2026 Archives

When The Burden Shifts: Exceptions to the Residence State’s Obligation to Relieve Double Taxation

Under the OECD Model Convention, the residence State generally relieves double taxation. However, exceptions shift this obligation to the State hosting a permanent establishment (PE). First, if the residence State is also the source of income attributable to the PE, the PE State must credit the residence State’s source tax. Second, in “triangular cases” where a PE earns income from a third State, the PE State must relieve the third-State tax by extending domestic unilateral relief to the PE via non-discrimination principles, or through specific treaty clauses. Practitioners must carefully account for these exceptions in their cross-border financial models.

I. THE GENERAL RULE

1. The architecture of double taxation relief under the OECD Model Convention rests on a simple division- the State of source taxes first, and the State of residence relieves. Articles 23A (exemption method) and 23B (credit method) apply only to the State of residence (State R). They oblige that State either to exempt income which the Convention permits the other Contracting State to tax, or to credit the tax paid in the other State against its own levy. Paragraph 8 of the Commentary on the said Articles makes this explicit by stating that the Articles “apply only to the State of residence and do not prescribe how the other Contracting State has to proceed.”

2. This general rule, however, is not without exceptions. Paragraphs 9 to 10 of the Commentary on Articles 23A and 23B, read with paragraphs 67 to 70 of the Commentary on Article 24, identify situations in which the obligation to extend relief travels away from the residence State and settles, wholly or partly, on the State in which a permanent establishment (PE) is situated. Two fact patterns dominate this discussion: first, where the residence State is itself the State of source; and second, the classic “triangular case” where income flows from a third State to a PE.

II. FIRST EXCEPTION — RESIDENCE STATE AS SOURCE STATE (PARAGRAPH 9)

3. Paragraph 9 of the Commentary on Articles 23A and 23B deals with the situation where a resident of State R derives income from State R itself through a PE in the other Contracting State (State E). Under Article 7(1) read with Article 21(2), State E may tax such income (other than income from immovable property situated in State R) if it is attributable to the PE. Remarkably, State R must still give relief under Article 23A or 23B for the income attributable to the PE, notwithstanding that the income originally arises in State R.

4. The Commentary then carves the true exception. It provides that where the Contracting States agree to preserve for State R a limited right to tax dividends or interest within the ceilings of Articles 10(2) and 11(2) as would have been taxed by a Source State, the two States “should also agree upon a credit to be given by State E for the tax levied by State R, along the lines of paragraph 2 of Article 23A or of paragraph 1 of Article 23B.” In other words, it is the PE State and not the residence State that extends the credit for the source tax of the residence State.

5. Paragraph 9.1 adds a wrinkle for exemption-method treaties. Where State R applies Article 23A (dealing with exemption method), the combination of Articles 7 and 23A prevents State R from taxing the dividends or interest even as the State of source, although had the same income been paid to a resident of the other State, State R could have taxed it at the rates in Articles 10(2) and 11(2). The Commentary then provides that States finding this unacceptable may insert a clause preserving State R’s source taxation, with State E giving a corresponding credit, though no credit is due if State E, under its domestic law, does not tax the dividends or interest attributed to the PE.

6. The working appended to this article (Sheet “Paragraph 9”) illustrates the rule with an Indian flavour. In the said example, India is the residence State and also the source State of interest of Rs.100. The enterprise has a PE in Sri Lanka to which the interest is attributable. Sri Lanka taxes the PE profits of Rs. 600 (revenue Rs.1,000 less expenses Rs.400) at 20 per cent, i.e. Rs.120. We may assume that India retains a limited source right of 10 per cent on the gross interest, i.e. Rs.10 under the India-Sri Lanka DTAA. [The assumptions have been made solely for illustrative purposes and are not based on the respective domestic laws of the States and the inter-se treaty position between them]

7. Sri Lanka, as PE State, grants the credit contemplated by paragraph 9 of Commentary on Articles 23A and 23B at the lower of the Indian tax on the interest (Rs.10) and the Sri Lankan tax attributable to that interest (Rs.100 × 60% profit ratio × 20% = Rs.12), i.e. Rs.10, leaving a net Sri Lankan tax of Rs.110 (i.e. 120- 10). India, as residence State, then taxes the interest (Rs.10) and the balance PE profits of Rs.540 (i.e. Rs.900 * 60% profit ratio) at 30 per cent (Rs.162), giving credit for the proportionate Sri Lankan tax of Rs.99 (Rs.110 × 900/1,000), restricted to the Indian tax thereon. The net Indian tax is Rs.73 (10+162-99) and the aggregate burden across both States is Rs.183 (110+73). Double taxation stands relieved, but only because each State performed a crediting function: Sri Lanka for India’s source tax, and India for Sri Lanka’s PE tax.

The Tax Relief Flip

Illustration I — Paragraph 9 (amounts in Rs.)	Sri Lanka (E)	India (R)
Tax before credit	120	172 (10 + 162)
Credit granted	10 (for Indian source tax)	99 (for Sri Lankan PE tax)
Net tax	110	73
Aggregate tax in both States		183

III. SECOND EXCEPTION — THE TRIANGULAR CASE (PARAGRAPH 10)

8. Paragraph 10 of OECD Commentary on Articles 23A and 23B addresses the triangular configuration- a resident of State R derives income from a third State (State S) through a PE situated in State E. State E may tax the income attributable to the PE (Articles 7(1) and 21(2)), and State R must give relief under Article 23A or 23B for the income attributable to the PE. So far, the general rule holds. The difficulty lies elsewhere in as much as the Convention between R and E contains no provision obliging State E to relieve the tax levied by the third State (State S) where the income arises. The PE thus risks bearing third-State withholding tax with no treaty avenue for credit in the State that actually taxes it on a net basis.

9. The Commentary supplies the answer through the non-discrimination Article i.e. under Article 24(3). By applying such non-discrimination provision the Commentary requires that any relief provided under the domestic laws of State E (double taxation conventions excluded) for its own residents must equally be granted to a PE in State E of an enterprise of State R. Paragraph 10 expressly cross-refers to paragraphs 67 to 72 of the Commentary on Article 24.

IV. THE ARTICLE 24 DIMENSION — PARAGRAPHS 67 TO 70

10. Paragraph 67 of the Commentary on Article 24 states the principle: when foreign income is included in the profits attributable to a PE, it is right to grant the PE credit for the foreign tax borne by such income when such credit is granted to resident enterprises under domestic law. This is the equal-treatment obligation in action. On the basis of the said principle of equal treatment a unilateral relief provision under the domestic law of State E [which may be similar to section 91 of the Income-tax Act, 1961] cannot be confined to its’ residents