as compiled in the reference book and thereby made an addition of ₹2,98,680/-.

Aggrieved by the order, the assessee preferred an appeal before the CIT(A). The CIT(A) upheld the addition. Aggrieved by the CIT(A) order, the assessee preferred an appeal before ITAT.

HELD I

The ITAT observed that for the year under consideration, the AO had no power to refer the matter for valuation to the Department Valuation Officer (DVO) but rather had power under section 50A of the Act to refer the case to the valuation officer in case the valuation adopted by the assessee was lower than the fair market value. But at the same time section 50A of the Act inserted by Finance Act, 2012 is prospective in nature as has been held by Hon’ble Jurisdictional High Court in case of CIT vs. Puja Prints[2014] 43 taxmann.com 247/224 Taxman 22/360 ITR 697 (Bom.).

The ITAT held that when the assessee had calculated the cost of acquisition on the basis of fair market value determined by the government valuer the AO had no right to replace the government approved valuer’s opinion on his own.

Thus, the appeal of the assessee was allowed to the extent of this ground.

Sec. 24.: Where assessee continued to be owner of part premises of House, rental income should be assessed only under the head income from house property and assessee would be entitled for statutory deduction @30% under section 24(a) for same.

FACTS II

The AO had treated the rental income earned by the assessee during the year under consideration from the let out portion of the property named “RP house” as income from other sources instead of income from house property on the ground that the assessee was not the owner of the property. The CIT(A) had confirmed the action of AO.

Aggrieved by the CIT(A) Order, the assessee preferred an appeal before ITAT.

HELD II

The ITAT followed the order passed by the co-ordinate Bench of the Tribunal on the identical issue in its own case for A.Y. 2003-04 & 2004-05 wherein rental income earned by the assessee from let out portion of RP house was treated as income from house property and directed the AO to assess the rental income of let out portion of RP house as income from house property.

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC. S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts. S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

6 (2025) 171 taxmann.com 392 (Mum Trib)

Sai Baba Sansthan Trust vs. DCIT

ITA Nos.: 932 & 935(Mum) of 2023

A.Ys.: 2013-14

Dated: 17th January, 2025

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC.

S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts.

S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

FACTS – I

The assessee was a charitable organisation registered under section 12A, section 80G and section 10(23C)(v). It was having a temple complex in the town of Shirdi consisting of Samadhi of a popular Saint fondly called as “Shri Sai Baba” and also other deities. The assessee usually receives huge amount of cash donations by way of hundi collections / charity box collections from the followers/devotees of Shri Sai Baba where the name and address of the contributor is not maintained. The assessee filed its return of income for A.Y. 2013-14 declaring NIL income which was processed under section 143(1).

Taking note of the Annual Information Report (AIR) for A.Y. 2013-14 and based on the stand taken by him for A.Y. 2015-16, the AO sought to reopen the assessee’s assessment by issuing notice under section 148 dated 23.3.2018 on the basis that cash deposits of ₹257 crores received by the assessee were taxable as anonymous donations under section 115BBC.The writ petition filed by the assessee against the notice was rejected by the High Court. SLP against the said High Court judgment was also rejected by the Supreme Court. Accordingly, the AO proceeded to pass the reassessment order wherein he determined the total income of the assessee at ₹67.01 crores, besides bringing the anonymous donations of ₹175.53 crores to tax @ 30% under section 115BBC.

On appeal, CIT(A) held that the reopening of the assessment was valid. On merits, CIT(A) held that the assessee was both charitable and religious trust and hence it would fall within the exceptions provided under section 115BBC(2). Consequently, he held that the anonymous donations received by the assessee were not taxable in the hands of the assessee. However, on other issues, CIT(A) confirmed the additions.

Aggrieved, both the parties filed appeals before the Tribunal.

HELD – I

The Tribunal observed that-

(a) At the time of recording of reasons for reopening, the AO should have been aware of the approval granted to the assessee under section 10(23C)(v) which is granted to a trust existing wholly for public religious purposes or wholly for public religious and charitable purposes. If the approvals under section 80G and section 10(23C)(v) granted by the income tax authorities were read together, there should not have been any doubt that the tax department has recognized the assessee trust as existing “wholly for charitable and religious purposes” which was covered by the exception listed in section 115BBC(2). Accordingly, had the AO considered both these approvals, he would not have entertained the belief that the assessee would be covered by section 115BBC.

(b) The AO had relied upon the approval granted under section 80G only and had chosen a document which would suit his requirement and ignored another important document which went in favour of the assessee, which is not permitted in law.

(c) Even on merits, in the appeals for AY 2015-16 to 2018-19, the Tribunal had held that the assessee was a charitable and religious trust, which order was upheld by the Bombay High Court vide its order dated 8.10.2024 in (2024) 167 taxmann.com 304 (Bombay).

Thus, the Tribunal held that the belief entertained by the AO, without considering the record in totality, could not be considered as a legally valid belief under section 147 and accordingly, the reopening of assessment was not valid.

HELD – II

On the issue of accumulation under section 11(1)(a), following the decision of the Supreme Court in CIT vs. Programme for Community Organisation,(2001) 248 ITR 1 (SC), the Tribunal held that accumulation under section 11(1)(a) is to be allowed on the gross receipts and not on the net receipt.

FACTS – III

In the return of income, the assessee had claimed accumulation of income under section 11(2) to the tune of ₹183.26 crores. During the course of assessment proceedings, it came to light that the assessee had omitted to disclose receipts from educational and medical activities to the tune of ₹78.84 crores. The assessee agreed to the addition of said amount and prayed that the deduction under section 11(1)(a) @ 15% of the above receipts should be allowed and further claimed enhanced accumulation under section 11(2) for the balance amount of ₹67.01 crores.

The AO noticed that the Form No. 10 filed by the assessee during assessment proceedings had certain deficiencies such as (a) it did not mention the date;(b) it did not quantify the amount to be accumulated; (c) the Board resolution passed for accumulation mentioned all types of objects; and (d) the amount to be accumulated was incorrectly mentioned as ₹575 crores. Therefore, he rejected the claim for enhancement of accumulation under section 11(2). However, he allowed the claim of accumulation of ₹183.26 crores as was originally claimed in the return of income.

CIT(A) upheld the action of the AO.

HELD – III

The Tribunal observed that the AO, even after pointing out the deficiencies in Form No. 10, had allowed the claim of accumulation under section 11(2) as originally claimed in the return of income. Therefore, such deficiencies should not come in the way of allowing the enhanced accumulation claimed by the assessee during assessment proceedings. In any case, as held by Gujarat High Court in CIT (E) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust, (2019) 102 taxmann.com 122 (Gujarat), any inaccuracy or lack of full declaration in the prescribed format by itself would not be fatal to the claimant for the purpose of section 11(2). Accordingly, the Tribunal directed the AO to allow the enhanced amount of accumulation claimed under section 11(2).

In the result, the appeal filed by the assessee was allowed and the appeal of the Revenue was dismissed.

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable. S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

5 (2025) 171 taxmann.com 133(Pune Trib)

DCIT vs. Chakradhar Contractors and Engineers (P.) Ltd.

ITA No.:1939 & 1940(Pun) of 2024

A.Y.: 2020-21 & 2021-22.

Dated: 26th December, 2024

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable.

S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

FACTS

The assessee was a company engaged in the business of construction. It filed its return of income declaring total income by estimating the income from contract work at 7.37% of the turnover. The AO completed scrutiny assessment by estimating the income from contract work at 10 per cent of the turnover, which the assessee accepted and paid the due taxes thereon.

Subsequently, the AO initiated penalty proceedings under section 270A. Referring to section 270A(9), he levied penalty @ 200% of the tax payable on the under-reported income in consequence of misreporting.

On appeal, CIT(A) cancelled the penalty on the ground that the AO had not specified the sub-limb under section 270A(9)(a) to (g) and therefore, the penalty was not sustainable.

Aggrieved, the tax department filed appeals before ITAT.

HELD

The Tribunal held that where the Assessing Officer had not specified, either in the assessment order or in the notice issued under section 274 read with section 270A, as to under which limb of provisions of section 270A(2) or section 270A(9) the case of the assessee falls, no penalty under section 270A was leviable.

Further, applying the various decisions under erstwhile section 271(1)(c) that penalty was not leviable when the profit was estimated, the Tribunal held that since the profit of the assessee had also been estimated by resorting to the provisions of section 145(3), no penalty under section 270A was leviable.

Accordingly, the appeals of the tax department were dismissed.

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

4 (2025) 171 taxmann.com 569 (Jaipur Trib)

APJ Abdul Kalam Education and Welfare Trust vs. CIT(E)

ITA No. 567 (Jpr) of 2024

A.Y.: N.A.

Date of Order: 15th January, 2025

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

FACTS

The assessee was running a hostel. It obtained provisional registration under section 12A(1)(ac)(vi) on 3.8.2022. Thereafter, it applied for final registration on 30.9.2023.

CIT(E) rejected the application for final registration and cancelled the provisional registration on the grounds that (a) non-registration under the Rajasthan Public Trusts Act, 1959 (RPT) was in violation of section 12AB(1)(b)(ii)(B); (b) it was not specifically mentioned in the trust deed that foreign donations will be taken only after prior approval under Foreign Contribution (Regulation) Act, 2010 (FCRA); and (c) the assessee was not able to prove genuineness of its activities.

Aggrieved with the order of CIT(E), the assessee filed an appeal before ITAT..

HELD

Distinguishing Aurora Educational Society v. CCIT, (2011) 339 ITR 333 (Andhra Pradesh) and New Noble Educational Society vs. CCIT, (2022) 448 ITR 594 (SC) on the ground that the said cases applied to educational institutions only, the Tribunal observed that a plain reading of section 12AB (1) (b) (ii) (B) shows that compliance of requirement of any other law is required if compliance under such other law is material for achieving its objects. Section 17 of the RPT Act, 1959 requires that trustees of the trust have to apply for registration of a public trust. However, there is no section in the RPT Act, 1959 which prohibits a trust to carry out its objects if it is not registered under the RPT Act, 1959. Both the statutes, namely Income-tax Act and RPT Act, have their own provisions and implications and none of them have overriding effect. Even if the assessee trust was not registered with the RPT Act, 1959 and the concerned officials under the RPT Act, 1959 deemed it necessary to get the entity registered under section 17 of the RPT Act, 1959, appropriate action could be taken against the trustees of the trust. However, this issue cannot be a hurdle in getting registration under section 12AB of the Income-tax Act. Accordingly, the Tribunal directed the CIT(E) to not deny registration on this ground.

Considering the provisions of FCRA, the Tribunal directed the assessee trust to incorporate the relevant amendment in the trust deed mentioning that prior to receiving any foreign remittance whatever may be the form or nomenclature, prior approval will be taken from the Ministry of Home Affairs, Govt. of India, and produce the same for verification (in original) before CIT (E). Accordingly, the Tribunal restored the matter back to the file of CIT(E).

Since the assessee had furnished all the information and documents such as Income an Expenditure Account, note on activities etc. and the observations of the CIT(E) were either wrong or self-contradictory in nature, the Tribunal held that the CIT(E) was wrong in rejecting the registration on the ground of genuineness of activities and directed him to accept the reply of the assessee in toto.

Accordingly, the appeal of the assessee was allowed.

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30thJune, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

3 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3553/Mum./2024

A.Y.: 2014-15

Date of order: 28th February, 2025

Section: 149

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30th June, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

FACTS

For AY 2014-15, a notice u/s 148 of the Act (old regime) was issued to the Assessee on 07.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of AY 2014-2015). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment.

The Assessee filed reply on 09.06.2022. Thereafter, order u/s 148A(d) of the Act was passed on 24.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 24.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 26.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment, the Assessee preferred an appeal to CIT(A) who vide Order dated 16.05.2024 allowed the appeal.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee has filed cross-objection challenging the validity of the re-assessment proceedings.

The contention, on behalf of the Assessee was that the AO has passed order u/s 148A(d) of the Act and has issued notice u/s 148 of the Act (new regime) after the expiry of surviving period as computed according the judgment of the judgment of the Apex Court in the case UOI vs. Rajeev Bansal [(2024) 469 ITR 46]. Therefore, both, the order u/s 148A(d) of the Act and the notice u/s 148 of the Act (new regime) are barred by limitation.

HELD

The Tribunal observed that the issue which arises for consideration is whether the order, dated 24.07.2022, passed u/s 148A(d) of the Act and notice, dated 24.07.2022, issued u/s 148 of the Act (new regime) were passed / issued within the prescribed time. It noted that there is no dispute as to facts. It is admitted position that the notice issued u/s 148 of the Act (old regime) on 24.07.2022, was treated as notice issued u/s 148A(b) of the Act by the Assessing Officer (AO). Thereafter, order u/s 148A(d) of the Act, was passed on 24.07.2022, and the same was followed by issuance of notice dated 24.07.2022, u/s 148 of the Act (new regime). Thus, the notice u/s 148 of the Act (new regime) was issued after the expiry of 6 years from the end of the relevant assessment year.

The Tribunal noted the observations of Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46] which have been made in relation to the interplay between the judgment of the SC in the case of UOI vs. Ashish Agarwal [444 ITR 1] and TOLA.

The Tribunal held that on perusal of the observations of the Apex Court it becomes clear that the assessing officer was required to complete the procedures within the ‘surviving time limit’ which can be calculated by computing the number of days between the date of issuance of the deemed notice u/s 148A(d) of the Act and 30th June 2021 (i.e. the extended time limit provided by TOLA for issuing reassessment notices u/s 148, which fell for completion from 20.03.2020 to 31.3.2021).

The clock of limitation which has stopped with effect from the date of issuance of S. 148 notices under the old regime (which is also the date of issuance of the deemed notices), would start running again when final reply to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO. It was clarified that a reassessment notice issued beyond the surviving time limit would be time-barred.

The Tribunal observed that, in the present case, notice u/s 148 of the Act (old regime) was issued on 07.06.2021 and was deemed to be notice issued u/s 148A(b) of the Act (new regime). Thus, the surviving time limit can be calculated by computing the number of days between the date of issuance of the deemed notice (i.e., 07.06.2021) and 30.06.2021, which comes to 23 days. The clock started ticking only after Revenue received the response of the Assesses to the show causes notices on 09.06.2022. Once the clock started ticking, the AO was required to complete these procedures within the surviving time limit of 23 days which expired on 02.07.2022. Since notice u/s 148 of the Act was issued on 24.07.2022 which fell beyond the surviving time limit that expired on 02.07.2022, the Tribunal held that the notice issued u/s 148 of the Act to be time-barred and therefore, bad in law.

The Tribunal quashed notice dated 24.7.2022 issued u/s 148 of the Act (new regime), the consequential reassessment proceedings and the Assessment Order, dated 26.5.2023, passed u/s 147 r.w.s. 144B of the Act.

Thus, Cross-Objection raised by the Assessee was allowed and accordingly, all the grounds raised by the Revenue in the departmental appeal in relation to the relief granted by the CIT(A) on merits were dismissed as having been rendered infructuous.

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

2 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3552/Mum./2024

A.Y.: 2015-16

Date of Order: 28th February, 2025

Section: 149

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

FACTS

For AY 2015-16, notice u/s 148 of the Act was issued to the Assessee on 30.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of the relevant AY). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022 which was followed by issuance of notice u/s 148 of the Act on 27.07.2022.

The reassessment proceedings culminated into passing of the Assessment Order, dated 29.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment made, the assessee preferred an appeal to CIT(A) who allowed the appeal videhis Order dated 16.05.2024.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee filed cross-objection challenging the validity of the re-assessment proceedings.

HELD

The Tribunal, first dealt with the cross objections of the Assessee. It noted that the issue which arises for consideration is whether notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) is barred by limitation specified in S. 149 of the Act as contended, on behalf of the Assessee.

The Tribunal observed that it is admitted position that the notice, dated 30.06.2021, issued u/s 148 of the Act (old regime) was treated as notice issued u/s 148A(b) of the Act by the AO. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022, and the same was followed by issuance of notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) (i.e. after the expiry of 6 years from the end of the Assessment Year 2015-2016).

The Tribunal noted the contention made on behalf of the Assessee that as per First Proviso to S. 149(1) of the Act, no notice u/s 148 of the Act (new regime) could have been issued after 31.03.2022.

The Tribunal noted the relevant portions of the decision of the SC, in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], dealing with notice issued u/s 148 for AY 2015-16 and in relation to first proviso to section 149(1) of the Act (new regime). On perusal of the relevant extracts of the said decision of the SC, the Tribunal held that the SC has clarified as under –
(a) a notice could be issued u/s 148 of the new regime for AY 2021-2022 and assessment years prior thereto only if the time limit for issuance of such notice continued to exist u/s 149(1)(b) of the old regime;

(b) in view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

Having noted that, in the present case, the time limit of 6 years from the end of AY 2015-2016 expired on 31.03.2022, the Tribunal held that, as per S. 149(1)(b) read with First Proviso to S. 149(1) of the Act (new regime), notice u/s 148 of the Act could not have been issued for the AY 2015-2016 after 31.03.2022. It held that notice, dated 27.07.2022, issued u/s 148 of the Act was barred by limitation.

The Tribunal also noted that before the Apex Court in the case of Rajeev Bansal [(2024) 469 ITR 46], the Revenue has conceded that for the AY 2015-16, notices issued on or after 01/04/2021, would have to be dropped and this has been recorded by the SC in para 19 of the decision of the Apex Court.

In view of the above, the Tribunal quashed the notice, dated 27.07.2022, issued u/s 148 of the Act and the consequent the Assessment Order, dated 29.05.2023, passed u/s 147 read with Section 144B of the Act as being bad in law.

Thus, Cross-Objection raised by the Assessee was allowed and accordingly, all the grounds raised by the Revenue in the departmental appeal in relation to the relief granted by the CIT(A) on merits were dismissed as having been rendered infructuous.

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

1 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3551/Mum./2024

A.Y.: 2017-18

Date of Order: 28th February, 2025

Sections: 148, 148A, 151

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

FACTS

A notice u/s 148 of the Act (old regime) was issued to the Assessee for the AY 2017-2018 on 28.06.2021 (i.e., after the expiry of 3 years but before 30.06.2021 — extended period time granted by TOLA1 ). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 27.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of S. 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The AO also shared with the Assessee material/information on the basis of which he had formed a belief that income had escaped assessment.

1 Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

Thereafter, order u/s 148A(d) of the Act was passed on 30.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 30.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act.

The appeal preferred by the Assessee against the aforesaid Assessment Order was allowed by the CIT(A) vide Order, dated 16.05.2024.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee filed cross-objection challenging the validity of the re-assessment proceedings.

HELD

The Tribunal, at the outset, observed that the issue which arises for consideration is whether the PCIT or the PCCIT was the Specified Authority for seeking approval for passing order u/s 148A(d) of the Act and issuance of notice u/s 148 of the Act (new regime) for the AY 2017-18.

The Tribunal having considered the decision of the Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], to the extent it has dealt with issue of approval from Specified Authority in terms of section 151 of the Act, noted that the Supreme Court has clarified as under –

(a) under new regime introduced by the Finance Act, 2021 Assessing Officer was required to obtain prior approval or sanction of the ‘Specified Authority’ at four stages – at first stage under Section 148A(a), at second stage under Section 148A(b), at third stage under Section 148A(d), and at fourth stage under Section 148. In the case of Ashish Agarwal [444 ITR 1] the Apex Court waived off the requirement of obtaining prior approval u/s 148A(a) and u/s 148A(b) of the Act only. Therefore, the AO was required to obtain prior approval of the ‘Specified Authority’ according to Section 151 of the new regime before passing an order u/s 148A(d) or issuing a notice u/s 148;

(b) under new regime if income escaping assessment is more than ₹50 lakhs a reassessment notice could be issued after expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner(PCCIT) or Principal Director General (PDGIT) or Chief Commissioner (CCIT) or Director General (DGIT);

(c) the test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20th March, 2020 and 31st March, 2021, then the ‘Specified Authority’ under Section 151(i) has an extended time till 30th June 2021 to grant approval;

(d) S. 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the AO with the strict time limits prescribed u/s 151 affects their jurisdiction to issue a notice under section 148;

(e) grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

The Tribunal held that, in the present case, the period of 3 years from the end of the AY 2017-2018 fell for completion on 31.3.2021. The expiry date fell during the time period of 20.3.2020 and 31.3.2021, contemplated u/s 3(1) of TOLA. Resultantly, the authority specified u/s 151(i) of the new regime could have granted sanction till 30th June, 2021.

On perusal of the order, dated 30.07.2022, passed u/s 148A(d) of the Act the Tribunal found that the aforesaid order was passed after taking approval from PCIT. The Tribunal held that since the aforesaid order was passed after the expiry of 3 years from the end of the AY 2017-2018, as per the new regime, the authority specified under Section 151(ii) of the Act (i.e. PCCIT or CCIT) was required to grant approval. The Tribunal also noted that even the notice, dated 30.07.2022, was issued u/s 148 of the Act (new regime) after obtaining the prior approval of the PCIT.

The Tribunal concluded that, in the present case, the approval has been obtained by authority specified u/s 151(i) of the new regime instead of the authority specified u/s 151(ii) of the new regime.

The Tribunal held that non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Accordingly, the order, dated 30.07.2022 passed u/s 148A(d) of the Act, the consequential reassessment proceedings and the order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act were quashed as being bad in law as being violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

The Tribunal allowed the cross objections filed by the assessee and dismissed, as infructuous, all the grounds raised by the Revenue in the appeal in relation to the relief granted by CIT(A) on merits.

The Judgement Of The Supreme Court In The Case Of Radhika Agarwal And Its Implication On Arrest Under The Goods And Service Act, 2017

1. INTRODUCTION

The laws regarding the prosecution of economic offences are evolving at a rapid pace. With the multitude of special acts governing commercial transactions growing and evolving over the years, it is but natural that even the enforcement of penal provisions would occur. The structure of taxation for indirect tax saw a marked change with the introduction of the Goods and Service Tax Act, 2017 (‘GST’) in all its various avatars. Almost a decade later, the field of direct taxation seems to be headed for a complete overhaul in the year 2026. These new laws, which have financial consequences and also impose criminality on certain transactions will interact with laws that were enacted prior in time to them and shall also try and find a place within the existing framework of criminal law jurisprudence. The subject of tracing the interplay between various acts has justifiably become a blockbuster headline for many articles and seminars. With a variety of laws being triggered by a singular transaction, the implication in the commercial world can be that of a complication. While it is true that ignorance of the law cannot be a defence against legal action, the plethora of laws that can potentially get triggered and the consequent multitude of proceedings (both civil and criminal) can weigh very heavily on the shoulders of a businessman or a professional. As if the interplay between various special laws by themselves was not complicated enough, the interplay of these special acts with traditional acts and codes has given rise to significant litigation in recent days.

The recent judgment of the Supreme Court in the case of Radhika Agarwal vs. UOI [2025] 171 taxmann.com 832 (SC) is a landmark judgment that sheds light on certain aspects of summons and arrest under the Customs Act, 1972, as well as the Goods and Service Tax Act, 2017. For the purposes of this discussion, we will explore the implications it has on proceedings under the latter.

A BRIEF INTRODUCTION TO PROSECUTION UNDER THE GST

Chapter XIX of the GST deals with offences and penalties under the central act and its counterpart in each State. The various offences under the act are contained primarily under section 132 of the GST. While Section 132(1) lists the various offences that are punishable under the act, all of them are not equal.

Section 132(4) states that “Notwithstanding anything contained in the Code of Criminal Procedure, 1973,  all offences under this Act, except the offences referred to in subsection (5), shall be non-cognizable and bailable.”

Section 132(5) states, “The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.”

For the sake of convenience, let us call the non-cognizable and bailable offences minor offences and the cognizable and non-bailable offences major offences. The major offences are as follows:-

Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences

(a) supplies any goods or services or both without the issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

(d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

Only when they are punishable under sub-section (i) – which reads as follows –

“In cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine”.

The term five hundred lakh refers to a sum of ₹5,00,00,000/- (Rupees five crore only). Therefore, even if the above offences are committed, and the sum involved is ₹5,00,00,000/- or less, then the offence shall be non-cognizable and bailable. It is important to note that the monetary limit in this case, therefore, is an indicator not of the threshold for prosecution but more of the severity of the consequences that follow. There are three different monetary limits prescribed in Section 132, with the thumb rule being that the lower the threshold, the lesser the severity of the sentence. However, if the accusation is of the aforementioned offences for more than a sum of Rupees Five Hundred Lakh, then the GST department officers are clothed with significant powers of arresting without a warrant, and bail is not available as a matter of right.

WHAT IS THE DIFFERENCE BETWEEN A BAILABLE AND A NON-BAILABLE OFFENCE?

A bailable offence is one in which Bail is available as a matter of right. Section 436(1) of the Code of Criminal Procedure, 1973 (‘CRPC’) and Section 478(1) of the BharatiyaNagrik Suraksha Sanhita,2023 (‘BNSS’) are parimateria in as much they mandate that if a person other than one detained or arrested for the non-bailable offence without a warrant, then the officer in charge of the police station or the Court shall release such person on bail. The word shall signify that in the case of a bailable offence, bail is available as a matter of right.

For a non-bailable offence, bail is not available as a matter of right and is at the discretion of the Court as per Section 437 of the CRPC and Section 480 of the BNSS. The term non-bailable does not signify that there is an absolute bar on the grant of bail but signifies that the grant of bail will not be a matter of course or a matter of right.

WHAT EXACTLY IS A COGNIZABLE OFFENCE?

Section 2(c) of the CRPC defines a cognizable offence. In the BNSS, the same is defined in Section 2(1)(g). The words used in the definition are ‘parimateria’ to each other and read: “cognizable offence” means an offence for which, and “cognizable case” means a case in which a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant”.

In short, for a cognizable offence, the police officer does not require a warrant to arrest an accused.

DO GST OFFICERS HAVE THE POWER TO ARREST?

The Supreme Court, in the case of Om Prakash v. Union of India (2011) 14 SCC 1, while examining the powers of officers of the Central Excise Department to effect arrest, had held that “In our view, the definition of “non-cognizable offence” in Section 2(l) of the Code makes it clear that a non-cognizable offence is an offence for which a police officer has no authority to arrest without warrant. As we have also noticed hereinbefore, the expression “cognizable offence” in Section 2(c) of the Code means an offence for which a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant. In other words, on a construction of the definitions of the different expressions used in the Code and also in connected enactments in respect of a non-cognizable offence, a police officer, and, in the instant case, an Excise Officer, will have no authority to make an arrest without obtaining a warrant for the said purpose. The same provision is contained in Section 41 of the Code which specifies when a police officer may arrest without order from a Magistrate or without warrant.” However, the statutory scheme under the GST is different from what the scheme under the Central Excise Act 1944 was at the time of ‘Om Prakash’.

In the case of GST, Section 69 explicitly deals with the power to arrest and vests the discretion to authorize an officer to effect arrest based on his ‘reasons to believe’ that a person has committed any offence specified in Section 132(1) a, b, c or d as read with Sub-section (1) or (2) thereof.

The power of the GST officers to arrest has been upheld by the Supreme Court in the case of Radhika Agarwal. This power had been challenged in the said Petition on the grounds of legislative competency. The position canvassed was that Article 246-A of the Constitution, while conferring legislative powers on Parliament and State Legislatures to levy and collect GST, does not explicitly authorize the violations thereof to be made criminal offences. The Court held that “The Parliament, under Article 246-A of the Constitution, has the power to make laws regarding GST and, as a necessary corollary, enact provisions against tax evasion. Article 246-A of the Constitution is a comprehensive provision and the doctrine of pith and substance applies.. .. a penalty or prosecution mechanism for the levy and collection of GST, and for checking its evasion, is a permissible exercise of legislative power. The GST Acts, in pith and substance, pertain to Article 246-A of the Constitution, and the powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect goods and services tax.”

The Supreme Court has, therefore, upheld the power of GST officers to effect arrests as provided by the GST.

CAN ANTICIPATORY BAIL BE SOUGHT FOR OFFENCES UNDER THE GST?

The power of the Courts to grant anticipatory bail under Section 438 of the CRPC (predecessor to Section 482(1) of the BNSS) was not available in the cause of a person summoned under Section 69 of the GST Act.

In State of Gujarat vs. Choodamani Parmeshwaran Iyer, (2023) 115 GSTR 297, a two-judge Division Bench of the Supreme Court had held that “The position of law is that if any person is summoned under section 69 of the CGST Act, 2017 for the purpose of recording of his statement, the provisions of section 438 of the Criminal Procedure Code, 1973 cannot be invoked. We say so as no first information report gets registered before the power of arrest under section 69(1) of the CGST Act 2017 is invoked, and in such circumstances, the person summoned cannot invoke section 438 of the Code of Criminal Procedure for anticipatory bail. The only way a person summoned can seek protection against the pre-trial arrest is to invoke the jurisdiction of the High Court under article 226 of the Constitution of India.” The decision was then later followed in the case of Bharat Bhushan v. Director General of GST Intelligence, (2024) 129 GSTR 297 by another two-judge Division Bench of the Supreme Court.

However, Radhika Agarwal marks a departure from this line of Judgements in as much as the three-judge bench of the Supreme Court has held that the power to seek anticipatory bail shall be available to a person who is apprehensive of arrest under the GST. The Supreme Court held that

“The power to grant anticipatory bail arises when there is apprehension of arrest. This power, vested in the courts under the Code, affirms the right to life and liberty under Article 21 of the Constitution to protect persons from being arrested. Thus, in Gurbaksh Singh Sibbia (1980) 2 SCC 565, this Court had held that when a person complains of apprehension of arrest and approaches for an order of protection, such application, when based upon facts which are not vague or general allegations should be considered by the court to evaluate the threat of apprehension and its gravity or seriousness. In appropriate cases, application for anticipatory bail can be allowed, which may also be conditional. It is not essential that the application for anticipatory bail should be moved only after an FIR is filed, as long as facts are clear and there is a reasonable basis for apprehending arrest. This principle was confirmed recently by a Constitution Bench of Five Judges of this Court in Sushila Aggarwal and others vs. State (NCT of Delhi) and Another (2020) 5 SCC 1. Some decisions State of Gujarat vs. Choodamani Parmeshwaran Iyer and Another, 2023 SCC OnLine SC 1043; Bharat Bhushan v. Director General of GST Intelligence, Nagpur Zonal Unit Through Its Investigating officer, SLP (Crl.) No. 8525/2024 of this Court in the context of GST Acts which are contrary to the aforesaid ratio should not be treated as binding.”

Therefore, anticipatory bail can be applied for and granted in the case of offences under the GST, where there is a reasonable basis for apprehending arrest.

ARE THERE SAFEGUARDS OF THE POWER TO ARREST?

Though the Supreme Court has upheld the power of GST officers to arrest, it has deemed fit to elucidate and clarify certain aspects of this power. Some key takeaways are listed below:-

(a) The GST Acts are not a complete code when it comes to the provisions of search and seizure and arrest, for the provisions of the CRPC (and now the BNSS) would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts.

(b) To pass an order of arrest in case of cognizable and non-cognizable offences, the Commissioner must satisfactorily show, vide the reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and that the pre-conditions of sub-section (5) to Section 132 of the Act are satisfied. Failure to do so would result in an illegal arrest. On the extent of judicial review available with the court viz. “reasons to believe”, in Arvind Kejriwal vs. Directorate of Enforcement, (2025) 2 SCC 248, it was held that judicial review could not amount to a merits review.

(c) The exercise to pass an order of arrest should be undertaken in right earnest and objectively, and not on mere ipse dixit without foundational reasoning and material. The arrest must proceed on the belief supported by reasons relying on material that the conditions specified in sub-section (5) of Section 132 are satisfied and not on suspicion alone. Such “material” must be admissible before a court of law. An arrest cannot be made to merely investigate whether the conditions are being met. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe. The reasons to believe must be based on the evidence establishing —to the satisfaction of the Commissioner — that the requirements of sub-section (5) to Section 132 of the GST Act are met. In Arvind Kejriwal it was held that “reasons to believe” are to be furnished to the arrestee such that they can challenge the legality of their arrest. Exceptions are available in one-off cases where appropriate redactions of “reasons to believe”
are permissible.

(d) The power of arrest should be used with great circumspection and not casually. The power of arrest is not to be used on mere suspicion or doubt or for even investigation when the conditions of subsection (5) to Section 132 of the GST Acts are not satisfied.

(e) The reasons to believe must be explicit and refer to the material and evidence underlying such opinion. There has to be a degree of certainty to establish that the offence is committed and that such offence is non-bailable. The principle of the benefit of the doubt would equally be applicable and should not be ignored either by the Commissioner or by the Magistrate when the accused is produced before the Magistrate.

(f) The Supreme Court reiterated certain principles laid down in Arvind Kejriwal with regard to arrest by the Directorate of Enforcement and held that they shall be applicable to arrest under GST as well. These safeguards include the requirement to have “material” in the possession of the Commissioner, and on the basis of such “material”, the authorised officer must form an opinion and record in writing their “reasons to believe” that the person arrested was “guilty” of an offence punishable under the PML Act. The “grounds of arrest” are also required to be informed forthwith to the person arrested.

(g) The Court reiterated that the courts can judicially review the legality of arrest. This power of judicial review is inherent in Section 19, as the legislature has prescribed safeguards to prevent misuse. After all, arrests cannot be made arbitrarily on the whims and fancies of the authorities. This judicial review is permissible both before and after criminal proceedings or prosecution complaints are filed. Courts may employ the four-part doctrinal test as observed in the case of Arvind Kejriwal with regard to the doctrine of proportionality in their examination of the legality of arrest, as arrest often involves contestation between the fundamental right to life and liberty of individuals against the public purpose of punishing the guilty.

(h) The investigating officer is also required to look at the whole material and cannot ignore material that exonerates the arrestee. A wrong application of law or arbitrary exercise of duty by the designated officer can lead to illegality in the process. The court can exercise judicial review to strike down such a decision.

(i) The authorities must exercise due care and caution as coercion and threat to arrest would amount to a violation of fundamental rights and the law of the land. It is desirable that the Central Board of Indirect Taxes and Customs promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment.  In case there is a breach of law, and the Assessees are put under threat, force or coercion, the Assessees would be entitled to move the courts and seek a refund of tax deposited by them. The department would also take appropriate action against the officers in such cases.

(j) A person summoned under Section 70 of the GST Acts is not per se an accused protected under Article 20(3) of the Constitution.

(k) It is obvious that the investigation must be allowed to proceed in accordance with law and there should not be any attempt to dictate the investigator, and at the same time, there should not be any misuse of power and authority.

(l) Relying on Instruction No. 02/2022-23 [GST – Investigation] dated 17th August, 2022, the Court held that the procedure of arrest prescribed in the circular has to be adhered to and that the Principal Commissioner/Commissioner has to record on the file, after considering the nature of the offence, the role of the person involved, the evidence available and that he has reason to believe that the person has committed an offence as mentioned in Section 132 of the GST Act. The provisions of the Code, read with Section 69(3) of the GST Acts, relating to arrest and procedure thereof, must be adhered to.

(m) The arrest memo should indicate the relevant section(s) of the GST Act and other laws. In addition, the grounds of arrest must be explained to the arrested person and noted in the arrest memo as per Circular No. 128/47/2019-GST dated 23.12.2019 and the format prescribed by it.

(n) Instruction No. 01/2025-GST dated 13.01.2025 now mandates that the grounds of arrest must be explained to the arrested person and also be furnished to him in writing as an Annexure to the arrest memo.

(o) Instruction 02/2022-23 GST (Investigation) dated 17.08.2022 further lays down that a person nominated or authorised by the arrested person should be informed immediately, and this fact must be recorded in the arrest memo. The date and time of the arrest should also be mentioned in the arrest memo. Lastly, a copy of the arrest memo should be given to the person arrested under proper acknowledgement. The circular also makes other directions concerning medical examination, the duty to take reasonable care of the health and safety of the arrested person, and the procedure of arresting a woman, etc. It also lays down the post-arrest formalities which have to be complied with. It further states that efforts should be made to file a prosecution complaint under Section 132 of the GST Acts at the earliest and preferably within 60 days of arrest, where no bail is granted.

(p) The arresting officer shall follow the guidelines laid down in D.K. Basu vs. State of West Bengal. (1997) 1 SCC 416.

TO CONCLUDE

The Judgement of the Supreme Court in the case of Radhika Agarwal is a giant leap forward in the realm of GST prosecutions. While it does not divest the GST officers of their powers to effectively investigate and prosecute offences under the GST, it also clarifies and reiterates the important safeguards to be kept in place to ensure that these provisions are not abused.

However, in a separate and concurring Judgement Justice Bela Trivedi, while agreeing with the Judgement of Chief Justice Sanjeev Khanna and Justice M.M. Sunderesh, expressed that she thought it expedient to pen down her views on the jurisdictional powers of judicial review under Article 32 and Article 226 of the Constitution of India when the arrest of a person is challenged.

She held that “When the legality of such an arrest made under the Special Acts like PMLA, UAPA, Foreign Exchange, Customs Act, GST Acts, etc. is challenged, the Court should be extremely loath in exercising its power of judicial review. In such cases, the exercise of the power should be confined only to see whether the statutory and constitutional safeguards are properly complied with or not, namely to ascertain whether the officer was an authorized officer under the Act, whether the reason to believe that the person was guilty of the offence under the Act, was based on the “material” in possession of the authorized officer or not, and whether the arrestee was informed about the grounds of arrest as soon as may be after the arrest was made. Sufficiency or adequacy of material on the basis of which the belief is formed by the officer, or the correctness of the facts on the basis of which such belief is formed to arrest the person, could not be a matter of judicial review.” She further held that “Sufficiency or adequacy of the material on the basis of which such belief is formed by the authorized officer, would not be a matter of scrutiny by the Courts at such a nascent stage of inquiry or investigation.”

Reiterating the principle that was invoked in the case of Vijay Madanlal Choudhary and Others vs. Union of India and Others 2022 SCC OnLine SC 929 while weighingthe constitutional validity of certain provisions of the Prevention of Money Laundering Act, 2005 (‘PMLA’) that special Acts are enacted for special purposes and must be interpreted accordingly, it was held that:-

“Any liberal approach in construing the stringent provisions of the Special Acts may frustrate the very purpose and objective of the Acts. It hardly needs to be stated that the offences under the PMLA or the Customs Act or FERA are offences of a very serious nature affecting the financial systems and, in turn, the sovereignty and integrity of the nation. The provisions contained in the said Acts therefore must be construed in a manner which would enhance the objectives of the Acts and not frustrate the same. Frequent or casual interference of the courts in the functioning of the authorized officers who have been specially conferred with the powers to combat serious crimes may embolden the unscrupulous elements to commit such crimes and may not do justice to the victims, who in such cases would be the society at large and the nation itself. With the advancement in Technology, the very nature of crimes has become more and more intricate and complicated. Hence, minor procedural lapses on the part of authorized officers may not be seen with a magnifying glass by the courts in the exercise of the powers of judicial review, which may ultimately end up granting undue advantage or benefit to the person accused of very serious offences under the special Acts. Such offences are against the society and against the nation at large and cannot be compared with the ordinary offences committed against an individual, nor can the accused in such cases be compared with the accused of ordinary crimes. To sum up, the powers of judicial review may not be exercised unless there is manifest arbitrariness or gross violation or non-compliance of the statutory safeguards provided under the special Acts required to be followed by the authorized officers when an arrest is made of a person prima facie guilty of or having committed offence under the special Act.”

The last word on this subject may not yet have been spoken. The application of the law laid down in this judgement, as always, shall depend upon the facts and circumstances of each case. However, with this Judgement, an accused under the GST who is apprehensive of arrest is no longer without safeguards.

Learning Events at BCAS

1. Suburban Study Circle Meeting on “Navigating the New Income Tax Bill, TDS, Deductions & Critical Provisions” on Thursday, 13th March, 2025 and at C/o SHBA & Co. LLP, Andheri (E), Mumbai.

Suburban Study Circle Meeting on “Navigating the New Income Tax Bill, TDS, Deductions & Critical Provisions”, was led by CA Upamanyu Manjrekar & CA SnehalMayacharya, where they delved into critical amendments in the Income Tax framework, with a focus on TDS, deductions, and key provisions. The discussion highlighted changes in terminology, procedural updates, and practical implications for businesses and professionals.

Key changes discussed included:

  • Modifications in Income Tax Bill Wording – Minor yet impactful changes in phraseology, altering interpretation and compliance requirements.
  • TDS Revisions – Updates on applicability, rates, and compliance, including sector-specific changes.
  • Procedural & Compliance Changes – New filing requirements, reporting obligations, and penalty structures.
  • Impact on Business & Professionals – Discussion on how the amendments affect different taxpayer categories.
  • Group Interpretation & Case Studies – Open discussion on ambiguous provisions and their practical implementation.
  • Retrospective vs. Prospective Amendments – Debate on whether certain provisions apply retrospectively or prospectively.
  • Practical Challenges & Solutions – Addressing common compliance difficulties and suggested best practices.
    The session was highly interactive, with participants engaging in insightful discussions and real-world case studies. CA Upamanyu Manjrekar & CA SnehalMayacharya provided clear explanations, ensuring attendees left with a well-rounded understanding of the amendments and their implications.

2.  HRD Study Circle on The Secret Formula of Successful ENTREPRENEURS on Tuesday, 11th March, 2025 @ Virtual.

The Human Resources Development Committee Organised a Talk on Topic “The Secret Formula of Successful ENTREPRENEURS” on 11th March, 2025.
Faculty Mr. Walter Vieira

The takeaways from the workshop are briefly given below:

  1.  Comparing entrepreneur with a turtle he quoted James Byrant Conant who said – “Behold the turtle. He makes progress only when he sticks his neck out.”All cannot be entrepreneurs. Those who stick their neck out — take risk, have perseverance, conviction in their idea and believe in themselves could become excellent entrepreneurs
  2.  Entrepreneurship is a process of creating something new and needs deep study of business environment backed up by Fundable business plan.
  3.  There is a certain degree ofaptitude and attitude that is needed to do business and move further as Entrepreneur

They are

a) Creativity and flexibility
b) Resilience
c) Humility to accept success and failure
d) Perseverance
e) Spirit of adventure
f) People skills with a back-up technical knowledge in the subject

There were 167 participants who attended the meeting and good number of them asked questions which were well answered by the faculty.

3. Indirect Tax Laws Study Circle Meeting on Tuesday, 25th February, 2025, @ Virtual

The Group Leader & the Group Mentor introduced the participants to the topic and dealt with the relevant provisions & clarifications before proceeding to the case studies covering the following contentious & practical issues on the topic:

  1. Can an application be filed u/s 128A filed when there is a demand for only interest & penalty?
  2. Distinction between self-assessed liability and whether section 128A can be invoked if an Order is passed confirming demand for such self-assessed liability?
  3. Practical challenges in adjusting liability when payment is made in GSTR-3B / pre-deposit while filing an appeal / third party recovery against DRC-13.
  4. In case of appeal Order, section 128A application to be filed against the appeal Order or adjudication order?
  5. Is section 128A option available if the Appeal Authority remands the matter?
  6. Can application for rectification of order for demand confirmed for multiple points, including section 16 (4) be filed?
  7. Can the rectification order for demand confirmed u/s 16 (4) go beyond the scope of the original notice?
  8. Availability of refund of pre-deposit paid in case of successful appeal order for demand u/s 16 (4)

The meeting was attended by 50 members. The participants appreciated the efforts of the Group Leader and Group Mentors.

4. Tarang 2K25 – The 17th Jal ErachDastur CA Students’ Annual Day on Saturday, 22nd February, 2025 @ M M Pupils Own School — Khar.

The completion of the November 2024 CA exams commenced the preparations for the grand Tarang 2k25. The stage was set for the awe-inspiring event to happen, and it was when the Students’ Team and members of the Human Resource Development Committee (HRD) met to re-write the success story of the marvellous legacy of the past 16 years.

The 17th year of Jal ErachDastur CA Students’ Annual Day under the brand of ‘Tarang’ had to be engaging, enthralling, and magnificent. With this mission in mind, the Students’ Team started upon the journey for delightful Tarang 2k25 under the requisite guidance of CA MihirSheth, CA DnyaneshPatade, CA Jigar Shah, and CA Utsav Shah. MsPrachi Shah and Mr Paras Doshi were appointed as the student coordinators.

Tarang, when described, is an ecstatic annual CA students’ celebration mainly intended to provide a platform for CA students to unleash their talent and creativity in areas of public speaking, writing skills, performing arts, business, technical, and innovative skills. Additionally, the event also intends to act as an insight and potential gateway into the real world outside academic books by providing access and tutelage by skilled and experienced leaders in the form of participation in various fields with a view to building interpersonal and team-building skills with an opportunity to fraternize and network with hundreds of like-minded students.

The event was organized under the auspices of the HRD Committee of BCAS. All meetings were held in offline and online format. The event was supported by a total of 30 volunteers. Tarang 2k25 completely changed the dull and monotonous perception regarding CA students when they were witnessed as event managers, anchors, talented dancers, and photographers too!

As intended, it was truly an event ‘Of CA Students, By CA Students and For CA students.’

Tarang 2k25, to our surprise, saw a huge enrollment of around 350 students despite the pending due dates. There were an overall 165 participants in Tarang 2k25, along with the highest number of participants in the ‘Treasure Hunt’ too. The event became very popular, and we received huge enrollments along with amazing ideas that were pitched to the judges, which were worth the watch.

Also for the very first time Mock Stock exchange was organised specially for CA students where around 75 students participated.

The 17th Jal ErachDastur CA Students’ Annual Day – ‘Tarang 2K25’ elimination rounds were held at the BCAS Hall on the 15th and 16th of February 2025, To keep the fun going and the crowd engaged, the students’ team had organized various online games and networking sessions, This provided a unique opportunity for all the participants to build a productive and constructive network along with a lot of fun too.

The Grand Finale of Tarang 2k25 was held at MM Pupils School, Khar on the 22-2-25 from 3 pm onwards. We were delighted to have Bank of Baroda as the sole sponsor for the prizes of the winners of the various games and quizzes held offline. Arrangements for various exciting games were made to engage and build excitement among the audience before the event’s commencement.

The grand finale commenced at 3 pm with the lighting of the divine lamp by the HRD Committee with the Ganesh Vandana and Saraswati Vandana being played in the background to seek blessings and express gratitude to Lord Ganesh and Maa Saraswati.

The winners of the competition representing their firms were announced as follows:

Invest, Conquer, Compete (Mock Stock Exchange) – Winning Team – Dikshant Pandiyan, Jainil Sheth and Priyansh Jindal

Reel Making Competition ‘Shutter Stories’ – Sushil Khubchandani

Photography Competition ‘The Capture Challenge ’ – Anjali Vaishya

Antakshari Competition – ‘Suronke Maharathi’
Winning Team – NikunjPatel ,Harshita Dave and Rahul Jaiswar

Debate Competition – ‘The Battle Of Perspectives’ Winning Team – Sanjog Shah, Jainam Doshi, Vedant Agarwal and Madhur Bhartiya

Best Debater – Vedant Agarwal

The Rotating Trophy went to – Vedant Agarwal (SRBC and Co)

Talk Tastic – Winner – Piyush Gupta

2nd – Neha Agnihotri

3rd – Sejal Bagda

The Rotating Trophy went to – Piyush Gupta (DBS Bank)

Essay Writing Competition – ‘Pen- Power- Play’ 1st Prize Winner – Dhairya Thakkar

2nd Prize Winner – Neha Agnihotri

3rd Prize Winner – JesikaSahaya

The Rotating Trophy went to – Dhairya Thakkar (JHS Associates)

Talent Show ‘CA’s Got Talent’ Best Performer – Music Category – YashLadha

Best Performer – Instruments Category – Mithil Category

Best Performer – Dancing Category – The JDians

Best Performer – Other Performing Arts Category – Param Savijani and Rishit Raithatha

Pirates Plunder (Treasure Hunt) winners – Rushi Ghuge, Siddharth Gada and Yash Khalse

Hearty Congratulations to all the winners and their firms.

The euphoric evening was superbly anchored by the Master of Ceremony with their unmatched energy and mind-boggling acts to keep the audience engaged throughout the event.

With the 17th edition reaching new milestones and the scale increasing, all eyes are now set on what the anticipated 18th edition would have to offer. One thing is clear, the sky will not be the limit for the goals set to be achieved.

II. BCAS Quoted in News & Media

BCAS has been quoted in various esteemed news and media platforms, reflecting our thought leadership and commitment to the profession. For details

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

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Rights Issue Simplified (SEBI ICDR Amendments, 2025)

CONCEPTUAL FRAMEWORK FOR RIGHTS ISSUE

A Rights Issue is a well-established capital-raising mechanism that enables companies to generate additional funds while preserving the pre-emptive rights of existing shareholders. The legal foundation for Rights Issue in India is enshrined in section 62(1)(a) of the Companies Act, 2013 (“Companies Act”), which mandates that any further issuance of capital must initially be offered to existing shareholders.

Unlike preferential allotments or public offerings, Rights Issue confer a distinct advantage by allowing companies to raise capital swiftly without requiring shareholder approval in a general meeting. Instead, the Board of directors is vested with the authority to approve and execute the Rights Issue under Section 179(3) of the Companies Act, subject to compliance with the statutory offer period, which must range between 15 to 30 days as stated in Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014.

For listed companies, the regulatory landscape extends beyond the Companies Act, with additional oversight by the Securities and Exchange Board of India (SEBI) under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”). In view of cumbersome procedure, companies usually do not consider Rights Issue as preferred mode. Following chart below depicts that in past Issuers have preferred QIP and Preferential Allotment over Rights Issue.

The other major factor was that of involvement of the timelines to complete the process of Rights Issue. The chart below shows the time taken for Rights Issue process for listed companies:

As shown above, issuers have preferred fund raising mode like preferential issues or QIP which usually takes lesser time vis-à-vis Rights Issue. It was also observed that even though the existing shareholders have the first right to participate in fund raising activity of the issuer, the listed entities have preferred to raise fund though preferential issue by offering it to select few investors including promoters’ reason being swift fundraising, attracting strategic investors and increase in promoter’s stake.

SEBI CONSULTATION PAPER DATED 20th AUGUST 2024

To enable faster Rights Issue and to simplify procedures, SEBI initiated a comprehensive review of the Rights Issue framework and released the consultation paper on 20th August, 2024. This consultation paper aimed to address key inefficiencies, including extended timelines, disproportionate compliance costs, and structural constraints, which made Rights issues less attractive compared to alternative fundraising methods.

Some of the key Issues which were needed attention were-

  •  Rights Issue below ₹50 crore were exempt from the ICDR Regulations, creating an uneven compliance burden across different categories of issuers.
  •  high cost associated with mandatory merchant banker engagement, which was often disproportionate to the size of the issue.
  •  inefficiencies stemmed from challenges in handling unsubscribed shares, which restricted issuers from effectively managing excess demand or reallocating unclaimed shares.

In addition to above, the proposed Rights Issue guidelines also addressed the other shortcoming associated with the prevalent Rights Issue process such as lengthy time-period, requirements of filing detailed Draft offer letter, appointment of intermediaries, etc.

Following extensive industry feedback on this consultation paper, SEBI made significant amendments to ICDR Regulations on 3rd March, 2025, effective from 4th April, 2025 designed to streamline processes, enhance transparency, and improve overall market efficiency. These changes aim to ensure that Rights Issue remain a viable and competitive method of capital raising while fostering greater investor participation.

KEY AMENDMENTS RESHAPING THE RIGHTS ISSUE FRAMEWORK & THEIR LIKELY IMPACT

  •  Application of ICDR Regulations to Rights Issue Below ₹50 Crore

Prior to the amendments, Rights Issue below R50 crore were exempt from ICDR Regulations, creating regulatory disparities between small and large issuers. SEBI has now mandated uniform compliance with ICDR Regulations for all Rights Issue, irrespective of size, ensuring transparency, investor protection, and a level playing field across the market.

This amendment brings additional compliance requirements, particularly in terms of enhanced disclosures, financial reporting, and regulatory approvals. While this may increase regulatory costs for smaller issues, it also enhances investor confidence and credibility, potentially improving subscription rates.

  •  Reduction of Rights Issue Timeline from 317 Days to 23 Working Days

Prior to the Recent ICDR Amendments, while a fast-track Rights Issue typically took 12-14 weeks, a non-fast-track Rights Issue used to take approximately 6-7 months from the date of the board meeting approving the Rights Issue until the date of closure of the Rights Issue leading to valuation mismatches, investor resistance, and a lack of responsiveness to market conditions. The Recent ICDR Amendments provide that the Rights Issue may be completed within 23 working days from the date of the board of directors of the issuer approving the Rights Issue (except in case of Rights Issue of convertible debt instruments which require prior shareholders’ approval).

Reduction in timeline for completing a Right Issue from 317 days to just 23 working days will enhance efficiency, predictability, and responsiveness to market conditions, allowing companies to raise capital in a shorter timeframe and minimizing exposure to price fluctuations and the Investor will also get benefit that it will counter the volatility and enhance liquidity in the secondary market.

  •  Elimination of Mandatory Merchant Banker Requirement

SEBI has done away with the requirement of compulsory merchant banker involvement in Rights Issue, allowing issuers to self-manage the process or engage advisors selectively.

This will result in reduction in compliance costs and timelines, particularly for mid-sized and smaller companies, which previously incurred substantial fees for engaging merchant bankers and taking time for completing the process. This amendment will grant companies with greater control over the Rights Issue process, enabling them to structure offerings in a cost-effective and efficient manner.

  •  Improved Treatment of Unsubscribed Shares

Historically, the inability to effectively manage unsubscribed shares has been a significant challenge for issuers. SEBI’s amendment now permits issuers to reallocate unsubscribed portions to specified investors, thereby increasing the likelihood of full subscription and reducing the risk of undercapitalization. This change introduces greater flexibility for companies, allowing them to strategically distribute shares based on market demand. This amendment enhances the overall attractiveness of Rights Issue, as companies are now better equipped to manage excess demand and prevent subscription shortfalls. The companies need to ensure efficient allocation of unsubscribed shares while complying with SEBI’s revised guidelines, its legal enforceability. Also, companies must exercise due diligence to ensure compliance with the evolving framework, failing which it can lead to regulatory scrutiny and potential legal ramifications.

For professionals, this regulatory shift present both Challenges and Opportunities. The opportunity for compliance and advisory services shall witness a rise, as the role of Merchant Banker has substantially reduced at one hand and on the other hand regulatory environment has become more complex. This change opens opportunities for legal, accounting, and regulatory advisory services which includes preparation of comprehensive offer documents, ensure regulatory compliance, and reviewing disclosures. The compressed timeline necessitates faster regulatory filings, due diligence, disclosures, etc. which will open new opportunities for Chartered accountants (CAs) and Auditors.

FUTURE OF RIGHTS ISSUE IN THE CONTEXT OF INDIA’S CAPITAL MARKET

SEBI has effectively streamlined the Rights Issue process, contributing to a more predictable and efficient capital-raising environment, making Rights Issue a more attractive option for corporate Issuers.

To further strengthen the Rights Issue framework, adopting of digital platforms to streamline the application process, reducing the paperwork, and integrating blockchain technology for real-time subscription tracking, can improve transparency and allow for more effective monitoring of fund utilization.

For companies which are fully compliant having strong financials and credibility, expedited regulatory approvals may be granted under the concept of Green Route Channel, which could further enhance market efficiency. This would encourage greater participation from a diverse range of companies, making the Rights Issue process more accessible and attractive. Further relaxation of disclosure requirements for smaller issues may be provided in case companies adhere to stringent investor protection policies.

As capital markets evolve, various developments will also unfold but continued vigilance and proactive adaptation will be crucial for maintaining a competitive and investor-friendly capital-raising mechanism and retaining the trust in the integrity of the capital market ecosystem. These amendments reinforce SEBI’s emphasis on transparency, particularly through stricter fund utilisation monitoring mechanisms and enhanced investor protection measures.

Report On BCAS 58th Members’ Residential Refresher Course

The flagship event of the Bombay Chartered Accountants’ Society (BCAS), the Members’ Residential Refresher Course (RRC), was held in the city of Nawabs, Lucknow between Wednesday, 26th February, 2025 and Saturday, 1st March, 2025.

Keeping pace with the theme “ReImagining the Profession” of the immensely successful three-day mega conference, held in January 2024, the theme of the 58th RRC was finalised as “Profession Today And Tomorrow”. The Committee was seized of the need to deliver an event that would be both contemporary and forward looking. The topics and speakers were carefully selected and fitted in the time-tested mix of panel discussion, paper presentations and group discussions.

The annual RRC is nothing short of a yearly pilgrimage for her die-hard bhakts (devotees), and the consecration ceremony of Shree Ram Mandir in January 2024 had triggered the desire to hold the next year’s RRC in Ayodhya. This would provide the members a chance to pay obeisance to Ram Lalla and seek His blessings. With no hotel in Ayodhya large enough to accommodate a contingent of 175+, the Seminar, Membership & Public Relations (SMPR) Committee of the BCAS and the Office Bearers zeroed in on Lucknow — less than 160 kms from Ayodhya and, more importantly, with hotels large enough to accommodate the mammoth RRC contingent. The recce in October 2024 helped decide the venue — the newly constructed hotel, The Centrum, Lucknow.

Respecting the natural desire to visit Shree Ram Mandir along with their significant other, for the second time in history, a decision was taken to permit member spouse and children to register for the RRC. The response was immediate — it was houseful by the time the Early Bird stage ended! A total of 187 participants, drawn from 14 states and 31 cities and towns, including 11 non-residential members registered for the event. A heartening realisation was that for 76 members, this would be their very first RRC! Participants also included 2 newly wed couples, 5 member couples including a couple who gifted the BCAS Life Membership to their recently qualified daughter and enrolled her for the RRC as well.

The excitement in the air on the afternoon of 26th February was there for all to see as delegates checked in from all corners of the country. Day 1 began with the group discussion on “Case Studies in Direct Taxes on Assessment, Reassessment, Reviews and Appeals” which saw the break-out groups discuss the challenging and compelling case studies threadbare. This was followed by the formal inaugural session, with CA Preeti Cherian, Convenor, SMPR Committee, extolling everyone with the city’s tagline, “Muskuraiye! Aap Lucknow Mein Hain!”.

The President, CA Anand Bathiya, in his address, thanked the Committee for delivering on its promise to make the dream of visiting Shree Ram Mandir into a reality. He spoke about how the “Members’ only” flagship event of BCAS, the RRC has stood the test of time and continues to have its devoted following; the RRC serves as a confluence of like-minded members, with each one bringing a certain uniqueness to the table. The Chairman of the Committee, CA Chirag Doshi elaborated on the relevance of the RRC, selection of the venue, detailed schedule and RRC statistics.

It was then the turn of the unbeaten RRC champion (with 38 RRCs Not Out), Past President, CA Uday Sathaye to take centre stage and to formally introduce the Chief Guest, Past President CA Govind G Goyal to the audience. Past Presidents of ICAI, CA Mukund Chitale and CA Ved Jain joined the Chief Guest, the President CA Anand Bathiya, the Vice President CA Zubin Billimoria, the Past Presidents CA Anil Sathe,CA Ashok Dhere, CA Pranay Marfatia, CA Rajesh Muni and CA Uday Sathaye, the Chairman CA Chirag Doshi and the Convenors of the Committee, CA Ashwini Chitale,CA Mrinal Mehta and CA Preeti Cherian in lighting the ceremonial lamp. The esteemed Chief Guest and Past President, CA Govind G Goyal spoke in chaste Hindi about his association with BCAS in general and with RRCs in particular.

 

 

The inaugural session was followed by the curtain raiser — the fireside chat on the contemporary topic “Journey of CA Firms (Investible Firms, Mergers and Alliance of Firms)” with CA Manish Modi and CA Vaibhav Manek. The chat was moderated by Managing Committee member, CA Samit Saraf. The panelists spoke frankly of the challenges and opportunities their individual journeys had posed / opened up for them.

 

Day 2 started with the participants experiencing the mehman-nawaazi (hospitality) of our local member, CA Pradeep Kumar who made special arrangements to make available a huge cauldron of the winter speciality Malai Makhan at the breakfast table.

Suitably satiated, the participants were greeted by Convenor, CA Rimple Dedhia as they sat down to listen to the Past President of ICAI, the erudite Adv. CA Ved Jain discuss in detail the intricacies of the case studies which had been deliberated upon a day prior by the groups. The session was chaired by CA Pankaj Agarwal.

The Presentation Paper I “Role of Chartered Accountants in IPO Process” by CA Sumith Kamath helped the audience realise the opportunities available to CAs in this otherwise less explored terrain. The session was chaired by Past President CA Rajesh Muni. The Presentation Paper II “Practical Use of Technology in Professional Firms” by CA Rahul Bajaj had the audience captivated as they experienced for themselves the power of AI through his live demonstrations. The session was chaired by Joint Secretary, CA Kinjal Shah. The fact that the participants were reluctant to allow the session to close for the lunch break (despite it being way past 2 pm!) speaks volumes.

Post a sumptuous meal, Convenor, CA Mrinal Mehta invited all gathered to the Multi-Disciplinary Brains Trust session on the topic “Interplay of Direct Tax, GST Law and Audit on issues relating to Real Estate and Health Care Industry”. The esteemed panel comprising the Past President of ICAI, CA Mukund Chitale, Past President CA Anil Sathe and Shri Vishal Agarwal presented their views on the case studies at hand. The session was ably moderated by Adv CA Kinjal Bhuta and CA Mandar Telang. The day had been long; however, given that the dawn held the promise of fulfilling their dream of a lifetime, the participants felt doubly energised as they retired for the night.

Day 3 found a super enthusiastic group of devotees dressed in traditional attire, gather in the hotel foyer, eagerly waiting for the buses to take them to Ayodhya. The Committee Organisers had pulled out all stops to ensure that all the logistic arrangements, permissions, etc to transport the 190+ devotees from Lucknow to Ayodhya and back, were in place. The recently concluded Maha Kumbh Mela had resulted in unprecedented crowds flooding Ayodhya after taking the holy dip. The strain on the infrastructure had been tremendous — and yet, despite all this, through divine intervention undoubtedly, the entire contingent travelled to Ayodhya in a seamless manner.

The Sugam Darshan of Ram Lalla organised by the Committee brought tears of joy to many an eye and the group returned to Lucknow late afternoon, suitably invigorated. After a refreshing coffee break, the break-out groups for the group discussion on “Case Studies on Practical Implementation of Auditing Standards” retired to their designated areas to discuss the interesting case studies.

Day 4 was kick-started by Convenor, CA Ashwini Chitale inviting Past President CA Ashok Dhere to chair the session by CA Himanshu Kishnadwala as he replied to the case studies debated a day prior by the groups. This was followed by a presentation on the New Income Tax Bill by CA Uttamchand Jain. The session was chaired by Past President CA Pranay Marfatia.

The presence of BCAS through its annual RRC in the city of Lucknow had not gone unnoticed by the powers-that-be. A special session with none other than the Deputy Chief Minister of Uttar Pradesh, Shri Brajesh Pathak ji formed part of the concluding session. In his address, the Deputy CM acknowledged the vital role played by Chartered Accountants in the nation building process and spoke at length about the various domestic and international industries that are now housed in Uttar Pradesh. Shri Mukesh Singh, Executive Council Member & Chairman UP Coordination Committee Indo American Chamber of Commerce then addressed the audience on the topic “Challenges & Opportunities for Business in UP”. The address by the Deputy CM was extensively covered in the news by the 10+ media channels who were in attendance.

In the concluding session, both the President CA Anand Bathiya and Chairman of SMPR Committee, CA Chirag Doshi acknowledged all those who had worked towards delivering a successful RRC, especially the support extended by the local members, CA Anshul Agarwal and CA Pankaj Agarwal. And as the curtains came down on yet another successful RRC – one which had the participants wear their thinking caps and deliberate on where the profession is today and what the future holds, one was reminded of the ghazal penned by shaayar Nida Fazli:

सफ़र में धूप तो होगी, जो चल सको तो चलो

सभी हैं भीड़ में, तुम भी निकल सको तो चलो

किसी के वास्ते, राहें कहाँ बदलती हैं

तुम अपने आप को,

ख़ुद ही बदल सको तो चलो…..

यही है ज़िंदगी, कुछ ख़्वाब, चंद उम्मीदें

इन्हीं खिलौनों से तुम भी बहल सको, तो चलो l

 

 

 

 

 

 

 

 

Regulatory Referencer

DIRECT TAX: SPOTLIGHT

  1.  Due date for filing of Form No. 56F required to be filed under section 10AA(8) for Assessment year 2024-25 extended to 31st March, 2025 — Circular No. 2/2025 dated 18th February, 2025
  2.  Income tax deduction from Salaries during the financial year 2024-25 under section 192 of the Act — Circular No. 3/2025 dated 20th February, 2025
  3.  Frequently Asked Questions (FAQs) on Guidelines issued for Compounding of Offences under the Income-Tax Act, 1961 dated 17th October, 2024 — Circular No. 4/2025 dated 17th March, 2025
  4.  Ten Year Zero-Coupon Bond of Power Finance Corporation Ltd. notified for the purpose of section 2(48) — Notification No. 19/2025 dated 11th March, 2025

FEMA:

1. IFSCA replaces Fund Management Regulations of 2022 with IFSCA (Fund Management) Regulations, 2025.

IFSCA, along with the Fund Management Advisory Committee (FMAC) of IFSCA, senior industry leaders and through public consultations, has reviewed and replaced Fund Management Regulations of 2022 in order to enhance the ease of doing business and to develop the GIFT IFSC as a hub for International financial activities. Key reforms have been made in following areas:

i. Non-Retail Schemes (Venture Capital Schemes and Restricted Schemes)

ii. Manpower requirements for FMEs

iii. Registered FME (Retail) and Retail Schemes

iv. Portfolio Management Services

v. Other Key matters

Significant relaxations have been made including by way of reduction in minimum corpus; carve-outs from the regulatory requirements for fund of funds schemes; dispensation of prior approval for appointment of KMPs; streamlining and broadening the requirements regarding educational qualification and work experience of the KMPs; clarifications on several requirements; and reduction in compliance burden among several other measures. It will be worthwhile to read the new Fund Management provisions in detail for those interested in Fund Management activities in IFSCA.

[International Financial Services Centres Authority (Fund Management) Regulations, 2025 Notification No. IFSCA/GN/2025/002 and Press Release dated 19th February, 2025]

2. IFSCA sets procedure for ‘Fund Management Entity’ (FME) to appoint or change KMPs post-registration

The IFSC Authority has prescribed the manner and procedure to be followed by a Fund Management Entity for effecting the appointment of or change to the Key Managerial Personnels (KMPs) subsequent to the grant of registration by the Authority to the FME. The FME shall file an intimation to the Authority regarding the proposal to appoint or change a KMP in the prescribed format. This circular shall come into force with immediate effect.

[International Financial Services Centres Authority (Fund Management) Regulations, 2025 Press Release No. IFSCA-IF-10PR/1/2023-Capital Markets/6, dated 20th February, 2025]

3. IFSCA amends Aircraft Lease (“AL”) framework — restricts IFSC Lessors from leasing solely to Indian residents

Clause O.2 of AL Framework is replaced with O.2

“Transactions with person(s) resident in India”. As per this circular, lessor shall not purchase, lease or otherwise acquire the assets covered under this framework, where post-acquisition the asset will be operated or used solely by persons resident in India or to provide services to persons resident in India. The amendments to AL Framework shall come into force with immediate effect.

[Circular No. F. No. 172/IFSCA/Finance Company Regulations/2024-25/02 dated 26-2-2025]

4. IFSCA issue guidelines on ‘Cyber Security and Cyber Resilience’ for Regulated Entities in IFSCs

IFSCA has issued guidelines on ‘Cyber Security and Cyber Resilience’ for Regulated Entities in IFSCs. The guidelines intend to lay down IFSCA’s broad expectations from its Regulated Entities (REs). For these guidelines, REs must include any entity which is licensed, recognised, registered or authorised by IFSCA. The key components of the guidelines are categorised into (a) Governance, (b) Cyber security and cyber resilience framework, (c) Third party risk management, (d) Communication and (e) Audit.

[International Financial Services Centres Authority Circular No. IFSCA-CSDOMSC/13/2025-DCS, dated 10th March, 2025]

5. RBI permits settlement of Indo-Maldives trade in INR and MVR, alongside the existing ACU mechanism

In the wake of signing of Memorandum of Understanding (MoU) between RBI and Maldives Monetary Authority in November 2024, the Reserve Bank of India (RBI) has now allowed bilateral trade transactions between India and Maldives to be settled in Indian Rupees (INR) and Maldivian Rufiyaa (MVR) in addition to the existing Asian Clearing Union (ACU) mechanism. These instructions shall come into force with immediate effect.

[Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023 A.P. (DIR Series) Circular No. 22 under FEMA, 1999, dated 17th March, 2025]

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.10/2025-Central Tax dated 13th March, 2025

Above notification seeks to amend Notification  No. 2/2017-Central Tax dated 19th June, 2017  which is regarding revision of the Territorial  Jurisdiction of Principal Commissioner/Commissioner of Central Tax, etc.

B. CIRCULARS

(i) Clarification on Rate of tax and Classification of various items under GST – Circular no.247/04/2025-GST dated 14th February, 2025.

By above circular, the clarifications are given about GST Rates and Classification for various products including SUVs, Popcorn, Raisins, Pepper, and AAC Blocks based on the recommendations of the GST Council in its 55th meeting.

C. ADVISORY

i) Vide GSTN Advisory dated 12th February, 2025, information is given regarding guidelines on GST registration under Rule 8 of the CGST Rules, 2017.

ii) Vide GSTN Advisory dated 15th February, 2025, information about introduction of Form ENR-03, allowing unregistered dealers to generate E-Way Bills using unique Enrolment ID, effective 11th February, 2025, is given.

D. ADVANCE RULINGS

Lease of land vis-à-vis Exemption Anmol Industries Ltd. (AAR Order No. 03/WBAAAR/2024 Dated: 30th August, 2024 DT. 26th November, 2024 (WB AAAR)

Earlier there was AR order no.24/WBAAR/2023-24 dated 20th December, 2023 passed by WBAAR, holding that long-term lease transaction effected by Shyama Prasad Mukherjee Port, Kolkata (SMPK) is not exempted from GST.

The ld. WBAAAR set aside said order and remanded matter back to AAR vide appeal order dated 18th April, 2024. Thereafter, fresh AR passed by AAR.

This appeal was against fresh AR No. 06/WBAAR/2024-25 dated 29th July, 2024-2024-VIL-143-AAR. By the said order, the ld. WBAAR ruled that Services by way of grant of long-term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex’ is not to be covered under entry 41 of Notification No.12/2017 Central Tax (Rate) dated 28th June, 2017 and, therefore, cannot be treated as an exempt supply.

The facts are that the appellant entered into a leasing agreement with SMPK to take on lease a plot of land at Taratala Road for thirty (30) years for the purposes of setting up a commercial office complex. The appellant was to pay upfront lease premium along with GST @ 18% on consideration of `30,90,11,000/-. The question before AAAR was:

“Whether the upfront premium payable by the appellant towards the services of by way of granting of long-term lease of thirty years, or more of industrial plots or plots for development of infrastructure for financial business by SMPK is exempted under entry 41 of Notification No. 12/2017-CGST (Rate) dated 28th June, 2017?”

Based on use for infrastructure for financial business, the crux of the contention of the appellant was that the appellant being an industrial unit has fulfilled all the conditions as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017 from the end of the recipient and hence SMPK should take exemption and should not charge any GST.

The conditions of aforesaid entry 41 are reproduced as under:

“I. The lease period should be of thirty years or more;

II. The property leased should be industrial plots or plots for development of infrastructure for financial business;

III. Service provider must be a State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory);

IV. Service recipient must be an Industrial Unit.”

The ld. AAAR held that AAR has not discussed the condition mentioned in the first proviso in entry 41 i.e. whether the lease plot is being used for industrial or financial activity in an industrial or financial business area, which is substantial condition for grant of exemption.

The ld. AAAR examined the said issue in detail and found that the appellant is going to set up Commercial Office by setting up such commercial office complex and all the corporate activities including accounting and financial activities will be undertaken there and that such office will be planned to maintain and monitor all the financial records and transactions of the appellant company. The ld. AAAR found that the appellant is contemplating use of plot for financial business based on use of plot for such financial activity. Though finding on above aspect was not there in AR, the ld. AAAR held that under power u/s.101(1), the AAAR can modify AR order and accordingly considered itself as competent to go into above aspect of use for financial business.

In this respect, the ld. AAAR referred to Notice Inviting Tender, NIT No. SMP/KDS/LND/03-2022 dated 15th March, 2022, in which in para 8.7 the definition of setting up of a Commercial office complex is given as under:

“Setting up of a commercial office complex in a particular plot may be allowed where the listed purposes in the tender include Assembly, Business and Mercantile Buildings and the said land shall be used by the original lessee for own Corporate use and excess vacant space of the said office complex to be let out on lease to other corporate entities who will use the complex for setting up of Business Centre, Business Chambers, Conference Rooms, Office Infrastructure, Cafeteria, Restaurant, Gymnasium, Guest House, hotel accommodation, recreation facilities, pharmacies, diagnostic clinics, retail outlets etc. In other words, the original lessee will be a business integrator where various other stake holders /investors /retailers /service providers will operate under the business integrator (original lessee) as sub-lessees.”

As per clause 8.8 in NIT, it was also found that the plot is not allowable for Industrial building defined as “Any building or structure or part thereof used principally for fabrication, assembly and or processing of goods and materials of different kinds. Such building shall include laboratories, power plants, smoke houses, refineries, gas plants, mills, dairies, factories and workshops”.

Based on above facts, the ld. AAAR observed that when Industrial building itself is not allowed, no stretch of imagination can conclude that industrial activity is allowed under the instant tender. Accordingly, the ld. AAAR held that setting up of commercial office complex has a specific purpose and the same cannot be equated to industrial activity.

Regarding use for “financial activity”, the ld. AAAR observed that “Financial activity” is not defined in the GST Laws and hence meaning to be seen as per common business parlance. The ld. AAAR held that mere maintenance and monitoring of all the required financial records and transactions of a company does not mean financial activity. The ld. AAAR held that every business aims to achieve a profit which occurs because of increase in income and decrease in expenses and for this purpose obviously every business entity undertakes activities which have financial implications. The ld. AAAR held that it is a normal activity for a business and cannot be considered as financial activity implied in NIT. Elaborating this aspect, the ld. AAAR referred to meaning of Financial Service in IBC which indicates financial activity as services like acceptation of deposits and other such independent financial activities. SAC Code 9971 specifying financial services also referred to gather meaning of ‘financial activity’.

Noting above, the ld. AAAR came to the conclusion that the appellant is not providing any of the above Finance Services and hence cannot be considered as carrying out financial activity in a financial business area.

In respect of SMPK being Government Undertaking the ld. AAAR held that though SMPK is audited by the office of the Comptroller and Auditor General of India, it cannot be conclusively regarded as an entity having 20% or more ownership of Central Government.

Accordingly, the ld. AAAR confirmed AR of the AAR and rejected the appeal.

GST on Canteen Facility for Contractual Workers Troikaa Pharmaceuticals Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/07 (in Appl. No. Advance Ruling/SGST & CGST/2022/AR/09) dt.28th February, 2025)(Guj)

The present appeal was filed against the Advance Ruling No. GUJ/GAAAR/R/2022/38 dated 10th August, 2022 – 2022-VIL-231-AAR.

The facts are as under:

♦ “the appellant is engaged in the manufacture, sale & distribution of pharma products and is registered with the department;

♦ the appellant has appointed a CSP [Canteen Service Provider];

♦ the appellant provides subsidized canteen facilities to its employees & contractual workers;

♦ the appellant recovers 50% of the amount from the employees;

♦ that as far as security service contract workers is concerned, the canteen service provider raises bill for only 50% of the amount as the rest of the amount is being directly paid by the individual workers to the service provider.”

Based on above facts, the appellant had sought Advance Ruling on the following questions:

  1. “ Whether GST shall be applicable on the amount recovered by the company,Troikaa Pharmaceuticals Limited, from employees or contractual workers,when provision of third-party canteen service is obligatory under section 46 of the Factories Act, 1948?
  2.  Whether input tax credit of GST paid on food bill of the Canteen Service Provider shall be available, since providing this canteen facility is mandatory as per the Section 46 of the Factories Act, 1948?”

The ld. AAR gave following ruling:

  1. “ GST, at the hands of M/s Troikaa, is not leviable on the amount representing the employees portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
  2.  GST, at the hands of M/s Troikaa, is leviable on the amount representing the contractual worker portion of canteen charges, which is collected by M/s Troikaa and paid to the Canteen service provider.
  3.  ITC on GST paid on canteen facility is admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to employees of the
    company subject to the condition that burden of GST have not been passed on to the employees of the company.
  4.  ITC on GST paid on canteen facility is not admissible to M/s Troikaa under Section 17(5)(b) of CGST Act on the food supplied to contractual worker supplied by labour contractor.”

This appeal was filed in respect of denial of ITC on canteen services provided by the appellant to contractual workers and levy of GST on food charges recovered from contractual workers.

To decide the issue, the ld. AAAR referred to provision of Section 17(5) about blocking of ITC and also Circular No.172/04/2022-GST-dated 6th July, 2022 in which clarifications are given about various issues of section 17(5) of the CGST Act.

Regarding question about levy of GST on receipts for Contractual Workers, the ld. AAAR referred to provisions of Factories Act, 1948 as well as sections 20 and 21 of CTRA,1970.

The appellant was canvassing that statutorily it is the contractor who is required to provide the amenity to the contractual workers in terms of section 16 and the onus shifts on the principal employer i.e. the appellant in case the contractor is not providing the same. The ld. AAAR concurred with above situation that though statutorily it is the contractor on whom the CLRA Act has entrusted the task of providing the amenity and the responsibility shifts on the principal employer i.e. appellant in case the contractor is not providing the same. However, the ld. AAAR observed that section of CLRA provides also that all expenses incurred by the principal employer in providing such amenity may be recovered from the contractor either by deduction from any amount payable under any contract or as a debt payable by the contractor.

From documents submitted the ld. AAAR found that the contractor has been paid the gross amount which includes salary, allowances such as canteen facility, provident fund, etc. The ld. AAAR also did not found averment by the appellant that the contractor has failed to fulfil his statutory obligation so as to shift primary requirement for providing facility on appellant.

The ld. AAAR also noted terms in agreement with Labour Contractor which explicitly states that no relationship of employer-employee is created between the appellant and the workers engaged by the contractor. The ld. AAAR, therefore, held that the clarification at serial no.5, vide circular no. 172/4/2022-GST dated 6th July, 2022 relied upon by the appellant to aver that no GST amount is leviable on the amount recovered from contractual workers for canteen services is incorrect since the clarification states that GST will not apply when perquisites are provided by the employer to its employees and not in other cases. The ld. AAAR also held that clarification at serial no. 3 of the said circular dated 6th July, 2022, regarding availment of ITC, would also not be applicable since it is available only in respect of the goods supplied to the employees of the appellant in terms of section 46 of the Factories Act, 1948, which mandates provision of canteen facilities to the employees.

In view of the above, the appeal was rejected, confirming the AR given by AAR.

Classification – Treated Water

Palsana Enviro Protection Ltd. (AAR (Appeal) Order No. GUJ/GAAAR/APPEAL/2025/08 (in Appl. No. Advance Ruling/ SGST & CGST/2023/AR/04) dt.28th February, 2025)(Guj)

The present appeal was against the Advance Ruling No. GUJ/GAAR/R/2022/47 dated 30th December, 2022 – 2023-VIL-09-AAR.

The facts are that the appellant, who has been promoted by a cluster of textile processing industries, has set up a CETP [Common Effluent Treatment Plant]. In the said CETP, the appellant recycles & thereafter supplies treated water to its member units for use in their activities. This treated water can be used in non-potable activity. Though the CETP treated water is made free from various impurities, however, even after carrying out the said physical and biological processes the said water is not pure water& cannot be termed as purified water.

The further fact is that CETP treated water is supplied to industries through pipelines. The appellant further claimed that their activity falls within the ambit of Sr. No. 99 of notification No. 2/2017-CT (R), as amended vide notification No. 7/2022-CT (Rate) dtd 13th July, 2022, as the water obtained from CETP is not ‘purified water’. To substantiate this claim, they have also relied on circulars No. 52/26/2018 dated 9th August, 2018 & 179/11/2022-GST dated 3rd August, 2022.

With above background appellant posed following questions before the ld. AAR.

  1. “ Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) will be eligible for exemption from GST by virtue of Sl. No. 99 of the Exemption Notification No. 02/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Water (other than aerated, mineral, purified, distilled, medical, ionic, battery, demineralized and water sold in sealed container)’? or
  2.  Whether ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18 per cent b virtue of Sl. No. 24 of Schedule – III of notification No. 01/2017- Integrated Tax (Rate), dated 28-6-2017 (as amended) as ‘Waters, including natural or artificial mineral waters, and aerated waters, not containing added sugar or other sweetening matter nor flavoured (other than Drinking water packed in 20 liters bottles).”

The ld. AAR ruled as under:

  1. “ ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is not eligible for exemption from payment of Tax by virtue of Sl. No. 99 of the exemption notification No. 02/2017-CT (Rate) dated 28th June, 2017 (as amended) and Sl. No. 99 of the exemption notification No. 02/2017- Integrated Tax (Rate), dated 28th June, 2017 (as amended).
  2.  ‘Treated Water’ obtained from CETP (classifiable under Chapter 2201) is taxable at 18% by virtue of Sl. No.24 of schedule – III of notification No.01/2017- CT (Rate) (as amended) and Sl. No. 24 of schedule – III of notification No. 01/2017-Integrated Tax (Rate), dated 28th June, 2017 (as amended).”

In essence, the AAR held that CETP water as ‘de-mineralized water’, excluded from exemption.

The appeal was against the above ruling.

In appeal, the appellant has reiterated its stand.

The ld. AAAR referred to relevant entries and averment. The appellant has produced laboratory certificate in course of appeal.

Based on sample water of appellant, in certificate it was stated that the water does not meet parameters of demineralized water.

The ld. AAAR declined to accept the said certificate produced by the appellant because, [a] the same was produced at an appellate stage; [b] the certificate nowhere states that the laboratory is an accredited laboratory and [c] there is no mention about the way the sample was drawn.

The appellant had relied upon certain rulings.

The ld. AAAR did not agree with rulings cited before it on ground that rulings by the Authority for Advance Ruling would be binding only on the applicant who sought it, the concerned officer or the jurisdictional officer in respect of the applicant. The ld. AAAR further observed that the Tamilnadu Authority for Advance Ruling has held that treated water obtained from CETP is de-mineralized water and will
therefore not be eligible for the benefit of the notification Nos. No. 2/2017-CT(R) dated 28th June, 2017 as amended.

In view of above findings, the appeal was rejected confirming the AR passed by GAAR.

Supply of Transportation Service vis-à-vis School Students

Batcha Noorjahan (AAR Order No. 06/ARA/2025 dt.13th February, 2025)(TN)

The applicant is engaged in the business of plying school buses and providing transportation services to the school students in commuting to their school and back home.

Applicant put up following questions to AAR.

  1. “ Whether the services provided by the applicant to the school students by way of transportation of students and staff, shall be considered as the services provided to the school (Educational Institute).
  2.  Whether the services provided by the applicant as mentioned above, shall be considered as exempted from GST as per the Serial No. 66 of Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017 or any other applicable provision of the Act.”

The applicant has submitted following aspects of the transaction:

“i) The fees for the transportation of school students are being collected from the students directly as per the agreement with the schools.

ii) There could be a view that since the fees are directly collected from the students, the service recipient is not the school or the Educational Institution.”

As per the provisions of the Act, the services provided to the Educational Institution by way of transportation of students and staff is exempted from GST (Notification No.12/2017). It was further submitted that the applicant is providing services by way of transportation of students and staff though the bus fee is received from the students directly. It was interpretated by applicant that the schools are the service recipients though the consideration is not directly paid by them.

The ld. AAR referred to facts like the applicant has entered into a lease agreement with Alphabet International School vide agreement dated 30.09.2022 for a period of 5 years for the purpose of transporting students and staff of the school only in connection with school activity as provided under clause (8) of Rule 2 of the Tamil Nadu Motor Vehicles Regulations and Control of school buses special rules, 2012.

It was seen from agreement that there was no mention of the consideration part payable by the school to the applicant for providing the vehicle and the services related thereto. There was also no mention in the lease agreement as to how the transportation fees are to be collected, whether by the applicant or by the school.

From the copies of the receipts furnished by the applicant, it was seen that the applicant has directly raised receipt on the student concerned, towards ‘Student Transport Fees’.

The ld. AAR also observed that the applicant is not receiving any payment from the school administration and therefore, no services are rendered to the school by the applicant. The ld. AAR held that the services provided by the applicant to the school students by way of transportation and accordingly, the first question is answered in negative.

Regarding second question the ld. AAR held that the school has outsourced the transport serviceto the applicant and the applicant is directly in receipt of the consideration from the students and accordingly, the service rendered by the applicant to the students is to be considered as ‘Transport of passenger by any motor vehicle’, meriting classification under SAC 9964, attracting GST at 5% without ITC as per Sl.No.8(vi) of Notification No. 11/2017, dated 28th June, 2017, as amended vide Notification No. 31/2017-Central Tax (Rate) dated 13th October, 2017.

Since the transportation services are not suppliedto Educational Institutions as provided under Sl. No.66 of Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017, it is not applicable to the applicant. The ld. AAR decided the AR accordingly.

Composite Supply vis-à-vis Mixed Supply

Doms Industries Pvt. Ltd. (AAR (App) Order No. GUJ/GAAAR/APPEAL/ 2025/05 (In Appl. No. Advance Ruling/SGST&CGST/2023/AR/03) dt. 22nd January, 2025) (Guj)

This appeal was filed against the Advance Ruling No. GUJ/GAAR/R/2022/52 dt.30.12.2022-2023-VIL-03-AAR.

The appellant supplies the goods in a combination with other products viz.

[a] DOMS A1 pencil. This consist of 10 pencils along with a sharpener & eraser.

[b] DOMS Smart Kit. This is a gift pack which consists of a colouring book, two pack of pencils,
one pack of colour pencil, one pack of oil pastels, one pack of plastic crayons, one pack of wax crayons, one eraser, one scale and one sharpener.

[c] DOMS my first pencil kit. It consists of a pencil, eraser, scale and a sharpener.

The applicant held view that he satisfies the four conditions to term the aforesaid supply as ‘composite supply’.

With above background, ruling was sought on following questions:

“(i) Whether the supply of pencils sharpener along with pencils being principal supply will be considered as the composite supply or mixed supply?

(ii) What will be the HSN code to be used by us in the above case.

(iii) Whether supply of sharpener along with the kit having a nominal value will have an impact on rate of tax.

If yes, what will be the rate of tax & HSN code to be used by use.”

The ruling of ld. GAAR dated 18th October, 2021 held as under:

“(i) the supply of pencils sharpener along with pencils is covered under the category of ‘mixed supply’;

(ii) as discussed in para 21.1 of the impugned ruling.

(iii) yes, the supply of sharpener along with the kit having a nominal value will have an impact on rate of tax. As discussed in para 21.2 and 21.3 of the impugned ruling.”

The appeal was filed against the above ruling.

Appellant made various submission as well as cited case laws.

In appeal, the ld. AAAR observed that the appellant is aggrieved only in respect of their product ‘DOMS A1 pencil’ which consists of 10 pcs of pencil, one eraser and one sharpener and accordingly AAAR restricted scope of appeal to the ruling on above product only.

The ld. AAAR referred to Guidance in Service Tax Education Guide issued by CBIC.

The ld. AAAR also referred to definition of term ‘composite supply’ and ‘mixed supply’ given in Sections 2(30) and 2(74) of CGST Act respectively.

The ld. AAAR concluded its finding in following terms:

“We find that the CGST Act, defines a composite /mixed supply. Additionally, CGST Act, 2017, thereafter, specifies the tax liability in such case wherein a supply falls within the ambit of either a composite /mixed supply. We have already held that the product ‘DOMS A1 pencil’, is a mixed supply, the product not being naturally bundled, not having a principal supply and not supplied in conjunction with each other in the ordinary course of business. Now, for the sake of argument, even if we were to examine the claim of the appellant, we find that the product of the applicant, in question, would not fall either within Rule 3(a) or 3(b) of the GIR, leaving us with the only alternative of resorting to Rule 3(c). The question then which would arise is whether Rule 3(c) of the GRI or Section 8(b), of the CGST Act, 2017, would prevail. It is a trite law that when the section is unambiguous, the averment of the appellant to take the assistance GRI for deciding the nature of supply, classification and rate of tax, is not legally tenable. We therefore, reject this submission of the appellant.”

Accordingly, the ld. AAAR rejected the appeal and confirmed AR given by AAR.

Goods And Services Tax

HIGH COURT

1. [2025] 172 Taxmann.com 66 (Madras) Madhesh @ Madesan Vs. State Tax Officer Dated 21st December, 2024

Once the goods are detained under section 129, detention order passed beyond the period of seven days from the date of show cause notice is liable to be set aside and detention of goods based on such time-barred order is illegal.

FACTS

In this case, the goods were detained on 29th October, 2024 and notice under section 129(3) of the Act, 2017 in Form GST MOV-07 was also issued on 29th October, 2024. However, no order of detention made in Form GST MOV-09 till date of filing writ, thereby violating the time-line stipulated under section 129(3) of the Act. The short question was whether the proceedings under section 129(3) can be sustained in the absence of complying with the time-line mandated under section 129(3).

HELD

The Hon’ble Court noted that under section 129(3) of the Act, the order ought to have been passed within a period of seven days from the date of service of such notice and hence held that the impugned proceedings are beyond the timelines stipulated under section 129(3) of the Act. Consequently, the impugned proceedings are set aside and the vehicles / goods in question were directed to be released forthwith.

2. [2025] 172 taxmann.com 100 (Allahabad) Kei Industries Ltd vs. State of U.P dated 4th February, 2025

Where goods not covered under the requirements of an E-way bill were transported, they could not be seized under section 129 for not being accompanied with an E-way bill.

FACTS

The petitioner was aggrieved by an order directing a seizure of the vehicle and the goods on the ground that the E-way Bill was not present with the goods. The department admitted in the Court that during the period under consideration, the goods that were being transported by the petitioner were not covered by the requirement of the E-way bill.

HELD

Based on the admission of the department that during the period under consideration, goods which were being transported by assessee, were not covered by the requirement of the E-way bill and relying on the decision in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. State of U.P. — [2018] 97 taxmann.com 552 (Allahabad), the Hon’ble Court held that the impugned order was bad and is therefore, liable to be set aside.

3. [2025] 172 taxmann.com 133 (Gujarat) Patanjali Foods Ltd. vs. Union of India dated 12th February, 2025

Notification No. 9/2022, effective from 18th July, 2022, has a prospective effect and did not apply to refund claims of prior period, even if the claim of refund is made after 18th July, 2022. Further, once the refund application filed by the assessee is adjudicated and order is passed sanctioning the same, it is not open for the department to recover the said refund by issuing another SCN and passing different order and not by challenging the earlier order which has become final.

FACTS

The petitioner is inter-alia, engaged in the manufacture and sale of edible oil. According to the petitioner, the rate of tax applicable to input supplies of the petitioner exceeded the rate of tax on output supplies. Therefore, the petitioner qualified for a refund under the inverted duty structure scheme as per section 54(3) of the Central / Gujarat Goods and Services Tax Act, 2017. Notification No.9/2022-Central Tax dated 13th July, 2022, was issued by the Central Government, notifying certain goods, including edible oil, as ineligible for a refund under the inverted duty structure. The said Notification was made effective from 18th July, 2022. The petitioner submitted a refund application dated 5th December, 2023 for the period from February 2021 to March 2021 under section 54(3) of the GST Act.

The petitioner received a show cause notice proposing to reject the refund application on the ground that there was an existing demand against the petitioner on the GST portal. The petitioner replied to the said show cause notice, pointing out that the demands had been withdrawn pursuant to the direction of the NCLT. Thereafter, the respondent accepted the petitioner’s explanation and granted the refund after passing a sanction order.

However, subsequently, the respondent issued a notice under section 73 of the Act in Form GST-DRC-01, claiming that the earlier refund was erroneously granted in terms of application of the aforesaid notification read with Circular No.181/13/2022-GST dated 10th November, 2022 wherein it was clarified that said restriction shall apply in respect of all refund applications filed on or after 18th July, 2022.

HELD

The Hon’ble Court relied upon the decision in the case of Ascent MeditechLtd. vs. Union of India, wherein the Court struck down para 2(1) of the same Circular dated 10th November, 2022 on the ground that an artificial class of assessees cannot be created on the basis of date of filing of refund application. By that exact logic, the Hon’ble Court held that Para 2(2) of the impugned Circular dated 10th November, 2022 insofar as it provides that the restriction contained in notification no. 13th July, 2022 will apply to all the refund applications filed after 13th July, 2022, even though they are pertaining to a period prior to the date of notification, is wholly arbitrary, discriminatory and ultra-vires Article 14 as well as section 54 of the CGST Act. The Court held that as the notification is prospective in nature, the refund pertaining to period prior to 13th July, 2022 cannot be affected by such notification.

The High Court also noted that against the petitioner’s refund application dated 5th December, 2023, there has been an adjudication by the order dated 12th January, 2024, by which the petitioner’s refund application was accepted and the refund was granted. No appeal under section 107 or revision under section 108 of the CGST Act, 2017 was preferred by the department, challenging the adjudication of the petitioner’s refund application and the consequent order sanctioning the refund. Therefore, the Hon’ble Court, opined that the grant of refund to the petitioner by order dated 12th January, 2024 had become final and no show cause notice could be issued by the respondents to take away the benefits of a quasi-judicial order in the petitioner’s favour. Thus, the subsequent Order-in-Original dated 10th September, 2024, by which the show cause notice dated 2ndMay, 2024 was adjudicated, was held to be illegal and unsustainable and was quashed and set aside.

4. [2025] 172 taxmann.com 105 (Jharkhand) Steel Authority of India Ltd vs. State of Jharkhand dated 30th January, 2025.

Inadmissible ITC of VAT regime cannot be disallowed in the GST regime which is carried forward through TRAN-1 and must be adjudicated under the pre-GST law.

FACTS

Petitioner, a Public Sector Undertaking is engaged in the manufacture of various steel products. Under the VAT regime, as on 30th June, 2017, Petitioner Company had un-availed input tax credit which was transitioned by it under the GST regime in terms of section 140(1) of JGST Act. However, the petitioner received a show cause notice on the following grounds, namely;

Petitioner availed input tax credit on the purchase of consumables which it was not entitled to avail in terms of section 18(8)(viii) of JVAT Act and accordingly, the transition of said credit under the GST Act was impermissible.

(ii) Petitioner availed input tax credit on capital goods which was also not available to them in terms of provisions of section 18(5) of JVAT Act and thus, transitioning of the same under the GST Act was illegal.

Petitioner filed a detailed reply, however order was passed denying the transitional credit in GST regime on the ground that transitioning of inadmissible input tax credit under the GST Act was illegal. Against the aforesaid order, the petitioner preferred an appeal before the Appellate Authority, but the Appellate Authority, rejected the appeal and confirmed the adjudication order.

HELD

Eligibility of input tax credit under erstwhile VAT Act to be adjudicated under provisions of repealed Act. Proceedings for alleged inadmissible credit under the GST Act is improper and without jurisdiction. Impugned adjudication order and appellate order quashed. Amount recovered to be restored with interest, however, Respondent authorities were allowed to initiate proceedings under repealed VAT Act if so advised.

5. [2025] 172 taxmann.com 129 (Madras) KesarJewellers vs. Additional Director General dated 7th February, 2025

There must be tangible material on record suggesting that it is necessary to provisionally attach the property of the petitioner, for the purpose of protecting the interest of the revenue.

FACTS

The petitioner is registered as a taxable person under the GST Act engaged in the trading of Gold Bullion and Gold Jewellery. The Senior Intelligence Officer, Directorate General of Goods and Service Tax, Intelligence (DGGI), issued a summons to the petitioner under section 70 of the CGST Act, calling upon the petitioner to be present at their office in connection with an investigation. Thereafter, the petitioner’s place of business was searched and certain documents such as purchase / sale invoices, mobile phone, pen drive along with files containing certain papers were seized. Thereafter there was another search of the petitioner’s place of business, during which, gold bars along with computer, mobile phones, loose cash, documents were seized and duly recorded in the Mahazar. Yet another summon came to be issued under section 70 of the CGST Act, calling upon the petitioner to appear for an enquiry. Thereafter, an arrest memo with grounds for arrest was issued. The petitioner was arrested and remanded to judicial custody. The impugned order in Form DRC-22 came to be issued i.e. on the very day when the petitioner was granted bail, thereby attaching provisionally the petitioner’s bank accounts.

Petitioner submitted that the impugned attachment proceeding is bad for want of jurisdiction inasmuch as it did not disclose any tangible material leading to the formation of the opinion, that it is necessary to provisionally attach the property of the petitioner, for the purpose of protecting the interest of the Government warranting exercise of power under section 83 of the Act and that in the absence of tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the Revenue, the exercise of power under section 83 of the Act is without jurisdiction.

HELD

The Hon’ble Court held that the provisional attachment is an extreme measure that must be based on tangible material and must be necessary to protect revenue. The Court held that the attachment order in the present case was mechanical and failed to disclose any specific tangible material or justification for attachment. Since, the pendency of proceedings under Chapter XII, XIV or XV was not sufficient to justify provisional attachment and revenue did not establish that revenue could not be protected without attachment, the impugned order of provisionally attaching multiple bank accounts was to be set aside.

Non-Repatriable Investment by NRIs/OCIs under FEMA: An Analysis – Part 2

NON-REPATRIABLE INVESTMENTS: EASY ENTRY, TRICKY EXIT!

In Part I, we explored how NRIs and OCIs can invest in India under Schedule IV, enjoying the perks of domestic investment while sidestepping FDI restrictions. We saw how this route offers flexibility in entry—with no foreign investment caps, no strict pricing rules, and freedom to invest in LLPs, AIFs, and even real estate (as long as it’s not a farmhouse!). But, much like a long-term relationship, once you commit, FEMA expects you to stay for the long haul.

Now, in Part II, we address the big question: Can you transfer, sell, or gift these investments? Will FEMA allow you a graceful exit? We’ll dive into the rules governing transfers, repatriation limits, downstream investments, and more—so buckle up, because while the non-repatriable entry was smooth, the exit is where the real thrill begins!

TRANSFER OF SHARES/INVESTMENTS HELD ON NON-REPATRIATION BASIS

Just as important as the entry is the ability to transfer or exit the investment. FEMA provides certain pathways for transferring shares or other securities that were held on a non-repatriation basis:

  •  Transfer to a Resident: An NRI/OCI can sell or gift the securities to an Indian resident freely. Since the resident will hold them as domestic holdings, this is straightforward. No RBI permission, pricing guideline, or reporting form is required. For instance, if an NRI uncle wants to gift his shares (held on a non-repat basis) in an Indian company to his resident Indian nephew, it’s permitted and no specific FEMA filing is triggered (aside from perhaps a local gift deed for records). Similarly, suppose an NRI non-repat investor wants to sell his stake to an Indian co-promoter. In that case, he can transact at any price mutually agreed upon (pricing restrictions don’t apply as this is essentially a resident-to-resident transfer in FEMA’s eyes), and no FC-TRS form is required.
  • Transfer to another NRI / OCI on Non-Repat basis: NRIs / OCIs can also transfer such investments amongst themselves, provided the investment remains on non-repatriation. For example, one OCI can gift shares held under Schedule IV to another OCI or NRI (maybe a relative) who will also hold them under Schedule IV. This is allowed without RBI approval, and again, no pricing or reporting requirements apply. The only caveat is that the transferee must be eligible to hold on a non-repat basis (which generally means they are NRI / OCI or their entity). Gifting among NRIs / OCIs on the non-repat route is quite common within families. Note: If it’s a gift, one should ensure it meets any conditions under the Companies Act or other laws (for instance, if the donor and donee are “relatives” under Section 2(77) Companies Act, as required by FEMA for certain cross-border gifts – more on that below).
  •  Transfer to an NRI / OCI on a repatriation basis (i.e., converting it to FDI): This scenario is effectively an exit from the non-repatriable pool into the repatriable pool. For instance, an NRI with non-repat shares might find a foreign investor or another NRI who wants those shares but with repatriation rights. FEMA permits the sale, but since the buyer will hold on a repatriation basis (Schedule I or III), it must conform to FDI rules. That means sectoral caps and entry routes must be respected, and pricing guidelines apply to the transaction. If it’s a gift (without consideration) from an NRI (non-repat holder) to an NRI / OCI (who will hold as repatriable), prior RBI approval is required and certain conditions must be met. These conditions (laid out in NDI Rules and earlier in TISPRO) include: (a) the donee must be eligible to hold the investment under the relevant repatriable schedule (meaning the sector is open for FDI for that person); (b) the gift amount is within 5% of the company’s paid-up capital (or each series of debentures / MF scheme) cumulatively; (c) sectoral cap is not breached by the donee’s holdings; (d) donor and donee are relatives as defined in Companies Act, 2013; and (e) the value of securities gifted by the donor in a year does not exceed USD 50,000. These are designed to prevent the abuse of gifting as a loophole to transfer large foreign investments without consideration. If all conditions are met, RBI may approve the gift. If it’s a sale (for consideration) by NRI non-repat to NRI/OCI repatriable, no prior approval is needed (sale is under automatic route) but pricing must be at or higher than fair value (since NR to NR transfer with one side repatriable is treated like an FDI entry for the buyer). Form FC-TRS must be filed to report this transfer, and in such a case, since the seller was holding non-repat, the onus is on the seller (who is the one changing their holding status) to file the FC-TRS within 60 days. Our earlier table from the draft summarizes: Seller NRI-non-repat -> Buyer NRI-repat: pricing applicable, FC-TRS by seller, auto route subject to caps.
  •  Transfer from a foreign investor (repatriable) to an NRI/OCI (non-repatriable): This is the reverse scenario – a person who holds shares as foreign investment sells or gifts to an NRI / OCI who will hold as domestic. For example, a foreign venture fund wants to exit and an OCI investor is willing to buy but keep the investment in India. FEMA allows this as well. Since the new holder is non-repatriable, the sectoral caps don’t matter post-transfer (the investment leaves the FDI ambit). However, up to the point of transfer, compliance should be there. In a sale by a foreign investor to an NRI on a non-repat basis, pricing guidelines again apply (the NRI shouldn’t pay more than fair value, because a foreigner is exiting and taking money out – RBI ensures they don’t take out more than fair value). FC-TRS reporting is required, and typically, the buyer (NRI / OCI) would report it because the buyer is the one now holding the securities (the authorized dealer often guides who should file; it has to be a person resident in India and as non-repat investment is treated as domestic investment, it has to be filed by NRI / OCI acquiring it on non-repat basis). If it’s a gift from a foreign investor to an NRI / OCI relative, RBI approval would similarly be needed with analogous conditions (the NDI Rules conditions on gift apply to any resident outside to resident outside transfer, repatriable to non-repat likely treated similarly requiring approval unless specified otherwise). The draft table indicated: Buyer NRI-non-repat from Seller foreign (repat) – gift allowed with approval, pricing applicable, FC-TRS by buyer, and subject to FDI sectoral limits at the time of transfer.

In all the above cases of change of mode (repatriable vs non-repatriable), one can see FEMA tries to ensure that whenever money is leaving India (repatriable side), fair value is respected and RBI is informed. But when the money remains in India (purely domestic or non-repat transfers), the regulations are hands-off.

Downstream Investment Impact: A critical implication of holding investments on non-repatriation basis is how the investing company is classified. FEMA and India’s FDI policy have the concept of indirect foreign investment – if Company A is foreign-owned or controlled, and it invests in Company B, then Company B is considered to have foreign investment to that extent. However, Schedule IV investments are excluded from this calculation. The rules (as clarified in DPIIT’s policy) state that if an Indian company is owned and controlled by NRIs / OCIs on a non-repatriation basis, any downstream investment by that company will not be considered foreign investment. In other words, an Indian company that has only NRI / OCI non-repat capital is treated as an Indian-owned company. So if it later invests in another Indian company, that target company doesn’t need to worry about foreign equity caps because the investment is coming from an Indian source (deemed). This is a major benefit – it effectively ring-fences NRI domestic investment from contaminating downstream entities with foreign status. This clarification was issued to remove ambiguity, especially in cases where OCIs set up investment vehicles. Now, an NRI / OCI-owned investment fund (registered as an Indian company or LLP) can invest freely in downstream companies without subjecting them to FDI compliance, provided the fund’s own capital is non-repatriable.

From a practical standpoint, when structuring private equity deals, if one of the investors is an NRI / OCI willing to designate their contribution as non-repatriable, the company can be treated as fully Indian-owned, allowing it to invest into subsidiaries or other companies in restricted sectors without ceilings. This has to be balanced with the investor’s interest (since that NRI loses repatriation right). Often, OCIs with a long-term commitment to India might be agreeable to this to enable, say, a group structure that avoids FDI limits.

Summary of Transfer Scenarios: For quick reference:

  •  NRI / OCI (Non-repat)-> Resident: Allowed, gift allowed, no pricing rule, no reporting.
  •  Resident -> NRI / OCI (Non-repat): Allowed, gift allowed, no pricing rule, no reporting (essentially the mirror of above, turning domestic holding into NRI non-repat).
  •  NRI / OCI (Non-repat) -> NRI / OCI (Non-repat): Allowed, gift allowed, no pricing, no reporting.
  •  NRI / OCI (Non-repat) -> Foreigner / NRI (Repat): Allowed, the gift needs RBI approval (with conditions), if sale then pricing applies; report FC-TRS.
  •  Foreigner / NRI (Repat) -> NRI / OCI (Non-repat): Allowed, gift possibly with approval; sale at pricing; report FC-TRS.

The key is whether the status of the investment (domestic vs foreign) changes as a result of transfer, and ensuring the appropriate regulatory steps in those cases.

Comparative Interplay Between Schedules I, III, IV, and VI

To fully understand Schedule IV in context, one must compare it with other relevant schedules under FEMA NDI Rules:

Schedule I (FDI route) vs Schedule IV (NRI non-repat route)

  •  Nature of Investment: Schedule I covers FDI by any person resident outside India (including NRIs) on a repatriation basis. Schedule IV covers investments by NRIs / OCIs (and their entities) on a non-repatriation basis. Schedule I investments count as foreign investment; Schedule IV do not.
  •  Sectoral Caps and Conditions: Schedule I investments are subject to sectoral caps (% limits in various sectors) and sector-specific conditions (like minimum capitalization, lock-ins, etc., in sectors like retail, construction, etc.). By contrast, Schedule IV investments are generally not subject to those caps/conditions because they are treated as domestic. For example, multi-brand retail trading has a 51% cap under FDI with many conditions – an OCI could invest 100% in a retail company under Schedule IV with none of those conditions, as long as it’s on a non-repatriation basis. Similarly, real estate development has minimum area and lock-in requirements under FDI, but an NRI could invest non-repat without those (provided it’s not pure trading of real estate).
  •  Prohibited Sectors: Schedule I explicitly prohibits foreign investment in sectors like lottery, gambling, chit funds, Nidhi, real estate business, and also limits in print media, etc. Schedule IV has its own (smaller) prohibited list (Nidhi, agriculture, plantation, real estate business, farmhouses, TDR) but notably does not mention lottery, gambling, etc. Thus, some sectors closed in Schedule I are open in Schedule IV, and vice versa (as discussed earlier).
  •  Valuation / Optionality: Under Schedule I, any equity instruments issued to foreign investors can have an optionality clause only with a minimum lock-in of 1 year and no assured return; effectively, foreign investors cannot be guaranteed an exit price. Under Schedule IV, these restrictions do not apply – one can issue shares or other instruments to NRIs/OCIs with an assured buyback or fixed return arrangement since it’s like a domestic deal. Likewise, provisions like deferred consideration (permitted for FDI up to 25% for 18 months) need not be adhered to strictly for non-repat investments – an NRI investor and company can agree on different terms as it’s a private domestic contract in FEMA’s eyes.
  •  Reporting: FDI (Sch. I) transactions must be reported (FC-GPR, FC-TRS, etc.), whereas Sch. IV initial investments are not reported to RBI as noted.
  •  Exit / Repatriation: Schedule I investors can repatriate everything freely (that’s the point of FDI), whereas Schedule IV investors are bound by the NRO / $1M rule for exits.

Bottom line: Schedule IV is far more liberal on entry (no caps, any price) but restrictive on exit, whereas Schedule I is vice versa. A legal advisor will often weigh these options for an NRI client: if the priority is to eventually take money abroad or bring in a foreign partner, Schedule I might be preferable; if the priority is flexibility in investing and less regulatory hassle, Schedule IV is attractive.

Schedule III (NRI Portfolio Investment) vs Schedule IV (NRI Non-Repatriation)

Schedule III deals with the Portfolio Investment Scheme (PIS) for NRIs / OCIs on a repatriation basis, primarily buying/selling shares of listed companies through stock exchanges.

  •  Listed Shares via Stock Exchange: Under Schedule III (PIS), an NRI / OCI can purchase shares of listed Indian companies only through a recognized stock broker on the stock exchange and is subject to the rule that no individual NRI / OCI can hold more than 5% of the paid-up capital of the company. All NRIs / OCIs taken together cannot exceed 10% of the capital unless the company passes a resolution to increase this aggregate limit to 24%. These limits are to ensure NRI portfolio investments remain “portfolio” in nature and do not take over the company. In contrast, under Schedule IV, NRIs / OCIs can acquire shares of listed companies without regard to the 5% or 10% limits because those limits apply only to repatriable holdings. An NRI could, for instance, accumulate a larger stake by buying shares off-market or via private placements under Schedule IV.
  •  Other Securities: Schedule III also allows NRIs to purchase on a repatriation basis certain government securities, treasury bills, PSU bonds, etc., up to specified limits, and units of equity mutual funds (no limit). On this front, both Schedule III and Schedule IV allow NRIs to invest in domestic mutual fund units freely if the fund is equity-oriented. So whether repatriable or not, an NRI can buy any number of units of, say, an index fund or equity ETF.
  •  Nature of Investor: Schedule III is meant for NRIs investing as portfolio investors (often through NRE PIS bank accounts), whereas Schedule IV is not limited to portfolio activity – it can be FDI-like strategic investments too.
  •  Trading vs Investment: Under PIS (Sch. III), NRIs are typically not allowed to make the stock trading their full-time business (they cannot do intraday trading or short-selling under PIS; it’s for investment, not speculation). Schedule IV has no such restriction explicitly; however, if an NRI were actively trading frequently under non-repatriation, it might raise questions – usually, serious traders stick to the PIS route for liquidity.

In summary, Schedule III is a subset route for market investments with tight limits, whereas Schedule IV offers NRIs a way to invest in listed companies beyond those limits (albeit off-market and non-repatriable). As a strategy, an NRI who sees a long-term value in a listed company and wants significant ownership may choose to buy some under PIS (repatriable) but anything beyond the threshold under the non-repat route, combining both to achieve a
larger stake.

SCHEDULE VI (FDI IN LLPs) Vs SCHEDULE IV (NRI INVESTMENT IN LLPs)

Schedule VI allows foreign investment in Limited Liability Partnerships (LLPs) on a repatriation basis. It stipulates that FDI in LLP is allowed only in sectors where 100% FDI is permitted under automatic route and there are no FDI-linked performance conditions (like minimum capital, etc.). This effectively bars FDI in LLPs in sectors like real estate, retail trading, etc., because those sectors either have caps or conditions. For example, multi-brand retail is 51% with conditions – so a foreign investor cannot invest in an LLP doing retail. Real estate business is prohibited entirely for FDI – so no LLP can be structured. Even an LLP in construction development is problematic under FDI if conditions (like a lock-in) are considered performance conditions.

However, Schedule IV imposes no such sectoral conditionality for LLPs (apart from the same prohibited list). Therefore, NRIs / OCIs can invest in the capital of an LLP on a non-repatriation basis even if that LLP is engaged in a sector where FDI in LLP is not allowed. For instance, an LLP engaged in the business of building residential housing (construction development) — FDI in such an LLP would not be allowed repatriably because construction development, while 100% automatic, had certain conditions under the FDI policy. Under Schedule IV, an NRI could contribute capital to this LLP freely as domestic investment. Another concrete example: LLP engaged in single-brand or multi-brand retail – FDI in LLP is not permitted because retail has conditions, but NRI non-repat funds could still be infused into an LLP doing retail trade. The only caveat is if the LLP’s activity falls under the explicit prohibitions of Schedule IV (agriculture, plantation, real estate trading, farmhouses, etc., which we already know). As long as the LLP’s business is not in that small prohibited list, NRI / OCI money can be invested on non-repatriable basis.

Thus, Schedule IV significantly expands NRIs’ ability to invest in LLPs vis-à-vis Schedule VI. It allows the Indian-origin diaspora to use LLP structures (which are popular for smaller businesses and real estate projects), which are otherwise off-limits to foreign investors. The outcome is that an LLP which cannot get FDI can still get funds from NRI partners, treated as local funds, potentially giving it a competitive edge or needed capital infusion. As noted earlier, an LLP receiving NRI non-repat investment remains an “Indian” entity for downstream investment purposes as well, so it could even invest in other companies without being tagged as foreign-owned.

SCHEDULE IV Vs SCHEDULE IV (FIRM/PROPRIETARY CONCERNS)

There is also a provision (in Part B of Schedule IV) for investment in partnership firms or sole proprietorship concerns on a non-repatriation basis. There is no equivalent provision under repatriation routes – meaning NRIs cannot invest in a partnership or proprietorship on a repatriable basis at all under NDI rules. Under Schedule IV, an NRI/OCI can contribute capital to any proprietorship or partnership firm in India provided the firm is not engaged in agriculture, plantation, real estate business, or print media. These mirror the older provisions from prior regulations. The exclusion of print media here is interesting, as discussed: an NRI cannot invest in a newspaper partnership but could invest in a newspaper company. This is likely a policy decision to keep sensitive sectors like news media more closely regulated (partnerships are unregulated entities compared to companies which have shareholding disclosures, etc.).

For completeness, Schedule V under NDI Rules is for investment by other specific non-resident entities like Sovereign Wealth Funds in certain circumstances, and Schedule VII, VIII, IX cover foreign venture capital, investment vehicles, and depository receipts respectively.

PRACTICAL CHALLENGES AND LEGAL IMPLICATIONS

While the non-repatriation route offers flexibility, it also presents some practical challenges and considerations for legal practitioners advising clients:

  1.  Exit Strategy and Liquidity: Perhaps the biggest issue is planning how the NRI/OCI will exit or monetize the investment if needed. Since direct repatriation of capital is capped at USD 1 million per year, clients who invest large sums must understand that they can’t easily pull out their entire investment quickly. Case in point: if an OCI invests $5 million in a startup via Schedule IV and after a few years the startup is sold for $20 million, the OCI cannot take $20 million out in one go. They would either have to flip the investment to a repatriable mode before exit (e.g. sell their stake to a foreign investor prior to the main sale, thereby converting to FDI at fair value and then repatriating through that foreign investor’s sale) or accept a long repatriation timeline using the $1M per year route, or approach RBI (which historically is reluctant to approve a big one-shot remittance). This illiquidity needs to be clearly explained to clients
  2.  Mixing Repatriable and Non-Repatriable Funds: Often, companies have a mix of foreign investment – say, a venture capital fund (FDI) and an NRI relative (non-repat). In such cases, accounting properly for the two classes is key. From a corporate law perspective, both hold equity, but from an exchange control perspective, one part of equity is foreign, and one part is domestic. The company’s compliance team must carefully track these when reporting foreign investment percentages to any authority or while calculating downstream foreign investment. Misclassification can lead to errors – e.g., a company might erroneously count the NRI’s holding as part of FDI and think it breached a cap, or conversely ignore a foreign holding, thinking it was NRI domestic. It’s advisable in company records and even on share certificates to mark non-repatriable holdings distinctly. Some companies create separate folios in their register for clarity..
  3.  Corporate Governance and Control: Because Schedule IV allows NRIs to invest beyond usual foreign limits, we see scenarios of foreign control via NRI routes. For example, foreign parents could nominate OCI individuals to hold a majority in an Indian company so that it is “Indian owned” but effectively under foreign control through OCI proxies. Regulators are aware of this risk. The law currently hinges on “owned and controlled by NRIs / OCIs” as the test for deeming it domestic. If an OCI is truly acting at the behest of a non-OCI foreigner, that could be viewed as a circumvention. In diligence, one should ensure OCI investors are bona fide and making decisions independently, or at least within what law permits. If an Indian company with large NRI non-repat investment is making downstream investments in a sensitive sector, one must document that control remains with OCI and not via any agreement handing powers to someone else, lest the structure be challenged as a sham.
  4.  Changing Residential Status: An interesting practical point – if an NRI who made a non-repat investment later moves back to India and becomes a resident, their holding simply becomes a resident holding (no issue there). But if they then move abroad again and become NRI once more, by default, that holding would become an NRI holding on a non-repat basis (since it was never designated repatriable). That person might now wish it were repatriable. There isn’t a straightforward mechanism to “retroactively designate” an investment as repatriable; typically, the person would have to do a transfer (e.g., transfer to self through a structure, which is not really possible) or approach RBI. It’s a corner case, but it shows that once an investment is made under a particular schedule, toggling its status is not simple unless a third-party transfer is involved.
  5.  Evidence of Investment Route: Down the line, when an NRI / OCI wants to remit out the sale proceeds under the $1M facility, banks often ask for proof that the investment was made on a non-repatriation basis (because if it was repatriable, the sale proceeds would be in an NRE account and could go out without using the $1M quota). Thus, maintaining paperwork – such as the board resolution or offer letter mentioning the shares are under Schedule IV, or a copy of the share certificate with a “non-repatriable” stamp, or the letter to AD bank at the time of issue – becomes useful to avoid confusion. If records are lost or unclear, the bank might fear to allow remittance or might treat it as some foreign investment needing RBI permission. So, documentation is a practical must.
  6.  Taxation Aspect: Though not directly a FEMA issue, note that dividends repatriated to NRIs will be after TDS, and any gift of shares etc. might have tax implications (gift to a relative is not taxable in India, but to a non-relative, it could trigger tax for the recipient if over ₹50,000). Also, the favourable FEMA treatment doesn’t automatically confer any tax residency benefit – e.g., just because OCI investment is deemed domestic doesn’t make the OCI an Indian resident for tax

BEFORE WE ALL NEED A REPATRIATION ROUTE, LET’S WRAP THIS UP!

Before we exhaust ourselves—or our dear readers start considering their own non-repatriable exit strategies—let’s conclude. The non-repatriation route under FEMA is like a VIP pass for NRIs and OCIs to invest in India while enjoying the perks of domestic investors. It’s a fine balancing act by policymakers: welcoming diaspora investments with open arms but keeping foreign exchange reserves snugly in place.

For legal practitioners, Schedule IV is both a playground and a puzzle—offering creative structuring opportunities while demanding meticulous planning for exits and compliance. Done right, it’s a win-win for investors and Indian businesses alike, seamlessly blending “foreign” and “domestic” investment. So, whether you’re an NRI looking for investment options or a lawyer navigating these rules—remember, patience, planning, and a strong cup of chai go a long way!

Miscellanea

1. TECHNOLOGY AND AI

# Italian newspaper says it has published world’s first AI-generated edition

An Italian newspaper has said it is the first in the world to publish an edition entirely produced by artificial intelligence. The initiative by Foglio, a conservative liberal daily, is part of a month-long journalistic experiment aimed at showing the impact AI technology has “on our way of working and our days”, the newspaper’s editor, Claudio Cerasa, said.

“It will be the first daily newspaper in the world on newsstands created entirely using artificial intelligence,” said Cerasa. “For everything. For the writing, the headlines, the quotes, the summaries. And, sometimes, even for the irony.” He added that journalists’ roles would be limited to “asking questions and reading the answers”.

The experiment comes as news organisations around the world grapple with how AI should be deployed. Earlier this month, the Guardian reported that BBC News was to use AI to give the public more personalised content. The front page of the first edition of Foglio AI carries a story referring to the US president, Donald Trump, describing the “paradox of Italian Trumpians” and how they rail against “cancel culture” yet either turn a blind eye, or worse, “celebrate” when “their idol in the US behaves like the despot of a banana republic”.

The front page also features a column headlined “Putin, the 10 betrayals”, with the article highlighting “20 years of broken promises, torn-up agreements and words betrayed” by Vladimir Putin, the Russian president.

The final page runs AI-generated letters from readers to the editor, with one asking whether AI will render humans “useless” in the future. “AI is a great innovation, but it doesn’t yet know how to order a coffee without getting the sugar wrong,” reads the AI-generated response.

Cerasa said Il Foglio AI reflected “a real newspaper” and was the product of “news, debate and provocations”. But it was also a testing ground to show how AI could work “in practice”, he said, while seeing what the impact would be on producing a daily newspaper with the technology and the questions “we are forced to ask ourselves, not only from a journalistic nature”.

(Source: www.theguardian.com dated 18th March, 2025)

2 STARTUPS

# Nandan Nilekani predicts that India will have one million startups by 2035

Infosys cofounder Nandan Nilekani predicts that India will have one million startups by 2035. He said that there are 150,000 startups today growing at a compound annual growth rate of 20%. He also noted that among 2000 funded startups, 100 unicorns have been created. He outlined a strategic roadmap for India to achieve an 8% annual growth rate and become an $8 trillion economy by 2035.

He stressed that while a 6% growth rate is commendable, a focused effort is needed to elevate living standards and accelerate progress. He noted that 50% of India’s wealth is in land.

He cautioned that significant headwinds, including income disparity, regional imbalances, and low productivity, threaten to impede progress. Nilekani revealed that only 13 districts contribute to half of India’s GDP, underscoring the stark spatial disparities. He also noted the vast income gap and the challenges posed by a largely informal economy.

Nilekani emphasised the need to leverage AI to bridge the digital divide and reach a billion Indians. He advocated for the development of low-cost, population-scale AI solutions, particularly in regional languages.

Nilekani predicted that India will have one million startups by 2035, driven by a thriving entrepreneurial ecosystem. He highlighted the “binary fission” effect, where successful startups spawn new ventures, creating a ripple effect of innovation.

His key recommendations for an $8 trillion economy included AI for a billion Indians: focus on last mile consumers and MSMEs, and emphasis on health, education and agriculture. His second recommendation was to accelerate capital investments, maximise AA penetration, and land monetisation via tokenisation.

Nilekani also suggested “unshackling” entrepreneurs and MSMEs by funding entrepreneurs outside the eight metros, and enabling credit and market access for 10 million MSMEs. He also recommended “turbocharging” formalisation, via portable credentials and benefits, and suggested deregulation for ease of business.

(Source: www.economictimes.com dated 12th March, 2025)

3. ENVIRONMENT

# ‘Unexpected’ rate of sea level rise in 2024: NASA

Sea levels rose faster than expected around the world in 2024 — the Earth’s hottest year on record, according to new findings from the United States’ NASA space agency, which attributed the rise to warming oceans and melting glaciers.

“With 2024 as the warmest year on record, Earth’s expanding oceans are following suit, reaching their highest levels in three decades,” NASA’s Nadya Vinogradova Shiffer, head of physical oceanography programmes said.

Josh Willis, a sea level researcher at NASA, said the rise in the world’s oceans last year was “higher than expected”, and while changes take place each year, what has become clear is that the “rate of rise is getting faster and faster”.

According to the NASA-led study of the information sourced via the Sentinel-6 Michael Freilich satellite, the rate of sea level rise last year was 0.59cm (0.23 inches) per year — higher than an initial expected estimate of 0.43cm (0.17 inches) per year.

Satellite recordings of ocean height started in 1993, and in the three decades up to 2023, the rate of sea level rise has more than doubled, with average sea levels around the globe rising by 10cm (3.93 inches) in total, according to NASA.

Rising sea levels are among the consequences of human-induced climate change, and oceans have risen in line with the increase in the Earth’s average surface temperature — a change which itself is caused by greenhouse gas emissions.

NASA said trends from recent years showed additional water from land due to melting ice sheets and glaciers to be the biggest contributor, accounting for two-thirds of sea level rise.

In 2024, however, the increased rise in sea levels was largely driven by the thermal expansion of water – when ocean water expands as it warms — which accounts for about two-thirds of the increase.

The UN has warned of threats to vast numbers of people living on islands or along coastlines due to rising sea levels, with low-lying coastal areas of India, Bangladesh, China and the Netherlands flagged as areas of particular concern, as well as island nations in the Pacific and Indian Oceans.

(Source: www.aljazeera.com dated 14th March, 2025)

# Purpose defeated: Brazil cuts thousands of trees to make way for climate summit

Brazil is facing growing criticism after clearing large sections of the Amazon rainforest to build a highway for the upcoming COP30 climate summit, set to take place in Belém, a northern city in Brazil, this November.

The four-lane highway, designed to accommodate tens of thousands of delegates, including world leaders, has sparked concerns about the environmental impact in one of the world’s most biodiverse regions.

The highway project, which was proposed by the state government of Pará over a decade ago, was delayed several times due to concerns about its environmental impact. However, with the summit approaching, the project has moved forward as part of a broader plan to prepare Belém for the influx of visitors. The state is also undertaking other major infrastructure projects, such as expanding the airport, redeveloping the port for cruise ships, and constructing new hotels.

The state government defends the highway, claiming it will be sustainable. They point to features like cycle lanes and wildlife crossings designed to help animals move through the area safely. Adler Silveira, the state’s infrastructure secretary, also highlighted that the road would use solar-powered lighting, further emphasizing its environmental credentials.

Despite these claims, many locals and environmental groups are outraged. Residents like Claudio Verequete, who lives about 200 meters from the new road, argue that the construction is devastating their livelihoods. Verequete, who once made his living harvesting açaí berries, shared his frustration with the BBC, saying, “Everything was destroyed. Our harvest has already been cut down. We no longer have that income to support our family.”

Conservationists have also raised alarms, warning that the deforestation could harm wildlife and disrupt the delicate balance of the Amazon ecosystem. The region is crucial for absorbing carbon dioxide and preserving global biodiversity, and many critics argue that the destruction of the forest for a highway goes against the very purpose of hosting a climate summit in the area.

As the summit draws closer, the debate over the highway and its environmental impact is intensifying, with critics questioning whether the destruction of part of the Amazon can be justified in the name of hosting a global climate event.

(Source: www.timesofindia.com dated 13th March, 2025)

Determination of ALP for Related Party Transactions

INTRODUCTION

“Everything is worth what its purchaser will pay for it”
– Publilus Syrus’ Maxim No. 847

One of the most important roles of the Board of Directors of a listed company and its Audit Committee is the review and approval of Related Party Transactions (RPTs). Related Party Transactions are prescribed under s.188 of the Companies Act, 2013 (“Act”) as well as the SEBI (Listing Obligations and Disclosure Requirements)Regulations, 2015 (“SEBI LODR”). The most crucial element in approving an RPT is determining whether the transaction is on an arms’ length pricing (ALP)? Let us examine some key facets in this respect.

STATUTORY FRAMEWORK

Regulation 2(zc) of the SEBI LODR defines a related party transaction to mean a transaction involving a transfer of resources, services or obligations between a listed entity on one hand and a related party of the listed entity on the other hand, regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract.

Under Regulation 23(2) of the SEBI LODR, all related party transactions and subsequent material modifications, shall require prior approval of the Audit Committee of the listed entity.

S.188 of the Companies Act, 2013 provides that all related party transactions require the approval of the Board of Directors if they are not on an arms’ length basis. The expression “arm’s length transaction” has been defined to mean a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

The Act / SEBI LODR does not provide any further guidance on this expression. Hence, one may refer to other statutes.

DICTIONARY DEFINITIONS

Various Dictionaries have defined the term arm’s length transaction as follows:

(a) The Black’s Law Dictionary, 6th Edition, defines it to mean a transaction negotiated by unrelated parties, each acting in its own self-interest; the basis for a fair market value determination.

(b) The Shorter Oxford English Dictionary, 5th Edition defines it as dealings between two parties where neither party is controlled by the other.

(c) Merriam-Webster’s 11th Collegiate Dictionary states that arm’s length is the condition or fact that the parties to a transaction are independent and on an equal footing.

(d) The Judicial Dictionary by KJ Aiyar, 13th Edition, states that arm’s length transaction is a transaction between unrelated persons in which there is no improper influence exercisable by one party over another and no conflict of interests.

ALP UNDER INCOME-TAX ACT, 1961

The expression “arm’s length price” features prominently in sections 92-92F of the Income-tax Act, 1961 in relation to transfer pricing provisions.

S.92C of this Act deals with the computation of an arm’s length price. It states that the arm’s length price in relation to a transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors.

The methods prescribed under this section to determine ALP are: —
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method;

The Chennai ITAT in the case of Iljin Automotive Private Ltd vs. ACIT, (2011) 16 taxmann.com 225 has defined ALP as “What would have been the price if the transactions were between two unrelated parties, similarly placed as the related parties in so far as nature of product, conditions and terms and conditions of the transactions are concerned?”

In Arvind Mills Ltd. vs. ACIT [2011] 11 taxmann.com 67 (Ahd. – ITAT), it was held that the arm’s length principle is based on:

(i) a comparison of the conditions in a controlled transaction with the conditions in transaction between two independent enterprises i.e. uncontrolled transaction,

(ii) subject to adjustments to the price of uncontrolled transaction to carve out differences between these two type of transactions.

Hence, locating proper comparables i.e. comparable uncontrolled transactions is at the heart of an ALP.

Paragraph 1 of Article 9 of the OECD’s Model Tax Convention (which is the basis of bilateral tax treaties) provides as follows:

“(where) conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly”

In Dy. CIT vs. Smt. Baljinder Kaur [2009] 29 SOT 9 (URO), the Chandigarh ITAT held that it was a well settled proposition that the concept of ‘fair market value’ envisaged under the Income-tax Act existence of a hypothetical seller and a hypothetical buyer, in a hypothetical market.

CUP METHOD

The Comparable Uncontrolled Price Method (“CUP method”) is the most direct assessment of whether the arm’s length principle is complied with as it compares the price or value of the transactions. As it is the most direct method, it should, be preferred to the other methods. Under the CUP method, the arm’s length price of an RPT is equal to the price paid in comparable uncontrolled sales including adjustments, if any.

In the case of M/s. Schutz Dishman Biotech Pvt. Ltd., Ahmedabad, ITA 554 / AHD / 2006, the Ahmedabad ITAT held that the CUP method is the most suitable method for determining ALP if market conditions in the territory of sale are the same.

Rule 10B of the Income-tax Rules, 1962 states that in determining the ALP, the comparable uncontrolled price method is a method, by which the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified. Thus, the steps for determining ALP are as follows:

(i) Identify the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction or a number of such transactions.

(ii) Adjust such price for differences, if any, between the RPT and the comparable uncontrollable transactions. Adjustments required only if these could materially affect the price in open market.

The adjusted price arrived at in (ii) above is to be taken as the arm’s length price.

According to Rule 10A(ab), “uncontrolled transaction” means a transaction between enterprises other than associated enterprises or related parties. For instance, A and B are related parties. C and D are independent parties (non-related). A transaction between C and D is an uncontrolled transaction as both A and B are concerned. A transaction between A and C/A and D is an uncontrolled transaction as far as B is concerned. A transaction between B and C/B and D is an uncontrolled transaction as far as A is concerned.

The Rule further states that the comparability of a transaction with an uncontrolled transaction shall be judged with reference to the following, namely:-

(a) the specific characteristics of the property transferred or services provided in either transaction;

(b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;

(c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;

(d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

An uncontrolled transaction shall be comparable to an RPT if —

(i) none of the differences, if any, between the transactions being compared are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or

(ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.

In this respect, the United Nations Transfer Pricing Manual defines ‘comparable’ as under:

  •  To be comparable does not mean that the two transactions are necessarily identical.
  •  Instead it means that either none of the differences between them could materially affect the arm’s length price or profit or, where such material differences exist, that reasonably accurate adjustments can be made to eliminate their effect.
  •  Thus, in determining a reasonable degree of comparability, adjustments may need to be made to account for certain material differences between the controlled and uncontrolled transactions.
  •  These adjustments (which are referred to as “comparability adjustments”) are to be made only if the effect of the material differences on price or profits can be ascertained with sufficient accuracy to improve the reliability of the results.

The UN TP Manual also recognises that perfect comparables are often not available in an imperfect world. It is therefore necessary to use a practical approach to establish the degree of comparability between controlled and uncontrolled transactions.

Comparable uncontrollable transactions are of two types:

♦ Internalcomparables – transactions entered into by related parties with unrelated parties. To be considered as an internal CUP also, a transaction has to be an independent transaction, i.e., between two entities, which are independent of each other – Skoda Auto India (P.) Ltd. vs. Asst. CIT [2009] 30 SOT 319 (Pune – Trib.)

♦ External comparables – transactions between third parties (i.e. transactions not involving any related party).

According to the OECD Guidelines, internal comparables would provide more reliable and accurate data than external comparables. This is because external comparables are difficult to obtain, incomplete and difficult to interpret. Hence, internal comparables are to be preferred over external comparables.

VALUATION UNDER THE CENTRAL EXCISE LAW

The concept of valuation in case of a related person also finds mention under the Central Excise Act. In this respect, the decision of the Supreme Court in the case of CCE vs. Detergents India P Ltd, (2015) AIR SCW 3304 is relevant:

“……transactions at arm’s length between manufacturer and wholesale purchaser which yield the price which is the sole consideration for the sale alone is contemplated. Any concessional or manipulative considerations which depress price below the normal price are, therefore, not to be taken into consideration. Judged at from this premise, it is clear that arrangements with related persons which yield a price below the normal price because of concessional or manipulative considerations cannot ever be equated to normal price. But at the same time, it must be remembered that absent concessional or manipulative considerations, where a sale is between a manufacturer and a related person in the course of wholesale trade, the transaction being a transaction where it is proved by evidence that price is the sole consideration for the sale, then such price must form the basis for valuation as the “normal price” of the goods………………”

Thus, as long as an unrelated price is comparable to a related party price, the related party price has been treated as a normal sale price.

VALUATION UNDER GST LAWS

The GST Laws also provide for determination of open market value in certain cases. For levying GST only that value should be used which is that of an unrelated buyer and supplier. The Central Goods and Services Tax (CGST) Rules, 2017 specify that the value of the supply of goods or services or both between related parties shall be the open market value of such supply.

The term “open market value” of a supply of goods or services or both has been defined to mean the full value in money, excluding GST payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.

ICSI’S GUIDANCE NOTE

In this respect, the Guidance Note on Related Party Transactions issued by the Institute of Company Secretaries of India (ICSI) in March 2019 is relevant.

One of the Issues raised by the Guidance Note is “How do you satisfy the criteria of arm’s length pricing?” The Guidance Note replies as follows:

“One may check if there are comparable products in the market. If yes, check the terms of sale/purchase, etc. of similar transactions and try obtaining quotes from other sources. Price in isolation cannot be the only criteria. Terms of sale such as credit terms should also be considered”

The RPT as a whole and the entire bundle of the terms and conditions needs to be considered for determining whether the transaction is on an arm’s length basis. It further states that a simple way to prove that there is no conflict of interest in the RPT is to prove that existence of special relationship between contracting parties has not affected the transaction and its critical terms, including price, quantity, quality and other terms and conditions governing the transaction, by following industry benchmarks, past transactions entered by the company, etc.

Another issue raised by the Guidance Note is “What are the parameters to be considered by the Audit Committee while considering whether a transaction is on arm’s length basis? How should the Audit Committee decide such an issue?” The Guidance Note replies as follows:

“The Act does not prescribe methodologies and approaches which may be used to determine whether a transaction has been entered into on an arm’s length basis. Audit Committee may consider the parameters given in the company’s policy on transactions with related parties. Transfer pricing guidelines given under the Income-tax Act, 1961 may also be used. Depending on the nature of individual transaction, any appropriate method may be used by the Audit Committee”

Thus, the ICSI recommends obtaining quotations from unrelated parties as a basis for ascertaining the ALP and also using the methods under the Income-tax Act for determining the ALP.

SA 550 ON RELATED PARTIES

SA 550 is a Standard on Auditing issued by the ICAI on Related Parties. This Standard also provides guidance to the Auditor on how to verify whether the pricing for an RPT is indeed at an arm’s length:

  •  Comparing the terms of the related party transaction to those of an identical or similar transaction with one or more unrelated parties.
  •  Engaging an external expert to determine a market value and to confirm market terms and conditions for the transaction.
  •  Comparing the terms of the transaction to known market terms for broadly similar transactions on an open market.

RELIANCE ON QUOTATIONS – VALID

In Toll Global Forwarding India (P.) Ltd. vs. Dy. CIT [2014] 51 taxmann.com 342 (Delhi – Trib.) the validity of bona fide quotations as a means of ascertaining ALP was upheld:

“As long as one can come to the conclusion, under any method of determining the arm’s length price, that price paid for the controlled transactions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm’s length price. The price need not be in terms of an amount but can also be in terms of a formulae, including interest rate, for computing the amount. In any case, when the expression “price which….would have been charged or paid” is used in rule 10AB, dealing with this method, in this method the place of “price charged or paid”, as is used in rule 10B(1)(a), dealing with CUP method, such an expression not only covers the actual price but also the price as would have been, hypothetically speaking, paid if the same transaction was entered into with an independent enterprise. This hypothetical price may not only cover bona fide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm’s length price”

Accordingly, quotations from unrelated parties could serve as a valid basis for determining the arm’s length pricing. However, the terms of the quotes should be similar. For instance, the wife of the company’s Managing Director is selling a key raw material to the company. She runs her own business. The rate charged to the company is on the same basis as that charged by her to other unrelated customers. However, in the case of the company, the entire payment is received by her upfront whereas she provides a 6 months’ credit period to all other buyers. This would not be an arm’s length price.

SEBI’S NEW MINIMUM STANDARDS

Regulation 23(2), (3)and (4) of SEBI LODR requires RPTs to be approved by the audit committee and by the shareholders, if material. Part A and Part B of Section III-B of SEBI Master Circular dated November 11, 20241 (“Master Circular”) specify the minimum information to be placed before the audit committee and shareholders, respectively,for consideration of RPTs. In order to facilitate a uniform approach and assist listed entities in complying with the above mentioned requirements, the IndustryStandardsForum (“ISF”) comprising of the representatives from three industry associations, viz. ASSOCHAM, CII and FICCI, under the aegis of the Stock Exchanges, has formulated industry standards, in consultation with SEBI,for minimum information to be provided for review of the Audit Committee and shareholders for approval of RPTs. This has been mandated by SEBI’s Circular dated 14th February, 2025.

This SEBI Circular requires that if a valuation or other report of external party has been obtained for an RPT then the same shall be placed before the Audit Committee. If any such report has been considered, it shall also be stated whether the Audit Committee has reviewed the basis for valuation contained in the report and found it to be satisfactory based on their independent evaluation.

Further, in the case of the payment of royalty, information on Industry Peers shall be given as follows:

(i) The Listed Entity will strive to compare the royalty payment with a minimum of three Industry Peers, where feasible. The selection shall follow the following hierarchy:

A. Preference will be given to Indian listed Industry Peers.

B. If Indian listed Industry Peers are not available, a comparison may be made with listed global Industry Peers, if available.

(ii) If no suitable Indian listed/ global Industry Peers are available, the Listed Entity may refer to the peer group considered by SEBI-registered research analysts in their publicly available research reports (“Research Analyst Peer Set”). If theListed Entity’s business model differs from such Research Analyst Peer Set, it may provide an explanation to clarify the distinction.

(iii) In cases where fewer than three Industry Peers are available, the listed entity will disclose, that only one or two peers are available for comparison.

Additional details need to be provided for RPTs relating to sale, purchase or supply of goods or services or any other similar business transaction:

(a) Number of bidders / suppliers / vendors / traders / distributors / service providers from whom bids / quotations were received with respect to the proposed transactionalong with details of process followed to obtain bids – the Circular states that if the number of bids / quotations is less than 3, Audit Committee must comment upon whether the number of bids / quotations received are sufficient.

(b) Best bid / quotation received. If comparable bids are available, disclose the price and terms offered -the Circular states that Audit committee must provide a justification for rejecting the best bid /quotation and for selecting the related party for the transaction.

(c) Additional cost / potential loss to the listed entity or the subsidiary in transacting with the related party compared to the best bid / quotation received – the Audit Committee must justify the additional cost to the listed entity or the subsidiary.

(d) Where bids were not invited, the fact shall be disclosed along with the justification for the same.

(e) Wherever comparable bids are not available, the Company must state what is the basis to recommend to the Audit Committee that the terms of proposed RPT are beneficial to the shareholders.

Similar details are also required for proposed RPTs relating to sale, lease or disposal of assets of the subsidiary or of a unit, division or undertaking of the listed entity, or disposal of shares of the subsidiary or associate.

For proposed RPTs relating to any loans, inter-corporate deposits or advances given by the listed entity or its subsidiary – Comparable interest rates shall be provided for similar nature of transactions. If the interest rate charged to the related party is less than the average rate paid by the related party, then the Audit Committee must provide a justification for the low interest rate charged.

WHAT MUST THE AUDIT COMMITTEE DO?

Considering the above, Audit Committee of a listed entity must carry out the following process when concluding whether or not an RPT is on an arm’s length basis:

(a) Follow the SEBI prescribed industry standards on minimum information to be placed before the Audit Committee.

(b) Ask for independent quotes / bids / tender from non-related parties for the same transaction. The terms and conditions of the transaction must be the same for the related and the non-related parties.

(c) In some cases, such as, rental RPTs, a broker’s opinion on comparable rent instances could also be relied upon.

(d) Sometimes, it may not be feasible or practical to obtain independent quotes / bids either due to the specialised nature of the transaction or limited number of entities offering that service/ goods. In such cases, the Audit Committee could rely upon an expert’s opinion as to the ALP determination. While relying on this opinion, it should verify that the expert has considered relevant factors and has given a speaking, well-reasoned opinion. For instance, in one case, a listed company acquired a very large piece of land from a promoter company. The management furnished two expert opinions, one from an international property consultant and the other from a chartered valuer. Based on various market studies, sale instances, registration details, etc., both of them concluded that the price paid by the listed company was on an arm’s length basis.

(e) If appropriate, reliance may also be placed on statutory valuations, such as, stamp duty ready reckoner rates, customs’ valuation assessment, etc.

(f) In case of acquisition of shares, an expert’s valuation report may be relied upon.

(g) Ask the Internal Auditor to verify RPTs and give a certification that they are on an arm’s length basis. The Auditor should examine the process for determining ALP in the RPTs.

EXAMPLES FROM LISTED COMPANIES

The RPT Policies of listed companies throw some light on how the Boards should determine ALP. A few such policies are discussed below:

(a) Infosys Technologies Ltd – the Board will inter alia consider factors such as, nature of the transaction, material terms, the manner of determining the pricing and the business rationale for entering into such transaction and any other information the Board may deem fit.

(b) Wipro Ltd – All RPTs are at arm’s length and are undertaken in the ordinary course of business, i.e., the relationship with the transacting party should not confer on the Company or the transacting party any undue benefit / advantage or undue disadvantage / onerous obligations, that will be unacceptable if such transacting party was not a related party and / or the Company will not enter into a transaction which it will ordinarily not undertake. It also states that there must be no “conflict of interest” while negotiating and arriving at terms of such Related Party Transactions. For this purpose, “Terms” will not be merely confined to ‘price’ or ‘consideration’ but also other terms such as payment terms, credit period, sale whether ex-factory, FOB, CIF etc.

If in doubt, management shall seek advice on “arm’s length” from the Chief Financial Officer, General Counsel, of the Company and / or the Audit Committee, as appropriate. The Audit Committee’s decision on these aspects shall be final. Audit Committee could seek external advice to assist in decision making on these aspects or for that matter in dealing with any issues connected with RPTs.

(c) Grasim Industries Ltd – Terms will be treated as on ‘Arm’s Length Basis’ if the commercial and key terms are comparable and are not materially different with similar transactions with non-related parties considering all the aspects of the transactions such as quality, realizations, other terms of the contract, etc. In case of contracts with related parties for specified period / quantity / services, it is possible that the terms of one-off comparable transaction with an unrelated party are at variance, during the validity of contract with related party. In case the Company is not doing similar transactions with any other non-related party, terms for similar transactions between other non-related parties of similar standing can be considered to establish ‘arm’s length basis’. Other methods prescribed for this purpose under any law can also be considered for establishing this principle.

(d) Tata Steel Ltd – While assessing a proposal put up before the Audit Committee / Board for approval, the Audit Committee / Board may review the following documents / seek the following information from the management in order to determine if the transaction is at an arm’s length or not:

  •  Nature/type of the transaction i.e. details of goods or property to be acquired / transferred or services to be rendered / availed (including transfer of resources) – including description of functions to be performed, risks to be assumed and assets to be employed under the proposed transaction;
  •  Material terms (such as price and other commercial terms contemplated under the arrangement) of the proposed transaction, including value and quantum;
  •  Benchmarking information that may have a bearing on the arm’s length basis analysis, such as:
  •  market analysis, research report, industry trends, business strategies, financial forecasts, etc.;
  •  third party comparable, valuation reports, price publications including stock exchange and commodity market quotations;
  •  management assessment of pricing terms and business justification for the proposed transaction as to why the RPT is in the interest of the Company;
  •  comparative analysis, if any, of other such transaction entered into by the Company.

It also states that for this purpose, the Company will seek external expert opinion, if necessary.

CONCLUSION

Valuation is a very subjective exercise based on highly objective data! Hence, it is often remarked that “value lies in the eyes of the beholder!” This subjectivity takes a more dramatic turn when faced with a transaction which is between parties who are associated or related. In the famous English case of R vs. Sussex Justices, ex parte McCarthy, [1923] All ER Rep 233, Lord Hewart CJ laid down the principle ~ “Not only must Justice be done; it must also be seen to be done”. Similarly, when determining the ALP in case of related transactions,

“Not only must the value be fair; it must also be seen to be fair!”

This is where the Board’s expertise and experience would come in handy. They would need to examine the facts of the RPT and remember Grabel’s Law in each ALP determination:

“Two is Not Equal To Three, Even for Very Large Values of Two!”

Issues Relating To ‘May Be Taxed’ In Tax Treaties

The term ‘may be taxed’ has been commonly used in tax treaties since before the OECD  Model Tax Convention was first published in 1963. In India, there has been significant litigation on whether the term indicates an exclusive right of taxation. While the CBDT vide Notification in  2008 has clarified the issue, certain ambiguities still exist.

In this article, the authors seek to analyse the said issue on whether the term ‘may be taxed’ in tax treaties refers to an exclusive right of taxation to any Contracting State.

BACKGROUND

The allocation of taxing rights in respect of various streams of income in DTAAs can generally be bifurcated into 3 categories:

a. Category I – May also be taxed:

Some articles provide that the particular income may be taxed in a particular jurisdiction (typically the country of residence) and also states that the income ‘may also be taxed’ in the other Contracting State, typically with some restrictions in terms of tax rates, etc. The articles on dividend, interest, royalty / fees for technical services, generally provide for such type of allocation of taxing right.

For example, Article 10(1) of the India – Singapore DTAA, dealing with dividends provides as follows,

“1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if….” (emphasis supplied);

b. Category II – Shall be taxable only:

Some articles provide that the particular income ‘shall be taxable only’ in a particular Contracting State indicating an exclusive right of taxation to the particular Contracting State (typically the country of residence). Generally, this type of allocation of taxing right is found in the article of business profits (where there is no permanent establishment) or capital gains (in respect of assets other than those specified).

For example, Article 13(5) of the India – Singapore DTAA provides as under,

“Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4A and 4B of this Article shall be taxable only in the Contracting State of which the alienator is a resident.” (emphasis supplied);

c. Category III – May be taxed:

Some articles simply state that the particular income ‘may be taxed’ in a particular Contracting State (in most cases, the source State) without referring to the taxation right of the other Contracting State.

An example of such taxing right is in Article 6 of the India – Singapore DTAA which provides as under,

“Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State.” (emphasis supplied)

In the above Article, the right of the source State is provided but no reference is made whether the State of residence can tax the said income or not.

While the allocation of taxing right in the first two categories is fairly clear, there is ambiguity in the third category i.e. whether in such a scenario, the country of residence has a right to tax in case the DTAA is silent in this regard.

Given the language in the DTAA, the question which arises is whether the income from rental of an immovable property situated in Singapore by an Indian resident can be taxed in India or would such income be taxed exclusively in Singapore under the India – Singapore DTAA.

DECISIONS OF THE COURTS

While some courts held that the term ‘may be taxed’ in a Contracting State, not followed by the term ‘may also be taxed’ in the other Contracting State meant that exclusive right of taxation was granted to the first-mentioned Contracting State, some courts held that ‘may be taxed’ is to be interpreted differently from ‘shall be taxed only’ and therefore, does not infer exclusive right of taxation. One of the most notable decision which provided the former view i.e. ‘may be taxed’ is equated to ‘shall be taxed only’, is the Karnataka High Court in the case of CIT vs. RM Muthaiah (1993) (202 ITR 508).

The issue before the Hon’ble Karnataka High Court in the above case was whether income earned from an immovable property situated in Malaysia was taxable in India in the hands of an Indian resident under the India – Malaysia DTAA. Article 6(1) of the earlier India – Malaysia DTAA provided,

“Income from immovable property may be taxed in the Contracting State in which such property is situated.”

In the said case, the Revenue argued that the DTAA did not provide for an exclusive right of taxation to Malaysia and India had a right to tax the income. The High Court, while not analysing the specific language of the DTAA, held as under,

“The effect of an ‘agreement’ entered into by virtue of section 90 would be: (i) if no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by this Act; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the Court.”

The High Court, therefore, held that as the DTAA did not specifically provide for India, being the country of residence, to tax the said income, it would be taxable only in Malaysia.

The Mumbai Bench of the Tribunal in the case of Ms. Pooja Bhatt vs. DCIT (2009) (123 TTJ 404) held that,

“Wherever the parties intended that income is to be taxed in both the countries, they have specifically provided in clear terms. Consequently, it cannot be said that the expression “may be taxed” used by the contracting parties gave option to the other Contracting States to tax such income. In our view, the contextual meaning has to be given to such expression. If the contention of the Revenue is to be accepted then the specific provisions permitting both the Contracting States to levy the tax would become meaningless. The conjoint reading of all the provisions of articles in Chapter III of Indo-Canada treaty, in our humble view, leads to only one conclusion that by using the expression “may be taxed in the other State”, the contracting parties permitted only the other State, i.e., State of income source and by implication, the State of residence was precluded from taxing such income. Wherever the contracting parties intended that income may be taxed in both the countries, they have specifically so provided. Hence, the contention of the Revenue that the expression “may be taxed in other State” gives the option to the other State and the State of residence is not precluded from taxing such income cannot be accepted.”

Similarly, the Madras High Court in the case of CIT vs. SRM Firm & Others (1994) (208 ITR 400) also held on similar lines. The above Madras High Court decision was affirmed by the Apex Court in the case of CIT vs. PVAL KulandaganChettiar (2004)(267 ITR 654), albeit without analyzing the controversy of ‘may be taxed’ vs ‘shall be taxed only’. The Supreme Court held that,

“13. We need not to enter into an exercise in semantics as to whether the expression “may be” will mean allocation of power to tax or is only one of the options and it only grants power to tax in that State and unless tax is imposed and paid no relief can be sought. Reading the Treaty in question as a whole when it is intended that even though it is possible for a resident in India to be taxed in terms of sections 4 and 5, if he is deemed to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. The Treaty will have to be interpreted as such and prevails over sections 4 and 5 of the Act. Therefore, we are of the view that the High Court is justified in reaching its conclusion, though for different reasons from those stated by the High Court.”

This view was further upheld by the Supreme Court in the cases of DCIT vs. Torqouise Investment & Finance Ltd. (2008) (300 ITR 1) and DCIT vs. Tripti Trading & Investment Ltd (2017) (247 Taxman 108). In both the above cases, it was held that dividend received by an Indian assessee from Malaysia was exempt from
tax in India by virtue of the India – Malaysia DTAA following the earlier decision of Kulandagan Chettiar (supra).

NOTIFICATION OF 2008 AND SUBSEQUENT DECISIONS

Section 90(3) of the ITA, inserted by the Finance Act 2003 with effect from Assessment Year 2004-05, provides that any term not defined in the DTAA can be defined through a notification published in the Gazette. Subsequently, the CBDT Notification No. 91 of 2008 dated 28th August, 2008 under section 90(3) was issued, which states as under,

“In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax or as the case may be, avoidance of double taxation, provides that any income of a resident of India “may be taxed” in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement.”

Therefore, the CBDT, vide its above notification, provided that the term ‘may be taxed’ is not required to be equated to ‘shall be taxable only’ and India would still have the right of taxation, unless the tax treaty specifically provides that the income ‘shall be taxed only’ in the other State.

There are two possible views regarding implications of the aforesaid Notification issued by the CBDT.

View 1: The Notification clarifies the right of taxation in respect of ‘may be taxed’

The view is that the Notification now changes the position of taxability and that income of a resident of India shall be taxable in India unless the income is taxable only in the country of source as per the respective DTAA, has been upheld by the Mumbai ITAT in the cases of Essar Oil Ltd. vs. ACIT (2014) 42 taxmann.com 21 and Shah Rukh Khan vs. ACIT (2017) 79 taxmann.com 227, the Delhi ITAT in the case of Daler Singh Mehndi vs. DCIT (2018) 91 taxmann.com 178 and the Jaipur ITAT in the case of Smt. IrvindGujral vs. ITO (2023) 157 taxmann.com 639.

View 2: The Notification does not clarify all situations involving ‘may be taxed’

The alternative view is that Notification No. 91 of 2008 will have application only in a case where the primary right to tax has been given to the state of residence and such state has allowed the source State also to charge such income to tax at a concessional rate.

The relevant provisions in a DTAA could be divided into three broad categories:

i) where the right to tax is given to the State of source (e.g. Article 6 dealing with income derived from immovable property);

ii) where such right to tax is given to the State of residence (e.g. Article 8 dealing with income derived from International Shipping and Air Transport); and

iii) where the primary right to tax is with the State of residence. However, such State has ceded and allowed the State of source also to charge such income to tax, but, at a concessional rate (e.g. Article 7 dealing with business profits, Article 10 dealing with dividends, Article 11 dealing with interest and Article 12 dealing with royalties and fees for technical services).

Under this view, one may argue that the said notification has been issued to clarify the position of the Government of India only with respect to the category (iii) of income as it does not refer to a situation where the right of State of Residence to tax the said income, is silent. The said clarifications should not apply to incomes referred to in category (i) and category (ii) above. This is because, with respect to category (iii) income as explained above, the primary right to tax is with the state of Residence which has partially ceded such right in favour of the State of source by enabling such State to tax the income at a concessional rate of tax. If one reads the said notification in the above context, one may conclude that the Notification only covers income covered in category (iii) above.

Another aspect one may consider is that section 90(3) of the Act, itself provides that the meaning to be assigned to a term in the notification issued by the Central Government shall apply unless the context otherwise requires and such meaning is consistent with the provisions of the Act or the DTAA.

Further, interestingly, readers may refer to the January 2021 edition of this Journal1 wherein the authors of the said article have analysed that while section 90(3) of the ITA empowers the Government to define an undefined term, the above Notification goes beyond the scope of the section as it does not define any term but only clarifies the stand of the Government on the said issue without actually defining the term.

The authors of the said article have also questioned whether ‘may be taxed’ is a term or a phrase.

In this regard, one may also refer to the Mumbai ITAT in the case of Essar Oil (supra), wherein the issue of whether it is a term or a phrase was analysed and concluded as under,

“The phrases “may be taxed”, “shall be taxed only” and “may also be taxed” have a definite purpose and a definite meaning which is conveyed. Whether it is a term, phrase or expression does not make any significant difference because the contracting parties have given a definite meaning to such a phrase and once the Government of India have clarified such an expression, then it cannot be held that it does not fall within the realm of the word “term” as given in section 90(3). Thus, we do not feel persuaded by the argument taken by the learned Sr. Counsel.”

UNILATERAL AMENDMENTS

The India – Malaysia DTAA which was the subject matter of litigation in the matter before the High Courts and Supreme Courts for the meaning of the term, was amended in 2012. Interestingly, the new DTAA now specifically provides the following in the Protocol,

“It is understood that the term “may be taxed in the other State” wherever appearing in the Agreement should not be construed as preventing the country of residence from taxing the income.”

Therefore, in respect of the India – Malaysia DTAA now, there is no ambiguity about the interpretation of the phrase. However, the question does arise as to whether, the fact that this similar language is not provided in any other DTAA (in the main text or in the Protocol), another meaning has to be ascribed to the term in the other DTAAs.

Though the Notification is part and parcel of the Act, a DTAA is a thoughtfully negotiated economic bargain between two sovereign States and any unilateral amendment cannot be read into the DTAA such that the economic bargain is annulled, until and unless the DTAA itself is amended.

As mentioned above, the authorities being aware of the aforesaid fact, amended the India-Malaysia DTAA on 09-05-2012 to incorporate the unilateral amendment put forth by the aforesaid Notification into the DTAA by way of inserting paragraph 3 to the Protocol of the India-Malaysia DTAA. Similarly, paragraph 2 to the Protocol dated 30-01-2014 of the India-Fiji DTAA states that the term “may be taxed in the other State” wherever appearing in the Agreement should not be construed as preventing the country of residence from taxing the income. Paragraph 1 of India-South Africa DTAA provides that ‘With reference to any provision of the Agreement in terms of which income derived by a resident of a Contracting State may be taxed in the other Contracting State, it is understood that such income may, subject to the provisions of Article 22, also be taxed in the first-mentioned Contracting State.

In the earlier India-Malaysia DTAA (Notification No. GSR 667(E), dated 12th October, 2004), Clause 4 of the Protocol was agreed on between the two contracting States with reference to paragraph 1 of Article 6 to the effect that the said paragraph should not be construed as preventing the Country of Residence to also tax the income under the said Article.

It would be relevant to note that Article 6 of the India-Malaysia DTAA and that of other DTAAs on taxation of income from immovable property are worded alike. However, the aforesaid Protocol agreed between India and Malaysia in the India-Malaysia DTAA is not found for example, in the India-UK or India-France DTAA. It becomes all the more conspicuous when protocols under other DTAAs have been signed after the Notification No. 91/2008 issued under Section 90(3). An example can be considered of the India – UK DTAA wherein the Protocol is signed on 30th October, 2012 but there is no agreement with regard to interpretation of the expression “may be taxed”, which is used inter alia in Articles 6, 7, 11, 12 and 13. Thus, one may argue that the expression “may be taxed” required an understanding under the India-Malaysia DTAA that varied with the earlier judicial understanding of the said expression in other DTAAs.

In certain DTAAs where expression ‘may be taxed’ has been used in Article 6 or Article 13, it has been clarified through Protocols that income and capital gains relating to immovable properties may be taxed in both the contracting states. Some of these DTAAs with India are: Hungary, Serbia, Montenegro and Slovenia.

However, in certain other DTAAs where expression ‘may be taxed’ has been used in Article 6 or Article 13, it has been clarified through Protocols that income and / or capital gains relating to immovable properties may be taxed in the Contracting State where the immovable property is situated. For example, India’s DTAAs with Estonia and Lithuania.

A DTAA is a product of bilateral negotiation of the terms between two sovereign States which are expected to fulfill their obligations under a DTAA in good faith. This includes the obligation for not defeating the purpose and object of the DTAA. Therefore, while the amendment to the India-Malaysia DTAA was consciously made on the lines of the Notification, it is apparent that the same was deliberately not extended to other DTAAs in probable consideration of larger macro issues which could have had a bearing upon the bilateral trade relations.

It is to be noted that in the case of Essar Oil Limited (supra), the ITAT was interpreting Article 7 of the India-Oman DTAA and India-Qatar DTAA dealing with business profits. Article 7(1) clearly provides that the profits of an enterprise of a contracting State shall be taxable only in that State. The exception carved out is only to enable the “PE country” to tax the profits attributable to the PE. Profits attributable to a PE may be larger than the profits sourced within the PE State, which is not the case for Article 6 dealing with income from immovable properties, where the source is undisputedly within the State in which the immovable property is located. Contextually, the expression “may be taxed” lends itself to different meanings under Article 7 and Article 6. This distinction has not been brought to the attention of the Hon’ble Tribunal. Clarifications, if any, would serve the intended purpose only when incorporated in the respective DTAA. The same was done through a Protocol entered under the India-Malaysia DTAA in the context of the expression “may be taxed”.

Therefore, one may be able to argue that Notification No. 91/2008 should have no application in respect of cases covered under category I i.e. similar to Article 6.

INTERPLAY WITH ARTICLE ON TAX CREDIT

Another aspect which also needs to be considered is the language of Article 25 of the India – Singapore DTAA, dealing with Elimination of Double Taxation (foreign tax credit or relief). It provides as under,

“2. Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Singapore, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Singapore tax paid, whether directly or by deduction.”

In the present case, if one argues that income from immovable property situated in Singapore shall be taxable only in Singapore as the Article states that such income ‘may be taxed’ in Singapore, the question of tax credit does not arise. However, Article 25(2), as discussed above, specifically provides that when the DTAA states that income may be taxed in Singapore, India should grant foreign tax credit to eliminate double taxation. The said credit can be provided only after India has taxed the income in the first place.

It may, however, be highlighted that the Mumbai ITAT in the case of Pooja Bhatt vs. DCIT (2009) 123 TTJ 404 did not accept this argument and held as under,

“8. The reliance of the Revenue on Article 23 is also misplaced. It has been contented that Article 23 gives credit of tax paid in the other State to avoid double taxation in cases like the present one. In our opinion, such provisions have been made in the treaty to cover the cases falling under the third category mentioned in the preceding para i.e., the cases where the income may be taxed in both the countries. Hence, the cases falling under the first or second categories would be outside the scope of Article 23 since income is to be taxed only in one State.”

ROLE OF OECD MODEL COMMENTARY

The OECD Model Commentary has explained the various types of allocation of taxing rights used in a DTAA. The OECD Model Commentary 2017 on Article 23A dealing with Elimination of Double Taxation provides as under,

“6. For some items of income or capital, an exclusive right to tax is given to one of the Contracting States, and the relevant Article states that the income or capital in question “shall be taxable only” in a Contracting State. The words “shall be taxable only” in a Contracting State preclude the other Contracting State from taxing, thus double taxation is avoided. The State to which the exclusive right to tax is given is normally the State of which the taxpayer is a resident within the meaning of Article 4, that is State R, but in Article 19 the exclusive right may be given to the other Contracting State (S) of which the taxpayer is not a resident within the meaning of Article 4.

7. For other items of income or capital, the attribution of the right to tax is not exclusive, and the relevant Article then states that the income or capital in question “may be taxed” in the Contracting State (S or E) of which the taxpayer is not a resident within the meaning of Article 4. In such case the State of residence (R) must give relief so as to avoid the double taxation. Paragraphs 1 and 2 of Article 23 A and paragraph 1 of Article 23 B are designed to give the necessary relief.”

The above Commentary makes it clear that where the Model wanted to provide an exclusive right of taxation to a particular country, it has provided that with the words “shall be taxable only”. In other scenarios both the countries shall have the right to tax the income.

It may be noted that the Hon’ble Supreme Court in the case Kulandagan Chettiar (supra) did not consider the validity of the OECD Model Commentary on the basis of which the DTAAs are entered into. In the said case, the Supreme Court held as under,

“16. Taxation policy is within the power of the Government and section 90 of the Income-tax Act enables the Government to formulate its policy through treaties entered into by it and even such treaty treats the fiscal domicile in one State or the other and thus prevails over the other provisions of the Income-tax Act, it would be unnecessary to refer to the terms addressed in OECD or in any of the decisions of foreign jurisdiction or in any other agreements.”

However, subsequent decisions of the Supreme Court including that of Engineering Analysis Centre of Excellence (P) Ltd vs. CIT (2021) 432 ITR 471 have held that the OECD Model Commentary shall have persuasive value as the DTAAs are based on the OECD Model.

Impact of Multilateral Convention to Implement Tax Treaty related measures to prevent Base Erosion and Profit Shifting [MLI]

India is a signatory to MLI. The DTAAs have to be read along with the MLI. Article 11 of the MLI deals with Application of Tax Agreements to Restrict a Party’s Right to Tax its Own Residents. Article 11(1)(j) provides that a Covered Tax Agreement (CTA) shall not affect the taxation by a Contracting Jurisdiction of its residents, except with respect to the benefits granted under provisions of the CTA which otherwise expressly limit a Contracting Jurisdiction’s right to tax its own residents or provide expressly that the Contracting Jurisdiction in which an item of income arises has the exclusive right to tax that item of income.

India has not reserved Article 11 of the MLI. The following countries have chosen Article 11(1) with India: Australia, Belgium, Colombia, Denmark, Croatia, Fiji, Indonesia, Kenia, Mexico, Mongolia, Namibia, New Zealand, Norway, Poland, Portugal, Russia, Slovak Republic, South Africa and UK. In respect of these countries, in absence of an express provision, the right of the resident country to tax its residents cannot be taken away under the DTAA. However, the same cannot be applied to countries which have not chosen Article 11(1) or which have not signed the MLI.

CONCLUSION

Even after the 2008 Notification under section 90(3), two strong views still exist as to whether the term ‘may be taxed’ grants exclusive right of taxation to the source State particularly in the case of the Article 6 where, unless otherwise expressly stated in the DTAA, it is clearly intended to allocate right of taxation exclusively to the source state where the immovable property is situated. This view would depend on the role of the tax treaties read with MLI in taxation – that is whether one considers that the country of residence always has the right to tax all income unless specifically restricted by the tax treaty or does the right of taxation of the country of residence need to be specifically provided in the tax treaty.

Disclosure of Climate Related Uncertainties

There was a strong concern from multiple stakeholders regarding information about the effects of climate-related risks in the financial statements, which either were insufficient or appeared to be inconsistent with information entities provide outside the financial statements, particularly information reported in other general purpose financial reports.

To address these concerns, the International Accounting Standards Board (IASB) collaborated with the International Sustainability Standards Board, and issued an Exposure Draft (ED) proposing eight examples illustrating how an entity applies the requirements in IFRS Accounting Standards to report the effects of climate-related and other uncertainties in its financial statements. The examples mostly focus on climate-related uncertainties, but the principles and requirements illustrated apply equally to other types of uncertainties.

The IASB expects that these illustrative examples will help to improve the reporting of the effects of climate-related and other uncertainties in the financial statements, including by helping to strengthen connections between an entity’s general purpose financial reports.

The IASB decided to focus the examples on requirements: (a) that are among the most relevant for reporting the effects of climate-related and other uncertainties in the financial statements; and (b) that are likely to address the concerns that information about the effects of climate-related risks in the financial statements is insufficient or appears to be inconsistent with information provided in general purpose financial reports outside the financial statements.

The eight examples, illustrate the application of various IFRS standards, to the extent they are related to climate related disclosures.

Paragraph 31 of IAS 1 Presentation of Financial Statements states “An entity shall also consider whether to provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.”

Consider the example below.

The entity is a manufacturer that operates in a capital-intensive industry and is exposed to climate-related transition risks. To manage these risks, the entity has developed a climate-related transition plan. The entity discloses information about the plan in a general-purpose financial report outside the financial statements, including detailed information about how it plans to reduce greenhouse gas emissions over the next 10 years. The entity explains that it plans to reduce these emissions by making future investments in more energy-efficient technology and changing its raw materials and manufacturing methods. The entity discloses no other information about climate-related transition risks in its general-purpose financial reports.

In preparing its financial statements, the entity assesses the effect of its climate-related transition plan on its financial position and financial performance. The entity concludes that its transition plan has no effect on the recognition or measurement of its assets and liabilities and related income and expenses because: (a) the affected manufacturing facilities are nearly fully depreciated; (b) the recoverable amounts of the affected cash-generating units significantly exceed their respective carrying amounts; and (c) the entity has no asset retirement obligations.

The entity also assesses whether specific requirements in IFRS Accounting Standards—such as in IAS 16 Property, Plant and Equipment, IAS 36 Impairment of Assets or IAS 37 Provisions, Contingent Liabilities and Contingent Assets—require it to disclose information about the effect (or lack of effect) of its transition plan on its financial position and financial performance. The entity concludes that they do not.

In applying paragraph 31 of IAS 1 [paragraph 20 of IFRS 18], the entity determines that additional disclosures to enable users of financial statements to understand the effect (or lack of effect) of its transition plan on its financial position and financial performance would provide material information. That is, omitting this information could reasonably be expected to influence decisions primary users of the entity’s financial statements make on the basis of those financial statements.

Without that additional information, the decisions users of the entity’s financial statements make could reasonably be expected to be influenced by a lack of understanding of how the entity’s transition plan has affected the entity’s financial position and financial performance. For example, users of the entity’s financial statements might expect that some of its assets might be impaired because of its plans to change manufacturing methods and invest in more energy-efficient technology.

The entity reaches this conclusion having considered qualitative factors that make the information more likely to influence users’ decision-making, including: (a) the disclosures in its general-purpose financial report outside the financial statements (entity-specific qualitative factor); and (b) the industry in which it operates, which is known to be exposed to climate-related transition risks (external qualitative factor).

Therefore, applying paragraph 31 of IAS 1 [paragraph 20 of IFRS 18], the entity discloses that its transition plan has no effect on its financial position and financial performance and explains why.

Other examples, include, the applicability of materiality judgements on disclosures, the disclosure of assumptions on impairment of assets, under different standards, such as IAS 36, Impairment of Assets, IAS 1, and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, disclosure about decommission and  restoration provisions, under IAS 37 Provisions, Contingent Liabilities and Contingent Assets and disclosure of disaggregated information under IFRS 18 Presentation and Disclosure in Financial Statements.

There is also an interesting requirement relating to disclosure of credit risks under IFRS 7 Financial Instruments: Disclosures. Entities are exposed to significant credit risks arising from climate change. For e.g., a financial institution may be exposed to significant credit risks from its agriculture focussed lending, because of drought or flood. An entity might disclose: (a) information about the effects of particular risks on its credit risk exposures and credit risk management practices; and (b) information about how these practices relate to the recognition and measurement of expected credit losses.

In determining whether the disclosures are required, and the extent of such disclosures, an entity considers(a) the size of the portfolios affected by climate-related risks relative to the entity’s overall lending portfolio. (b) the significance of the effects of climate-related risks on the entity’s exposure to credit risk compared to other factors affecting that exposure. The effects depend on factors such as loan maturities and the nature, likelihood and magnitude of the climate-related risks. (c) external climate-related qualitative factors—such as climate-related market, economic, regulatory and legal developments—that make the information more likely to influence decisions primary users of the entity’s financial statements make on the basis of the financial statements.

The entity considers what information to provide about the effects of climate-related risks on its exposure to credit risk. This information might include, for example: (a) an explanation of the entity’s credit risk management practices related to climate-related risks and how those practices relate to the recognition and measurement of expected credit losses. The information the entity discloses might include, for example, how climate-related risks affect: (i) the determination of whether the credit risk on these financial instruments has increased significantly since initial recognition; and (ii) the grouping of instruments if expected credit losses are measured on a collective basis.

(b) an explanation of how climate-related risks were incorporated in the inputs, assumptions and estimation techniques used to apply the requirements in Section 5.5 of IFRS 9 Financial Instruments. The information the entity discloses might include: (i) how climate-related risks were incorporated in the inputs used to measure expected credit losses, such as probabilities of default and loss given default; (ii) how forward-looking information about climate-related risks was incorporated into the determination of expected credit losses; and (iii) any changes the entity made during the reporting period to estimation techniques or significant assumptions to reflect climate-related risks and the reasons for those changes.

(c) information about collateral held as security and other credit enhancements, including information about properties held as collateral that are subject to flood risk and whether that risk is insured.

(d) information about concentrations of climate-related risk if this information is not apparent from other disclosures the entity makes.

CONCLUSION

Many entities do not disclose sufficient and relevant information relating to climate related risks and the impact on its financial statements. Mostly, the disclosures if made are boiler plated or are outside the financial statements, which are not subject to any scrutiny. The IASB’s ED is a step in the right direction for ensuring better compliance relating to the disclosure of climate related risks. The ED will be followed by similar requirements in India as well. Hopefully, what will follow is better disclosures and effective compliance. Entities in the meanwhile, should consider the above disclosures, on a voluntary basis, without waiting for the ED to become a standard.

Section: 279(2) :Prosecution — Compounding of offence – compounding application could not have been rejected on delay alone — Limitation — CBDT guidelines dated 16th November, 2022

2. M/s. L. T. Stock Brokers Pvt. Ltd. vs. The Chief Commissioner of Income

[W.P. (L) 21032/2024,

Dated: 4th March, 2025 (Bom) (HC)]

Section: 279(2) :Prosecution — Compounding of offence – compounding application could not have been rejected on delay alone — Limitation — CBDT guidelines dated 16th November, 2022

The Petitioner challenged the Chief Commissioner’s order dated 17 January 2024, made under Section 279(2) of the Act, dismissing the Petitioner’s application for compounding the offence.

The Chief Commissioner has dismissed this application on the sole ground that it was filed beyond 36 months from the date of filing of the complaint against the petitioners. The Chief Commissioner has relied upon paragraph 9.1 of CBDT guidelines dated 16 November 2022 for compounding offences under the Income-tax Act 1961.

The Hon. Court referred to the Co-ordinate bench decision of this Court vide order dated 18th July, 2023 disposing of the Writ Petition (L) No.14574 of 2023 (Sofitel Realty LLP and Ors vs. Income-tax Officer (TDS) and Ors) wherein the Hon. Court considered similar CBDT guidelines dated 23 December 2014. In the context of such guidelines and clauses like Clause 9 of the 2022 guidelines, the Court held that since the Income-tax Act, 1961 had provided for no period of limitation to apply for compounding, such period could not have been introduced through guidelines. In any event, no rigid timeline could have been introduced through such guidelines. This Court held that the compounding application could not have been rejected on delay alone.

The court further referred to the Madras High Court decision in the case of Kabir Ahmed Shakir vs. The Chief Commissioner of Income Tax & Ors Writ Petition No.17388 of 2024 dated 30/08/2024 which was rendered in the context of the 2022 CBDT guidelines.

The counsel for the revenue, however, submitted that even where no limitation is prescribed by the State, the application has to be filed within a reasonable period. Further, she referred to the decision of the Hon’ble Supreme Court in the case of Vinubhai Mohanlal Dobaria vs. Chief Commissioner of Income Tax & Anr. [2025] 171 taxmann.com 268 (SC) and submitted that the CBDT guidelines of 2014 were upheld by the Hon’ble Supreme court, including, the paragraph which has prescribed limitation period to file application for compounding.

The Hon. Court observed that the above paragraph states that para 8 of the 2014 guidelines [which had referred to the period of limitation] does not exclude the possibility that in the peculiar case where the facts and circumstances so required, the competent authority should consider the explanation and allow the compounding application. This means that notwithstanding the so-called limitation period in a given case, the competent authority can exercise discretion and allow compounding application.

The Hon. Court observed that the competent authority has treated the guidelines as a binding statute. On the sole ground that the application was made beyond 36 months, the same has been rejected. The competent authority has exercised no discretion as such. The rejection is entirely premised on the notion that the competent authority had no jurisdiction to entertain a compounding application because it was made beyond 36 months. Such an approach was inconsistent with the rulings of this Court, Madras High Court and the Hon’ble Supreme Court decision relied upon by the learned counsel for the revenue.

The impugned order dated 17th January, 2024 was set aside and the Chief Commissioner was directed to reconsider the petitioner’s application for compounding.

Section: 254 (1): Principles of natural justice violated — impugned order passed without hearing the petitioner and / or his representative and without considering the written submissions:

1. Vijay Shrinivasrao Kulkarni vs. Income Tax Appellate Tribunal & Ors.

[WP (C) No. 17572 OF 2024]

AY 2019-20

Dated: 4th February, 2025 (Bom) (HC)]

Arising from ITAT Pune ITA No.1159/Pun/2023 order dated 12th March 2024

Section: 254 (1): Principles of natural justice violated — impugned order passed without hearing the petitioner and / or his representative and without considering the written submissions:

The petitioner assessee in the present case is a 64 year old retired serviceman, who earned income primarily from salary for the Assessment Year 2019-20. He was then an employee of M/s. Pfizer Healthcare India Pvt. Ltd. posted at Aurangabad, from where he derived his salary income.

The petitioner filed his original income tax return for the A.Y. 2019-20 on 1 August 2019 declaring a total income of ₹57,84,740/- The petitioner had claimed relief under section 89(1) of the Act for an amount of ₹ 13,22,187/-. Subsequently, the petitioner’s case was selected for scrutiny. In response to notices, the petitioner submitted copies of computation of income, Form 26AS, Form 16, Form 10E along with other supporting documents.

The AO issued a show cause notice-cum-draft assessment order dated 16 September 2021 to the petitioner directing him to furnish his reply on or before 19 September, 2021. The petitioner filed his submissions / reply dated 16 September 2021 to the show cause notice-cum-draft assessment order issued by AO. The petitioner also requested for the grant of a personal hearing through video conferencing, which was so granted on 23 September 2021.

According to the petitioner, the relief claimed by him under section 89(1) of the Act warranted consideration, as such amount was a salary advance, justifying such relief. However, the petitioner during assessment proceedings withdrew such relief as claimed under section 89(1) and alternatively claimed receipts of Ex-Gratia and other incentives as capital receipts. This was with reference to the amounts received from his employer, i.e., Pfizer Healthcare on account of closure of its plant at Aurangabad and in terms of the settlement to all permanent employees under the financial scheme for employees of Aurangabad 2019, dated 9 January 2019.

The AO proceeded to pass the assessment order dated 29 September 2021. While passing such order, the petitioner’s submissions were rejected on the ground that the amount received by the Petitioner on termination of employment cannot be treated as salary in advance, as claimed by the Petitioner. Thus, the relief claimed by the petitioner under section 89(1) of the Act for an amount of R13,22,187/- was rejected by the assessment order.

The Petitioner being aggrieved by the said assessment order, approached the National Faceless Appeal Centre by filing an appeal. It was during the proceedings initiated by the petitioner before the NFAC that various notices under section 250 of the Act were issued to the petitioner. However, the petitioner’s Chartered Accountant could not respond to the above notices, and sought adjournments, mainly on the ground that a senior CA was intended to be engaged to defend the petitioner in the said proceedings.

The NFAC proceeded to pass an ex-parte order dated 8 September 2023, rejecting the petitioner’s appeal filed before it, thereby confirming the assessment order passed by AO.

The Petitioner, approached ITAT, Pune, by filing an appeal. The appeal filed by the Petitioner was listed for hearing on 11 March 2024 before the Division Bench of ITAT, Pune. The petitioner’s advocate submitted that the matter was required to be remanded to the NFAC, on the ground that the order of the NFAC was an ex-parte order, as it was passed in absence of a hearing being granted to the petitioner / his representative. The Petitioner’s CA also filed an affidavit in this regard. The ITAT rejected the petitioner’s prayer to remand the matter to NFAC and insisted on hearing the appeal on merits. The Petitioner’s advocate then requested for a short adjournment, so that a paper book could be submitted. However, such request was denied. The Petitioner’s advocate then requested to the ITAT to grant one day’s time to submit such paper book and to take up appeal for hearing on merits on the next date. Such request was also rejected by the ITAT. The Petitioner’s advocate was directed to submit written submissions and paper book on the basis of which, the ITAT would pass appropriate orders. The Petitioner through his legal representative accordingly submitted written submissions, along with the paper book and case laws on 12 March 2024, before the ITAT.

It was in the above backdrop that the ITAT proceeded to pass the impugned order dated 12 March, 2024, the Petitioner being aggrieved by such order approached this court by filing a writ petition.

The learned counsel for the Petitioner submitted that the Petitioner is seriously prejudiced by the actions of the ITAT in passing the impugned order dated 12th March, 2024. He further referred to the following orders passed by the ITAT on the same day, i.e., 12th March, 2024, which are summarized below:-

The ITAT had in similar facts and circumstances remanded the matter to the JCIT-A/the NFAC for further consideration on merits. However, ITAT did not adopt the same approach in the present case. According to him, a fair approach ought to have been adopted by the ITAT considering the facts of the case, as no prejudice would have been caused to the Dept.

The Dept contended that the ITAT was justified in concluding, that there was no need to remand the proceedings to AO as such remand would be an exercise in futility. Accordingly, the ITAT was justified in dismissing the appeal of the petitioner.

The Hon. Court observed that this is a case where the violation of the settled principles of natural justice is not just apparent but real, palpable and clearly visible. The Petitioner is deprived of an opportunity to present its case not only before the NFAC but also subsequently before the ITAT. Not affording a reasonable opportunity to the Petitioner to present its case had perpetuated from the ex-parte order passed by NFAC which was not noticed by the ITAT in passing the impugned order.

It was not disputed that the NFAC under the faceless regime passed an ex-parte appeal order, without affording an opportunity to the petitioner of being heard. Thus, evaluation of assessment of the petitioner’s income and rejecting the submissions of the petitioner was undertaken also ought to have been appropriately undertaken by following the natural rules of fairness adhering to the principles of natural justice and such infirmity at least should have been addressed by the ITAT in passing the impugned order.

The Court further observed that on a perusal of the impugned order of the ITAT makes it clear that it proceeded to deal with the case of the petitioner on merits as is evident from the order. The Petitioner submitted that considering the fact that the order impugned before the ITAT itself was passed by NFAC was passed ex-parte, it would be just and proper for the ITAT to remand the matter to NFAC for passing orders on merits, after considering submissions of the petitioner. Also, the written submissions being tendered on behalf of the petitioner before the ITAT on 12th March, 2024 have not being considered in the impugned order being passed by the Tribunal. The Court referred judgment of the Supreme Court in the case of Delhi Transport Corporation vs. DTC Mazdoor Union._AIR 1999 SC 564 wherein it was held that Article 14 guarantees a right of hearing to a person who is adversely affected by an administrative order. The principle of audi alteram partem is a part of Article 14 of the Constitution of India. In light of such decision, the petitioner ought to have been granted an opportunity of being heard which, partakes the characteristic of the fundamental right under Article 14 of the Constitution of India.

The Hon. Court further referred to a decision of the Supreme Court in the case of Commissioner of Income Tax Madras vs. Chenniyappa Mudiliar (1969) 1 SCC 591 wherein the Supreme Court in interpreting the section 33(4) of the Income Tax Act, 1922 has held that the Appellate Tribunal was bound to give a proper decision on question of fact as well as law, which can only be done if the appeal is disposed-off on merits and not dismissed owing to the absence of the appellant. There is no escape from the conclusion that under the said provision, the Appellate Tribunal had to dispose-off the appeal on merits which could not have been done by dismissing the appeal summarily for default of appearance. The Court observed that the principles laid down in the said decision would squarely apply to the facts and circumstances of the present case, in as much as the Petitioner was neither heard nor were his written submissions placed before the ITAT, considered.

The Hon. Court set aside the impugned order of the ITAT dated 12th March, 2024. Accordingly, the proceedings were remanded to the ITAT, for de novo hearing of the appeal filed before it.

Revision — Non-resident — Application by assessee for revision — Provisions of section 155(14) — Claim for tax deducted at source on amount not taxable in India — Credit not reflected in Form 26AS at time when return originally filed for relevant assessment year but reflected in subsequent assessment year — Commissioner cannot reject application on ground revised return not filed — Department to refund tax deducted at source with statutory interest: A.Y. 2015-16

6. Munchener Ruckversicherungs Gesellshaft Aktiengesellschaft In Munchen vs. CIT (International Taxation)

[2025] 473 ITR 53 (Del.):

A. Y. 2015-16

Date of order: 3rd September, 2024

S. 155(14) and 264 of ITA 1961

Revision — Non-resident — Application by assessee for revision — Provisions of section 155(14) — Claim for tax deducted at source on amount not taxable in India — Credit not reflected in Form 26AS at time when return originally filed for relevant assessment year but reflected in subsequent assessment year — Commissioner cannot reject application on ground revised return not filed — Department to refund tax deducted at source with statutory interest:

The assessee was a non-resident. For the A.Y. 2015-16, the assessee declared nil income asserting that its receipt of an amount would not be subject to tax in India in terms of the provisions u/s. 90 of the Income-tax Act, 1961 and claimed refund of tax deducted at source on the basis the tax credit statement being form 26AS, which included the tax deducted by an entity BALIC. The assessee submitted that the tax deducted at source pertaining to the last quarter of F. Y. 2014-15 was credited by BALIC on 21st January, 2016, that consequently, the original tax deducted at source stood increased. In the return for the A. Y. 2016-17 wherein the claim for tax deducted at source credit stood embedded on account of such amount having by then being captured in form 26AS and which amount had remained unclaimed in A. Y. 2015-16.

The Commissioner (International Taxation) was of the view that since the income received from BALIC was offered to tax, the assessee would not be entitled to the grant of tax deducted at source credit. He held that the assessee had failed to file revised return of income and rejected the assessee’s application u/s. 264.

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

“i) Section 155 of the Income-tax Act, 1961 prescribes that where credit for tax has not been given on the ground of either a certificate having not been furnished or filed, but which is subsequently presented before the Assessing Officer, it would be sufficient for the assessment order being amended. Section 155(14) places the Assessing Officer under a statutory obligation to amend the order of assessment once it is established that the contingencies stated in that provision are duly established. Sub-section (14) neither contemplates nor mandates the original return being amended or revised and takes care of contingencies where tax deducted at source is either subsequently credited or is reflected in form 26AS after a time lag. An assessee may face such a spectre on account of a variety of unforeseeable reasons.

ii) Since the tax which was deducted at source by BALIC stood duly embedded in form 26AS which was produced by the assessee and the income earned from that entity had never been held to be subject to tax under the Act, the refusal on the part of the Department to refund that amount was illegal and arbitrary. The factum of tax having been deducted at source by BALIC and pertaining to income transmitted in the A. Y. 2015-16 was not disputed and stood duly fortified from the disclosures which appeared in form 26AS pertaining to that assessment year. It was also not disputed that BALIC had credited the tax deducted at source on 21st January, 2016 and as a consequence of which, the credit was not reflected at the time when the return had been originally filed for the assessment year 2015-16.

iii) The order passed u/s. 264 rejecting the assessee’s application was quashed. The Department was directed to refund the amount of tax deducted at source along with statutory interest.”

Revision — Revision order — Validity — Non-resident — Claim for benefits under DTAA — Opinion of Commissioner that assessee conduit company used for treaty shopping not stated in notice — Assessee not given an opportunity to satisfy Commissioner regarding his view — Order of Tribunal setting side revision order not erroneous: A.Y. 2017-18

5. CIT (International Taxation) vs. Zebra Technologies Asia Pacific Pte. Ltd.

[2025] 472 ITR 745 (Del.):

A. Ys. 2017-18

Date of order: 23rd October, 2024

S. 263 of ITA 1961

Revision — Revision order — Validity — Non-resident — Claim for benefits under DTAA — Opinion of Commissioner that assessee conduit company used for treaty shopping not stated in notice — Assessee not given an opportunity to satisfy Commissioner regarding his view — Order of Tribunal setting side revision order not erroneous:

The assessee was a non-resident and distributed electronic products and services related to after sales, repairs, and technical support services to the customers across the globe. It held tax residency certificate of Singapore and sought to avail of the benefit of India-Singapore Double Taxation Avoidance Agreement ([1982] 134 ITR (St.) 6). In the A. Y. 2017-18, the assessee received a sum for rendition of technical support, repairs and maintenance services under an agreement with an Indian entity and also an amount in USD from offshore sale of products. According to the assessee, since it did not have a permanent establishment in India and also did not make available technical know-how, knowledge, and skill to the Indian entity under the agreement, the receipts were not chargeable to tax in India under the Act by virtue of the Double Taxation Avoidance Agreement. The Assessing Officer accepted the assessee’s explanation in response to the notices u/ss. 142(1) and 143(2) of the Income-tax Act, 1961 during the assessment proceedings which culminated in an assessment order.

The Commissioner was of the view that the Assessing Officer did not conduct the necessary inquiries and verified the facts for accepting the assessee’s claim that its income was not chargeable to tax under the Act by virtue of India-Singapore Double Taxation Avoidance Agreement, that he did not call for the relevant details or verified whether the assessee had a permanent establishment in India during the relevant period, that he did not carry out any inquiry to ascertain whether any commercial substance existed in Singapore and whether the assessee was merely a conduit company and used with an object to obtain the tax benefit under the Double Taxation Avoidance Agreement. Accordingly, he invoked his power u/s. 263.

The Tribunal faulted the Commissioner for not affording the assessee an opportunity to rebut the allegations that it was merely a conduit without any substance and had entered into an agreement for the purposes of taking an advantage of the Double Taxation Avoidance Agreement and allowed the appeal filed by the assessee.

The Delhi High Court dismissed the appeal filed by the Revenue and held as under:

“i) There was no fault with the order of the Tribunal in setting aside the revision order passed by the Commissioner u/s. 263 on the ground that the assessee was not afforded an opportunity to counter the allegation that it was a conduit company without any substance.

ii) In the show-cause notice the Commissioner had faulted the Assessing Officer for not undertaking certain enquiries including verifying whether, (i) the assessee had a permanent establishment in India, (ii) in terms of section 9(1)(vii) of the Act, the income was chargeable as fees for technical services, (iii) tax at source at the rate of 10 per cent. on all the remittances made to the assessee were deducted, (iv) the condition as set out in article 12 of the India-Singapore Double Taxation Avoidance Agreement in regard to taxation of fees for technical services were satisfied, (v) regarding the commercial substance of the assessee in Singapore and (vi) it was a conduit company formed for obtaining the tax benefits under the Double Taxation Avoidance Agreement.

iii) These observations were made only for the purposes of calling upon the assessee to show cause why the proceedings not be initiated u/s. 263 of the Act but, thereafter, the Commissioner had not put the issue regarding treaty shopping to the assessee. The tentative opinion formed by the Commissioner that the assessee was a conduit company for the reasons as articulated in the revision order was not put to the assessee. Hence, the assessee had not been given an opportunity to satisfy the Commissioner regarding such view for the A. Y. 2017-18.”

Recovery of tax — Grant of stay of demand — Stay of recovery pending appeals before Commissioner (Appeals) — Effect of office memorandum issued by CBDT — Rejection of stay of demand for non-deposit of 20% of disputed demand — Application to the Principal Commissioner — Direction to deposit 40% — Authorities failed to consider prima facie merits of the case — Financial hardship and likelihood of success — Orders rejecting stay of demand unsustainable — Matter remanded to the AO with directions to consider in light of earlier decision: A.Ys. 2010-11 to 2020-21

4. Sushen Mohan Gupta vs. Principle CIT

[2025] 473 ITR 173 (Del.)

A. Y. 2010-11 to 2020-21

Date of order: 22nd March, 2024

Ss. 156, 220(1), 220(6) and 246A of ITA 1961

Recovery of tax — Grant of stay of demand — Stay of recovery pending appeals before Commissioner (Appeals) — Effect of office memorandum issued by CBDT — Rejection of stay of demand for non-deposit of 20% of disputed demand — Application to the Principal Commissioner — Direction to deposit 40% — Authorities failed to consider prima facie merits of the case — Financial hardship and likelihood of success — Orders rejecting stay of demand unsustainable — Matter remanded to the AO with directions to consider in light of earlier decision:

A search and seizure action was conducted and subsequently notices u/s. 153A of the Act for the A.Ys. 2010-11 to 2019-20 were issued and on culmination of proceedings so drawn, the assessment orders came to be framed on 30th September, 2021 raising a cumulative demand of ₹ 1,85,62,19,390 for the A.Ys. 2010-11 to 2020-21.

The Assessee filed appeals before the CIT(A) which are pending. Against the enforcement of demand, the Assessee filed application for stay of demand before the Assessing Officer which came to be rejected on the ground that the Assessee had not deposited 20% of the outstanding demand and therefore the application could not be entertained. In rejecting the assessee’s application for stay of demand, the Assessing Officer relied upon the Office Memorandums of the CBDT dated 29-02-2016 and 31-07-2017.

Thereafter, the Assessee filed application for rectification of mistakes which was disposed and the revised demand recoverable from the Assessee was computed at ₹1,81,37,14,107. The Assessee thereafter filed another stay application before the Assessing Officer for the A.Ys. 2010-11 to 2020-21. During the pendency of the said stay application, the Assessee was served with a letter seeking payment of the outstanding demand followed by a demand notice issued u/s. 220(1) of the Act. In response to the aforesaid, the Assessee filed a detailed response stating that the original assessment was wholly arbitrary and rendered unsustainable in the light of the judgment of the Supreme Court in the case of Pr.CIT vs. Abhisar Buildwell Pvt. Ltd. The Assessee also offered to pledge properties owned by an entity in which the Assessee’s family members were directors / shareholders to secure the outstanding demand to the extent of 20%. The Assessee’s prayer was rejected.

Aggrieved, the Assessee approached the Principal Commissioner for grant of interim protection against the outstanding demands. The Principal Commissioner disposed the application by observing that during search operations, various incriminating documents were found and seized and credible evidence were collected. He, thus, disposed of the applications of stay of demand and directed the assessee to deposit demand which was 40 per cent of total outstanding demand within 15 days of receipt of his order.

The Assessee filed a writ petition before the High Court. The Delhi High Court allowed the writ petition and held as follows:

“i) The Central Board of Direct Taxes’ Office Memorandum [F. No. 404/72/93-ITCC], dated 29th February, 2016 could not be read as mandating a pre-deposit of 20 per cent. of the outstanding demand, without reference to the prima facie merits of a challenge that may be raised by an assessee in respect of an assessment order.

ii) The assessee had approached the Principal Commissioner in terms of the provisions made in the Office Memorandum dated 29th February, 2016. The view taken by the second respondent, that applications for stay could neither be countenanced nor entertained till the assessee deposited 20 per cent. of the pending demand was untenable and erroneous. The Principal Commissioner had proceeded to cause even greater prejudice to the assessee by requiring him to deposit 40 per cent. of the outstanding demand.

iii) According to para 4(C) of the Office Memorandum [F. No. 404/72/93-ITCC], dated February 29, 2016 stated to the effect that where stay of demand was granted by the Assessing Officer on payment of 15 per cent. of the disputed demand and the assessee was still aggrieved, he could approach the jurisdictional administrative Principal Commissioner or the Commissioner for a review of the decision of the Assessing Officer. The Principal Commissioner could not be recognised to stand empowered to subject the assessee to more onerous conditions. Rather than examining the challenge raised by the assessee to the assessment orders and evaluating the prima facie merits of the challenge had in one sense placed him under a harsher burden of depositing 40 per cent. of the outstanding demand as opposed to the direction of 20 per cent. deposit by the second respondent as a pre-condition for the consideration of application for stay under section 220(6) .

iv) Both the authorities had failed to consider the aspect of prima facie merits, likelihood of success and undue hardship. Therefore, their orders were unsustainable and hence quashed and set aside. The matter was remitted to the Assessing Officer to examine the applications for stay afresh considering the legal position.”

Reassessment — Exemption u/s. 10B — Newly established hundred per cent. export oriented establishments — Reassessment — Notice — Survey — Denial of claim for deduction u/s. 10B in original assessment — Grant of deduction by Tribunal — Fresh survey during pendency of revenue’s appeal before court — Reassessment on ground of availability of new material would tantamount to getting over anomalous situation — Reassessment proceedings to disallow claim for deduction once again impermissible — Notice and order rejecting assessee’s objections quashed and set aside: A.Y. 2009-10

3. Sesa Sterlite Ltd. vs. ACIT

[2025] 472 ITR 591 (Bom.)

A. Y. 2009-10

Date of order: 4th September, 2024

Ss.10B, 133A, 147 and 148 of ITA 1961

Reassessment — Exemption u/s. 10B — Newly established hundred per cent. export oriented establishments — Reassessment — Notice — Survey — Denial of claim for deduction u/s. 10B in original assessment — Grant of deduction by Tribunal — Fresh survey during pendency of revenue’s appeal before court — Reassessment on ground of availability of new material would tantamount to getting over anomalous situation — Reassessment proceedings to disallow claim for deduction once again impermissible — Notice and order rejecting assessee’s objections quashed and set aside:

The assessee was in the business of manufacturing and production of iron ore and had three units situated at Amona, Chitradurga and at Codli. These units are export-oriented undertakings and for the assessment year 2009-10, the assessee claimed deduction u/s. 10B. A survey u/s. 133A was carried out at the assessee’s premises wherein the authorities sought to ascertain the relevant facts in connection with the claim for deduction u/s. 10B. The Assessing Officer issued a notice dated July 16, 2014 u/s. 148 to reopen the assessment u/s. 147. The Assessees objections were rejected.

The Assessee filed a writ petition and challenged the notice and the order rejecting the objection. The Bombay High Court allowed the writ petition and held as under:

“i) Section 10B(2) provided that section 10B applied to any undertaking which fulfilled all the conditions therein. The assessee had claimed deduction u/s. 10B in respect of the three export-oriented units for the A. Y. 2009-10 and a survey u/a. 133A had been carried out at its premises in connection with the claim for deduction u/s. 10B. The assessment order u/s. 143(3) was passed by the Assessing Officer whereunder the claim for deduction u/s. 10B was disallowed in its entirety for the reasons given by the Assessing Officer. He had held that the assessee’s units were not engaged in the business of manufacture and production of any article or thing, that the assessee had not produced satisfactory evidence with regard to the date of commencement of production, that the approval granted by the Development Commissioner for one unit was not ratified by the Board and that the profits of the units was determined without taking into consideration the cost of the wastage from other units which was utilised in the alleged production that was carried out in the unit under reference, and the units were not new units and the setting up of the units in the old mines which were operated by the assessee could not be regarded as new units and that the assessee had not maintained separate books of account for the export oriented units. The Commissioner (Appeals) had upheld the denial of the claim of deduction under section 10B by the Assessing Officer. The Tribunal had dealt with all the reasons given by the Assessing Officer and had upheld the claim for deduction u/s. 10B. Therefore, entitlement to deduction u/s. 10B had been the subject matter of appeal before the appellate authorities. During the pendency of the tax appeal before this court, a fresh survey was conducted u/s. 133A and on the basis of the materials which were found during the survey in 2014, reassessment u/s. 147 was sought to be justified for the purpose of denying the claim for deduction u/s. 10B. Thus, the reasons of the Assessing Officer in support of his finding could be several but what was relevant was the subject matter of the tax appeal. The third proviso to section 147, which provided that the Assessing Officer could assess or reassess such income, other than the income involving matters which were the subject matters of any appeal, reference or revision, which was chargeable to tax and had escaped assessment, would come into effect.

ii) When the fresh survey u/s. 133A was conducted in the year 2014 during the pendency of the tax appeal before this court, the new materials found by the Assessing Officer were sought to be placed before the Tribunal and this court and the issue under consideration was whether the assessee was entitled to claim deduction u/s. 10B. Assuming that the reassessment proceedings u/s. 147 was allowed to continue on the basis of the new materials a situation could arise to be held that the assessee was entitled to claim deduction u/s. 10B, whereas in the reassessment proceedings, the Assessing Officer on the basis of the new materials could conclude that the assessee was not entitled to claim deduction u/s. 10B.

iii) Reassessment proceedings were obviously to get over such an anomalous situation that the third proviso to section 147 was meant to cover. If the reassessment proceedings were allowed to continue, it would virtually amount to having an effect of sitting in appeal over the orders passed by this court and the Tribunal which could not be countenanced. Though it was the allegation that fresh evidence was unearthed during the course of fresh survey in March 2014, which indicated that the units considered as new units were not new units but an amalgamation of the existing units. The exercise really was to rely on these materials in support of the findings earlier recorded by the Assessing Officer which was already subject matter of challenge before the competent forum. Assumption of jurisdiction to reopen the assessment was without jurisdiction to once again disallow a claim for deduction u/s. 10B. The notice dated 16th July, 2014 issued u/s. 148 to reopen the assessment u/s. 147 for the A. Y. 2009-10 and the order rejecting the assessee’s objections were quashed and set aside.”

Public Interest Litigation — Return of Income — Filing of return in electronic form — Modification of online filing system —Jurisdiction of revenue authorities — Utility not providing for making claim for rebate under section 87A read with proviso to section after 5-7-2024 — Attempt to restrict or prohibit assessee from making particular claim at threshold itself in return of income unconstitutional — No provision under Act which debars assessee to make claim under section 87A qua tax computed at rates specified in provisions of chapter XII other than section 115BAC — Statutory safeguards and remedies in provisions of Act for consequences if claim made in self assessment found to be incorrect or not bona fide — Allowance or disallowance of claim to be deduced by interpretative and adjudicating process — Assessee cannot be debarred from making claim in return of income whether online or manual — Directions issued to modify utility to enable assessees file returns or revised returns of income — NFAC cannot continue assessment proceedings in concluded assessment — Assessment order passed by NFAC set-aside: A.Y. 2024-25

2. Chamber of Tax Consultants & Ors vs. DGIT (Systems)

[2025] 473 ITR 85 (Bom.)

A. Y. . 2024-25

Date of order: 24th January, 2025

Ss. 87A, 115BAC, 139, 139(5) and 139D of  ITA 1961

Public Interest Litigation — Return of Income — Filing of return in electronic form — Modification of online filing system —Jurisdiction of revenue authorities — Utility not providing for making claim for rebate under section 87A read with proviso to section after 5-7-2024 — Attempt to restrict or prohibit assessee from making particular claim at threshold itself in return of income unconstitutional — No provision under Act which debars assessee to make claim under section 87A qua tax computed at rates specified in provisions of chapter XII other than section 115BAC — Statutory safeguards and remedies in provisions of Act for consequences if claim made in self assessment found to be incorrect or not bona fide — Allowance or disallowance of claim to be deduced by interpretative and adjudicating process — Assessee cannot be debarred from making claim in return of income whether online or manual — Directions issued to modify utility to enable assessees file returns or revised returns of income — NFAC cannot continue assessment proceedings in concluded assessment — Assessment order passed by NFAC set-aside:

The Department releases utility for filing income tax returns online every year. The Department published a change in utility with effect from 05-07-2024. The said change unilaterally disabled the assessees from claiming rebate u/s. 87A. As a result, taxpayers, despite being statutorily eligible, were effectively deprived of their entitlements solely due to technical modifications introduced by the revenue.

The Chamber of Tax Consultants filed a petition seeking direction to modify the system and put in place by the Department for filing income tax returns for AY 2024-25 so as to allow the assessees at large to take benefit of rebate available u/s. 87A. It was contended that this unilateral modification is arbitrary, lacks justification, and deprives eligible taxpayers of statutory benefits. The Respondents’ actions violate the principles of fairness and transparency expected from public authorities and seek judicial intervention to ensure compliance with statutory provisions.

The Bombay High Court allowed the petition and held as follows:

“i) The Department could not restrain or prohibit an assessee from claiming section 87A rebate by modifying their utility by which an assessee was forbidden at the threshold itself from making such a claim in the return of income. The provisions of the Act were not so clear as to arrive at a definite conclusion that a rebate under section 87A could not be granted from the tax computed under the other provisions of Chapter XII. Certainly, such a claim whether eligible or not could be examined in the proceedings under section 143(1) or section 143(3). Merely because few selected cases were picked up for scrutiny would not mean and would not authorise any authority under the Act to prevent an assessee from making the claim on which more than one view was possible. Merely because many returns of income were required to be processed and only a few of them were selected for scrutiny assessment under section 143(3) could not be a ground to tweak the utility to prevent at the very threshold, an opportunity to raise a claim on a debatable issue based upon the interpretation of the provisions in sections 87A and 115BAC. Considering the mandates of articles 265 and 300A, ends, howsoever laudable, cannot justify means.

ii) Assuming that the legal provisions were ambiguous, the Department cannot resolve such ambiguity by adopting an interpretation favouring itself through the device of simply tweaking the utility and preventing the assessee from even raising a claim. Therefore, the main question is not whether the interpretation proposed by the learned counsel for the petitioners or that proposed by the learned Additional Solicitor General is correct, but the main question is whether the Department can insist that its interpretation prevails or triumphs because it has the capacity to and has exercised this capacity to tweak the utility and prevent an assessee to even raise a debatable claim. The provisions of the Income-tax Act do not permit the Department to do this without transgressing the constitutional boundaries

iii) The issue raised on the claim u/s. 87A was, at best, highly debatable and contentious. Therefore, the Department would not be justified in assuming that its interpretation was open and shut, and based upon such a conclusion, shut out bona fide claims for rebate under section 87A and could not be done by exercising administrative powers instead of quasi-judicial powers. Disputed claims, except to the limited extent explicitly permitted by the law, could not ordinarily be disposed of by the executive acting in its executive capacity. This is more so when the executive is itself a party to the lis. One of the foundations of our Constitution is the rule of law. This posits that all three organs of governance, the Legislature, the Executive, and the Judiciary function under and in accordance with the law as enshrined in our Constitution.

iv) The Department did not show any provision under the Act which expressly debarred an assessee to raise or make the claim u/s. 87A qua the tax computed at the rates specified in the provisions of Chapter XII other than section 115BAC. There was no rebuttal to the petitioner’s contention that a provision like section 112A(6) had been expressly enacted wherever the Legislature intended to deny such a benefit. Therefore, in so far as the prayers of the petitioners were concerned that the utility should permit an assessee to at least make a claim under section 87A, it could not be rejected at the threshold.

v) Whether rebate u/s. 87A was to be allowed only on the tax calculated in accordance with the provisions of section 115BAC or also on taxes calculated under other provisions of Chapter XII would require interpretation of the interplay of section 87A and section 115BAC To what extent the overriding provisions contained in section 115BAC(1A) would result in allowability or denial of rebate under section 87A would have to be examined by interpretative process. The impact of the phrase “subject to the provisions of this Chapter” would also have to be examined along with other provisions for adjudicating the claim under section 87A. What was the purport of the proviso to section 87A on the claim proposed to be made would have to be interpreted in conjunction with the provisions of section 115BAC(1A) and other connected sections. How the phrase “total income” should be construed for section 87A and section 115BAC along with the definition sections, charging sections and scope of total income and the scheme of the Act, would have to be examined. Whether the provisions of section 115BAC restricted itself only to tax rates or computation of total income would also have to be examined. If such exercise was required to be undertaken before coming to a definite conclusion as to whether the rebate under section 87A was to be granted or denied on the tax computed under the provisions of Chapter XII other than section 115BAC, had to be deduced by interpretative and adjudicating process. Therefore, the Department was not justified in modifying the utility from 5th July, 2024, by which an assessee was debarred at the threshold from making the claim, which claim was contentious or debatable.

vi) A combined reading of section 87 and section 87A would mean an assessee has to make a claim, the entitlement of which is to be examined by processing the return under section 143(1) or section 143(3) and the same should be allowed as a deduction. Section 87 which provides for rebate under section 87A uses the phrase “there shall be allowed from the amount of income tax . . .”. The proviso to section 87A uses the phrase “. assessee shall be entitled to a deduction . . .”. If a claim was not made, the Department could contend that the claim could not be allowed.

vii) In the absence of any concrete case, the petitioner’s prayer to direct the Department to make the utilities for filing the return of income online flexible so as to allow an assessee to self compute the income and there should not be any restriction on making of any claim whatsoever and to not release any utilities or make any changes in the utilities for filing of the return of income under section 139 which would not allow any assessee to raise any claim, could not be granted unless there was a demand for justice which had been rejected or a failure on the part of the Department to exercise its duty under the Act. The court should grant no relief in such broad and general terms because the ramifications would be unclear.

viii) The Department was directed to modify the utilities for filing of the return of income u/s. 139 of the Act immediately, thereby allowing the assessees to make a claim of rebate under section 87A of the Act read with the proviso to section 87A , in their return of income for the assessment year 2024-25 and subsequent years including revised returns to be filed u/s. 139(5).”

Exemption u/s. 10(38) — Long-term capital gains — Book profits — Minimum alternate tax — Amendments in provisions of sections 10 and 115JB — Commissioner (Appeals) and Tribunal not erroneous in allowing exemption u/s. 10(38) on long-term capital gains from sale of shares of amalgamating companies with assessee: A.Y. 2015-16

1. Principle CIT vs. Hespera Reality Pvt. Ltd

[2025] 472 ITR 630 (Del.)

A. Y. 2015-16

Date of order: 24th December

Ss.10(38) and 115JB of ITA 1961

Exemption u/s. 10(38) — Long-term capital gains — Book profits — Minimum alternate tax — Amendments in provisions of sections 10 and 115JB — Commissioner (Appeals) and Tribunal not erroneous in allowing exemption u/s. 10(38) on long-term capital gains from sale of shares of amalgamating companies with assessee:

During the F.Y. 2014-15 relevant to the A.Y. 2015-16, five companies which held shares of the entity IBHFL merged with the assessee and three of these companies sold their shares. Since the said amalgamating companies were merged with the assessee with effect from August 1, 2014, the income earned from the transaction of sale of IBHFL shares were assessed in the hands of the assessee. The Assessing Officer was of the view that the amount of long-term capital gains was required to be added to the book profits u/s. 115JB and that the amount was not entitled to exemption u/s. 10(38).

The Commissioner (Appeals) held that the entire amount of long-term capital gains was not liable to be included as income chargeable to tax u/s. 10(38) and accordingly, deleted the disallowance but upheld the Assessing Officer’s decision regarding the computation of book profits for the purpose of determination of minimum alternate tax u/s. 115JB. On the question, whether the long-term capital gains that arose from the sale of investments were exempted u/s. 10(38), the Tribunal concurred with the decision of the Commissioner (Appeals) and rejected the appeal of the Department.

Delhi High Court dismissed the further appeal by the Department and held as under:

“i) The proviso to section 10(38) of the Income-tax Act, 1961 was introduced by virtue of the Finance Act, 2006 ([2006] 282 ITR (St.) 14). The inclusion of the proviso was corresponding to the amendments to Explanation 1 of section 115JB. By virtue of the Finance Act, 2006, the Explanation to section 115JB was amended and expenditure incurred in respect of the income exempt u/s. 10, with the exceptions of section 10(38) was excluded for the purposes of calculation of book profits and minimum alternate tax under section 115JB. In other words, the expenditure incurred for earning such income as was exempt from taxation by virtue of section 10(38) was required to be accounted for as expenditure for determining the book profits. Correspondingly, income u/s. 10(38) was also included as a part of the book profits but other incomes covered u/s. 10 were excluded.

ii) The proviso to section 10(38) was added by virtue of the Finance Act, 2006 to abundantly clarify that the income from capital gains on certain assets, which are excluded from the income u/s. 10(38) would be included in computing book profits u/s. 115JB. The proviso to section 10(38) cannot be read in the reverse to mean that if the gains are not included as book profits u/s. 115JB they are liable to be included as income for the purposes of assessment to tax under the normal provisions, notwithstanding that the gains are required to be excluded from income chargeable to tax u/s. 10(38).

iii) There was no fault with the decision of the Commissioner (Appeals) and the Tribunal, in rejecting the Department’s contention and holding that the assessee was entitled to exemption u/s. 10(38) of the long-term capital gains on account of sale of shares by the amalgamating companies, which was denied by the Assessing Officer.”

Impact Of The Projects Of BCAS Foundation

We are pleased to inform you that the BCAS Foundation set up a Science Laboratory, a Modern Library and four Smart Classes at M. M. High School, Umbergaon, which is a 125-year-old School, run professionally. These projects will benefit more than 2300 students every year. These projects were inaugurated on 9thAugust 2024 at a grand function organized by the School. Interestingly, that day was an “Adivasi Divas” and also a “Book Lovers Day”. Guests present at the function also planted a tree in their mother’s name and became part of the movement called “Ek Ped MaaKeNaam”, ‘एकपेड़माँकेनाम’.

We are happy to share the impact of the Science Lab in just a few months of its inauguration in the following letter from the M. M. High School addressed to the BCAS Foundation.

TO BCAS FOUNDATION,

“DEEP GRATITUDE FOR THE SCIENCE LABORATORY! IT’S BEEN INVALUABLE TO US.”

We utilized the Science Lab to create outstanding science fair projects, resulting in unprecedented success:- 4 projects selected for district level (A first-time achievement for our school )

The hands-on experience provided by the laboratory has sparked curiosity and enthusiasm among students. Practical learning has made science more engaging and accessible.

Thank you for empowering our students with cutting-edge facilities and fostering a love for science.

OUR SELECTED PROJECTS:-

1. ELECTRICITY GENERATED BY ROTTEN VEGETABLES (INNOVATIVE ENERGY HARVESTING):

Quality food is essential for our health. When vegetables are stored for a long time, their taste changes, and their nutritional value decreases. Such vegetables can lead to stomach aches, vomiting, and other illnesses. Due to the reduction in nutrients in these vegetables, immunity also decreases. The gases emitted from rotten vegetables can cause environmental pollution, and the flies and mosquitoes that gather on them can spread diseases. Therefore, an excellent way to manage stale and rotten vegetables is to generate electricity from them and then produce fertilizer.

2. FLOAT FARMING (SUSTAINABLE AGRICULTURE SOLUTION ):

Because of urbanization and industrialization, agricultural land is decreasing day by day. FLOAT FARMING is one baby step to solve this problem.

This system uses floating beds, which are made from water hyacinths, aquatic algae, water-borne creepers, herbs, plant residues, coconut husk and bamboo.

The system uses a floating bed of rotting vegetation that acts as compost for crop growth. There is no need for artificial fertilizer. We can develop Fish farms in that water, too, which will benefit farmers.

Float farming creates agricultural land areas in a wet area.

3. NIGHT SOLAR CAR (RENEWABLE ENERGY APPLICATION):

Purpose of the Project:-Everyone knows that solar vehicles only run during the day, but there is no option of energy harvesting for the vehicle during the night, so this is the purpose of our project that solar vehicles will harvest solar energy during the day and use the same energy at night using Thermoelectric Principle.

How it works:- The Night Solar Vehicle utilizes a Peltier module charged by hot sand during the day, converting heat into electricity. This energy is then stored in a battery, powering the vehicle at night. Additionally, a carbon solar panel generates electricity, supplementing the Peltier module’s energy.

4. EARTH AIR TUNNEL (ENVIRONMENTAL INNOVATION):

The temperature below the surface of the Earth (at a depth of 6 to 8 meters) remains stable throughout the year, with a variation of around 6°C to 10°C. This project works on that principle.

One end of the pipe is placed above the ground, and then the pipe is taken underground to a depth of 6 to 8 meters and passed through the earth, with the other end entering inside the house. During summer, the hot air from outside enters the pipe, and as it passes through the tunnel, the lower temperature beneath the earth causes a heat exchange, cooling the air. This cool air then enters the house, providing natural cooling. The same system is also useful in winter.

With Deep Gratitude,

M. M. High School, Umbargaon

(Alpesh Patel – Principal) (Jesal Shah – Vice Principal)

Glimpses of Supreme Court Rulings

1. K. Krishnamurthy vs. The Deputy Commissioner of Income Tax

(2025) 171 taxmann.com 413 (SC)

Penalty under section 271AAA — The imposition of penalty is not mandatory – Penalty may be levied if there is undisclosed income in the specified previous year — It is obligatory on the part of the Assessing Officer to demonstrate and prove that undisclosed income of the specified previous year was found during the course of search or as a result of the search – Appellant admitted ₹2,27,65,580/- as income for AY 2011-12 during the search before DDIT (Inv.) as well as substantiated the manner in which the said undisclosed income was derived and paid tax together with interest thereon, albeit belatedly, therefore, penalty under Section 271AAA(1) was not attracted on the said amount of  ₹2,27,65,580 — Appellant had not offered in the declaration before the DDIT(Inv.) any income on land transactions belonging to Mr. Sharab Reddy and Mr. NHR Prasad Reddy — Appellant offered ₹2,49,90,000/- under the head “Income From Other Sources” on account of these land transactions during the course of assessment proceedings only and not at any time during the search — Penalty under Section 271AAA(1) of the Income-tax Act 1961 was therefore leviable on the said amount.

A Memorandum of Understanding (‘MOU’) dated 19th January, 2009 was entered into between Mr. Hashim Moosa on the one hand and the Appellant as well as Mr. Surendra Reddy on the other, for procuring lands at a certain price from the land procurers, i.e. the Appellant and Mr. Surendra Reddy. As per Clause 10 of this MOU, ₹10,00,000/- (Rupees Ten lakhs only) was paid to the procurers for arranging facilitation of transfer of land from the landowners to Mr. Hashim Moosa / his nominees. No other payment, except a reimbursement under Clause 11, was contemplated under this MOU.

A transaction was entered into between Mr. Hashim Moosa and the Space Employees’ Co-operative Society Ltd. (in short ‘Society’) on 26th September, 2009. It was in order to facilitate purchase of land for this transaction that the MOU dated 19th January, 2009 was entered into by the Appellant with Mr. Hashim Moosa.

A search and seizure operation was carried out at the Appellant’s premises on 25th November, 2010, under section 132 of the Act. The Appellant disclosed an income of ₹2,27,65,580/- as a consequence of the search and seizure.

A notice dated 21st August, 2012 under Section 142(1) of the Act was issued to the Appellant calling for return of income for Assessment Year (‘AY’) 2011-2012. The Appellant filed his return of income on 05th November, 2012. The Appellant returned a total income of ₹4,77,11,330/- for Previous Year (‘PY’) 2010-2011, relevant to AY 2011-2012.

The Respondent issued the Assessment Order dated 15th March, 2013 for PY 2010-2011 relevant to AY 2011-2012, in respect of the Appellant. The total income assessed was ₹4,78,02,616/-.

The Assessing Officer noted that Space Employees’s Co-operative Housing Society Limited entered into an MOU on 26-09-2009 with Mr. HashimMoosa for acquiring 120 acres (which was further extended to 150 acres) of lands in Hoskote Taluk for a consideration of ₹74,26,980/- per acre. The Society will pay Mr. Moosa ₹73,26,980/- per acre of registered land to and the balance ₹1 lakh per acre shall be deposited in a Joint Escrow Account till the entire 120 acres of land is registered in favour of the Society.

To procure lands for the Society, Mr. HashimMoosa had entered into an MOU on 19-01-2009 with Mr. K. Krishna Murthy (Appellant) and P. Surendra Reddy for procuring lands @ ₹70,00,000/- per acre.

Mr. Krishnamurthy (Appellant) and Mr. Ananda Reddy had transferred 16.25 acres of lands which are in the names Mr. NHR Prasada Reddy and Mr. Sharab Reddy in favour of the Society.

On the basis of the copies of sale deeds collected from the Society, it was seen that Mr. N.H.R. Prasad Reddy sold 7 acres and 36 guntas of land to the Society and received total sale consideration of ₹4,34,50,000/-. Similarly, his brother Mr. N.H. Sharaba Reddy sold 10 acres and 33 guntas of lands to the Society and received sale consideration of ₹5,95,37,500/-. Overall they had sold 18 acres and 29 guntas of land and received total sale consideration of ₹10,29,87,500/. The consideration received by them works out to ₹55,00,000/- per acre.

Though, the Assessee had admitted that he had undertaken transaction and had promised to get alternative lands to Mr. NHR Prasad Reddy & Sharab Reddy, he had not offered any income on this count before the DDIT (Inv.). The Assessee offered an amount of ₹2,49,90,000/- during the course of assessment proceedings under the head income from other sources (income from assignment of rights) being the difference between the cost of lands which he has acquired on behalf of the brothers and cost of lands at which it is transferred to society.

On 30th September, 2013, an order imposing penalty under section 271AAA of the Act was passed against the Appellant for AY 2011-2012. The Respondent imposed penalty on the Appellant solely on the ground that the Appellant did not make payment of tax and penalty in terms of section 271AAA(2) of the Act after receipt of Show Cause Notice and considering the entire received income as the undisclosed income.

On the same day, another order imposing penalty under Section 271AAA of the Act was passed in respect of AY 2010-2011. Penalty at the rate of 10% (Ten per cent) was imposed on the entire returned income i.e. ₹4,78,02,616/- amounting to ₹47,80,261/-.

The CIT (Appeals), Bangalore allowed the appeal preferred against the Penalty Order dated 30th September, 2013 in respect of AY 2010-2011 accepting the submission of the Appellant that 2009-10 cannot be the ‘specified previous year’ for the purpose of Section 271AAA of the Income-tax Act, 1961.

Appeal preferred against the Penalty Order dated 30th September, 2013 in respect of AY 2011-2012 was however rejected solely relying on Section 271AAA(2) of the Income-tax Act, 1961 holding that the basic condition existing in the section has not been fulfilled.

The Income Tax Appellate Tribunal (‘ITAT’) vide order dated 17th October, 2016 rejected the Appellant’s appeal against the CIT(A) order again on the ground of non-compliance with Section 271AAA(2) of the Income-tax Act, 1961.

The Appellant preferred an appeal under section 260A of the Act.

Before the High Court, it was contended by the Assessee that it had admitted an undisclosed income of ₹2,27,65,580/- and filed returns showing income of ₹4,78,02,616/-. Nothing was found during the course of search. Assessee had voluntarily filed return of income more than what he had admitted before the DDIT. The machinery section had thus failed and therefore, penalty could not have been imposed.

According to the High Court compliance of all three conditions in sub-clause (2) of Section 271AAA of the Act were mandatory and the third condition namely, the payment of tax, together with interest, if any, had not been fulfilled by the Assessee.

On the question as to whether penalty prescribed @10% of undisclosed Income under section 271AAA of the Act can be reduced, if the tax together with interest on the undisclosed income as declared by the Assessee in the course of search in a statement under Section 132(4) is partly complied with, the High Court held that admittedly, the Appellant had not disclosed the income at all. But for search, the same could not have been unearthed. Having filed the returns, the Assessee did not comply with the third condition of sub-section (2). The assessee was therefore not entitled to any relief.

The High Court dismissed the appeal of the Appellant vide the judgment dated 2nd August, 2022.

On 6th January, 2023, the Supreme Court was pleased to issue notice confined to the second question urged before the High Court.

The Supreme Court noted that Section 271AAA(1) of the Income-tax Act 1961 stipulates that the Assessing Officer may, notwithstanding anything contained in any other provisions of the Act, direct the Assessee, in a case where search has been carried out to pay by way of a penalty, in addition to the tax, a sum computed at the rate of 10% (Ten per cent) of the undisclosed income of the specified previous year. The Supreme Court was of the view that the imposition of penalty therefore is not mandatory. Consequently, penalty under this Section may be levied if there is undisclosed income in the specified previous year.

According to the Supreme Court, though under Section 271AAA(1) of the Income-tax Act 1961, the Assessing Officer has the discretion to levy penalty, yet this discretionary power is not unfettered, unbridled and uncanalised. Discretion means sound discretion guided by law. It must be governed by rule, not by humour, it must not be arbitrary, vague and fanciful. [See: Som Raj and Ors. vs. State of Haryana and Ors. 1990:INSC:53 : (1990) 2 SCC 653].

The Supreme Court noted that Section 271AAA(2) of the Act stipulates that Section 271AAA(1) shall not be applicable if the Assessee — (i) in a statement under sub-section (4) of Section 132 in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income.

Consequently, if the aforesaid conditions (i) and (ii) are satisfied and the tax together with interest on the undisclosed income is paid up to the date of payment, even with delay, in the absence of specific period of compliance, then penalty at the rate of 10% (Ten per cent) under section 271AAA of the Act 1961 is normally not leviable.

The Supreme Court further noted that the expression ‘Undisclosed Income’ has been defined in Explanation (a) appended to Section 271AAA of the Act. According to the Supreme Court, as Section 271AAA is a penalty provision, it has to be strictly construed. The fact that the Assessee had surrendered some undisclosed income during the course of search or that the surrender was emerging out of the statements recorded during the course of search was not sufficient to fasten the levy of penalty. The onus was on the Assessing Officer to satisfy the condition precedent stipulated in the said Explanation, before the charge for levy of penalty is fastened on the Assessee.

Consequently, it is obligatory on the part of the Assessing Officer to demonstrate and prove that undisclosed income of the specified previous year was found during the course of search or as a result of the search.

The Supreme Court further noted that the expression ‘specified previous year’ has been defined in Explanation (b) appended to Section 271AAA of the Act 1961. Since in the present case, the search was conducted on 25th November, 2010 and as the year for filing returns under Section 139(1) of the Act 1961 which ended prior to that date had expired on 31st July, 2010, Explanation b(i) was not applicable so as to make AY 2010-11 the specified previous year. Consequently, by virtue of Explanation b(ii), AY 2011-12 (the year in which the search was conducted) was the specified previous year in the present case for the purpose of Section 271AAA(1) of the Income-tax Act, 1961.

The Supreme Court further held that in the present case, the Appellant admitted ₹2,27,65,580/- as income for AY 2011-12 during the search before DDIT (Inv.) as well as substantiated the manner in which the said undisclosed income was derived and paid tax together with interest thereon, albeit belatedly.

Consequently, all the conditions precedent mentioned in Section 271AAA(2) stood satisfied and, therefore, penalty under Section 271AAA(1) was not attracted on the said amount of ₹2,27,65,580/-.

However, in the assessment order dated 15th March, 2013 passed under Section 143(3) of the Act, which has attained finality, it was an admitted position that the Appellant had not offered in the declaration before the DDIT(Inv.) any income on land transactions belonging to Mr. Sharab Reddy and Mr. NHR Prasad Reddy. From the assessment order dated 15th March, 2013, it was apparent that the Appellant offered ₹2,49,90,000/- under the head income from other sources on account of these land transactions during the course of assessment proceedings only and not at any time during the search.

The argument that the said transactions had not been found in the search at the Appellant’s premises but had been found due to ‘copies of sale deeds collected from the society’ had no merits as the sale deeds had been collected as a result of the search and in continuation of the search. The Supreme Court was of the view that as the causation for collecting the sale deeds from the Society was the search at the Appellant’s premises, it cannot be said that the said documents were not found in the course of the search.

The Supreme Court further held that the expression ‘found in the course of search’ is of a wide amplitude. It does not mean documents found in the Assessee’s premises alone during the search. At times, search of an Assessee leads to a search of another individual and / or further investigation / interrogation of third parties. All these steps and recoveries therein would fall within the expression ‘found in the course of search’.

The Supreme Court reiterated that since income of `2,49,90,000/- constituted undisclosed income found during the search, penalty under Section 271AAA(1) of the Income-tax Act, 1961 was leviable on the said amount. Also, as the said amount was not admitted in the declaration before the DDIT(Inv.) during the course of search but was disclosed by the Appellant only during the assessment proceedings, and that too, after the Assessing Officer had asked for copies of the sale deeds from the Society, the exception carved out in Section 271AAA(2) was not attracted to the said portion of the income.

The Supreme Court disposed the appeal with a direction to the Appellant to pay penalty at the rate of 10% (Ten per cent) on ₹2,49,90,000/- and not on ₹4,78,02,616.

From Published Accounts

COMPILER’S NOTE

National Financial Reporting Authority (NFRA) had case issued an order in 2023 against a company wherein it had questioned accounting policies followed for Revenue Recognition and disclosure of Operating Segments. Given below are the disclosures in the financial statements of the company for the same.

Mahindra Holidays & Resorts India Ltd (31st March, 2024)

From Boards’ Report

Significant and Material Orders passed by the Regulators or Courts

There were no significant and material orders passed by the Regulators / Courts / Tribunals which would impact the going concern status of the Company and its operations in the future. The Company received an order from National Financial Reporting Authority (“NFRA”) (“the Order”) on 29th March, 2023, wherein NFRA had made certain observations on identification of operating segments by the Company in compliance with the requirements of Ind AS 108 and the Company’s existing accounting policy for recognition of revenue on a straight line basis over the membership period under IND AS 115. In terms of the Order, the Company completed the review of its accounting policies and practices with respect to disclosure of operating segments and timing of recognition of revenue from customers and has taken necessary measures to address the observations made in the Order. Basis the said review, the existing accounting policies, practices and disclosures by the Company are in compliance with the respective Ind AS. Accordingly, the same have been applied by the Company in the preparation of financial results and a report to that effect has been submitted to NFRA.

As at 31st March, 2024, the Management assessed the application of its accounting policies relating to segment disclosures and revenue recognition. Basis the current assessment by the Company after considering the information available as on date, the existing accounting policies, practices and disclosures are in compliance with the respective Ind AS and accordingly, have been applied by the Company in the preparation of the financial statements for the year ended 31st March, 2024.

From Independent Auditors’ Report on Standalone Financial Statements

From Key Audit Matters

Directions by the Regulator (See Note 56 to standalone financial statements)

The key audit matter

Pursuant to a complaint made by a customer against the Company, National Financial Reporting Authority (‘NFRA’) passed an order dated 29th March, 2023 (‘the Order’) providing directions to the Company. As per the order, NFRA has made certain observations in respect of:

  •  the identification and disclosure of segments by the Company; and
  •  Company’s accounting policy for recognition of revenue on a straight-line basis over the period of the membership fees and annual subscription fees. As per the Order, the Company has carried out review of policies and practices in areas of operating segments and timing of recognition of revenue from customers and submitted its response to NFRA.

Given the significance of the findings of NFRA on the policies and practices adopted by the Company, this has been considered as a key audit matter.

How the matter was addressed in our audit

Our procedures included the following:

  •  Reading the Order received by the Company and us from NFRA;
  •  Evaluating the findings in the Order with reference to segment reporting under Ind AS 108 and revenue recognition under Ind AS 115;
  •  Communicating the findings of the Order with those charged with governance;
  •  Inquiring and assessing the Company’s existing practices and policies followed by the Company in respect of the findings made by NFRA;
  •  Reviewing Company’s response to NFRA as required by the Order;
  •  Submitting our report to NFRA, based on our review of Company’s aforesaid response.

Segment Reporting

  •  Inquiring with the Chief Operating Decision Maker (CODM) on the current process of identification of segments;
  •  Obtaining and inspecting the operating results regularly reviewed by Company’s CODM.
  •  Assessing the adequacy of disclosures of operating segments in accordance with Ind AS 108.

Revenue Recognition

  •  Evaluating the accounting policy for recognition of revenue for contracts entered with members against requirements of Ind AS 115 with reference to fulfillment of performance obligations by the Company;
  •  Inspecting and testing, on sample basis, relevant customer contracts and assessing revenue is recognised on satisfaction of performance obligation;
  •  Assessing the adequacy of disclosures in accordance with Ind AS 115.

From Notes to Financial Statements

Note No.56

NFRA order The Company received an order (‘the Order’) from National Financial Reporting Authority (‘NFRA’) on 29th March, 2023 wherein NFRA had made certain observations on identification of operating segments by the Company in compliance with requirements of Ind AS 108 and the Company’s existing accounting policy for recognition of revenue on a straight-line basis over the membership period. As per the order received from NFRA, the Company was required to complete its review of accounting policies and practices in respect of disclosure of operating segments and timing of recognition of revenue from customers and take necessary measures to address the observations made in the Order. The Company had submitted its assessment to NFRA and will consider further course of action, if any, basis directions from NFRA. As at 31st March, 2024, the management has assessed the application of its accounting policies relating to segment disclosures and revenue recognition. Basis the current assessment by the Company after considering the information available as on date; the existing accounting policies, practices and disclosures are in compliance with the respective Ind AS and accordingly have been applied by the Company in the preparation of these financial statements.

Study Circles

Shrikrishna: Arey Arjun, yesterday I called you many times; but you didn’t pick up the phone.

Arjun: Bhagwan, I was attending a lecture in our study circle meeting.

Shrikrishna: Oh! What was the topic?

Arjun: yehi – apna Ethics! Bhagwan, I tell you, the future of the profession seems to be very bleak. Everybody was crying.

Shrikrishna: I am aware. There are many risks and threats. Too many regulations, harassment by Regulators, excessive expectations of clients, no reward ………Right?

Arjun: You said it. On many occasions, I have shared my worries with you. No good staff, no good articles. Can’t really cope up with the work. So many compliances!

Arjun: There is no unity amongst us. We cannot afford to say ‘No’ to any client. Whatever he wants we have to bow down. I am told, even well-established firms also have not much choice

Shrikrishna: True. I wonder whether real independence was ever there in your profession. That way, in all professions, the situation is more or less the same.

Arjun: Clients literally dictate us and take advantage of our lack of unity and solidarity.

Shrikrishna: Therefore, you can never demonstrate your collective strength.

Arjun: Our study circles are also focussing more on academic topics. Yesterday, the speaker suggested that we should have separate informal meetings for brain storming on our professional anxieties and to discuss the future of profession.

Shrikrishna: You can share your peculiar experiences and try to seek solutions. Even you can improve your communication skills to avoid many problems. By timely and effective communication, you can avoid embarrassing situations.

Arjun: The speaker also suggested that we should proactively discuss exposure drafts of Regulations and Standards and send our views. There is no point in shouting after it is passed.

Shrikrishna: So also, there can be many standardised letters that can be used by your members. All of you may not have good drafting skills. But wherever there are recurring compliances, you can use such ready made drafts which you can suitably modify.

Arjun: We can even take expert advice for getting such drafts.

Shrikrishna: Moreover, all firms may not have a ‘knowledge manager’. You can hire expert services to vet your audit reports or submissions. A studycircle can retain such expert for all members so that the cost is shared.

Arjun: That’s a good idea. We are not often updated, we need to depend on our juniors, we don’t get time to check everything as there is always a fire-fighting exercise.

Shrikrishna: Then your study circles can organise workshops for compact groups – not lengthy lectures. Each firm may not be in a position to organise training programmes for its staff. But 5 to 6 firms collectively can arrange trainings in a workshop. Study circles can do it more effectively.

Arjun: Lord, I find growing frustration amongst CAs at all levels. Even the partners of large firms are not happy. They are stressed. Most of them are trying to keep away from audit signing.

Shrikrishna: It’s a tragedy. People want to run away from the core function of the profession.

Arjun: Audit signing is now always very risky. No one is sure what he has seen and not seen! A lot of fear and discomfort, despite such a high academic qualification.

Shrikrishna: And your knowledge becomes outdated so fast! You should collectively keep on expressing your concerns and making representations to the authorities, to the Council, write articles in the press and social media airing your difficulties. Make your voice heard! Groups like study circles can do that.

Arjun: I think, one more thing the study circles can do. Today, there are many management-sponsored frauds rampantly happening. CAs are being held responsible for not detecting those frauds. They are also made co-accused!

Shrikrishna: Yes, the dividing line between the principles of watchdog vs bloodhound is getting blurred. People and Regulators want you to be fraud detectors. And if you apply a few important SAs strictly, frauds can easily come to light, especially, third-party evidence.

Arjun: So, there could be discussions or presentations on frauds, forensic audit and the like. This could be for CAs as well as for audit staff. That will arouse interest in the minds of staff and articles.

Shrikrishna: Actually, there are many more things that can be done. We will discuss them some other time.

Arjun: I agree. I will tell our convener to act on this.

“OM Shanti”

This dialogue is a general discussion on how study circles can add value for the members instead of arranging only academic lectures.

Essay

Editor’s Note : Tarang 2K25 – the 17th Jal ErachDastur CA Students’ Annual Day was held on 22nd February, 2025. The said event included an essay competition and the winning essay titled “The psychology of money: How financial decision shapes our lives” was penned by Dhairya M. Thakkar. Below is the verbatim print of the said essay

It is rightly said that, “Money is just a paper, but is never found in dustbin.” In simple words, from a popper to a multi-billionaire, everyone needs money to fulfill their needs, followed by comforts & desires.

Let us assume that there are 2 friends, Alex & Brian, who both earn Rs 1 Lakh per month. However, inspite of the assumption that everything between the 2 friends is same, the only difference is their choice of to spend money they earn. Alex chooses to purchase a few gifts for his family, uses money with a free-hand, shops a lot & hardly saves. On the other hand, Brian uses a simple yet effective rule which he names as “40-30-20 Rule”, i.e.-

40% of his income – For all the necessities, accommodation, etc.

30% of his income – Investing in stock markets, SIPs, Bonds, etc.

20% of his income – For all the additional luxuries, comforts, etc.

And lastly, he keeps his 10% of his income in form of cash at home or bank so that it can be enchased in case of any emergency.

Now, who do think, 20 years down the line, will be better with finances, money management & financially sound. Of course, it has to be the man who since Day 1 had that discipline to keep his savings aside & invest it constantly (So, in our example, it’s Brian).

It is rightly said by Mr. Robert T. Kiyosaki (who is the author of one of the most famous self-help book Rich Dad, Poor Dad) that: “It is more important how much you save & not how much you earn, So, spend after you save & never save after you spend.”

So, now let us connect the dots of psychological decision & money. In one of the books, which is also called as, ‘Bible for Investors’ – The Intelligent Investor,it’s author Benjamin Graham wrote that money has more to do with discipline while saving or investing.

Thus, if a man is disciplined enough to manage to save a decided component of his income, then he will surely be in a position to invest it & garner money in forms of dividend, capital appreciation, interest, etc. whereas on the other hand, if a man fails to save money, then there would be negligible chances of him earning any returns because he could not accumulate capital in the first place.

In the very famous Marshmallow experiment, two kids were asked to sit alone in a room with one marshmallow in front of them. However, the challenge was that if a kid chooses to not eat it, then he will get 2 marshmallows, instead of 1. One of the kids chose to eat it right away whereas the other kid chose the path of delayed gratification & he got twice the returns.

After decades, it was evident that the kid who chose instant gratification, was suffering in his financial life, social life & had issues in almost all areas of life, whereas the kid who chose delayed gratification was financially independent, successful, had good social status & was respected in the society.

This simple experiment proved that life has pretty less to do with grades, percentages, etc. and has majorly to do with discipline & money is not an exception to it. As correctly said by Mr. Warren Buffet, “Making money multiply is like watching grass grow on field … It requires patience to be rich.”

So, towards the conclusion, financial decision is like sowing a bamboo tree, it will grow just 2 feet in first 5 years but once it shoots up, it results into growing 100 feet in next 2 years. So, money grows at its own pace & person who keeps on investing, gets rich, a bit later but at a larger scale.

Punishable Offenses & Arrests under GST

INTRODUCTION

Since the implementation of the Goods and Services Tax (GST) in India in July 2017, enforcement actions have led to numerous arrests for offenses such as significant tax evasion, fraudulent input tax credit claims, and issuance of fake invoices. Data submitted to the Supreme Court indicates that from July 2017 to March 2024, the number of arrests under the GST framework varied annually, with 3 arrests in 2017-18 and peaking at 460 in 2020-21. In Gujarat alone, central tax officers booked 12,803 GST evasion cases between 2021 and 2024, resulting in 101 arrests. While these enforcement measures aim to deter large-scale fraud, concerns are often raised about potential coercion, especially when recoveries are significantly lower than the detected amounts, highlighting the need for a balanced approach between strict enforcement and maintaining a business-friendly compliance environment. Businesses and impacted individuals are often forced to knock the judicial forums to seek redressal in such situations. In a recent decision (Radhika Agarwal vs. UOI [(2025) 27 Centax 425 (S.C.)]), the Supreme Court has elaborately dealt with the constitutional validity of the provisions concerning power to arrest under the Customs and Goods and Services Tax (GST) law. This article analyses the provisions of arrest under the GST Law and the observations of the Supreme Court in this regard.

CONSTITUTIONAL VALIDITY

The Supreme Court has upheld the constitutional validity of the arrest provisions in Radhika Agarwal on the premise that the parliament, having  powers to make laws relating to levy & collection of GST, as a necessary corollary, has powers to  enact provisions for tax evasion in the form of  powers to summon, arrest and prosecute, which are ancillary and incidental to the power to levy and collect GST.

STATUTORY PROVISIONS RELATING TO ARRESTS

Section 69 of the CGST Act, 2017 deals with the powers to arrest. The relevant provisions are reproduced below:

(1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.

A plain reading of the above provisions shows that the provisions of arrest can be invoked only in the following cases:

a) The authorization to arrest must be granted by the Commissioner.

b) There must be reasons to believe that an offense is committed.

c) The offense must be a specified offense for which the powers to arrest can be invoked

REASONS TO BELIEVE

The essential condition for invoking the arrest provisions, as seen above, is that the Commissioner should have reasons to believe that an offense is committed. The phrase “reasons to believe” was recently analyzed by the Hon’ble Supreme Court in the case of Arvind Kejriwal vs. Directorate of Enforcement [(2025) 2 SCC 248] in the context of PMLA and applied on all fours to customs / GST matters in Radhika Agarwal’s case.

In Arvind Kejriwal’s case, the Hon’ble Supreme Court observes that the powers to arrest without a warrant is a drastic & extreme power. Therefore, the legislature had prescribed safeguards in the language of Section 19 (of PMLA) itself which act as exacting conditions as to how and when the power is exercisable. These safeguards include the requirement to have “material” in the possession of DoE, and based on such “material”, the authorised officer must form an opinion and record in writing their “reasons to believe” that the person arrested was “guilty” of an offence punishable under the PMLA. More importantly, the Supreme Court has held that not only the “grounds of arrest”, but the “reasons to believe” must also be furnished to the arrested persons. In simple words, the “reasons to believe” cannot be some concocted grounds at the whims and fancies of the authorities. It must be based on credible evidence admissible before the Court of law.

The court has held the above principles equally applicable to customs / GST matters. More leverage has been accorded to existence of evidence to form a reason to believe for the simple reason that the Commissioner is not only required to establish whether an offense is committed or not, he also needs to classify the offense as cognizable or non-cognizable. In fact, to do so, there must be a computation or explanation, based on various factors, such as goods seized. Such a level of detail is critical during judicial review of the exercise. This requirement is also laid down by the Board vide Instruction 2/2022-23 dated 17th August, 2022 based on the decision in Siddharth vs. State of UP [(2022) 1 SCC 676] wherein para 3 lays down the specific parameters for its’ Officers:

3.2 Since arrest impinges on the personal liberty of an individual, the power to arrest must be exercised carefully. The arrest should not be made in routine and mechanical manner. Even if all the legal conditions precedent to arrest mentioned in Section 132 of the CGST Act, 2017 are fulfilled, that will not, ipso facto, mean that an arrest must be made. Once the legal ingredients of the offence are made out, the Commissioner or the competent authority must then determine if the answer to any or some of the following questions is in the affirmative:

3.2.1 Whether the person was concerned in the non-bailable offence or credible information has been received, or a reasonable suspicion exists, of his having been so concerned?

3.2.2 Whether arrest is necessary to ensure proper investigation of the offence?
3.2.3 Whether the person, if not restricted, is likely to tamper the course of further investigation or is likely to tamper with evidence or intimidate or influence witnesses?

3.2.4 Whether person is mastermind or key operator effecting proxy / benami transaction in the name of dummy GSTIN or non-existent persons, etc. for passing fraudulent input tax credit etc.?

3.2.5 Unless such person is arrested, his presence before investigating officer cannot be ensured.

3.3 Approval to arrest should be granted only where the intent to evade tax or commit acts leading to availment or utilization of wrongful Input Tax Credit or fraudulent refund of tax or failure to pay amount collected as tax as specified in sub-section (1) of Section 132 of the CGST Act 2017, is evident and element of mens rea / guilty mind is palpable.

3.4 Thus, the relevant factors before deciding to arrest a person, apart from fulfillment of the legal requirements, must be that the need to ensure proper investigation and prevent the possibility of tampering with evidence or intimidating or influencing witnesses exists.

3.5 Arrest should, however, not be resorted to in cases of technical nature i.e. where the demand of tax is based on a difference of opinion regarding interpretation of Law. The prevalent practice of assessment could also be one of the determining factors while ascribing intention to evade tax to the alleged offender. Other factors influencing the decision to arrest could be if the alleged offender is co-operating in the investigation, viz. compliance to summons, furnishing of documents called for, not giving evasive replies, voluntary payment of tax etc.

The Supreme Court in Radhika Agarwal’s case reiterates the above requirements and holds that department’s authority to arrest hinges on satisfying these statutory thresholds (para 44). Infact, it is held that the “reasons to believe” can be subject to judicial review as arrest often involves contestation between the fundamental right to life and liberty of individuals against the public purpose of punishing the guilty. However, it has held that it cannot amount to a review on merits. Such an exercise, in all cases, shall be restricted to the review of material in possession that forms the basis for reasons to believe.

In Dharmendra Agarwal vs. UOI [[2025] 170 taxmann.com 558 (Gauhati)], the non-determination of liability by the respondent authorities before executing the arrest was one of the reasons for the grant of bail. In KshitijGhildiyal vs. DGGI [[2024] 169 taxmann.com 446 (Delhi)], bail was granted since the grounds for arrest were not provided while making the arrest. Post the decision in Kshitij Ghildiyal, the CBIC issued instruction 1/2025-GST dated 13th January, 2025 making it mandatory for the arresting officer to provide the grounds of arrest.

PUNISHABLE OFFENSES

Section 69 requires that the Commissioner must have reasons to believe that an offense is committed. While the statute does not define the term “offense”, section 3(38) of the General Clauses Act, 1897 defines it to mean any act or omission made punishable by any law for the time being in force. Such acts, which amount to an offense are covered u/s 132 of the CGST Act, 2017.

A perusal of the first limb of section 132 (1) brings out an important distinction when compared with section 69. It reads as follows:

(1) [Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences], namely:—

The distinction is vis-à-vis the applicability of the section. Section 69 applies to an offense committed by a person, while section 132 applies to a person committing, or causing to commit and retain the benefits arising out of the listed offenses. In other words, only a person who commits an offense can be arrested u/s 69 and not the person causing the offense to be committed, i.e., an auxiliary to a crime.

The next question that arises is the interpretation of applicability of section 132(1). The above extracts of section 132(1) can be interpreted in two different ways:

While the first interpretation substantially restricts the applicability of section 132, it may not stand judicial scrutiny. The importance of punctuation marks in interpreting statutes was recently examined by the Hon’ble Supreme Court in ShapoorjiPallonji& Company Private Limited [(2023) 11 Centax 180 (S.C.)] as follows:

27. In the present case, the use of a semicolon is not a trivial matter but a deliberate inclusion with a clear intention to differentiate it from sub-clause (ii). Further, it can be observed upon a plain and literal reading of clause 2(s) that while there is a semicolon after sub-clause (i), sub-clause (ii) closes with a comma. This essentially supports the only possible construction that the use of a comma after sub-clause (ii) relates it with the long line provided after that and, by no stretch of imagination, the application of the long line can be extended to sub-clause (i), the scope of which ends with the semicolon. We are, therefore, of the opinion that the long line of clause 2(s) governs only sub-clause (ii) and not sub-clause (i) because of the simple reason that the introduction of semicolon after sub-clause (i), followed by the word “or”, has established it as an independent category, thereby making it distinct from sub-clause (ii). If the author wanted both these parts to be read together, there is no plausible reason as to why it did not use the word “and” and without the punctuation semicolon. While the Clarification Notification introduced an amended version of clause 2(s), the whole canvas was open for the author to define “governmental authority” whichever way it wished; however, “governmental authority” was re-defined with a purpose to make the clause workable in contra-distinction to the earlier definition. Therefore, we cannot overstep and interpret “or” as “and” so as to allow the alternative outlined in clause 2(s) to vanish.

Therefore, the second interpretation seems more plausible. This takes us to the question of the difference between “commit” & “causes to commit”. The term “commit” refers to the person who has committed the offense while “causes to commit” refers to the person who influences or motivates the person committing the offense. As such, a person who supports / sponsors such offenses though does not commit them, will be equally liable. However, the onus to prove that the offense was caused by such a person will be with the Department. It would also be necessary for the Department to demonstrate that the person causing the offense also retains the benefits derived from the offense so caused.

Section 132 lists the following acts as punishable offenses, providing for arrest and imposition of fines.

  •  Supplying any goods or services without the issuance of any invoice, with an intention to evade tax [132(1)(a)]

– The phrase is self-explanatory and is intended to cover situations of clandestine removal of goods, under-reporting of services, etc. it may be noted that the situation covered here deals with supply of goods without issuance of invoice and is not intended to cover situations of interpretation relating to classification, valuation, applicability of tax rate or exemption notification, etc.

– Further, for this clause to trigger, the Commissioner must establish “intent to evade tax”. The ‘intention to evade’ assumes some positive act on the part of the alleged person. It is a settled law that the burden to prove the allegation shall be on the accuser, i.e., the Department.

  •  Issuing any invoice or bill without supply of goods or services or both leading to wrongful availment or utilization of ITC or refund of tax [132(1)(b)]

– This clause refers to a situation where a supplier issues any invoice or bill without the supply of any goods or services, resulting in the wrong availment / utilization of ITC or refund. What is essential for this clause to trigger is that the invoice issued without any underlying supply shall lead to a wrong availment / utilisation of ITC or refund of the tax. If the recipient has not availed / utilized ITC or claimed a refund of such tax, the offense may not arise. Therefore, for the Commissioner to have a reason to believe such an offense is committed, there must exist evidence to that effect. In the absence of such evidence, an allegation under this clause may not survive. It may be noted that intention to evade tax is not a pre-condition for offense under this clause.

  •  Avails ITC using the invoice or bill referred to above or fraudulently avails ITC without any invoice or bill [132(1)(c)]

– This clause is linked with clause (b). While clause (b) is from the supplier’s perspective, this clause is from the recipient’s perspective and provides that when a person avails ITC on an invoice issued by the supplier without any underlying supply or avails ITC without any invoice or bill.

– Let us first look at an offense where ITC is claimed on the strength of an invoice without any underlying supply being received by the recipient. Generally, such offenses are detected based on the investigation undertaken at the suppliers’ end and notices are sent to all recipients of such supplier based on supplier’s statement. In such cases, based on such a statement, the Department proceeds with a preconceived notion that all supplies made by such suppliers are fake and therefore, the recipients have claimed wrong ITC. It is therefore imperative that in such cases, when the investigation starts, the recipient should make available all the evidence to justify the genuineness of the transactions, such as invoices, payment proofs, delivery challans, EWB, etc., The recipient should also invoke his right to cross-examine all such persons, whose statements are relied upon in such proceedings.

– The next situation covered under this clause is one where ITC is claimed without any invoice / bill. One of the conditions for claiming the ITC u/s 16 is that the recipient should have the tax invoice or prescribed document in his possession, which can be either the original copy or in the forms prescribed u/s 145 of the CGST Act, 2017. However, if any person claims ITC in contravention of this provision, an offense under this clause gets committed. The situation might change if the ITC claimed is already reversed, as the reversal of ITC amounts to non-taking of ITC in the first place, as held in Commissioner vs. Bombay Dyeing & Mfg. Co. Ltd. [2007 (215) E.L.T. 3 (S.C.)]

  •  Fails to pay the tax collected within three months from the date on which such payment becomes due [132(1)(d)]

– This clause refers to cases where a supplier collects GST but fails to deposit it with the Government. This can be either self-assessed liability (i.e., liability declared in GSTR-1 but not discharged) or liability not disclosed / discharged in return.

  •  Evades tax / fraudulently obtains refund by committing an offense not covered under (a) to (d) [132(1)(e)]

– This clause refers to a situation of tax evasion / fraudulent refunds (other than cases covered in (a) to (d)). Any instance of non-payment of tax/ fraudulent refund, which is not covered under clauses (a) to (d) may be covered under this clause. However, not all cases of non-payment/ erroneous refunds can be treated as tax evasion / fraudulent. In case of interpretation issues, bona-fide beliefs, etc. where there is no intention to evade / fraud the Government, the said sub-clause may not apply.

  •  Falsifies or substitutes financial records / produces fake accounts or documents or furnishes false information with an intention to evade tax [132(1)(f)]

– This clause specifically covers cases where a person falsifies / substitutes financial records / produces fake accounts or documents or false information with an intention to evade tax. The documentary evidence to support an allegation that a person has committed this act with an intention to evade tax must exist beforehand.

  •  Obstructs or prevents any officer in the discharge of his duties under this Act [132(1) (g)] – omitted w.e.f 1st October, 2023

– As a trade-friendly measure, the above offense has been decriminalized w.e.f 1st October, 2023.

  •  Acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation [132(1)(h)]

– This clause refers to cases where goods are liable to be confiscated u/s 130 of the CGST Act, 2017 which is generally triggered in the following cases:

(i) Supply or receipt of any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(ii) Non-accounting of any goods on which he is liable to pay tax under this Act; or

(iii) Supply of goods liable to tax under this Act without having applied for registration; or

(iv) Contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(v) Use of any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance.

– In addition to the above, this clause shall also apply to service providers providing warehousing services if it is found that they are storing goods that are liable to confiscation.

  •  Receives or is in any way concerned with the supply of, or in any other manner deals with, any services which he knows or has reasons to believe are in contravention of any provisions of this Act or rules made thereunder. [132(1)(i)]

– This clause refers to cases where a person either receives or supplies any service in contravention of any provisions of this Act or rules. An example of contravention would be when a person, though liable to register under GST, does not register and continues to supply service. Such a supply would be in contravention of the provisions of section 22.

  •  Tampers with or destroys any material evidence or documents [132(1)(j)] – omitted w.e.f 1st October, 2023

– As a trade-friendly measure, the above offense has been decriminalized w.e.f 1st October, 2023

  •  Failure to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information [132 (1)(k)]– omitted w.e.f 1st October, 2023

– As a trade-friendly measure, the above offense has been decriminalized w.e.f 1st October, 2023

  •  Attempts to commit, or abet the commission of any of the offenses mentioned above [[132 (1)(l)].

– This clause covers cases where a person aids or abets in the commission of any offense specified in section 132. In one of the cases, a tax practitioner was arrested alleging he had facilitated registration based on fake & vague documents for evading GST, thus abetting the commission of an offense. (Satya Prakash Singh vs. State of Jharkhand [2025] 170 taxmann.com 684 (Jharkhand)].

A perusal of section 132 makes it clear that all cases of non-payment of tax / short-payment of tax/ wrong availment or utilization of ITC do not trigger the arrest provisions. Only when an offense specified under specific clauses and exceeding specified monetary limit is committed can a person be arrested. Therefore, genuine cases involving interpretation issues, such as rate classification, valuation, exemption eligibility, ITC eligibility, etc. cannot be covered under the offenses prescribed u/s 132 & in such cases, arrest provisions cannot be invoked. This shows that cases involving interpretation issues are given more flexibility and such cases cannot be treated as a punishable offense. This has also been clarified by instruction 2/2022-23-GST dated 17th August, 2022.

PUNISHMENTS

The punishment for the above offenses, based on the tax quantum involved, is prescribed u/s 132(1), as follows:

Section 132(2) further provides that a repeat offender shall be liable to imprisonment for a term that may extend up to 5 years with a fine for each subsequent offense. However, no person shall be prosecuted without the previous sanction of the Commissioner [section 132 (6)].

It is interesting to note that the punishment is prescribed only for offenses specified in clauses (b), (c), (e), and (f). Before 1st October, 2023, sub clause (iii) referred to any other offense, which has been now substituted with an offense under clause (b). Therefore, while the prescribed acts are offenses, no punishment is prescribed for them. Therefore, to that extent, even if the person commits the said acts, he cannot be punished, since no such punishment is prescribed under the law. In this regard, one may refer to Vijay Singh vs. State of UP [2012 (5) SCC 242]:

16. Undoubtedly, in a civilized society governed by rule of law, the punishment not prescribed under the statutory rules cannot be imposed. Principle enshrined in Criminal Jurisprudence to this effect is prescribed in legal maxim nullapoena sine lege which means that a person should not be made to suffer penalty except for a clear breach of existing law. In S. Khushboo v. Kanniammal&Anr., AIR 2010 SC 3196, this Court has held that a person cannot be tried for an alleged offence unless the Legislature has made it punishable by law and it falls within the offence as defined under Sections 40, 41 and 42 of the Indian Penal Code, 1860, Section 2(n) of Code of Criminal Procedure 1973, or Section 3(38) of the General Clauses Act, 1897. The same analogy can be drawn in the instant case though the matter is not criminal in nature.

OFFENSES – COGNIZABLE & NON-COGNIZABLE

In general, all the offenses are declared as non-cognizable &bailable offenses [section 132 (4)] except for the offenses covered under clause (a) to (d) which are punishable under (i) above [section 132(5)].

The Code of Criminal Procedure, 1973 classifies an offense as either “cognizable” or “non-cognizable”. The distinction between cognizable and non-cognizable offenses is in the manner of arrest. An arrest for a cognizable offense can be made without an arrest, i.e., a person can be arrested without a warrant. In contrast, the arrest in case of a non-cognizable offense can be made only based on an arrest warrant. The classification of an offense into cognizable & non-cognizable depends on the gravity of the offense and is provided u/s 132.

SPECIFIED OFFENSES – WHERE A PERSON CAN BE ARRESTED U/S 69

The third limb of section 69, to invoke the arrest provisions, is that the Commissioner should have reasons to believe that a specified offense is committed. While section 132 provides a list of acts as offenses, the arrest provisions can be invoked only in case of specified offenses, as follows:

a) An offense under clauses (a) to (d) of section 132(1) should have been committed.

b) The offense must be punishable under sub-clause (i) section 132, i.e., the tax amount involved exceeds ₹5 crores, making the offense cognizable & non-bailable.
c) The offense must be punishable under sub-clause (i) section 132, i.e., the tax amount involved exceeds ₹2.50 crores but is less than ₹5 crores, making the offense non-cognizable &bailable.

In other words, the powers to arrest by the Commissioner can be exercised in cases of specified cognizable & non-cognizable offenses. However, when a person is authorized for a non-cognizable and therefore, a bailable offense based on the authorization issued by the Commissioner, such person arrested shall be admitted in bail, or in the default of bail, forwarded to the custody of the Magistrate until such time that a bail is furnished.

EXECUTING THE ARREST

Section 4(2) of the IPC, 1860 provides that the offenses covered under laws other than IPC, 1860 shall be investigated, inquired, tried, or otherwise dealt with under the CrPC, 1973 (“code”). Section 5 carves out a savings clause to clarify that the Code shall not affect any special / local law, or any special jurisdiction or powers conferred or special procedure prescribed unless there is a specific provision prescribed. In other words, the provisions of the Code would apply to the extent that there is no contrary provision in the special act or any special provision excluding the jurisdiction and applicability of the Code. In the context of GST, in Radhika Agarwal, it has been held that the provisions of the Code shall equally apply to customs’ offense and by extension, to GST as well.

As stated above, section 69 provides for cases where the Commissioner may authorize any officer of central tax to arrest a person. However, for other offenses, the GST law is silent. Hence, in such cases, the procedure prescribed under the Code shall apply. This takes us to the Code. Chapter V thereof deals with the arrest of persons. A perusal of Chapter V provides for arrest by a police officer. The question that arises is whether the GST officer is a police officer. This issue has been examined by Courts on multiple occasions1 and recently summarised in Radhika Agarwal wherein it has been held that GST officers are not police officers.

1 State of Punjab vs. Barkat Ram, (1962) 3 SCR 338, Ramesh Chandra Mehta vs.
 State of West Bengal, 
(1969) 2 SCR 461, Illias v. Collector of Customs (1969) 2 SCR 613, 
Tofan Singh vs. State of Tamil Nadu [(2s021) 4 SCC 1]

Therefore, while in cases covered u/s 69, the GST officers can execute the arrest, for all other offenses, the arrest can be executed only by a police officer. In such cases, the arrest can be executed by a police officer based on a complaint filed by the GST Officer (section 41 (b) of the code). However, as provided in section 132 (6), no person shall be prosecuted without the prior sanction of the Commissioner. Therefore, even for prosecution in other offenses, a prior sanction of the Commissioner is mandatory.

Once a person is arrested, either u/s 69 by a GST officer or a police officer, the arrested person shall be presented before a Magistrate within 24 hours of the arrest, excluding the traveling time between the place of arrest & the Magistrate’s Court. Even in case of arrests u/s 69, it is incumbent upon the arresting officer to admit the arrested person to bail, or in default of bail, forward it to the custody of the magistrate.

When a person is presented before the Magistrates’ Court, the Magistrate shall, if the investigation is not completed within 24 hours of the arrest and feels that further investigation is required, order that such arrested person must remain in police custody for not more than 15 days. However, in case of GST offenses, custody may be granted to the GST officers, as held in Directorate of Enforcement vs. Deepak Mahajan [(1994) 3 SCC 440].

A person arrested for offenses u/s 132 shall have all the rights, whether arrested u/s 69 by a GST officer / by a police office under Chapter V of the Code, such as:

a) The right to meet an advocate of his choice during the investigation, but not throughout the investigation and have such advocate present within a visual distance but not audible distance during the investigation (section 41D of the code).

b) The right to give information regarding such arrest and place where the arrested person is being held to any of his friends, relatives, or other person as may be disclosed or nominated by the arrested person (section 50A of the code)

c) The guidelines laid down in D K Basu vs. State of West Bengal [(1997) 1 SCC 416] must be stringently followed.

Similarly, the duties and obligations cast on a police officer under the Code shall equally apply to the GST officers. This includes the obligation to maintain a diary of investigation proceedings, taking reasonable care of the arrested persons’ health and safety, etc.,

Double jeopardy – can a person be subjected to simultaneous proceedings u/s 73/74 as well as section 69?

As stated above, there can be instances where proceedings u/s 73 or 74 have already been initiated. The question that arises is whether in such cases, proceedings u/s 69 alleging offenses u/s 132 can be initiated. In other words, can there be simultaneous civil & criminal proceedings for the same offense or not?

This issue has been dealt with in the case of Maqbool Hussain vs. State of Bombay [1983 (13) E.L.T. 1284 (S.C.)] wherein the Constitutional Bench held that sea customs authorities are not judicial tribunals. Therefore, proceedings by sea customs authorities do not constitute prosecution and the Orders passed by them did not constitute punishment. Therefore, separate criminal proceedings can be initiated against the accused for such offense and the same would not be hit by double jeopardy. This view was also followed by the Hon’ble Supreme Court in Leo Roy Frey vs. Superintendent [1983 (13) E.L.T. 1302 (S.C.)] and RadheshyamKejriwal [[2011 (266) ELT 294 (SC)]]. One may also refer to instruction 4/2022-23 dated 1st September, 2022 which deals with this aspect of parallel criminal & adjudication proceedings.

In fact, relying on Makemytrip (India) Private Limited vs. UOI [2016 SCC OnLine Del 4951], one of the arguments raised in Radhika Agarwal was that prosecution can be done only after adjudication proceedings are completed. However, this argument has been rejected and it has been held that there could be cases where even without a formal order of assessment, the department / Revenue is certain that it is a case of offense under clauses (a) to (d) to sub-section (1) of Section 132 and the amount of tax evaded, etc. falls within clause (i) of sub-section (1) to Section 132 of the GST Acts with sufficient degree of certainty. In such cases, the Commissioner may authorise arrest when he is able to ascertain and record reasons to believe. This reiterates that there is no relationship between the adjudication proceedings or prosecution for offenses.

PRE-ARREST PROTECTION

Any person apprehending prosecution and arrest has a right to apply for anticipatory bail. In Radhika Agarwal’s case, it has been held as follows:

70. We also wish to clarify that the power to grant anticipatory bail arises when there is apprehension of arrest. This power, vested in the courts under the Code, affirms the right to life and liberty under Article 21 of the Constitution to protect persons from being arrested. Thus, in Gurbaksh Singh Sibbia (supra), this Court had held that when a person complains of apprehension of arrest and approaches for an order of protection, such application when based upon facts which are not vague or general allegations, should be considered by the court to evaluate the threat of apprehension and its gravity or seriousness. In appropriate cases, application for anticipatory bail can be allowed, which may also be conditional. It is not essential that the application for anticipatory bail should be moved only after an FIR is filed, as long as facts are clear and there is a reasonable basis for apprehending arrest. This principle was confirmed recently by a Constitution Bench of Five Judges of this Court in Sushila Aggarwal and others v. State (NCT of Delhi) and Another (2020) 5 SCC 1. Some decisions State of Gujarat v. ChoodamaniParmeshwaranIyer and Another, 2023 SCC OnLine SC 1043; Bharat Bhushan v. Director General of GST Intelligence, Nagpur Zonal Unit Through Its Investigating officer, SLP (Crl.) No. 8525/2024 of this Court in the context of GST Acts which are contrary to the aforesaid ratio should not be treated as binding.

POST-ARREST STEPS

Once a person is arrested, pending trial, he shall remain in custody unless granted bail. Chapter XXXIII of the Code deals with provisions relating to bail.

Section 436 of the code provides that a person arrested for a bailable offense shall be released on bail. Similarly, for non-bailable offenses, section 437 of the code provides that the bail may be granted subject to the exceptions provided therein (such as cases where the punishment for the alleged offense is death or life imprisonment, or a repeat offender). However, in any case, when a person undergoes detention for more than one-half of the maximum period of imprisonment specified for that offense, he shall be released by the Court on his bond with or without sureties (section 436A of the code).

In addition, there is a settled principle of law that bail is the norm, jail is an exception, which has been upheld for economic offenses (see Prem Prakash vs. UOI).

There are many reported cases where bail has been granted for non-bailable offenses also:

  •  In Ashutosh Garg vs. UOI [[2024] 164 taxmann.com 767 (SC)], the bail has been granted upon having served a substantial time in detention, pending trial.
  •  In yet another case2, the bail was granted since the co-accused was granted bail.
  •  In DGGI vs. Harsh Vinodbhai Patel [Director General of Goods and Service Tax Intelligence, Ahmedabad vs. Harsh Vinodbhai Patel [2024] 164 taxmann.com 410 (SC)], bail was granted since all documentary evidences and other material were seized by the investigation agency, the presence of accused was not necessary for the investigation and trial was unlikely to commence and conclude in near future. Similar view was followed in the case of Ratnambar Kaushik vs. UOI [[2022] 145 taxmann.com 296 (SC)].
  •  In Natwar Kumar Jalan vs. UOI [[2025] 171 taxmann.com 112 (Gauhati)], one of the reasons for a grant of bail was that the accused was not a flight risk.
2 Ronaldo Earnest Ignatio vs. State of Odisha [[2024] 167 taxmann.com 418 (Orissa)]

CONCLUSIONS

The Supreme Court, while upholding the legislative competence of the Parliament to incorporate criminal provisions under GST law, has delivered a balanced judgment reinforcing constitutional safeguards to protect personal liberty. The decision in Radhika Agarwal also imposes a glaring requirement on the tax officers to invoke the arrest provisions only based on substantial evidence, which can be subjected to judicial review and reiterates the rights of the arrested persons, by following the guidelines laid down in D K Basu, Deepak Mahajan, etc, This shows that Courts shall, as they always have, continue to maintain the balance between the curtailment of tax evasion and the liberty of the individual. On the other hand, taxpayers will have to be equivalently vigilant with their tax practices, i.e., filing of returns, responding to department notices and submissions before the department, and so on, and in case of impending prosecution and / or arrests, proactively take preventive steps.

Part A | Company Law

1. SMD STRATEGIC REAL ESTATE LIMITED & ORS.

Before the Regional Director, Western Region

Appeal Order No 454(5)/SMD Strategic/92/AB2222617/2024-25/962

Date of Order: 20th February, 2025

Appeal under Section 454(5) of the Companies Act 2013 (CA 2013) against order passed for offences committed under Section 92 of CA 2013

FACTS

The Registrar of Companies, Mumbai (ROC Mumbai) vide adjudication order dated 26th December, 2023 held the Company and its Officers / Directors, have defaulted and liable for penalty under Section 92(5) of the Act. The said default pertained to the period from 30th November, 2019 to 29th December, 2019 for not filing Annual Return for the Financial Year 2018-19 within sixty days from the date of Annual General Meeting. Adjudicating officer accordingly imposed a penalty of ₹53,000/- each on company and defaulting officer aggregating to ₹1,06,000/.

The Appellants filed appeal against the said order on 20th December, 2024. As per the provisions of Section 454(6) of CA 2013, every appeal u/s 454(5) is required to be filed within 60 days from the date of the receipt of the order. Thus, it was noticed that appeal was not filed within 60 days from the date of receipt of the order.

EXTRACT FROM THE RELATED PROVISIONS OF THE ACT IN BRIEF

Section 454(6):

Every appeal under sub section (5) shall be fled to within sixty days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person and shall be in such form, manner and be accompanied by such fees as may be prescribed.

Rule 4(1) of the Companies (Adjudication of Penalties) Rules, 2014:

Every appeal against the order of the adjudicating officer shall be filed in writing with the Regional Director having jurisdiction in the matter within a period of sixty days from the date of receipt of the order of adjudicating officer by the aggrieved party, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought:

FINDINGS AND ORDER

At the time of personal hearing, with regard to the delay in filing appeal, authorised representative stated that the said Adjudication Order was not received by the appellant.

Taking into consideration, submissions made by the Appellants in their application as well as oral submissions of authorized representative during the hearing, the Regional Director held as under;

“I am of the considered view that the appeal is barred by limitation and hence, is rejected without going in the merit of the matter as the appeal was filed beyond 60 days after the receipt of Adjudication Order dated 26th December, 2023. Accordingly, the Adjudication Order dated 26th December, 2023 passed by ROC, Mumbai is ‘CONFIRMED’ under Section 454(7) of the Act.

Note:We have been covering the orders of the Adjudicating Officers in the past. We thought it appropriate to cover the Appellate orders too. Sections 454(5) and 454(6) of CA 2013, provide that appeal against the order may be filed with Regional Director within a period of 60 days from the date of the receipt of the order setting forth the grounds of appeal and shall be accompanied by a certified copy of the order.

The purpose of such coverage is to have a 360-degree view of the approach of the MCA in handling defaults which are occasionally very trivial in nature too.

2. Tejas Cargo India Limited

Registrar of Companies, Delhi

Adjudication Order ID PO/ADJ/01-2025/DL/00052

Date of Order: 15th January, 2025

Adjudication order for violation of section 56(4) of the Companies Act 2013 (CA 2013): Failure to issue share certificates to subscribers to the memorandum within 2 months of incorporation

FACTS

  •  The company had submitted an application in Form GNL – 1 for adjudication of violation of the provisions of section 56(4)(a) of CA 2013.
  •  As per the said application, company was incorporated on 26th March, 2021 and as per the provisions of Section 56(4)(a) of CA 2013, the company was required to issue share certificates to the subscribers of memorandum within 2 months from the date of incorporation i.e. on or before 25th May, 2021.

The company in its application had further stated that the share certificates were issued on 7th August, 2021 and hence there was a delay of 74 days in issuance of share certificates to the subscribers of the memorandum of association (MoA). The company had further stated that delay occurred since there was a delay in receipt of share application money.

  •  A show cause was issued to the company and company in reply prayed adjudication of the matter on compassionate ground as the default occurred due to an oversight in procedural compliance.

EXTRACT OF THE RELATED PROVISIONS OF THE ACT IN BRIEF

(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—
(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
….
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

FINDINGS AND ORDER

Considering the default and further considering the fact that the company failed to issue share certificate/s to both the subscribers to the MoA within 2 months of incorporation which was not in compliance with the provisions of section 56(4)(a) of CA 2013. The submission of the company for remission in the penalty cannot be considered as the relevant provisions of the act provides for a fixed penalty. The subject company is not a small company as defined u/s 2(85) of CA 2013.

Hence, adjudication officer imposed a penalty of ₹50,000 each on the defaulting company and subscribers to the MoA.

3. In the Matter of ANHEUSER BUSCH INVBEV INDIA LIMITED

Registrar of Companies, Mumbai

Adjudication Order No: ROC (M)/Sec 118/Anneuser/ADJ-ORDER2023-24/2965 to 2974.

Date of Order: 24th December, 2024

Adjudication Order passed imposing penalty under Section 454(3) for not complying with all the provisions of “Secretarial Standards” specified by the Institute of Company Secretaries of India with respect to General and Board Meetings which amount to violation of provisions of Section 118(10) of the Companies Act, 2013

FACTS

M/s ABNIIL filed suo-moto application dated 24.08.2024 for adjudication of offence before the Office of Registrar of Companies, Mumbai i.e. Adjudication officer (AO) under section 454 of the Companies Act, 2013 towards violation of Section 118(10) of the Companies Act, 2013.

M/s ABNIIL in its application stated that the provision of Sec 118(10) of the Companies Act,2013 which states that ” 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.”

However, M/s ABNIIL could not comply with all the provisions of Secretarial Standards with respect to General and Board Meetings specified by the Institute of Company Secretaries of India (ICSI) with respect to Board meetings for financial years 2020-21, 2021-22 and 2022-23.

Further, it was stated that non-compliance with respect to the Secretarial Standards mainly pertains to failure to furnish the following:-

i. Proof of sending of Notice and Agenda for the Board Meetings.

ii. Proof of sending of Draft Minutes and Copy of signed and certified minutes.

iii. Proof of circulation of some Board Resolutions passed by circulation along with their approval.

iv. Proof of sending Notice of General Meeting to the Directors and Auditors of the Company.

Thus, M/s ABNIIL had admitted that it was not in proper compliance with provisions of Section 118(10) of the Act and Secretarial Standards specified by (ICSI) and therefore, M/s ABNIIL and its officers in default are liable for penal action under Section 118 (11) of the Companies Act, 2013.

PROVISIONS

Section 118

Minutes of Proceedings of General Meeting, Meeting of Board of Directors and Other Meeting and Resolutions Passed by Postal Ballot

(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 resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.

…

(11) if any default is made in complying total 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.

ORDER

AO, after considering the facts and circumstances of the case and after taking into account the factors above, and submissions made by M/s ABNIIL in its application, imposed a penalty of ₹25,000/- (Rupees Twenty-Five Thousand only) on the Company for each financial year and a penalty of ₹5,000/- (Rupees Five Thousand only) each on officer in default for respective financial year for failure towards compliance with the provisions of Sec. 118(10) and Secretarial standards specified by the (ICSI) with respect to Board meetings for FY2020-21, 2021-22, 2022-23.

Thus, a total penalty of ₹1,50,000/- was imposed on M/s ABNIIL and its officers in default.

Do Provisions Of S.68 Of Income-Tax Act, 1961 Apply To Donations Received By A Charitable Trust?

ISSUE FOR CONSIDERATION

Charitable or religious trusts are generally funded by donations (voluntary contributions) received from donors. Such donations are taxable as income (subject to exemption in respect of application and accumulation), as they fall within the definition of income under s.2(24)(iia) of the Income Tax Act, 1961 (“the Act”), which reads as under:

“voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.”

Such donations are also regarded as income from property held for charitable or religious purposes by virtue of the provisions of section 12(1). Section 12(1) reads as under:

“Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.”

A charitable or religious trust registered under section 12A of the Act is entitled to exemption under section 11 in respect of its income from property held for charitable or religious purposes, which would include such donations, to the extent of such income applied, accumulated, etc. as provided in section 11. Therefore, such donations are income in the first place, and are thereafter entitled to exemption to the extent permitted by section 11.

Section 68 of the Act provides for taxation of unexplained cash credits. Section 68 provides as under:

“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

Such unexplained cash credits are taxable at the rate of 60%, plus surcharge at the rate of 25% of such tax, plus education cess of 4% on the tax plus surcharge, i.e. at an effective tax rate of 78%.

An issue has arisen before the High Courts as to whether the provisions of section 68 apply to donations received by charitable trusts; in other words, whether donations received by a charitable trust, which may otherwise qualify for exemption, can be taxed as unexplained cash credits. While the Delhi, Allahabad and Karnataka High Courts have held that such donations received by a charitable trust cannot be brought to tax under section 68, the Punjab & Haryana High Court has held that such donations can be taxed under section 68.

KESHAV SOCIAL & CHARITABLE FOUNDATION’S CASE

The issue first came before the Delhi High Court in the case of DIT(E) vs. Keshav Social & Charitable Foundation 278 ITR 152.

In this case, during the relevant year, the assessee was a charitable trust registered under section 12A. It received donations amounting to ₹18,24,200. The assessee had spent more than 75% of the donations for charitable purposes.

During the course of assessment proceedings, the assessee was asked to furnish details of the donations, i.e. the names and addresses of the donors and the mode of receipt of donations. The assessee was unable to satisfactorily explain the donations. The assessing officer (AO) was of the view that the donations were perhaps fictitious donations, and that the assessee had tried to introduce unaccounted money into its books by way of donations. Therefore, the amount of ₹18,24,200 was treated as cash credit under section 68, and the benefit of exemption under section 11 was denied in respect of such donations.

In first appeal, the Commissioner (Appeals) was of the view that the AO was not justified in treating the donations received as income under section 68. He noted that the assessee had disclosed the donations as its income, and had spent 75% of the amount for charitable purposes. Therefore, in his view, the assessee had not committed any default. The Commissioner (Appeals) therefore directed the AO to allow exemption to the assessee under section 11, holding that the treatment of the donations of ₹18,24,200 as income under section 68 was incorrect.

In second appeal, the Tribunal was of the view that since more than 75% of the donations received by the assessee was spent on charitable purposes, the addition of ₹18,24,200 was not correct. The Tribunal accepted the argument of counsel for the assessee that once a donation was received, it was deemed to be received for a charitable purpose unless the donation was received towards the corpus of the trust.

Before the Delhi High Court, on behalf of the revenue, it was submitted that essentially what the assessee was trying to do was to launder its black money or unaccounted income by converting it into donations, and it should not be permitted to do so.

Referring to the decision of the Supreme Court in the case of S Rm M Ct M Tiruppani Trust 230 ITR 636, the High Court observed that every charitable or religious trust was entitled to exemption for income applied to its charitable or religious purposes in India. It noted that on the facts of the case before it, more than 75% of the donations for charitable purposes had been applied for its objects.

The Delhi High Court observed that to obtain the benefit of the exemption under section 11, the assessee was required to show that the donations were voluntary. The High Court further observed that the assessee had not only disclosed its donations, but had submitted a list of donors. According to the High Court, the fact that the complete list of donors was not filed or that the donors are not produced, did not necessarily lead to the inference that the assessee was trying to introduce unaccounted money by way of donation receipts. This was more particularly so in the facts of the case, where admittedly more than 75% of the donations were applied for charitable purposes.

The High Court held that section 68 had no application to the facts of the case, because the assessee had in fact disclosed the donations of ₹18,24,200 as its income. The High Court observed that it could not be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. Accordingly, there was full disclosure of income by the assessee, and also application of the donations for charitable purposes.

The High Court therefore upheld the decision of the Tribunal, holding that the provisions of section 68 would not apply to the donations received by the assessee trust.

This decision of the Delhi High Court was followed by the Delhi High Court in DIT v Hans Raja Samarak Society217 Taxman 114 (Del)(Mag), by the Allahabad High Court in the case of CIT v Uttaranchal Welfare Society 364 ITR 398, and by the Karnataka High Court in the cases of DIT(E) v. Sri BelimathaMahasamsthana Socio Cultural & Education Trust 336 ITR 694 and CIT v MBA Nahata Charitable Trust 364 ITR 693.

MAYOR FOUNDATION’S CASE

The issue came up again recently before the Punjab & Haryana High Court in the case of Mayor Foundation v CIT 170 taxmann.com 749.

In this case, the assessee was a company registered under section 25 of the Companies Act, 1956. It was also registered under section 12A and section 80G of the Act. It was running one educational institution, Mayor World School, at Jalandhar. The assessee had filed its income tax return, disclosing Nil income. During the year, it received corpus donations of ₹1,43,40,039.

During the course of assessment proceedings, the AO sought to verify the names and addresses of the donors. Notices were issued u/s 133(6) to some donors. 14 donors could be verified, and 7 were found not genuine as the donors’ identity was doubtful. A show cause notice was issued as to why such doubtful donations amounting to `53 lakh should not be taxed as anonymous donations under section 115BBC.

The assessee responded seeking more time to establish contact with such donors and obtain their due replies. None of the donors were produced before the AO. It was pointed out that such donations were received through bank accounts, and certain confirmations were received from 3 company donors.

The AO noticed the following in respect of these 3 companies:

  1.  In the case of all 3, first notices were first returned unserved. Responses were received to the second notices.
  2.  2 of the companies were located in West Bengal, and the replies were sent by post from Mumbai General Post Office.
  3.  2 of the companies were shown as struck-off in the ROC records, and 1 was reflected as dormant.
  4.  There seemed to be no working directors in all 3 companies.
  5.  The assessee had failed to produce any director or shareholder of all the 3 companies.

The AO therefore concluded that the assessee had received huge donations, the sources of income were not genuine, the companies were not working, and the genuineness, identity, sources and credit worthiness of these companies had not been proved. Besides addition of donations of ₹8,00,000,other donations of ₹40 lakh and ₹8 lakh were added as undisclosed cash credit under section 68, and tax was levied under section 115BBC and 115BBE.

In first appeal, the assessee submitted copies of income tax returns and proved the credit worthiness of 2 donees, who were NRIs, and who had given the rupee donations of ₹48 lakh. These additions of ₹48 lakh were deleted. The addition of donations of ₹8 lakh from the 3 corporate entities under section 68 was sustained in first and second appeals, on account of inability to prove any relationship between the donors and the donee, their whereabouts not being produced in the form of documents, and the companies having been struck off or being defunct.

The reasoning which prevailed with the Tribunal was that these companies had been struck-off the record of the Registrar of Companies, and therefore had to be treated as shell companies. Therefore, their identity was in question, the existence of the corporate body having been duly rejected by the Registrar of Companies. The existence of the donors itself was questioned, and the assessee was unable to produce any document in support of their action to restore the company before a judicial authority.

The questions of law raised before the High Court were:

“a. Whether the Income Tax Appellate Tribunal is justified in concurring with the findings of CIT(A) and in confirming the impugned income of ₹8,00,000 under the provisions of section 115BBC, section 68 read with section 115BBE of the Income Tax Act, 1961 being perverse and against the statutory provisions and as upheld in catena of judgments?

b. Whether the orders of the authorities below are illegal, erroneous, without jurisdiction and thus perverse?”

Before the Punjab & Haryana High Court, on behalf of the assessee, it was argued that there was sufficient material produced on record to show that the three companies existed and had been filing returns at the time of the corpus donations. Reliance was placed upon the documents in support of the publication that the amounts had been received by way of cheque. It was submitted that the companies were incorporated in 1992, and even if they were no longer registered at the time when the matter was inquired, there was no such reason why addition could have been made. It was submitted that the requisite communication had been made by the companies with the tax authorities, Ledger copy of the accounts and the income tax returns for the year and bank statements had been sent to the assessing officer. The three companies had acknowledged the donations that they had given.

The High Court observed that the companies at West Bengal had sought to give the details of the donations from Mumbai, and it was in such circumstances, that the AO came to the conclusion that the expression given was not bona fide. Opportunity was given to produce the directors, which was not done. It was due to this that the tax authorities had taken the view that the companies were no longer functional and not functioning and struck off by the Registrar of Companies. The High Court observed that nothing had been brought on record that these companies were actually functioning at the time of donations, and when they were struck off.

Under such circumstances, the High Court was of the opinion that the genuineness, identity and credit worthiness of these companies was rightly doubted by the AO, and under such circumstances, the additions had been made.

The High Court was therefore of the view that the question of law raised before it did not arise, keeping in view the facts and circumstances, as the appellant could not produce sufficient material before the authorities to dispel the suspicion which had been raised about the donations received from the companies which were not even based geographically close to the educational institution, and the reason to grant the donations were never properly explained.

OBSERVATIONS

It may be noted that in Mayor Foundation’s case (supra), neither before the Tribunal nor before the High Court were the decisions of other High Courts on the issue cited. Therefore, the Tribunal and the High Court merely decided the matter in that case on the basis of the facts before them, without really examining the legal issues involved in respect of the very applicability of section 68. Further, it seems that in that case, both section 115BBC as well as section 68 were invoked, which was patently incorrect, as the same income cannot be subjected to tax twice.

Section 68 seeks to bring to tax receipts which are not offered to tax as income, such as capital or loans received by a taxpayer. When the charitable trust has already included donations received as income in the first place, the question of applicability of section 68 should not arise.

Section 115BBC is a special provision introduced by the Finance Act 2006 with effect from AY 2007-08, to tax anonymous donations received by charitable trusts at the flat rate of 30%. The CBDT, vide Circular No. 14 of 2006 dated 28th December, 2006,has clarified that section 115BBC has been introduced” to prevent channelisation of unaccounted money to these institutions by way of anonymous donations”. An anonymous donation has been defined as a voluntary contribution where the recipient does not maintain details of the identity, indicating name and address of the donor. This is therefore a specific provision to tax donations received by charitable trusts where the donors are bogus entities. As opposed to this, the provisions of section 68 are general provisions to tax all types of cash credits which are unexplained, and apply to all types of assessees.

Section 115BBC is therefore a specific provision, while section 68 is a general provision. It is well-settled law that the specific provision of law would prevail over a general provision. Therefore, section 115BBC would prevail over the provisions of section 68 in the case of donations received by a charitable trust.

The Bombay High Court, in the recent case of Everest Education Society v ACIT 164 taxmann.com 744, while deciding a review petition against its order upholding treatment of donations as anonymous donations under section 115BBC, observed in paragraph 7 of the judgment that:

“Section 68 of the Act was not applicable since the applicant had disclosed the income from donation.”

Further, the Delhi High Court decision in Keshav Social and Charitable Foundation’s case (supra) has been upheld by the Supreme Court in a short decision disposing of the appeal, in the case reported as DIT(E) v Keshav Social and Charitable Foundation 394 ITR 496.

One aspect of the matter which also needs to be considered is that in Keshav Social & Charitable Foundation’s case, the donations were general donations, while in Mayor Foundation’s case, the donations were corpus donations. Would this make any difference to the aspect of applicability of the provisions of section 68?

This should really not make any difference on account of the following:

a. The provisions of section 115BBC apply equally to corpus donations as they do to general donations.

b. In the view of tax authorities, corpus donations are also income as defined in section 2(24)(iia) in the first place, and are thereafter exempt under section 11(1)(d) if the conditions specified therein are fulfilled.

c. In Uttaranchal Welfare Society’s case before the Allahabad High Court, the question before the High Court was in relation to taxability of corpus donations received under section 68. There also, the Allahabad High Court held that section 68 could not be applied to such corpus donations.

Therefore, the provisions of section 68 should not apply to donations received by registered charitable trusts (whether corpus or otherwise), and if at all, the provisions of section 115BBC may apply in such cases where details of the donor are lacking.

There Is Always A Door …

CA Girish Agrawal, a first-time author, embodies versatility. Besides being a Chartered Accountant, he was an avid footballer in his younger days, followed by being the President of the Leo Club in the mid-twenties and studying law in the mid-forties. He has handled the finance functions in an MNC and is currently an Income Tax Appellate Tribunal Member. I had the privilege of interacting twice with him, once professionally and secondly during the launch of the book.

The author initially indicates that the trigger for writing this book is to express his gratitude through leveraging his “word power” since his life has been extremely rewarding from his childhood in spite of experiencing three major near-death experiences (NDEs), which have made him cherish every moment of his life till date. The book goes on to reveal various facets of his personality in diverse roles ranging from academics, sports, leadership, social welfare and public events, professional pursuits, etc., with several achievements and failures on the way, including the NDEs indicated above; each of which has made him a complete person. He also expresses his gratitude to several persons starting with “My Master” my beloved Maharita, who he considers his biggest source of faith and strength, followed by “my Lord Krishna“, whose practised principles like unconditional love, joy, detached engagement, beauty, energy and enthusiasm, amongst others reverberating through Krishna consciousness intrinsically weaves through his life’s journey lived  so far with all its complexities. He goes on to add  that the book has also been motivated by his completing fifty years since his master says that “fifty is the new zero”.

The first and the longest chapter, titled “In Spite of…” narrates the first and by far the closest of NDEs in the form of a horrific road accident which resulted in severe damage to his spine and several other injuries. He then narrates his feelings and experiences, which transcended him from a chaotic state from the outside into an absolutely blissful, sacred and divine state from the inside for the next 60 hours till the successful completion of the surgery, which he refers to as the “point of reference” for the rest of his life. He goes on to compare time to a stationery rail track. In spite of the severe trauma involved, the author conveys that he has reached the most relaxed state with a feeling of freshness since his intentions were very clear to bounce back since he had to add much to life. The chapter is a lesson for all of us to always adopt a positive and never-say-die attitude, howsoever daunting the situation which ultimately helps one to come out as a winner. Another regular feature of the book is the poetic references, which describe various situations. He concludes the chapter with a very profound quote which reads as under to signify his transformation in life:

“Just when the caterpillar thought the world was over, it became a butterfly”

The remaining part of the book is weaved into a series of compact chapters which describe the various stages of his life and the lessons which he has learnt therefrom.

The next chapter, titled “The Inception”, covers his early school days and goes on to narrate his first NDE when he was hospitalised for kidney surgery, which resulted in life-threatening complications during recovery, which helped him very early in life to develop an understanding of the existential state of living in the form of being alone(where one dissolves into one’s self and goes inside) and being lonely (a feeling of lacking something). He goes on to state the various struggles encountered and how they were conquered through persistence and also several learnings.

The remaining part of the book narrates his life’s journey through various chapters (referred to in bold and italics), which touch upon the early influences and values which his paternal grandfather instilled, the spiritual discipline which kept on miraculously working in his life followed by his varied experiences through meeting various people from different walks and in different stages of life. He goes on to narrate how each of these helped “sowing the early seeds in life”, “exploring unchartered territories”, and “doing everything with devotion”. In the midst of various challenges and struggles, he does not forget to mention that he did “experience happiness” in several things like eating “Mishti Doi”, travelling for sports tournaments and studying with a group of friends for his exams, which helped him advance in his career and resulted in “unleashing his true potential“. In the midst of all this, he touches upon the last NDE during the second wave of COVID-19 19 which hit so hard that he had to be in the ICU, where he witnessed seven deaths around him and how he navigated the subsequent recovery phase with fortitude due to his experiences from the earlier NDEs which he refers to as ” I am having an affair with my life”. He wraps up his experiences by stating the effect of “music in his life” in the form of not only his love for music and his encounter with various legends and the immense source of inspiration it has been but also how it shaped his parenting abilities followed by the mantra of “giving and getting” which he refers to as a “win-win “solution wherein the act of giving is done without the willingness of the giver which can at best be termed as fulfilling his obligatory duty without expecting anything in return. The book concludes with a poem titled “Flowing like a Rive, Mantra of My Life…” which was penned by him during a flight from as indicated to me during the launching of his book.

Each of the chapters and sections provides the reader with a solid perspective on life in the form of perseverance, patience and positive thinking which can overcome even the mightiest of challenges and that one should never give up, which aptly sums up the title of the book.

It is interesting to note the author’s analysis and interpretation of each of the words of the title in a tabular form, which provides deep insights into his thinking process.

To conclude, the book sums up a basic philosophy that life needs to be lived to the fullest in the present, and every moment thereof needs to be cherished without carrying any baggage from the past nor thinking and worrying about the future.

Allied Laws

1. Sachin Jaiswal v. Hotel Alka Raje and Ors.

Special Leave Petition (Civil) No. 18717 of 2022

27 February, 2025

Partnership Firm — Contribution – Introduction of property into the firm – Stock/Asset of the firm – Perpetual Property of the firm – Transfer of property in the name of the Partnership Firm by way of a relinquishment deed is valid transfer. [S. 14, Partnership Act, 1932; Transfer of Property Act, 1882].

FACTS

One Mr. Bhairo Jaiswal (deceased) had purchased one plot in 1965. Thereafter, in 1971, the deceased entered into an oral partnership agreement with his brother Hanuman Jaiswal. The same was reduced to writing and ‘M/s. Hotel Alka Raje’ (Respondent No. 1/Partnership Firm) was formed in 1972 wherein, the deceased introduced the plot as part of the firm’s assets. The Partnership Firm subsequently constructed a building on the plot and began operating a hotel business. Due to old age, Mr. Bhairo Jaiswal decided to retire from the firm and, on 9th March, 1983, executed a relinquishment deed stating that the said plot was relinquished in favour of Respondent No. 1 (Partnership Firm) and that his legal heirs shall have no right, title and interest in the said plot. Mr Bhairo Jaiswal died on May 30, 2005. Thereafter, the Appellant (legal heir of Mr. Bhairo Jaiswal) filed a suit for declaration of title over the said plot. It was contended by the Appellant that the plot was purchased in the name of Bhairo Jaiswal. Further, a property cannot be transferred in the name of the Partnership Firm by way of a relinquishment deed. This was for the reason that as per the Transfer of Property Act, 1882, sale, mortgage, gift, and exchange are the only recognised modes of transfer. However, both the learned Trial Court and Hon’ble Allahabad High Court dismissed the suit of the Appellant.

Aggrieved, a special leave petition was filed before the Hon’ble Supreme Court.

HELD

The Hon’ble Supreme Court observed that the plot was introduced as the property of the Partnership Firm by Mr. Bhairo Jaiswal as his contribution to the Partnership Firm. Consequently, the plot became the property of the Partnership Firm and ceased to be the exclusive asset of Mr. Bhairo Jaiswal. Relying on its earlier order in the case of Addanki Narayanappa v. Bhaskara Krishnappa (1966 SCC OnLine SC 6) and Section 14 of the Partnership Act, 1932, the Hon’ble Court reiterated that any property introduced into the Partnership Firm as an asset or stock shall become a perpetual property of the Firm.

The petition was therefore, disallowed and the Order of the Hon’ble High Court was upheld.

2. S. Sasikala vs. The State of Tamil Nadu and Ors.

AIR 2025 (NOC) 154 (Mad)

23 May, 2024

Guardianship – Appointment – Unwell husband – Family unable to sustain – Only option to relive properties of the husband – Wife appointed legal guardian of the husband. [Art. 226, Constitution of India; S. 7, Guardian and Wards Act, 1890].

FACTS

A Writ Petition was filed before the Hon’ble Madras High Court (Single Judge Bench) by one Mrs. S. Sasikala seeking appointment as the guardian of her husband who was unwell and in a vegetative / comatose state. The Petitioner argued that the family was facing financial problems as hospital bills had escalated to several lakhs of rupees, leaving them with no option but to liquidate properties registered in her husband’s name. Therefore, she sought guardianship to facilitate the necessary sale and manage his assets in his best interest. The Hon’ble Court, however, dismissed the said appeal and asked the Petitioner to approach the civil court.

Aggrieved, an appeal was filed before the Division Bench of the Hon’ble Madras High Court.

HELD

The Hon’ble Division Bench, relying on the decision of the Hon’ble Kerala High Court in Shobha Balakrishnan & Anr. vs. State of Kerala [W.P. (C) No. 37278 of 2018], held that although Section 7 of the Guardian and Wards Act, 1890, only allows for the appointment of a legal guardian for minors, the High Court, under its powers conferred by Article 226 of the Constitution, can appoint a guardian in exceptional cases for an unwell person or someone in a comatose state.

The Petition was therefore allowed.

3. Trident Estate Private Limited v. The Office of Joint District Register and Ors.

AIR 2025 Bombay 59

23 October, 2024

Auction – Property – Sold to the highest bidder – Fair Market Value for determination stamp duty payable – Auction conducted and approved by the Hon’ble Supreme Court – Stamp duty authority cannot determine the value of the property – Bound to accept FMV at the price sold to the highest bidder by the Hon’ble Supreme Court. [S. 32A, 33, Maharashtra Stamps Act, 1958; Registration Act, 1908].

FACTS

The Petitioner had purchased a property through auction under the sale-cum-Monitoring Committee constituted by the Hon’ble Supreme Court for liquidation of assets of one Citrus Check Inn Limited and Royal Twinkle Star Club Limited. The Petitioner had emerged as the highest bidder for the said property at ₹ 2,51,00,000/-Accordingly, a sale certificate was issued to the Petitioner. Thereafter, the Petitioner approached the office of Joint District Registrar (Respondent No.1) for registration of the said property under the provisions of the Registration Act, 1908. The Petitioner paid five per cent stamp duty on the consideration price. Respondent No. 1, however, refused to register the property on the ground that the fair market value of the property was at Rs. 16,72,11,000/- and therefore, stamp duty was payable at the rate of five per cent on the fair market value and not consideration price. Accordingly, a demand of ₹83,60,550/- (on account of stamp duty deficit) and ₹23,41,000/- (towards penalty) was raised on the Petitioner.

Aggrieved, a Writ Petition was filed before the Hon’ble Bombay High Court.

HELD

The Hon’ble Bombay High Court observed that the auction was carried out by the Hon’ble Supreme Court (or at least under the aegis of the Hon’ble Court). Further, it was observed that the method followed by the Hon’ble Supreme Court is one of the most open and transparent forms of sale. Further, the auction-based sale involves careful deliberation and multiple steps, including the fixation of a minimum price, assessment of the property’s present value, and ensuring a transparent bidding process. Even then, the Hon’ble Supreme Court also have a right to cancel the entire bid if it is in their opinion, the process was tainted or the property was sold at a very low price. In the present case, the sale was approved by the Hon’ble Supreme Court. Therefore, when a sale is conducted by the Hon’ble Supreme Court, the stamp authority cannot sit on an appeal and proceed to determine the true market value of the property. Therefore, the demand and penalty were deleted.

The Petition was allowed.

4. Balakrishna G. and Ors v. Sub Registrar Jayanagar District (Kengeri), Bangalore and Ors.

AIR 2025 Karnataka 43

19 July, 2024

Auction of property – Sold to the highest bidder – Registration denied by Stamp Authority – Reason – ED directed Stamp Office not to register any sale without its permission – No authority with the ED to give direction to the Stamp authority office [S. 89(4), Registration Act, 1908; Prevention of Money Laundering Act, 2002; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002].

FACTS

The Petitioner had purchased a property through a public auction conducted by the Bank (Respondent No. 3) under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) for liquidation of debt owed by one Acropetal Technologies Limited. Thereafter, the Petitioner approached the office of the Sub-Registrar (Respondent No. 1) for registration of the property on the strength of the sale certificate issued by the Bank (Respondent No. 3). However, Respondent No. 1 refused to register the said property on the ground that they had received one letter by the Enforcement Directorate (ED) (Respondent No. 2) directing the Sub-Registrar office not to register the said property without their permission.

Aggrieved, a Petition was filed before the Hon’ble Karnataka High Court (Bengaluru).

HELD

The Hon’ble Karnataka High Court after relying on a series of decisions held that the ED have no power under the provision of the Prevention of Money Laundering Act, 2002 (PMLA) to direct Respondent No. 1 to stop the registration of any property. Further, the Hon’ble Court also noted that the rights of a secured creditor under SARFAESI shall always prevail over the claim of ED under the PMLA Act. Further, the Hon’ble Court also observed that as per Section 89(4) of the Registration Act, 1908, it was incumbent upon Respondent No. 1 to register the property upon receipt of the sale certificate. Therefore, the Hon’ble Court directed Respondent No. 1 to register the said property in the name of the Petitioner.
The Petition was therefore allowed.

5. Palaniammal v. Thasi alias Sukkadan

AIR 2025 MADRAS 44

22 November, 2024

Settlement deed – Transfer of title and possession – Unilateral Cancellation deed executed – Challenged validity of Cancellation deed – Maintainability of suit – Suit did not seek declaration of title based on Settlement deed – Not required – Suit maintainable. [S. 31, 34, Specific Relief Act, 1963].

FACTS

A suit was filed for declaration of a ‘cancellation deed’ as null and void. A settlement deed was executed between the Plaintiffs (Appellants) and Defendants (Respondents) wherein, the title of the suit property was transferred over to the Plaintiff along with possession of the land. Thereafter, the Defendants cancelled the ‘settlement deed’ and unilaterally executed a ‘cancellation deed’ on various grounds. Therefore, a suit was filed for declaration of the ‘cancellation deed’ as null and void. However, it was contested by the Respondents, inter alia, that the suit was not maintainable since the Plaintiff had challenged only for declaration of the ‘cancellation deed’ as invalid without seeking any relief for declaration title based on the ‘settlement deed’..

HELD

The Hon’ble Madras High Court observed that the ‘settlement deed’ was mutually executed between the parties. Further, possession and title were given to the Plaintiff. The Hon’ble Court further noted that even after the execution of the unilateral ‘cancellation deed’, the Plaintiff were still in possession of the property. Therefore, the Hon’ble Court held that there was no need for the Plaintiff to seek relief for declaration of title based on the ‘settlement deed’. Therefore, the suit was maintainable.

The suit was therefore allowed.

From The President

Dear Members,

Here comes April! The Romans gave this month the Latin name Aprilis, but the derivation from traditional etymology is from the verb aperire, meaning ‘to open’, in allusion to its being the season when trees and flowers begin to ‘open’, the season of Spring in the northern hemisphere.

Closer home at Bharat, April also coincides with the pious month of Chaitra, signalling the start of the harvesting season as well as a new calendar year, i.e. Shak Samvat 1947.

Even closer in the financial sector, April marks the beginning of a new fiscal year for commercial entities. As the largest economy begins its financial year in April, entities in our nation use April to assess their performance from the previous fiscal year with the objective to establish performance metrics for the new fiscal year.

For Chartered Accountants, April signifies the commencement of the busier period of the year as we undertake our professional duties for the companies and clients we serve. As your partner in learning and professional development, your Society has been organizing numerous learning and development events and will continue to do so, aiming to enhance our members’ capabilities in managing their professional responsibilities.

In addition to organizing learning events, BCAS consistently publishes the BCA journal, self-paced e-courses, books, and thought mailers to enhance professional skills further. In April, 4 (four) publications are being released by your Society:

  1.  The BCA Referencer: As a leader in the Referencer format, the BCA Referencer, now in its 63rd year of continuous publication, is renowned for being a high-quality, practical professional resource that assists chartered accountants in improving their effectiveness with ease. The BCA Referencer, featuring three updated modules on Direct Tax, Indirect Tax, and the latest amendments, is now available for booking through the Society’s website. This comprehensive referencer for Chartered Accountants is the result of extensive efforts by over 20 compilers, 5 senior members, and 3 editors, and it deserves significant recognition for their dedication and hard work.
  2.  A Compilation of Thought Mailers: Over the years, BCAS members have consistently shared their insights on topics related to personal and emotional development with our community. We are pleased to announce that a valuable compilation of these thought mailers is now available for purchase as a hard-bound book. Secure your copy today to experience the enriching perspectives presented by multiple contributors in this unique collection. We extend our gratitude to all the authors who have contributed to these Thought Mailers over the years.
  3.  Laws & Business: The much-awaited 6th edition of the publication on “Laws & Business” is being released by your Society this month. This comprehensive work, authored by Dr. (CA) Anup P. Shah, spans nearly 1500 pages across 2 (two) volumes and demonstrates the author’s dedication and expertise. Dr. (CA) Anup P. Shah’s commitment to distilling complex information into accessible content will undoubtedly benefit professionals navigating these critical areas of law. The Society remains grateful for the author’s contribution to our profession. Through this publication, BCAS reaffirms its mission to equip readers with the knowledge required to stay compliant, make informed decisions, and navigate India’s legal landscape effectively.
  4.  Gita for Professionals: The 7th edition of Gita for Professionals, authored by CA Chetan Dalal, is one of the most widely distributed publications from BCAS. In an era of constant change and evolving professional demands, the timeless wisdom of the Bhagavad Gita provides invaluable guidance for navigating modern complexities. This book, now in its 7th edition, highlights the enduring significance of ancient knowledge in today’s world. Since its initial publication, it has successfully bridged profound spiritual teachings with the practical challenges of professional life. The Society extends its gratitude to CA Chetan Dalal for his dedication to sharing the timeless wisdom of the Gita through his insightful writing.

Over the years, the Society has expanded in size and reach, now addressing the needs of various constituents within the community. To remain relevant and provide value to all stakeholders, three distinct cohorts are taking shape at BCAS:

  1.  BCAS Youth: This cohort is designed for newly qualified Chartered Accountants. The objective of the BCAS Youth cohort is to organize events and initiatives that meet the needs of young Chartered Accountants. One such initiative of CAMBA: A certified Management Program for CAs, is being held on the 11th, 12th, and 13th April, 2025 in three different batches to help Chartered Accountants enhance their management skills.
  2. Women @ BCAS: The progress of our profession and nation relies significantly on the support and strength of our women members. We are fortunate to be in a profession where the representation of women is increasing, and at BCAS, we are committed to advancing this cause. On 24th March, 2025, BCAS commemorated International Women’s Day by celebrating strength, success, and empowerment through an event that showcased the life stories of 3 (three) accomplished women role models.
  3. BCAS Nxt: The BCAS Nxt cohort is an ‘of-for-by’ student collective incubated within the Human Resources Development committee towards learning, networking and growth of budding students of Chartered Accountancy. Fresh on the heels of a remarkably successful ‘Tarang 2025’, these young Turks have now progressed to hosting Bootcamps on topics of importance and learning for CA students. A power-packed session on Bank Branch Audit Bootcamp from an article’s perspective was held on 22nd March, 2025, led by student volunteers.

These dedicated cohorts will continue to strengthen their influence in the coming years, addressing the specific needs of their respective constituencies more effectively.

Separately, your Society had the pleasure of hosting and felicitating President CA Charanjot Singh Nanda, President of The Institute of Chartered Accountants of India (‘ICAI’), Prasanna Kumar D, Vice President of ICAI and members of the central council of ICAI for an interactive meeting with the BCAS Core Group. Year-after-year the BCAS Core Group interactive meeting with the ICAI torchbearers has been a platform for sharing thoughts, suggestions and exchange of ideas for the betterment of our profession. The BCAS community engages closely with and complements the activities and initiatives of ICAI, as both institutions relentlessly work towards the professional development of Chartered Accountants.

Back to April, don’t forget to renew your BCAS memberships for this new financial year as we plan for a professionally enriching new financial year ahead. April is also a month wherein our beautiful nation celebrates diversity through our diverse festivals. Let us celebrate diversity and amplify this unique strength of our nation, leading our countrymen to better, happier and purposeful lives. Festive greetings for Baishakhi, Cheti Chand, Chaitra Navratri, Easter, Eid-ul-Fitr, GudiPadwa, Hanuman Jayanti, Mahavir Jayanti, Ram Navami, and Ugadi, amongst many others.

Warm Regards,

 

CA Anand Bathiya

President

Kalachakra (Impacting People, Peace And Planet)

The tenth Raisina Dialogues 2025, from 17th to 19th March, 2025, organised by the Observer Research Foundation and the Ministry of External Affairs (MEA), was held in New Delhi. It is one of India’s most prestigious conferences, where, every year, many interesting geo-political and geo-economic developments are discussed.

The theme for this year’s conference was “Kālachakra: People, Peace and Planet”. One of the important discussions was on Tariffs and Sanctions, where the Minister of External Affairs of India, Dr S. Jaishankar, informed that India is engaged in three big trade negotiations with the EU, the UK and the USA. These negotiations will have a significant impact on India’s trade and commerce, as these countries are growth markets for India and are strategic partners of India with a large Indian diaspora. It would, therefore, be interesting to track developments in these cross-border trade negotiations. Companies in India will have to gear up for fresh competition, both in India and in these markets, with realignment of tariffs.

Let’s look at the Kalachakra affecting People, Place and Planet in different contexts.

PEOPLE

With an estimated 1.46 billion people1, India is not only the most populous country, but is also the largest democracy in the world. India accounts for 17.78% (2025) of the world population, but its share of the world GDP2 is 9.7% (2024). However, India has a demographic advantage, with the median age of its population at 28.8 years. It is also considered one of the fastest-growing economies in the world, with an estimated 6.5% growth in FY 2025. It is likely to become the 4th largest economy, surpassing Japan, in 2025.

1 https://www.worldometers.info/world-population/india-population/
2 https://www.worldeconomics.com/Share-of-Global-GDP/India.aspx

However, India’s GDP per capita (i.e., GDP/Population) puts it 140th in the world ranking. Even considering Purchasing Power Parity, India ranks 119th in the world ranking.3  Within the growth figures, we also need to address the inequality of income and regional disparities.

3 https://www.businesstoday.in

Thankfully, macro-economic data are favourable, and huge capital spending by the government on infrastructure will give a fillip to industrial and economic growth. However, we need to invest a lot in terms of time and effort in skill building, increasing the employability of youth, education and health care. This was also echoed in the Raisina Dialogues. Coming to the contribution of people to India’s growth, some structural changes are required to arrest the brain drain.

The recent survey by Kotak Private Banking of 150 wealthy individuals across India revealed a startling fact that “1 in 5 Ultra-HNIs surveyed are currently in the process of or plan to migrate, most of whom intend to reside in their chosen host country permanently while retaining their Indian citizenship. Professionals show a higher propensity to migrate than entrepreneurs or inheritors. Among those considering global migration, 69% cited smoothening of business operations as the key driver.”4

4 https://www.kotak.com/content/dam/Kotak/about-us/media-press-releases/2025/media-release-kotak-private-top-of-the-pyramid-report-2024.pdf

This emphasises the need to provide a conducive environment for ease of doing business for entrepreneurs to grow and excel. We need large industries for manufacturing and generating employment.

PEACE

With wars in various parts of the world, peace is elusive. Various kinds of wars are being fought today: physical (political), technological, ideological, economic (through currencies, tariffs, etc.) and so on. One would not be surprised to see the borders of many nations changing in years to come. In any case, borders are losing significance with technological and ideological wars. Social media is enough to create a desired narrative which can topple governments. Data and cyber security assume a lot of significance in this new world order. The use of AI may expedite the work, processes, etc., but may pose a big threat to National Security. Guarding invisible technological and financial borders is, perhaps, more important now than ever before. That’s where we have a positive role to play.

The Prime Minister of India categorically stated that India is not neutral in the Ukraine war, but is on the side of Peace. We have seen the devastating impact on the lives of people in war-torn countries. Only Peace can bring prosperity to the world.

PLANET

India believes in Vasudhaiva Kutumbakam (वसुधैवकुटुम्बकम्), meaning the whole Earth is a Family. During the G20 Presidency of India, it was translated to “One Earth, One Family, One Future” and was chosen as the Motto.

Planet Earth is facing many challenges, the primary of them being climate change. The recent earthquake in Myanmar and Thailand has proven the fragility of human edifices. Frequent changes in climate have impacted human and animal lives. Rising temperatures and melting glaciers are matters of concern. The use of warheads, burning forests, and rampant use of fossil fuels have worsened the situation.

In such a situation, reporting for ESG (Environmental, Social and Governance) assumes significance. “Environmental criteria examine how a company performs as a steward of the planet. Social criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance defines a set of rules and best practices, along with a series of processes that determine how an organisation is managed and controlled.”5

5 https://www.thecorporategovernanceinstitute.com/

In India, from FY 2023-2024, SEBI has mandated disclosures as per the updated Business Responsibility and Sustainability Reporting (BRSR) format for the top 1000 listed companies (by market capitalisation).6

6 Circular No.: SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122 dated Jul 12, 2023

It would be necessary for companies to become more responsible and responsive to the environment in which they are operating. It would be interesting to see the impact these new regulations will generate in times to come. Practitioners of the ESG assurance and auditors of the concerned companies will need to keep track of developments in this field and equip themselves for conducting necessary enquiries, reporting and disclosures.

PROFESSIONAL DEVELOPMENTS

The Finance Act 2025 has introduced a new section 194T applicable w.e.f. 1st April, 2025, which mandates TDS on Payments of any sum (in excess of ₹20,000/- during the financial year) in the nature of salary, remuneration, commission, bonus or interest to a partner of the firm. It will create difficulties for those firms which decide remuneration based on profitability at the year-end, as TDS will be applicable even on ad-hoc withdrawal towards remuneration. Such far-reaching amendments resulting in increased compliance should have been discussed with stakeholders before being enacted.

Recently, the Supreme Court dismissed the SLP filed by the Central Board of Indirect Taxes and Customs against the judgment of the Bombay High Court in the case of Aberdare Technologies Private Limited &Ors. wherein the Hon. High Court had allowed manual or electronic corrections in claiming the input tax credit. The Apex Court held that “Human errors and mistakes are normal, and errors are also made by the Revenue. 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 to ease compliance and can be configured. Therefore, we exercise our discretion and dismiss the special leave petition.”

This is a welcome decision giving relief to taxpayers for genuine mistakes and errors. In yet another decision in the case of Radhika Agarwal, the Apex Court clarified and reiterated the important safeguards to be kept in place to ensure that provisions of arrest under the GST laws are not abused. Readers can refer to the detailed Article, as well as in-depth discussion in the “Decoding GST” column on this case, in the subsequent pages of this Journal.

In conclusion, we are living in an exciting time with Kalachakra moving rapidly impacting our profession, businesses, lives and Planet. We shall see many unprecedented developments in times to come, but who knows what is in store for us in the Kalachakra? Let’s hope that whatever comes is best for the People, Peace and Planet.

Best wishes to our readers for the New Financial Year and Festivals.

Best Regards,

 

Dr CA MayurNayak, Editor

GudiPadwa, VikramSamvat 2082: 30th March, 2025

पय:पानं भुजङ्गानां केवलं विषवर्धनम्

This proverbial line describes a very commonly experienced fact of life, especially in the modern times. Although it is an age old reality, it is more prominently observed in last few decades. With the advancement of technology, degeneration of values and pollution of culture, its gravity is increasing day-by-day.

The stanza reads as follows:-

उपदेशो हि मूर्खाणाम्    Advice rendered to a stupid or undeserving person.

प्रकोपाय न शान्तये  results in his anger. (resistance) and not in peace.

पय:पानं भुजङ्गानां  If you feed milk to a snake,

केवलं विषवर्धनम्  It only adds to its poison.

This is from Panchtantra (1.420) and Hitopadesh 3.4

There is another version of this shloka –

उपकारोSपि नीचानाम्  Help offered to a bad person,

अपकारो हि जायते  Is taken otherwise by him (he treats it as a trouble with bad motive.

पय:पानं भुजङ्गानां केवलं विषवर्धनम् !

If any of the readers has not experienced this, please do try it!

Addicted people, drunkards, gamblers, gundas, hooligans, uneducated (uncivilised) people, will never listen to your sound advice. If you advise corrupt people to give up bad practices, they will either ridicule you or frown upon you. If people are unnecessarily quarrelling or fighting on the streets or even in a crowded compartment of a local train and if you request them to stop quarrelling and to ‘forget it’, they will first ask you not to interfere. They may even try to drag you into the dispute or react violently against you. Members in a co-operative housing society are behaving with complete non-co-operation. A trouble making member will raise disputes and will never mend his ways. No consultant can improvethis situation. If you ask naughty or mischievous children to behave themselves, they will react the opposite way.

If anyone advises our neighbouring countries to focus on their own development rather than causing destruction to India or promoting terrorism, they will on the contrary, increase their attempts to cause harm to India. Even if they are in utter poverty, they will import weapons to wage a war against us!

In our epics, Ravana, Duryodhana, other demons/villains are a classic example of this truth. Ravana did not listen to the advice of Bibheeshana to give Seeta back to Ram. Ravana drove him away from his kingdom. Duryodhana did not heed to the advice of Vidura and other elderly persons. Such good advice hardens their ego.

Today’s youth is more obsessed with social media, drugs, movies and many bad things. Our family system is cracking today. Husband wife relations are getting destroyed. The bonding between all relations is breaking. Break-ups and divorces are very common. The couple does not realise the importance of togetherness. They are often short sighted or excessively career oriented, materialistic, ambitious, egoistic, selfish and uncompromising. They cannot digest ‘adjustment’. The counselling has not much impact. If you try to advise them, they will ask you to mind your own business, saying that it is their personal matter. They don’t realise that when such things become rampant, it is no longer a personal matter but a great social menace!

The only solution is the strong moral culture ‘sanskaras’. In today’s rat race, the sanskaaras of parents and teachers are losing efficacy. A narrow minded, individualistic and self-centred approach is developing and people are immune to any words of wisdom. Thus the bhujangas (snakes) in the guise of ‘qualified’ money making machines are increasing. They will improve when they themselves realise it; but not on anyone’s advice!

Article 11 India-Luxembourg DTAA – Assessee, having satisfied that it is not a conduit entity, is entitled to the benefits under DTAA and considering commercial and economic substance.

15. [2025] 170 taxmann.com 475 (Delhi – Trib.)

SC Lowy P.I. (LUX) S.A.R.L. vs. ACIT

ITA No: 3568 (Delhi) of 2023

A.Y.: 2021-22

Dated: 30th December, 2024

Article 11 India-Luxembourg DTAA – Assessee, having satisfied that it is not a conduit entity, is entitled to the benefits under DTAA and considering commercial and economic substance.

FACTS

Assessee is a Limited Liability Company and a tax resident of Luxembourg. The Assessee is a subsidiary of a Cayman Island entity and a step-down subsidiary of an offshore fund located in the Cayman Islands. The Assessee is registered as a Category II – Foreign Portfolio Investor registered with SEBI, who has invested in corporate bonds and pass-through certificates of securitization trust.

It offered the interest income from bonds at 10% under Article 11 and claimed treaty benefits with respect to business income and capital gains under Article 7 and Article 13(6) of DTAA, respectively.

The AO verified the financial statements, SEBI registration, and Articles of Association to conclude that the real owner of the income is the ultimate Parent located in the Cayman Islands, with whom India does not have DTAA. The entire holding structure involves treaty shopping, and a TRC is insufficient to claim treaty benefits and beneficial ownership of income. Therefore, the AO denied the tax benefits under DTAA and taxed the interest income from bonds and securitization trusts at 40% and short-term gains at 30%.

The DRP upheld the action of the AO.

Aggrieved by the final order, the Assessee appealed to ITAT.

HELD

  •  The Assessee has provided a valid TRC and satisfied the conditions prescribed under Article 29 dealing with the limitation of benefits. Having not raised any red flags on the TRC, the revenue cannot overlook the TRC without bringing any evidence to prove that the entity exists as a conduit. The Delhi High Court, in Tiger Global International III Holdings [2024] 165 taxmann.com 850 (Delhi), has held that revenue can look beyond TRC only in case of tax fraud, sham transactions or illegal activities.
  •  The Assessee was incorporated as an investment holding company in Luxembourg, and it has been in existence since 2015 and invested in distressed assets. As a Category – II FPI, it invested in securitization trust/corporate bonds in FY 2018-19. Its geographical concentration shows that it had only 14% investment in India, and the remaining investments were spread across jurisdictions.
  •  The Assessee had paid taxes and filed returns in Luxembourg with respect to income earned from Indiaand other jurisdictions. Substantial operational costs, includes consulting fees, litigation fees, professional charges, and administrative expenses, are incurred in Luxembourg.
  •  The Assessee is in existence to date and continues to hold the investments. This substantiates that they control the assets and the income thereon for their own account; hence, they cannot be regarded as a conduit entity. The AO did not bring any evidence to support his views and presumptions.
  •  The genuineness of the entity is substantiated through various activities, and it operated as a stand-alone entity without depending on its holding company.

The limitation of benefits under Article 29 as amended by Multilateral Instruments (Article 7) requires bringing on record the relevant facts andcircumstances to prove that the principal purpose of arrangements and transactions is only for the purpose of taking treaty benefit. The Revenue, without any cogent materials, failed to establish that the assessee is a conduit entity. Therefore, the benefits of the treaty cannot be denied.

Article 8 of India-USA DTAA – Whether code sharing revenue falls under the scope of ‘operations of aircraft’ and is entitled to relief under the DTAA.

14. [2024] 169 taxmann.com 8 (Mumbai – Trib.)

Delta Air Lines, Inc. vs. ACIT (International Taxation)

ITA No: 235 (Mum.) of 2022

A.Y.: 2018-19

Dated: 7th November 2024

Article 8 of India-USA DTAA – Whether code sharing revenue falls under the scope of ‘operations of aircraft’ and is entitled to relief under the DTAA.

FACTS

The Assessee, a tax resident of the USA, was engaged in the business of aircraft operations in international traffic. It had established a branch office in India, a permanent establishment that was admitted to facilitate the booking of air passenger tickets and freights. The Assessee had three streams of international journey income, namely (i) transportation using their own aircraft, (ii) transportation with a combination of own aircraft and third-party carriers vide code sharing arrangements for one or more parts of the journey, and (iii) entire transportation using third party carriers under code-sharing arrangements.

The Assessee filed NIL return of income claiming benefits under Article 8 of the DTAA. The AO denied the Article 8 benefit w.r.t second and third stream of income, stating income under code sharing cannot be regarded as derived from the operation of aircraft in international traffic. Further, AO was of the view that code sharing arrangements cannot be regarded as a space or a slot charter.

The Ld. DRP and Ld. AO followed the order of the coordinate bench in Assesse’s own case for AY 2010-11 [2015] 57 taxmann.com 1 (Mumbai) to uphold the denial of the treaty benefit qua code-share revenue. The reasoning that was adopted in earlier ITAT ruling, as also by DRP, was as under:

  •  The taxpayer must derive profit from the operation of an aircraft in international traffic as an owner/charter/lessor of the aircraft.
  •  In the case of a code-sharing arrangement, the taxpayer’s activities were only the booking of tickets, and the actual transport of passengers was carried out by a third-party airline. The same cannot hence be regarded as profits derived from international traffic carried out by the assessee.
  • Activities directly linked to the transport of passengers by the Assessee would only fall under the ambit of Article 8(2)(b). Since the transportation is carried on by other airlines, and it cannot be regarded as having direct nexus with activities carried on by the Assessee; hence, the activity relating to transportation by other airlines cannot fall under Article 8(2)(b).
  •  The ruling of the coordinate bench of the tribunal in the case of MISC Berhard [2014] 47 taxmann.com 50 (Mumbai) is not applicable to the case on hand. The MISC (supra) case dealt with revenue earned from feeder vessels, which was used to transport cargo from the Indian Port to the Hub Port and for further transportation by the third party than to mother vessels for the final destination. In the case of Assessee, there are no such instances of transporting to the hub port and then to the final destination. Since the ruling was rendered in the context of India-UK DTAA, the same cannot be applied to India-US DTAA.
  •  The code-sharing arrangement cannot be regarded as slot/space charter for qualifying under Article 8(2) as the assessee does not have exclusivity over space or flights booked.

HELD

On further appeal, the co-ordinate bench dissented with their earlier ruling on account of subsequent judicial developments and ruled in favour of the taxpayer basis the following:

  • The Bombay High Court in Balaji Shipping [2012] 24 taxmann.com 229 (Bombay) held that slot chartering by shipping companies for transportation by third-party shippers could fall under the scope of Article 9 of India-UK DTAA. The High Court held that both the following scenarios were covered under Article 9 i.e., (i) use of a third-party ship for movement between a port in India to the hub port and then for the final destination and (ii) use of a third-party ship for transport from the port in India to the final destination.
  • The Bombay High Court in APL Co. Pte. Ltd [2016] 75 taxmann.com 32 (Bombay) has applied the ruling of Balaji Shipping (supra) while interpreting the India-Singapore DTAA since both treaties’ wordings are parimateria. Therefore, this will have a binding effect when the wording of various treaties is similar. Although the passengers are transported through other airlines, the Assessee issues the tickets up to the final destination. The code-sharing arrangements facilitate the Assessee in providing services to specific destinations where they do not operate. Therefore, applying the Balaji Shipping (supra) ratio rendered in the context of shipping income receipts from code-sharing arrangements is entitled to benefit under Article 8 of DTAA.
  • When the assessee books a seat on a third-party airline through a code-sharing arrangement, it could be regarded as a charter of space in the aircraft, and the entire aircraft need not be chartered.
  • The codes used by the Assessee for booking tickets in third-party airlines are unique to them and are used for partial or complete journeys. This establishes the link between transportation by a third party and the operations of the Assessee, and they transport the passenger on behalf of the Assessee.

Sec. 28: Where during search at residential premises of director of assessee-company, AO found that assessee had made out of books sales and added entire undisclosed sales to income of assessee, however, Commissioner (Appeals) restricted same to profit element embedded therein estimated at rate of 8 per cent of sales, since revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent instead of 8 per cent, addition restricted by Commissioner (Appeals) to 8 per cent of sales was to be upheld. Also, Commissioner (Appeals) failed to give benefit of income surrendered by assessee voluntarily against addition confirmed by him on account of unaccounted sales, Assessing Officer was to be directed to grant assessee benefit of income surrendered by assessee against addition confirmed by Commissioner (Appeals).

84. ACIT vs. Conor Granito (P.) Ltd

[2024] 116 ITR(T) 479 (Rajkot – Trib.)

ITA NO.: 143 (RJT) OF 2021

CO NO.: 01 (RJT) OF 2022

A.Y.: 2019-20

Dated: 12th January, 2024

Sec. 28: Where during search at residential premises of director of assessee-company, AO found that assessee had made out of books sales and added entire undisclosed sales to income of assessee, however, Commissioner (Appeals) restricted same to profit element embedded therein estimated at rate of 8 per cent of sales, since revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent instead of 8 per cent, addition restricted by Commissioner (Appeals) to 8 per cent of sales was to be upheld. Also, Commissioner (Appeals) failed to give benefit of income surrendered by assessee voluntarily against addition confirmed by him on account of unaccounted sales, Assessing Officer was to be directed to grant assessee benefit of income surrendered by assessee against addition confirmed by Commissioner (Appeals).

FACTS

During search at the residential premises of the director of the assessee-company, various incriminating material by way of WhatsApp message / images were discovered and on analysis of the same, it was discovered that the assessee had made out of books sales which during the impugned year amounted to ₹2,35,42,980/-. The Assessing Officer added entire undisclosed sales to the income of the assessee. The ld.CIT(A), however, restricted the same to the profit element embedded therein estimated at the rate of @ 8 per cent of the sales.

Aggrieved, the revenue filed an appeal and assessee filed cross objections before the Tribunal –

HELD

ITAT observed that the contention of the Revenue was that the ld.CIT(A) ought to have applied 12.5 per cent net profit rate instead of 8 per cent. However, the Revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent.

ITAT held that net profit to be applied was to be at justifiable rate depending upon nature of the business and other facts. It should not be an ad hoc rate and there has to be a reasonable basis for applying a particular net profit rate in each case. The DR had not supported his contention of applying 12.5 per cent GP rate with any reasonable basis. ITAT held that profit rate specified in the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, [2013] 356 ITR 451 as cited by DR could not be justifiable rate in assessee’s case as the nature of activities of both the assessees were not identical.

Therefore, ITAT did not find any merit in the contentions of the DR that the ld.CIT(A) ought to have applied a net profit of 12.5 per cent in the present case. The ground raised by the Revenue was accordingly rejected.

Thus, the appeal of the Revenue was dismissed.

With respect to Cross Objections filed by the assessee, the ld.CIT(A) had failed to give benefit of the income surrendered by the assessee voluntarily against addition confirmed by him on account of unaccounted sales.

In the light of the same, ITAT directed the assessing officer to grant assessee the benefit of the income surrendered of ₹15 lakhs against the addition confirmed by the ld.CIT(A).

The Cross Objection was accordingly allowed.

Sec. 69A: Assessee deposited cash during demonetisation period of `10.75 lakhs which was recorded in his books of account and source of cash deposits was also maintained by assessee. However, Assessing Officer made addition as unexplained money under section 69A and taxed same under section 115BBE. ITAT held that Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE as assessee had recorded in his books of accounts and also explained source of such cash deposits.

83. Dipak Balubhai Patel (HUF) vs. ITO

[2024] 115ITR(T) 624 (Ahmedabad- Trib.)

ITA NO.:942(AHD) OF 2023

AY.: 2017-18

Dated: 22nd August, 2024

Sec. 69A: Assessee deposited cash during demonetisation period of `10.75 lakhs which was recorded in his books of account and source of cash deposits was also maintained by assessee. However, Assessing Officer made addition as unexplained money under section 69A and taxed same under section 115BBE. ITAT held that Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE as assessee had recorded in his books of accounts and also explained source of such cash deposits.

FACTS

The assessee was a HUF who derived income from House Property and Income from Other Sources. The case was selected for scrutiny assessment and the Assessing Officer found that assessee deposited a sum of ₹10,75,000/- during demonetisation period and issued show cause notice to explain the source of cash deposit.

The assessee explained the source of cash deposit as withdrawal from four other banks accounts of the assesse and the said deposits were duly reflected in his Return of Income. Further since assessee did not have any business income, therefore he had not filed the Profit and Loss Account and Balance Sheet along with Return of Income. However, the assessee filed the same before the
Assessing Officer along with cash book, wherein cash on hand as on 1st April, 2016 as opening balance was ₹10,09,933/-, which was deposited during demonetisation period.

However, Assessing Officer rejected the Books of Accounts by stating that assessee had shown Closing Cash on hand as zero in return of income filed for the A.Y. 2016-17, and in the Cash Book of F.Y. 2016-17 i.e. A.Y. 2017-18, assessee has shown Opening Balance to the tune of ₹10,09,933/- which was not justifiable and therefore made addition as unexplained money u/s. 69A of the Act.

Aggrieved against the addition, the assessee filed an appeal before CIT(A) who confirmed the additions by observing that during the previous 3 years, except 2 or 3 instances, all withdrawals were less than ₹10,000 and the appellant claimed that the withdrawals were preserved during last 3 years in his hand and were deposited in the year under consideration.

Since 95 per cent of the withdrawals were less than ₹10,000, CIT(A) observed that as per common sense these cash withdrawals were for day to day expenses and if the appellant had so much of cash with him then what was the need for frequent withdrawals of ₹5,000 and ₹10,000. The CIT(A) relied on decisions of CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) where the Supreme Court has laid down Human Probability test as one of the important test in order to check genuineness of the transactions entered into the books of account of the assesses. Hence it was held by CIT(A) that the appellant failed to satisfactorily explain the source of ₹10,75,000 cash deposited in the bank account and the assessing officer was correct in treating this amount as unexplained cash under section 69A.

The appellant being aggrieved with the order of the CIT(Appeals) filed an appeal before the ITAT.

HELD

The ITAT observed that during the assessment proceedings, the Assessing Officer had rejected the explanation offered by the assessee as the assesse had showed closing cash on hand as Nil in the Return of Income but in the cash book showed the opening balance for A.Y. 2017-18 to the tune of ₹10,09,933/-.

The ITAT further observed that the assessee had filed copies of previous three years Form 26AS, ITR, Statement of Income, Profit and Loss account and Balance Sheet before CIT(A)and further explained that rental income was offered to tax with appropriate TDS u/s. 194I of the Act which was reflecting in Form 26AS records. Since the assessee was a Senior Citizen, he withdrew and kept substantial balance in his bank accounts for emergency medical needs. However, after declaration of the demonetization period, the assessee deposited the withdrawal amounts from his other bank accounts.

The ITAT observed that Assessing Officer erroneously treated cash deposits as unexplained cash and also invoked Section 115BBE of the Act and charged at 60 per cent rate which was not applicable to the present case since the cash deposits were reflected in the books of accounts maintained by the assessee. The ITAT relied on decision in case of Balwinder Kumar ([2023] 151 taxmann.com 338 (Amritsar – Trib.)) and Sri Sriram Manchukonda (2021 TaxCorp (AT.) 91806 Visakhapatnam ITAT) wherein co-ordinate Bench of the Tribunal held in favour of the assessee.

Respectfully following the above judicial precedents, ITAT observed that the addition made by AO u/s. 69A will be applicable only when the assessee is found to be the owner of any money etc. which is not recorded in the books of accounts maintained by him and any explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer.

ITAT observed that in the present case, the assessee had recorded the cash deposits in his books of accounts and source of cash deposits during demonetization period were also been maintained by the assessee. Therefore, ITAT held that the A.O. was not correct in invoking provisions of Section 69A of the Act and charging tax u/s. 115BBE of the Act. Thus the addition made by the Assessing Officer were deleted.

In the result, the appeal filed by the Assessee was allowed.

S. 127–Where the case of the assesse was transferred from one AO to another AO in a different city / locality / place, PCIT was under a statutory obligation to give an opportunity of being heard to the assessee.

82. Amit Kumar Gupta vs. ITO

(2025) 171 taxmann.com 16 (Raipur Trib)

ITA Nos.: 404 & 405 (Rpr) of 2024

A.Ys.: 2011-12 & 2012-13

Dated: 13th January, 2025

S. 127–Where the case of the assesse was transferred from one AO to another AO in a different city / locality / place, PCIT was under a statutory obligation to give an opportunity of being heard to the assessee.

FACTS

During the relevant year, the assessee had made cash deposits amounting to ₹17,05,824 into his bank account but did not file his income tax return. Based on the information gathered from NMS / ITS module, the AO (ITO-1, Ambikapur) initiated proceedings under section 147 by issuing notice under section 148 dated 23rd March, 2018. Thereafter, pursuant to an order under section 127 dated 7.9.2018 passed by PCIT-1, Bilaspur, the assessee’s case was transferred from ITO-1 Ambikapur to ITO-3, Korba. Since the assessee did not come forth with any explanation in response to notice under section 142(1), the AO taxed the entire cash deposit as unexplained money under section 69A vide his order under section 144 read with section 147 dated 16th December, 2018.

The assessee challenged the assessment order before CIT(A), inter alia, on the ground that PCIT had transferred his case from one ITO to another ITO without affording any opportunity of being heard as required under section 127. CIT(A) dismissed the appeal, inter alia, holding that he was not the appropriate forum to challenge the order under section 127 passed by PCIT.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) As can be gathered from section 127(3), in a case where the PCIT transfers the case of as assessee from any AO to any other AO and the offices of all such officers are not situated in the same city, locality or place, then he remains under a statutory obligation to give an opportunity of being heard to the assessee and only after recording his reasons for doing so,
transfer such case. In the assessee’s facts, the case had been transferred pursuant to the order of PCIT, Bilaspur dated 7th September, 2018 from ITO-1, Ambikapur to ITO-3, Korba, that is, offices of said officers were not situated in the same city, locality or place, and therefore, on a conjoint reading of section 127(1) / (3), he was obligated to have given an opportunity to the assessee prior to transfer of his case.

(b) CIT(A) was not right in holding that he was not vested with any jurisdiction to deal with the specific challenge raised by the assessee as regards the validity of the assessment order that was framed by the A.Ode-hors a valid assumption of jurisdiction on his part in absence of an order of transfer under section 127 as required per the mandate of law.

Accordingly, the Tribunal restored the matter back to the file of CIT(A) with a direction to adjudicate the challenge of the assessee as regards the validity of the jurisdiction that was assumed by the A.O for framing of the assessment order passed under section 144 read with section. 147 dated 16th December, 2018 de-hors an order of transfer under section 127 as per the mandate of law.

S. 80G – Where the application for final approval under section 80G was rejected due to incorrect section code in the application, the issue was remanded back to the file of CIT(E) to grant final approval under correct provision if assessee-trust was otherwise eligible.

81. Rotary Charity Trust vs. CIT(E)

(2025)170 taxmann.com 797(Mum Trib)

ITA No.: 6133(Mum) of 2024

A.Y.: 2024-25

Dated: 9th January, 2025

S. 80G – Where the application for final approval under section 80G was rejected due to incorrect section code in the application, the issue was remanded back to the file of CIT(E) to grant final approval under correct provision if assessee-trust was otherwise eligible.

FACTS

Assessee was a registered charitable trust incorporated on 25th September, 1996, engaged in promoting various public charitable activities especially providing education to weaker section of the society and to specially-abled children. It made an application for provisional registration under section 80G of the Act, which was granted under clause (iv) of first proviso to section 80G(5) on 4th April, 2022 which was valid for the period starting 4th April, 2022 to AY 2024-25. Subsequently, the assessee filed application in Form 10AB for final registration; in this Form, instead of selecting section code “clause (iii) of first proviso to section 80G(5)”, the assessee inadvertently once again selected “sub-clause (B)of clause (iv) of first proviso to section 80G (5)”.

CIT(E) rejected the application on the ground that the assessee was not fulfilling the stipulated conditions prescribed undersection 80G(5)(iv)(B).

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that there was merit in the claim of the assessee that it had selected the wrong section code inadvertently while filing the application for final approval in Form 10AB and it was not given the opportunity of being heard by CIT which otherwise would have allowed the assessee to explain the facts to avoid the rejection.

Following the decision in North Eastern Social Research Centre vs. CIT(E), (2024) 165taxmann.com 12 (Kolkata – Trib.), the Tribunal remitted the issue back to the CIT(E) with a direction to grant final approval under clause (iii) to first proviso to section 80G(5) if the assessee was otherwise found eligible.

S.12AB, 13 — Where the applicant trust was a charitable cum religious trust and its objects were for the benefit of a particular religious community or caste, that is, Jains, it was not entitled to registration under section 12AB.

80. Soudharma Brihad Tapogachchiya Tristutik Jain Sangha Samarpanam vs. CIT(E)

(2025)170 taxmann.com 590 (AhdTrib)

ITA No.:1571 (Ahd) of 2024

A.Y.: N.A.

Dated: 3rd January, 2025

S.12AB, 13 — Where the applicant trust was a charitable cum religious trust and its objects were for the benefit of a particular religious community or caste, that is, Jains, it was not entitled to registration under section 12AB.

The assessee-trust was settled on 5th January, 2023 with objects which required it to follow the principles of Jainism, etc. and was registered with the Assistant / Deputy Charity Commissioner, Ahmedabad. It filed application for registration under section 12AB in Form 10AB on 13th January, 2024 before CIT(E). In this application, the applicant mentioned that it had charitable objects in addition to religious objects.

CIT(E) denied registration under section 12AB on the ground that the assessee was a composite trust and its object was restricted to benefit of a particular religious community or caste, that is, Jains, which was a “specified violation” under clause (d) of Explanation below section 12AB(4) read with section 13(1)(b).

Aggrieved with the order of CIT(E), the assessee filed an appeal before ITAT.

FACTS

The Tribunal observed that-

(a) A perusal of the main objects of the trust made it abundantly clear that all the objects were related to religious activities, more particularly relating to “Jain Community” and to propagate “Jainism”, that is, charitable cum religious in nature and was for the benefit of “Jains” which was a specific violation under clauses (c)/ (d) to Explanation to section12AB(4).

(b) In CIT vs. Dawoodi Bohara Jamat, (2014) 364 ITR 31 (SC), the Supreme Court held that section 13(1)(b)(which prescribed the circumstances wherein the exemption would not be available to a religious or charitable trust)was applicable even to a composite trust / institution having both religious and charitable objects. Section 13(1)(b)was required to be read in conjunction with the provisions of sections 11 and 12 towards determination of eligibility of a trust to claim exemption under the aforesaid provisions, while granting registration.

Accordingly, the Tribunal held that the order denying registration to the assessee did not require any interference and dismissed the assessee’s appeal.

While computing long term capital gains, interest on funds borrowed for purchase of property, duly indexed will be allowed as a deduction. Prior to amendment vide Finance Act, 2023 there was no such restriction for excluding the deduction claimed on account of interest paid under Section 24(b) or under the provisions of chapter VIA.

79. DCIT vs. Neville Tuli

ITA No. 3203/Mum./2023

A.Y.: 2013-14

Date of Order: 26th November, 2024

Section: 48

While computing long term capital gains, interest on funds borrowed for purchase of property, duly indexed will be allowed as a deduction. Prior to amendment vide Finance Act, 2023 there was no such restriction for excluding the deduction claimed on account of interest paid under Section 24(b) or under the provisions of chapter VIA.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee sold a property, held by him as a long term capital asset, for a consideration of ₹27 crore. This property was purchased from borrowed funds. While computing long term capital gains arising on sale of this property, the assessee deducted ₹9,90,67,611 being indexed cost of acquisition and ₹3,95,42,739 being indexed cost of interest paid to the bank (this was shown under “indexed cost of improvement”) and offered long term capital gain of ₹13,13,89,649.

The amount of interest claimed as deduction while computing long term capital gains was net of the amount claimed in earlier years under section 24(b) of the Act. In earlier years, interest up to ₹1,50,000 was claimed and was allowed as deduction under section 24(b) of the Act.

In the background of the above facts, the Assessing Officer, in the course of assessment proceedings framed two questions viz. (i) Whether interest paid is a cost of acquisition / cost of improvement; and (ii) whether the benefit of indexation is to be allowed to interest cost. The AO having perused the provisions of section 55 held that interest payment on housing loan cannot be said to be expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property. He also held that, on a reading of section 55, it is clearly evident that in no situation does the cost of acquisition involve bringing in any cost incurred after the date of acquisition, unless the cost of improvement and, in the instant case there is no improvement to the property. The AO supported his view by the ratio of the decisions of the Tribunal in the case of V Mahesh, ITO vs. Vikram Sadanand Hoskote [(2017) 18 SOT 130 (Mum.)] and Harish Krishnakkant Bhatt vs. ITO [(2004) 91 ITD 311 (Ahd. Trib.)].

The AO disallowed the sum of ₹3,95,42,739 and added the same to the income of the assessee.

Aggrieved, assessee preferred an appeal to the CIT(A) who during the course of appellate proceedings noted that a similar claim was allowed in earlier years as well. Having considered the relevant provisions of the Act and the judicial precedents on the issue, the CIT(A) allowed the appeal preferred by the assessee.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that in earlier assessment years as well, the assessee has claimed similar deduction of interest expenditure under the head income from house property and as cost of acquisition / improvement, which has been continuously allowed by the revenue authorities and therefore rule of consistency is required to be followed.

The Tribunal also noted that the Finance Act, 2023 has w.e.f. 1st April, 2024 amended the provisions of section 48 to provide that the cost of acquisition of the asset or cost of improvement thereto shall not include the deductions claimed on account of interest under clause (b) of section 24 or under the provisions of Chapter VIA. It held that for the period prior to the insertion of the said provision which is applicable w.e.f. 1st April, 2024, no such restriction can be imposed and / or made applicable. The Tribunal noted that the CIT(A) has also taken note of this amendment and has rightly held it to be not clarificatory.

The Tribunal after considering the ratio of various decisions on which reliance was placed on behalf of the assessee held that the interest paid on the borrowed funds for the purchase of property for the period prior to the provision inserted vide Finance Act, 2023 which was made applicable from 1st April, 2024, over and above claimed u/s 24(b) of the Act, would be deductible while computing the capital gains. Thus, we answered the question posed accordingly.

The Tribunal held that the order passed by CIT(A) does not suffer from any perversity, impropriety and / or illegality. It upheld the order passed by CIT(A) and dismissed the appeal filed by the revenue.

For the purpose of computing the ‘tax effect’, in the present case, only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue.

78. ACIT vs. Bennett Property Holdings Company Limited

ITA No. 556/Mum./2024

A.Y.: 2017-18

Date of order: 12th December, 2024

Section: CBDT Circular No. 5 of 2024 dtd. 15th March, 2024 r.w. Circular No. 9 of 2024 dtd 17th September, 2024

For the purpose of computing the ‘tax effect’, in the present case, only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue.

FACTS

For AY 2017-18, the Assessee company, primarily engaged in the business of earning rental income by letting out properties and running business centres, filed original return of income which was subsequently revised. The Assessing Officer (AO), in an order passed under section 143(3), assessed the total income of the Assessee under the normal provisions of the Act at ₹1,20,45,17,348/- and computed Book Profits of the Assessee under Section 115JB of theAct at ₹1,33,19,94,660/-. Since the tax payable on Book Profits was less than the tax payable on the income computed under normal provisions of the Act, the Assessee was assessed to tax under normal provisions of the Act.

Aggrieved by the additions made by the AO while assessing the total income, the assessee preferred an appeal to CIT(A) challenging certain additions / disallowances made under normal provisions of the Act viz. (i) disallowance of ₹6,38,05,371/- under Section 14A of the Act; (ii) addition taking deemed annual letting value of the immovable properties lying vacant during the relevant previous year at ₹23,28,000; and (iii) denial of claim of set off of accumulated loss of ₹12,86,53,730 and unabsorbed depreciation of ₹15,65,15,799 relatable to real estate service undertaking of Banhem Estates & IT Parks Ltd. That demerged into the Assessee pursuant to composite scheme of amalgamation and arrangement approved by the Hon’ble Bombay High Court vide order, dated 2nd December, 2016.

The assessee also challenged the following additions made by the AO while computing the amount of book profits u/s 115JB viz. (i) increase in Book Profits by Extra Depreciation of ₹4,38,18,551; (ii) increase in Book Profits by ₹6,38,05,371 disallowed under Section 14A of the Act by invoking provisions contained in Clause (f) of Explanation 1 to Section 115JB of the Act; and (iii) rejection of Assessee’s claim of substitution of long-term capital gain (computed by taking index cost of acquisition) in place of the profit on sale of capital asset appearing in the statement of Profit & Loss Account for the purpose of computing Book Profits.

The assessee also raised additional grounds seeking credit for TDS in respect of companies / undertakings forming part of composite scheme and also challenged computation of interest under section 234B of the Act.

The appeal preferred by the Assessee was disposed off by the CIT(A)as partly allowed vide order, dated 13th December, 2023. The CIT(A) granted partial relief by (a) deleting the addition made under normal provisions of the Act in respect in respect of deemed rental income estimated at ₹23,28,000/-, and (b) accepting Assessee’s contention that no disallowance of expenses can be made in respect of any exempt income by invoking provisions contained in Section14A read with Rule 8D of the IT Rules while computing Book Profits under Section 115JB of the Act.

Since, both, the Assessee as well as the Revenue were aggrieved by the order passed by the CIT(A), the present cross-appeals were preferred before the Tribunal.

Before the Tribunal, on behalf of the assessee, it was submitted that the Assessee has been assessed under normal provisions of the Act. Even if the grounds raised by the Revenue in relation to the computation of ‘Book Profits’ under Section 115JB of the Act are allowed in favour of the Revenue, the Assessee would be assessed to tax under the normal provisions of the Act. It was submitted that the grounds of appeal raised by the Revenue pertaining to the additions / disallowance made under the normal provisions of the Act carry tax effect below the specified monetary of ₹60 Lacs fixed by Central Board of Direct Taxes(CBDT) for filing Departmental Appeal before the Tribunal limit. Therefore, the appeal preferred by the Revenue should be dismissed as withdrawn in view of Circular No. 5 of 2024, dated 15th March, 2024, read with Circular No. 9 of 2024, dated 17th September, 2024, issued by CBDT.

HELD
The Tribunal noted that the Revenue has preferred appeal challenging the deletion of addition in respect of deemed annual letting income of ₹23,28,000 under normal provisions of the Act. The Revenue has also challenged the relief granted by the CIT(A) by accepting Assessee’s claim that the ‘Book Profits’ could not be increased by ₹6,38,05,371 (being amount disallowed under Section 14A of the Act read with Rule 8D of the IT Rules), by invoking provisions contained in clause (f) of Explanation 1 to Section 115JB of the Act. Thus, the Tribunal observed that Revenue has raised grounds having impact on the computation of income under normal provisions of the Act and the computation of ‘Book Profits’ under Section 115JB of the Act.

The Tribunal perused the Circular No. 5 & 9 of 2024 issued by the CBDT and held that Circular No.5 of 2024, dated 15th March, 2024, when read with Circular No.9 of 2024, dated 17th September, 2024, issued by CBDT clarifies that the monetary limit of ‘tax effect’ for filing departmental appeals before Tribunal has been increased from ₹50 Lakhs to ₹60 Lakhs. It has also been clarified in Circular No. 9 of 2024 that the aforesaid monetary limit for filing the appeal before the Tribunal would also apply to the pending departmental appeals.

The Tribunal held that for the purpose of computing the ‘tax effect’ involved in the present appeal preferred by the Revenue only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered. This is because the Assessee has been assessed under the normal provisions of the Act and this would continue to be the case even if all the grounds raised by the Revenue (whether related to computation of income under normal provisions of the Act or related to computation of Book Profits under 115JB of the Act) are allowed.

On examination the grounds raised by the Revenue having impact on computation of income under normal provisions of the Act, the Tribunal found that tax effect involved in the present appeal is below the monetary limit of Rs.60 Lakhs fixed by the CBDT for the purpose of filing departmental appeal before the Tribunal.

On perusal of Para 5.1 of Circular No. 5 of 2024 containing the definition of `tax effect’, the Tribunal observed that ‘tax effect’ has been defined to mean the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed. It held that when computed as aforesaid, the tax effect in the appeal preferred by the Revenue would fall below the specified monetary limit of ₹60 Lakhs for filing departmental appeals. On perusal of the computation submitted by the Assessee the Tribunal found that the tax effect in the appeal preferred by the Revenue would only be ₹5,63,973 for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue. Thus, accepting the contention of the Assessee, we dismiss the appeal preferred by the Revenue as ‘withdrawn’ in terms of Circular No.5 & 9 of 2024 issued by CBDT.

Dismissing the appeal under section 249(4) is unsustainable in a case where an assessee who has not filed the return of income has submitted before the AO that its income is exempt from tax and therefore it is not required to pay advance tax.

77. Srirampura Prathamika Krishi Pathina Sahakara Sangha Ltd. vs. ITO

ITA No. 1731/Bang./2024

A.Y.: 2017-18

Date of Order: 9th January, 2025

Section: 249(4)

Dismissing the appeal under section 249(4) is unsustainable in a case where an assessee who has not filed the return of income has submitted before the AO that its income is exempt from tax and therefore it is not required to pay advance tax.

FACTS

The assessee, a primary agricultural credit co-operative society, providing credit facilities to its members and also supplying the items like kerosene, fertilisers, food grains, etc. to its members did not file return of income. The notice u/s 142(1) of the Act was issued on 4th January, 2018 calling for return of income for the assessment year 2017-18 on or before 3rd February, 2018 but the assessee has neither filed any return of income nor filed any submission or response to the above notice.

Further, during the course of assessment proceedings, the AO found that assessee has deposited huge cash into his bank account with CDCC bank Hosadurga. The information has also been called for from the bank u/s 133(6) of the Act and on verification of the same, it was found that the assessee had deposited during the demonetised period a sum of ₹13,82,000/-.

The AO in his assessment order observed that the assessee vide letter dated 5th September, 2019 furnished the details of income and expenditure statement, profit & loss account and cash book. Further, the assessee in the said letter stated that they have exempted income for the financial year 2016-17 and therefore, not filed the income tax return for the said period.

The AO found the submission made by the assessee as not satisfactory and as the assessee had deposited cash in old currencies of denomination of ₹500/- & ₹1,000/-, amounting to ₹13,32,000/- into their bank account, the entire deposits were treated as assessee’s unaccounted income for the assessment year 2017-18 by invoking the provisions of section 69A of the Act and taxed u/s 115BBE of the Act.

Further, as the assessee had audited his books of accounts as per the provisions of the State Co-operative Society Act of Karnataka and the net profit as per income and expenditure statement was amounting to ₹1,13,376/- and hence a sum of ₹1,13,376/- was also considered by the AO as income of the assessee and brought to tax and accordingly, assessed on a total income of ₹14,45,376/-.

Aggrieved by the assessment completed u/s 144 of the Act dated 25th November, 2019, the assessee preferred an appeal before the CIT(A)/NFAC who dismissed the appeal of the assessee on the ground that the assessee had not paid the tax on returned income and the particulars of payment was also not mentioned in column 8 of Form 35. Further, as there was no response to deficiency letter dated 3rd June, 2024,the CIT(A) held that as the assessee has not paid tax on returned income / particulars of payment was not mentioned in column 8 of Form 35, the appeal of the assessee is not maintainable as per section 249(4) of the Act.

Aggrieved, the assessee filed the appeal before the Tribunal.

HELD

It is pertinent to note that section 249(4)(b) of the Act is clear that appeal before the CIT(A) should be admitted only when the assessee has paid an amount equal to the amount of advance tax, which was payable by him. Where the return of income has not been filed the proviso to said section also describe that the assessee will get exemption from this clause, if an application is made before the CIT(A) for not paying an amount equal to the amount of advance tax for any good and sufficient reason to be recorded in writing. The Tribunal noted that in the instant case, the AO in para 6 of the assessment order has observed that the assessee vide letter dated 5th September, 2019 had stated that they have exempted income for the financial year 2016-17 and therefore, not filed the income tax return for the said period. Before the Tribunal, as well, it was submitted that the assessee’s income is exempted and therefore, the question of paying advance tax does not arise in the case of the assessee as no amount is payable by the assessee. Being so, the Tribunal was of the opinion that dismissing the appeal on the grounds that the same is not maintainable as per section 249(4) of the Act is not sustainable as the income of the assessee is exempt from income tax. The assessee is not liable to pay any advance tax even though they have not filed the return of income.

While computing capital gains on slump sale under section 50B r.w.s. 48, transfer expenses are allowable as a deduction. There is no scope of deviation from the statutory provision regarding computation of capital gains in case of slump sale. The first limb i.e. “the expenditure incurred in connection with transfer” cannot be excluded from being claimed as deduction for the purposes of computation u/s 50B.

76. DCIT vs. Larsen and Toubro Ltd.

ITA No. 3369/Mum./2023

A.Y.: 2009-10

Date of Order: 20th December, 2024

Sections: 2(42C), 48, 50B

While computing capital gains on slump sale under section 50B r.w.s. 48, transfer expenses are allowable as a deduction. There is no scope of deviation from the statutory provision regarding computation of capital gains in case of slump sale. The first limb i.e. “the expenditure incurred in connection with transfer” cannot be excluded from being claimed as deduction for the purposes of computation u/s 50B.

FACTS

The Assessing Officer, while reassessing the total income of the assessee, under section 147 of the Act disallowed the sum of ₹27.08 crore claimed by the assessee to be expenditure incurred on transfer while calculation of capital gains on slump sale under section 50B of the Act. The sum of ₹27.09 crore disallowed comprised of Financial Advisory Fee of ₹8.31 crore and other expenses of ₹18.77 crore. The contention of the assessee was that this sum is allowable u/s 48(i) of the Act. These contentions did not find favour with the AO who held that section 50B is a code in itself for computation of capital gains arising on slump sale. Therefore, no other provision other than provision of section 50B shall be applicable.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed this ground of appeal.

Aggrieved, revenue preferred an appeal to the Tribunal, where on behalf of the assessee, reliance was placed on decision of Delhi High Court in case of free CIT vs. Nitrex Chemicals India Ltd [(2016) 75 taxman.com 282] and also on the decision of coordinate bench of theTribunal in case of Wockhardt Hospitals Ltd vs. ACIT [ITA Nos.7454/MUM/2013 and 7021/Mum./2013 for AY2010-11; Order dated 6th January, 2017], wherein in the context of computation of capital gains arising on slump sale of an undertaking, deduction was allowed in respect of expenditure incurred in connection with such transfer by reference to section 48(i) of the Act..

HELD

There is no scope for deviation from the statutory provision regarding computation of capital gains on slump sale.

Section 48 has two limbs –

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto.

The networth replaces the value as per section 48(ii). However, the first limb, which is, “the expenditure incurred in connection with the transfer”, cannot be excluded from being claimed as deduction for the purposes of computation under section 50B. The Legislature in its wisdom, clearly excludes indexation of such cost of acquisition and cost of improvement, for the purposes of slump sale in Section 50B itself. The Tribunal placed reliance on decision of Delhi High Court in case of PCIT vs. Nitrix Chemicals India Pvt. Ltd [(2016) 75 taxmann.com 282] and held that while computing capital gains arising on slump sale, in accordance with the provisions of section 50B that includes only the networth of the undertaking treating it as a cost of acquisition and cost of improvement without considering the provision of section 48(i), will be in contradiction to the intention of the Legislature.

The Tribunal observed that there is no dispute that the expenditures claimed by the assessee are incurred in connection with the transfer of the business as a going concern. Then, not computing the capital gains of the slump sale in accordance with the provisions of section 50B that require to treat cost of acquisition and cost of improvement and is allowable as a deduction as per section 48 (ii) of the act as net worth of the undertaking, and not to consider the expenditure incurred for the purpose of transfer as per section 48(i) will be in contradiction to the intention of the Legislature. It held that section 50B cannot be read and understood as argued by the Ld.DR, because the computation provision section 48 to the extent applicable to section 50B as mentioned in clause (2) of section 50B would then become ineffective and inapplicable to a slump sale.

The Tribunal did not agree with the arguments made on behalf of the revenue and held them to be not founded on the basic principles of interpretation. The Tribunal upheld the order of the CIT(A) and dismissed the ground of appeal filed by the revenue.

Research Analyst Regulations – Re-Birth

INTRODUCTION

Research Analysts play a very important role as they analyse information on securities and provide recommendations, and investors normally rely on their advice. However, such advice is many times prone to conflicts of interest arising from preparation and dissemination of research reports with vested interest. Such research analysts include independent research analyst, an intermediary that employs any research analyst or research entity that issues any research report.

This led to the need for Research Analyst Regulations way back in 2013 to establish a regulatory framework to ensure impartial reporting, address conflict of interest, improve governance standards, minimise market malpractices, etc. In order to regulate and streamline the activities of individuals and entities offering research analyst (RA) services, The Securities and Exchange Board of India (Research Analysts) Regulations, 2014, were notified on 1st September, 2014. However, every regulation stands the test of time and must be revisited from time to time.

One such instance that required to re-consider the relevance of existing regulatory framework, has been the mismatch in the large investor base vis-à-vis the number of investment advisors (IA) which led to the proliferation of unregistered entities acting as IA’s & RA’s.

It was extremely crucial to place a conducive regulatory framework by simplifying, easing and reducing the registration requirements and cost of compliance for RA’s and bringing in regulatory changes commensurate with the continually evolving nature of their business and the large investor base.

With this backdrop, The Securities and Exchange Board of India (SEBI) has issued amendments to Research Analyst Regulations on 16th December, 2024 and issued operating guidelines vide circular dated January 8, 2025. The recent changes include:

i. registration of part-time research analyst,

ii. appointment of independent compliance officer,

iii. compliance audit requirements,

iv. segregation of research & distribution activities,

v. capping on fees,

vi. qualifications & certification requirements,

vii. deposit requirements,

viii. dual registration requirements, etc.

One of the eye openers has been, who shall be a classified as Research Analyst? Persons providing ‘research services’ for consideration shall only fall within the definition of research analyst.

This implies that research services rendered without any consideration shall be outside the ambit of these regulations.

The key changes outlining the changes in the RA industry are discussed below, most of which are to be implemented by 30th June, 2025, unless specified otherwise:

PART-TIME RESEARCH ANALYSTS

There are many persons who provides research services however their main activity is not that of providing research services. SEBI has now introduced specific provisions for part-time research analysts, acknowledging the diverse professional backgrounds of individuals and not engaged in business / employment related to securities market and does not involve handling/ managing of money / funds of client / person or providing advice / recommendation to any client /person in respect of any products / assets for investment purposes. Further, applicant engaged in in any activity or business or employment permitted by any financial sector regulator or an activity under the purview of statutory self- regulatory organisations such as Institute of Chartered Accountants of India (‘ICAI’), Institute of Company Secretaries of India (ICSI), Institute of Cost Accountants of India (ICMAI) etc. shall be considered eligible for registration as part-time RA.

This shall create more avenues for CA’s providing their statutory services. For example, a CA who shall be engaged in providing security specific recommendations to the client, which is not investor specific, even though as a part of tax planning/tax filing is required to seek registration as a Part time RA. This provision allows for flexibility in the industry, opening opportunities for professionals in other domains to engage in research analysis while adhering to regulatory frameworks. However, one must keep in mind the provisions of Code of Ethics of ICAI before engaging in such assignment.

Part-time RA shall be required to have similar qualification and certification requirements prescribed under RA regulations for full-time RAs. They shall provide an undertaking stating that it shall maintain arms-length relationship between its activity as RA and other activities and shall ensure that its services are clearly segregated from all its other activities at all stages of client engagement and a specific disclaimer may be given to that extent.

The investor should at all times keep in mind that no complaints can be raised to SEBI for the other services provided by a part-time RA.

APPOINTMENT OF COMPLIANCE OFFICER

With the objective of reducing the cost of compliance by having a fulltime compliance officer, Regulation 26 of the RA Regulations allows non-individual research analysts to appoint an independent professional who is a member of professional bodies like ICAI, ICSI, ICMAI, or other bodies specified by SEBI, provided the professional holds the relevant certification from NISM as required by SEBI. However, the principal officer of the firm must submit an undertaking to the SEBI’s Research Analyst Administration and Supervisory Body (RAASB)/SEBI affirming that they will be responsible for ensuring compliance with the Act, regulations, notifications, guidelines, and instructions issued by SEBI or RAASB.

In this case, Practising Chartered Accountants will have better opportunities to be appointed as independent professionals in regulated entities, however, there lacks clarity whether one independent professional CA can be appointed as compliance officer in various RA entities or whether any statutory restrictions as applicable to number of audits permissible by a practising CA shall apply.

COMPLIANCE AUDIT REQUIREMENTS

Regulation 25(3) of the RA Regulations requires RAs or research entities to conduct an annual audit to ensure compliance with the RA Regulations. Practising CAs shall ensure that the audit is completed within six months from the end of financial year and the compliance audit report. Such compliance report along with adverse findings, if any and action taken thereof, duly approved by RA shall be submitted within 1 month from the date of audit report but not later than 31st October.

SEGREGATION OF RESEARCH AND DISTRIBUTION ACTIVITIES

Regulation 26C (5) of the RA Regulations mandates client-level segregation between research and distribution services within the same group or family of a RA or research entity. Furthermore, new clients must choose between receiving research services or distribution services at the time of onboarding. One of the key changes is that Stock broking activities shall not be considered as distribution services for the purposes of this regulation.

Clients are allowed to retain their existing assets under their current research or distribution arrangements without being forced to liquidate or switch them. However, they must comply with the new segregation requirements for any future services provided. The PAN of the client serves as the key control record for identifying and segregating clients at the individual or family level.

A member of ICAI/ICSI/ICMAI or auditor have to confirm compliance with client level segregation requirements within six months from the end of financial year.

While giving such certification, the practising CA shall ensure that for individual clients, the “family” is considered a single entity, and the PANs of all family members are grouped together for segregation purposes. Further verification should be done, whether the client has provided an annual declaration or periodic updation in respect of dependent family members. Further, RAs providing research services exclusively to institutional clients and accredited investors may be exempt from these segregation rules, provided the client signs a waiver acknowledging this.

FEE STRUCTURE AND CLIENT CHARGES

The new regulations outline the maximum fees that research analysts can charge their clients, ensuring transparency in the fee structure and a level playing field for both IA’s & RA’s.

RAs can charge maximum fee of ₹1,51,000 annually per individual or Hindu Undivided Family (HUF) client and exclude non-individual clients, accredited investors, and institutional clients seeking proxy advisory services. For these clients, fees will be negotiated bilaterally and are not subject to the specified caps. RAs may charge fees in advance with the client’s consent, but the advance should not exceed one-quarter of the annual fee. However, statutory charges are not included in this fee cap. The statutory auditor and the compliance auditor shall ensure adherence to these limits during the course of the audits of such research analysts.

i. Changes in Qualification and Certification Requirements

No person can act as an RA without possessing a requisite qualification. SEBI has prescribed minimum qualifications for Research Analysts as under: –

A professional qualification or graduate degree or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance, actuarial science or other financial services from a university or institution recognized by the Central Government or any State Government or a recognised foreign university or institution or association.

Or

A professional qualification by completing a Post Graduate Program in the Securities Market (Research Analysis) from NISM of a duration not less than one year or a professional qualification by obtaining a CFA Charter from the CFA Institute.

One of the major changes as compared to the erstwhile regulations is eliminating the need of having in place a graduate in any discipline with an experience of atleast 5 years in activities relating to financial products or markets or securities or fund or asset or portfolio management.

This change has led to a level playing field for new entrants as well as veterans in this field.

ii. Persons associated with research services shall, at all times, have minimum qualification of a graduate degree in any discipline from a university or institution recognized by the Central Government or any State Government or a recognized foreign university or institution.

iii. An individual registered as research analyst under these regulations, a principal officer of a non-individual research analyst, individuals employed as research analyst, person associated with research services and in case of the research analyst being a partnership firm, the partners thereof if any, who are engaged in providing research services, shall have, at all times, a NISM certification.

This has expanded its scope of bringing within its ambit “Persons Associated with Research Services” to have at all times minimum qualification as well as certification requirements, which shall also include all sales staff, service relationship & client relationship managers, who may not be involved in any research function but by virtue of being associated have to be qualified and certified.

DEPOSIT REQUIREMENTS FOR RESEARCH ANALYSTS

The new regulation has done away with the requirement of having a minimum net worth as it was identified that the RA’s provide research services broadly owing to their understanding and knowledge of the subject and their skills to arrive at a suitable advice/recommendation under a particular circumstance.

Further, the services provided are fee based and not related to management of client fund and securities and no significant infrastructure requirements, hence the concept of maintaining networth may not be aligned with the activities of RA.

To safeguard the interests of investors and enhance the financial credibility of research analysts, SEBI has introduced mandatory deposit requirements with immediate effect and for existing clients by 30 April 2025, based on the number of clients which is detailed as under:

  •  Deposit Structure Based on Numbers of Clients:
  •  0 to 150 clients: ₹1 lakh
  •  151 to 300 clients: ₹2 lakh
  •  301 to 1,000 clients: ₹5 lakh
  •  Over 1,000 clients: ₹10 lakh

This deposit must be maintained in a scheduled bank with a lien in favour of SEBI’s Research Analyst Administration and Supervisory Body (RAASB). This deposit shall be utilized for dues emanating out of arbitration and reconciliation proceedings, if RA fails to pay such dues.

DUAL REGISTRATION: INVESTMENT ADVISER AND RESEARCH ANALYST

SEBI has introduced provisions allowing individuals or firms already registered as Investment Advisers (IAs) to apply for dual registration as RAs subject to maintaining arms-length relationship between its activity as IA and RA and shall ensure that its investment advisory services and research services are clearly segregated from each other.

This provision was introduced considering the overlapping nature of activities under IA & RA services.

PRINCIPAL OFFICER DESIGNATION

The erstwhile Regulations did not mandate the requirement of designation of Principal Officer; however, the need was felt that the overall function of business and operations of non-individual RAs should be looked into by a responsible person.

Also, Regulation 2(1)(oa) of the RA Regulations mandates that if a partnership firm is registered as a research analyst, one of its partners must be designated as the principal officer and where no partner meets the necessary qualification and certification criteria, it must apply for registration as a research analyst in the form of an LLP or a body corporate.

This change must be made by 30th September, 2025, as per the SEBI directive.

USE OF ARTIFICIAL INTELLIGENCE (AI) IN RESEARCH

Any research analyst or research entity using artificial intelligence (AI) tools to provide services to clients is solely responsible for ensuring the security, confidentiality, and integrity of client data and also responsible to disclose the extent of AI tool
usage in their research services to clients and additional disclosures as may be necessary to enable informed decision of continuance or otherwise with the RA.

For existing clients, compliance with this requirement must be met by 30th April, 2025.

Research services provided by research analyst or research entity

Regulation 20(4) of the RA Regulations requires that research services provided by a RA or research entity must be supported by a research report that includes the relevant data and analysis forming the basis of the research. The RA or research entity must maintain a record of such research reports to ensure transparency and accountability.

Research services being provided by research analyst or research entity to any of its clients availing its other services as registered intermediary in another
capacity shall be considered as research services provided ‘for consideration’ even though no fee is charged by such research analyst or research entity directly from the client.

This implies that Research services provided by the research entity, who is also registered with SEBI as stock broker, to the clients availing its stock broking services are considered as research services ‘for consideration.

MODEL PORTFOLIO GUIDELINES

Regulation 2(1)(u) and 2(1)(wa) of the RA Regulations now define research services provided by research analysts to include the recommendation of model portfolios. In order to provide clarity on recommendation in respect of model portfolio by RA’s and to provide for safeguard of model portfolio, the guidelines issued shall ensure recommendations of model portfolio such as minimum disclosures, rationale for recommendations, nomenclature and performance of such recommendations.

The compliance auditor shall ensure as a part of its audit procedures check compliance with obligations set out under the model portfolio guidelines.

DISCLOSURE OF TERMS AND CONDITIONS TO THE CLIENT

Regulation 24(6) of the RA Regulations mandates that RAs or research entities must disclose the terms and conditions of their research services to clients and obtain their consent before providing any services or charging any fees. They should also include the Most Important Terms and Conditions (MITC), notified vide SEBI circular dated 17th February, 2025.

KYC REQUIREMENTS AND RECORD MAINTENANCE

Under Regulation 25(1) of the RA Regulations, RAs or research entities are required to follow Know Your Client (KYC) procedures for fee-paying clients and maintain KYC records as specified by SEBI.

WEBSITE REQUIREMENTS

RA Regulations mandates that RAs or research entities must maintain a functional website that includes specific details as outlined by SEBI.

CONCLUDING REMARKS

The new SEBI guidelines represent a significant step towards improving the transparency and accountability of the research analyst industry in India and also easing regulations to bridge the gap between number of investors vis-à-vis the number Registered RAs.

The change in the business model of research as a function also requires corresponding changes to the regulations to be at pace with the RAs, which include recognition of model portfolios within the definition of research services, introducing the concept of Part-time RAs, eliminating the need for experience, to allow ease of entry and participation of exuberant young minds in the securities market, etc.

Such changes demonstrate that the regulator has been watchful, supportive and in sync with the industry that it regulates while ensuring the investor trust and confidence is retained in the securities market.

Learning Events at BCAS

1. Finance, Corporate & Allied Law Study Circle – REIT n InvIT as Investment avenues held on Thursday, 13th February, 2025 @ Zoom.

CA Harry Parikh explained the concepts of REIT and InvIT, their features, structural overview, eligibility criteria, investment conditions, etc. He highlighted that REIT or InvIT are investment products and not a tax-saving product. He dealt with the decision-making criteria for investing in REIT or InvIT vis-a-vis traditional investment with the help of examples of REITs. He also enlightened on the key differences between Equity vs. Mutual Fund vs. REIT vs. InvIT, and tax implications thereof. He also shared his insights on factors to be considered for investing in REIT.

More than 70 participants enriched out of the masterly analysis of REIT, InvIT as investment avenues.

Youtube Link: https://www.youtube.com/watch?v=GxO-5VpL-xk

2. Public Lecture Meeting on “Union Budget 25 — Indirect Tax Proposals” held on Wednesday, 12th February 2025 @ Zoom.

The lecture meeting on the Union Budget 2025 and its Indirect Tax Proposals, held on 12th February 2025, featured CA Sunil Gabhawalla discussing various amendments in the Finance Bill 2025. He focused primarily on GST provisions while briefly touching upon customs, excise, and service tax amendments.

He began by explaining the concept of ‘input service distributor,’ detailing its position in the pre-GST regime, GST regime until 31st March 2025, and the post-2025 scenario. He highlighted differences in the definition of ‘Input Service Distributor’ (ISD) between the existing and proposed regimes, emphasising the potential for varied interpretations and possible litigations. Using the draft circular issued by the CBIC and other relevant jurisprudence, he illustrated cases falling under the ISD and Cross Charge Mechanisms.

He also examined the impact of retrospective amendments in the GST law, referencing the Hon’ble Supreme Court’s decision in the Safari Retreat’s case and highlighting open issues post-amendment. Further, he discussed issues arising from the amendment that incorporates additional conditions for self-adjustment of taxes based on credit notes. He provided guidance on addressing these issues, especially in light of the mandatory Invoice Management System (IMS) introduced by GSTIN in October 2024. He cited practical examples to highlight various aspects taxpayers should consider when dealing with the IMS mechanism. Additionally, he explained how the proposed track and trace mechanism would complement E-way Bill provisions. The meeting emphasised the government’s intent to gather maximum data and use artificial intelligence to curb tax evasion, leading to increased compliance and affecting the ease of doing business.

Finally, he covered miscellaneous amendments related to ‘local authorities,’ ‘vouchers,’ amendments in Schedule III concerning supplies by SEZ / FTWZ units, and the rationalisation of pre-deposits required under appellate proceedings in disputed orders imposing penalties.

The lecture was attended by approximately 325 participants online.

BCAS Lecture Meetings are high-quality professional development sessions which are open to all to attend and participate. The readers can view the lecture meeting at the below-mentioned link:

Youtube Link: https://www.youtube.com/watch?v=yAzBv4CAHNw

3. Public Lecture Meeting on Direct Tax Provisions of Finance Bill, 2025 held on Thursday 6th February, 2025 @ Yogi Sabhagruh Auditorium Dadar East

The public lecture on Direct Tax Provisions under the Finance Bill 2025 was a comprehensive discussion led by noted tax expert CA Shri Pinakin Desai. The session emphasised the significant changes in income tax slab rates and corresponding rebate provisions, which were perceived positively. The lecture highlighted that this year’s budget prioritises stimulating consumption over infrastructure investment, marking a substantial increase in tax-free slab rates compared to previous years. Notably, there was a significant shift anticipated as taxpayers may transition from the old tax regime to the new one, leading to increased discretionary spending and ultimately contributing to GDP growth.

Shri Pinakin Desai provided insights into several key provisions of the Finance Bill, 2025 analysing changes to tax rates, corporate taxation, TDS rationalisation, and the taxation of charitable trusts. The lecture also discussed new provisions concerning Tax Collection at Source (TCS) and implications for companies undergoing amalgamations. Shri Pinakinbhai’s thorough analysis offered clarity on how these changes would affect various stakeholders and emphasised the need for careful navigation of the new tax landscape.

KEY INSIGHTS

  • Increased Tax-Free Income Thresholds: The new regime allows individuals to earn up to ₹12.75 lakhs without incurring tax, significantly benefiting middle-income taxpayers. This change is expected to uplift the overall spending capacity of households, resulting in higher consumption rates and positively influencing economic growth.
  • Charitable Trust Registration Validity: The extension of the registration period for small charitable trusts from five to ten years represents a significant reduction in administrative burdens for these entities, encouraging more charitable initiatives and financial stability among smaller trusts.
  • Tax Deductions for Rent Payments: The amendment reducing the threshold for tax withholding on rent from ₹2.4 lakhs annually to ₹50,000 monthly for companies is a notable change.
  • Implications of Changes in applicability of Rebate: The decision to disallow rebates for special rate incomes under capital gains could reduce tax relief for many taxpayers, necessitating careful consideration of investment strategies to optimise tax liabilities.
  • Restrictions on Loss Migration: The amendment aims to curb the indefinite extension of loss carry-forwards through repeated amalgamations, ensuring a fair and consistent tax treatment. Previously, amalgamated companies could extend the carry-forward period indefinitely, effectively resetting the 8-year limit with each new amalgamation. The amendment aims to prevent this perpetual “evergreening” of losses. Shri Pinakinbhai explained the impact of this amendment through various illustrations.
  • Non-Resident Tax Incentives: The concessional tax rates for foreign entities providing technology and services to specified manufacturing industries reflect India’s strategy to foster foreign investment in critical sectors such as electronics, enhancing competitive advantages and technological development. A new presumptive taxation scheme introduced for non-residents providing services or technology to Indian companies engaged in the manufacture of electronic goods. Shri Pinakinbhai also highlighted possibility of a drafting error in the proposed legislation, mistakenly suggesting that both payment and receipt of 100 rupees result in a taxable consideration of 200 rupees which should be corrected to align with sections 44B and 44BB, of the Income-tax Act.
  • Extension of time limit for passing Penalty Orders: The time limit for completing penalty orders related to assessment has been changed from 6 months from the month of receiving the order from the tribunal to 6 months from the end of the quarter of receiving the order.
  • Transfer Pricing Assessment: Instead of annual assessments, a block of 3 years for determining the Arm’s Length Price (ALP) is introduced. Once the methodology is settled in the first year, it remains binding for the next two years. Taxpayers can opt for this block assessment, either during or after the Transfer Pricing (TP) assessment. He also mentioned that the effectiveness of these new measures shall depend upon the rules to be prescribed in this regard.
  • Updated Return Filing: The provision now allows updated returns to be filed up to the end of the third or fourth year, with additional taxes of 60 per cent and 70 per cent, respectively. This provision aims to promote compliance by offering a structured approach for taxpayers to rectify errors or omissions, albeit with significant additional tax implications for later filings.

In summary, the lecture delivered by Shri Pinakin Desai provided a detailed analysis of the Finance Bill 2025, shedding light on various changes that will impact individual taxpayers, businesses, and charitable organisations alike. The meeting was attended in person by 450 plus participants and encouraging response of over 26,000+ viewers online.

The readers can view the lecture meeting at the below-mentioned link:

Youtube Link: https://www.youtube.com/watch?v=ncVT3ejAtPA

4. Felicitation of Chartered Accountancy pass-outs of the November 2024 Batch held on Friday, 31st January, 2025 @ IMC.

Milestone 2.0 — Felicitation of newly qualified CAs of the November 2024 batch.

A felicitation event for the newly qualified chartered accountants of the November 2024 batch was held on 31st January, 2025, at the Walchand Hirachand Hall of the Indian Merchant Chambers building at Churchgate by the SMPR Committee. The event was highly successful and close to 400 candidates attended the event. The theme for the event was Milestone 2.0, and the guest and mentor for the event was Past President CA Naushad Panjwani. He guided the participants by taking them through the Japanese concept of Ikigai and drawing parallels to their phase in life where they should aim to find their Ikigai, which would lead them to success and happiness. The participants diligently listened and also provided their perspectives on the matter. Rankers were felicitated first, and they addressed the audience subsequently and shared their experience throughout the journey of becoming a CA. A celebratory cake was cut and then all the successful newly passed CAs were felicitated. The excitement on everyone’s faces was visible, and that is testimony to the success of the event.

5. Indirect Tax Laws Study Circle Meeting held on Friday, 31st January, 2025 @ Zoom.

Group leaders CA G. Sujatha & CA Archana Jain prepared and presented various case studies on Government Supplies and explained the concepts of Central Government, Government Authority, State Government, etc.

The presentation covered the following aspects for detailed discussion:

1. Concept of Supplies by Central Government, State Government, Local Authority.

2. Supplies liable to tax or part of sovereign function.

3. Taxability of charges paid to the Ministry of Corporate Affairs at the time of registration & subsequently do both enjoy the exemption.

4. Detailed discussion on mining rights and other rights associated with land and fees paid for getting rights.

Around 60 participants from all over India benefitted by taking an active part in the discussion. Participants appreciated the efforts of the group leader & group mentor.

6. ITF Study Circle Meeting held on Thursday, 30th January, 2025 @ Zoom.

Group Leaders – CA Nemin Shah and CA Dipika Agarwal

Guidance for Application of Principal Purpose Test under India’s treaties vide CBDT Circular 1/2025 dated 21st January, 2025 (Circular) — Group Leader CA Nemin Shah.

During the session, CA Nemin Shah discussed the context relating to the Principal Purpose Test (PPT). For this, he extensively discussed the basics of MLI and PPT. Another perspective which was discussed was whether PPT was for general anti-avoidance or a specific anti-avoidance. The Group Leader went on to discuss the key points of the Circular, such as the application of PPT is based on an objective assessment of the relevant facts and circumstances, its applicability in cases where the PPT has been incorporated through bilateral negotiations or through MLI, the scope of grandfathering provisions under the treaties which will remain outside the purview of PPT. He went on to discuss the various issues that could arise, such as its applicability to the India-Mauritius tax treaty, which MLI does not cover.

SC Lowy P.I. (Lux) S.A.R.L, Luxembourg v. ACIT [2024] 170 taxmann.com 475 (Del-Tribunal) – Group Leader CA Dipika Agarwal

CA Dipika explained the facts and the arguments of the assessee and revenue. She discussed the Tribunal’s findings. One of the key focus points of the discussion was that it appeared from the Tribunal’s order that PPT was not invoked at the assessment level, but discussed only at the Appellate level. Further,
there was no discussion in the Tribunal’s order for choosing Luxembourg over the Cayman Islands for making investments. The group discussed the implications of the same. The Group Leader went on to discuss the Tribunal’s findings in relation to Tax Residencey Certificate (TRC) and Limitation of Benefits (LOB). With respect to the PPT clause, the assessee’s incorporation in Luxembourg was not for the principal purpose of obtaining tax treaty benefits, as it had substantial investments, which it continues to hold.

7. 22nd Residential Leadership Retreat — Living in Harmony held on Friday, 24th January, 2025 and Saturday, 25th January, 2025 @ Rambhau Mhalgi Prabodhini Keshav Srushti Bhayander (West)

The 22nd Leadership Retreat was held on the theme of `Living in Harmony’ under the guidance and training of Mr M. K. Ramanujam and Mr R Gurumurthy. 27 participants including 6 couples attended, of which, more than 15 participants were attending the Leadership Retreat for the first time.

The key learnings are summarised as follows:

  • Harmony is unity in diversity which brings joy, peace, happiness, satisfaction and fulfilment.
  • One has to focus from zoom in to zoom out. i.e. look at the wider picture from a broad perspective for a higher purpose over a long span and come out of small and micro views. Zooming out is like a compass of values to find the right meaning in life.

To identify challenges, zoom in and use an emotional filter to zoom out.

  • P R E M A: The acronym represented Positive Emotions, Relationship, Engagement.
  • (Karma Yoga), Meaningful Life and Achievement – selfless service for a noble cause. This could be the guiding light.
  • Listen vis-a-vis Silent. Listen with empathy and compassion. Words “Silent” and “Listen” are complementing. So, engage in listening to be silent within and establish connect outside.
  • R A S (Reticular Access Syndrome) explains that whatever one focuses on, expands in the mind. We see the world as we are. So, one can use this to reinforce the attention to important things in life.
  • Nature operates on contrast. Sattva, Rajas and Tamas are like an interplay of darkness and light. The contrast of bright and dark, light and dark, day and night, white and black, happiness and sadness, joy and gloom. Contrast is natural. Negative things help us to appreciate the value of positives. Pain is a warning signal to pause. Self-acceptance guides us to Harmony. Therefore, one can transform from fear to faith, anger to care and work to relax.
  • Practice Harmony by observing without being judgemental.
  • Understand the basic needs, physical, social, spiritual, personal, interpersonal. The needs are distinct from wants. Needs are expressed through feelings. Listen to the feelings. One can understand that anger moves us away, whereas Love and compassion bring us closer to Harmony. Human pursuit (Purushartha) is for Kama, Artha, Dharma & Moksha. The purpose of human life is Moksha, for which doing Kama or pursuing Artha should be based on Dharma, respecting the highest universal values and principles.
  • Like a peel on the surface of a juicy fruit, the outer layer may have an unpleasant taste, but with faith and conviction, one can have the taste of juice and nectar within.
  • Bring inner transformation by working from Gratitude with Empathy & compassion.

In the penultimate session, discussion was on the film Peaceful Warrior and the inspiring message coming out from the film’s dialogues.

In the concluding session, the participants shared the key points of learning from the camp.

8. Fireside Chat on “Return of Trump – What does it mean for America, India and the World” held on Monday, 27th January, 2025 @ BCAS

Speaker: Shri Natwar Gandhi

Moderator: Shri Rashmin Sanghvi

Widespread fear about various executive orders signed by Mr Trump is misplaced as most of them have been challenged and will have to pass the test of constitutional validity.

America has a strong democracy and deep-rooted institutions. No president can make fundamental changes at his will. Even with a majority in Congress and Senate, constitutional changes are not going to be possible in his four-year term.

One can expect him to use tariffs as a negotiating tool to gain trade favours. However, in the long term, it will hurt the US as well as the country on which high tariff is levied because it will lead to higher costs and consumer resistance. That will not augur well for the USA.

The USA will continue to be a dominant world power as long as the majority of trade uses USD as currency for settlement.

Tall claims about taking over some territories should be discounted as election rhetoric.

The US economy, despite popular perception, is doing well, with average household income (even in the most backward area) still much above par with the rest of the world. With the new administration, one can expect business-friendly policies and a return to manufacturing.

It will be difficult to reduce bureaucracy as all policies require ground-level staff to implement. The USA, with its large size and federal structure, will make such reduction only ornamental.

A large deficit close to USD 35 trillion will not curtail any growth initiatives as the world still uses America as its investment and wealth destination.

Despite threats, it will neither be possible nor practicable to deport almost 10 million illegal immigrants out of the US due to procedural and logistic challenges. By rough estimate, the cost and time of that purge will be 1 trillion USD and will take more than 10 years for the current number.

White supremacy lobby will continue to flourish, and borders will see very strong protection to prevent illegal immigrants from entering the USA. Despite that America is likely to become a Hispanic state with so many migrants from Latin America.

Skilled labour will be there to stay as the big business will not be able to operate without them. Hence, despite all the shouting about work visas, they will stay.

9. Webinar on Recent Important Decisions under Income Tax held on Friday, 24th January, 2025 @ Virtual

The Taxation Committee of the Bombay Chartered Accountants’ Society organised a Webinar on Recent Important Decisions under Income Tax.

Adv. Devendra Jain delivered an in-depth presentation on reassessment proceedings. He explained the evolving judicial perspective on reassessment, especially in light of recent amendments and rulings by the Supreme Court and the High Courts. His session provided clarity on the crucial points to be considered while representing matters on reassessment cases.

Adv. Ajay Singh began the session by providing a detailed analysis of key judicial decisions that have significant implications for the interpretation and application of Income tax laws. He highlighted the judgments relating to capital gains, gift tax under section 56(2)(x), reduction of share capital, Condonation of delay in filing forms, interest on IT refund, penalty provisions and share transactions, focusing on their impact on taxpayers and professionals alike. He emphasised the importance of understanding these rulings to develop better compliance and advisory strategies.

The session provided participants with a comprehensive understanding of recent developments in Income tax law and practical insights to navigate legal complexities.

Youtube Link: https://www.youtube.com/watch?v=FlL13OSdCOw

10. 25th Silver Jubilee Course on Double Taxation Avoidance Agreements held from Monday, 2nd December, 2024, to Tuesday, 21st January, 2025 @ Zoom.

The Society successfully conducted its 25th Silver Jubilee Study Course on ‘Double Taxation Avoidance Agreement’ via an online platform spanning from 2nd December, 2024 to 21st January, 2025.

Based on participants’ feedback and consultation with seniors in the Committee, for this 25th Silver Jubilee Course on Double Taxation Avoidance Agreements, BCAS has come up with a unique concept of sharing the recordings of the 24th DTAA Course undertaken in December 2023 as an option to the participants followed by multiple panel discussions. One introductory session on “Overview of International Taxation & DTAAs” and ten panel discussion sessions were planned to take forward the learnings by discussing the intricate and practical issues on the topics of International Taxation, making the course more interactive. Participants were also provided an option to share the queries or issues to the panellists by way of Google form before the respective panel discussion. Eminent tax professionals of the country were the panellists as well as moderators for the series of panel discussions.

All sessions of the course, including last year’s recorded sessions, covered all articles of DTAA, an overview of FEMA / BEPS / MLI / GAAR, Transfer Pricing, Source Rules under the Income Tax Act, 1961, TDS under section 195, Substance v/s Form, and other relevant provisions. The course included complex topics such as Taxation of Specific Structures (e.g., Partnership, Triangular Cases, AOP, etc.) and Selection of Structures.

More than 200 Participants from 15 states spread over 30 cities attended the course which was well-received and appreciated by the participants.

11. Revolutionising CA Practice with Generative AI: Practical Use Cases for Efficiency and Growth held on Thursday, 9th January, 2025 @ Virtual

CA Rahul Bajaj recently led an insightful 2-hour webinar, “Revolutionising CA Practice with Generative AI: Practical Use Cases for Efficiency and Growth,” showcasing how AI can transform Chartered Accountancy practice. The session delved into real-life applications of Generative AI, highlighting its potential to enhance productivity, streamline operations, and improve client servicing. Participants learned how AI can be used to draft professional emails, generate legal documents, automate data entry in Tally, and prepare financial forecasts, all while saving time and reducing errors.

Key takeaways included using AI to create checklists, templates, and peer review documentation like Engagement and Appointment Letters. AI also supports the generation of client training materials, social media content, and even notices, helping firms stay engaged with clients while improving efficiency. By automating repetitive tasks such as bank statement analysis, CAs can focus more on strategic activities, boosting overall productivity.

The session concluded with CA Rahul Bajaj emphasising the importance of integrating AI into CA practices for long-term growth. With tools that enhance accuracy and decision-making, AI is positioning itself as a game-changer, enabling Chartered Accountants to provide higher-value services and streamline their operations for greater success in an increasingly digital world.

The excellent response that the webinar got in terms of enrolment from across various cities of India and from persons of various age groups, as well as the feedback received at the end of the webinar, is testimony to the growing importance and popularity of AI in the CA fraternity.

12. BCAS Turf Cricket Tournament 2025 held on Sunday, 5th January, 2025 @ Andheri Sports Complex, Azad Nagar, Andheri West

The BCAS Turf Cricket Tournament 2025 held on 5th January 2025 at Andheri Sports Complex, was a resounding success, hosting 12 men’s and 2 women’s teams in a thrilling display of sportsmanship and camaraderie.

The tournament was exclusively for CA Members, Students, and BCAS Staff was well received with overwhelming participation.

The format in Men’s category was of four groups of three teams each, which formed the league stages followed by knockout rounds of Quarter-finals (8 teams), Semi-finals (4 teams) and the Finals. The 12 Men’s teams that competed in the Tournament were Bansi Jain Warriors, Bathiya Bravehearts, BYA Titans, CNK Super Strikers, G&S Gladiators, Kirtane & Pandit Maestros, KNAV Smashers, MAS Mavericks, MCS Super Kings, MGB Yoddhas, NPV Challengers and TeaMPC whereas the 2 Women’s teams were NPV Thunderbirds and BCAS Queens.

The tournament was filled with exciting matches, impressive individual performances, fun-filled live commentary and enthusiastic support from the spectators. The 8 teams that qualified for the Men’s quarterfinals were MAS Mavericks, Kirtane & Pandit Maestros, CNK Super Strikers, MGB Yoddhas, G&S Gladiators, NPV Challengers, KNAV Smashers and Bathiya Bravehearts. The Semi Finals were then played between the 4 teams viz. Kirtane & Pandit Maestros vs. NPV Challengers and CNK Super Strikers vs Bathiya Bravehearts.

The day culminated in a nail-biting Men’s final between Bathiya Bravehearts vs Kirtane & Pandit Maestros, with the former emerging victorious whereas BCAS Queens emerged as winners in the Women’s category.

The tournament left a lasting impression on all participants and thus setting the stage for future editions of this exciting event.

13. BCAS Nxt Learning and Development Bootcamp on Idea to IPO: A Beginner’s Guide held on Saturday, 4th January, 2025 in hybrid mode

The Human Resource Development Committee of BCAS organised a BCAS NXT Learning & Development Bootcamp on “Idea to IPO: A Beginner’s Guide” on Saturday, 4th January, 2025. The session was led by Mr Aditya Rathod, a CA Final student, who delivered a comprehensive presentation on the fundamentals and key regulations governing IPO in India. His presentation covered a wide range of topics, including essential definitions, various IPO methods, and an overview of the IPO process and its approach. He also shared practical experiences to help beginner article students navigate the complexities of the IPO Listing Process.

CA Rimple Dedhia, the mentor for the session, provided valuable insights and guidance throughout, offering expert interventions as needed. The boot camp was held in person at the Mehta Chokshi & Shah LLP office and streamed online, with active participation from students across India.

Youtube Link: https://www.youtube.com/watch?v=-WYuPDeOJus&t

14. Series of Sessions on Standards on Auditing and Key Learnings from NFRA Orders held on Friday, 13th December, 2024 to Friday, 3rd January, 2025 @ Zoom

BCAS has always been a pioneer in equipping its members, in particular and other stakeholders at large with the knowledge in the arena of Accounting Standards, Ind AS and Standards on Auditing. The challenge of the auditor is to address the risks posed while providing assurance services within the regulatory framework of ICAI and NFRA. Compliance with Auditing Standards is of utmost importance while carrying out audits.

Considering these challenges that the auditor has to address while performing duties, the Accounting & Auditing Committee organised a well-designed series of virtual sessions covering Auditing standards and Key Learnings from NFRA orders, which should be kept in focus while executing audit assignments along with practical guidance. The Sessions were held on Fridays for 2 hours each, totalling 8 hours.

The main objective of designing this series of sessions was to delve deeply into the subjects affecting the audit fraternity and to provide a platform for the Members in Practice to come together and get the opportunity to have deep insights into the practical challenges which crop up while implementing the complicated standards.

Course Segments: 4 sessions of 2 hours each

Session Topic Speaker
Learnings from recent NFRA Orders Ms Vidhi Sood Secretary, NFRA
Audit Documentation (SA 230) CA Amit Majmudar
SA 600 – Using the work of another auditor (along with the NFRA Circular dated October 03, 2024, regarding responsibilities of the Principal Auditor and Other Auditors in Group Audits CA Pankaj Tiwari
Planning risk assessment and related matters (SA 300, 315, 320 & 330) CA Murtuza Vajihi

The sessions were designed to give practical and case study-based insights to the participants on various topics.

The course was inaugurated with the opening remarks from the Chairman of the Accounting and Auditing Committee CA Abhay Mehta and the President of BCAS, CA Anand Bathiya, both underline the importance of knowledge sharing and the role of the BCAS in conducting such programs. To make the course effective, faculties with specialised knowledge and relevant experience were engaged to give participants practical insights and wholesome experiences.

The course started with the session of Ms Vidhi Sood Secretary, NFRA, where she updated the participants on various NFRA orders, practical examples and issues and learnings from the same.

The session of Audit Documentation SA 230 by CA Amit Majmudar broadly covered the areas pertaining to the Assembly of Audit Files, Key Audit Workpapers and guidance on ICAI Audit Documentation

The Session on SA 600 — Using the work of another auditor by CA Pankaj Tiwari mainly covered existing SA 600 & procedures adopted by the Auditor, various lapses highlighted by NFRA in the audit of CFS, Key elements of Circular issued by NFRA & potential challenges in implementation of the Circular.

The session on Planning Risk Assessment and Related Matters by CA Murtuza Vajihi broadly covered the scope, objective, and documentation of the standard along with practical examples of the standards and also reference to NFRA and QRB learnings on these standards.

The above sessions generated a lot of interactions between the participants and the respective faculties. The course commenced on 13th December, 2024, and ended on 3rd January, 2025. 111 participants attended the Course, and was well received with the overall feedback from the participants was very encouraging.

REPRESENTATIONS AND SOCIAL MEDIA

1. NFRA Representation: Addressing Duplication in Fraud Reporting for Statutory Auditors

BCAS has submitted a representation to the National Financial Reporting Authority (NFRA) regarding the fraud reporting requirements for statutory auditors of regulated entities. The representation highlights the need to eliminate the duplication of reporting to various authorities, aiming to streamline the process and simplify the regulatory framework for entities such as banks, insurance companies, and NBFCs. By reducing redundant reporting, the proposal seeks to create a more efficient and effective regulatory environment.

Readers can read the entire representation by link: https://bit.ly/NFRA-Representation

2. Union Budget 2025: 8th Consecutive Budget by FM Nirmala Sitharaman — BCAS’s Pre-Budget Memorandum Available Online.

As Finance Minister Nirmala Sitharaman presents her 8th consecutive Union Budget, BCAS continues its proactive role in representing the views of its members and the wider community. We are pleased to announce that BCAS has submitted the Pre-Budget Memorandum for the Finance Act 2025-26 to the Union Minister of Finance and the Ministry of Finance, Government of India.

Readers can read the entire representation by link: https://bit.ly/Pre-Budget-Memorandum-2025-26

3. BCAS Reimagine Conference: Exclusive Videos Now on YouTube, with Thousands of Views!

BCAS hosted the ReImagine Conference, a three-day event in January 2024 that explored progressive topics crucial to the professional landscape. With an overwhelming response, the discussions held the potential to shape the future trajectory of our profession.

In line with BCAS’s mission of knowledge dissemination for professional development, the event videos are now available on YouTube, completely free of charge. Featuring a wide range of topics presented by industry experts and professional stalwarts, these videos offer valuable insights for professionals at all levels.

Playlist Titles:

1. Reimagine India – Keynote Address by Padma Bhushan Shri Kumar Mangalam Birla

2. Digital Infrastructure – A Game Changer

3. Reimagine the new age professional firms

4. CFO Round Table – Technology, Innovation and Sustainability

5. Use of AI / Tech-Data as Evidence in Tax Cases – Direct Tax and Indirect Tax

6. Reimagine India’s Capital Market Landscape

7. Changing Corporate Landscape – Professional opportunities

8. The Victorious – A Model for Leadership

9. New Age Wars – Future of the World – Role of Professional

10. One World – One tax – VasudhaivaKutumbakam

11. Ride the Capital Market – Take the Bull by its Horns

12. The Future of Audit Profession

13. One Giant Leap – Start-ups – Importance of Professionals in Start up Journey

14. Interchanging Roles – Practice to CFO, CFO to Practice, CA to Nation Building

15. Reimagine – Closing Ceremony & Vote of Thanks

YouTube link: https://bit.ly/Reimagine-Conference

4. BCAS YouTube Channel Hits 1 Million Views

The BCAS YouTube channel has reached a significant milestone, surpassing 1 million views. Over the years, it has evolved into a valuable resource, offering a wealth of professional content and knowledge. With an expanding collection of open-for-all sessions, the channel continues to serve as a hub for valuable learning. Members who have not yet subscribed are encouraged to do so and stay updated with the latest content.

Youtube Link: https://www.youtube.com/channel/UC3cxrmOi8hRA31LxBEXGpUQ

5. Interactive meeting of managing Committee Members with Dr Harish Mehta and Mr Rajiv Vaishnav

Dr Harish Mehta and Mr Rajiv Vaishnav were invited to interact and share their experience of building and successfully running the NPO with the BCAS Managing Committee members on 8th January, 2025.

Dr Harish Mehta is a founder member and former Chairman of NASSCOM and Rajiv Vaishnav is former President of NASSCOM. They shared experience in building brands, nurturing teams, and growing organizations. During the interaction, Dr. Harish Mehta and Mr. Rajiv Vaishnav appreciated the work done by BCAS and emphasised the importance of valuing volunteers, building trust, and promoting unity, especially during challenging times. They also advised that before making representations to government authorities, it’s essential to gather collective opinions from members.

Dr Mehta autographed copies of his book, “Maverick Effect: The Inside Story of India’s IT Revolution”, for the committee members.

BCAS IN NEWS

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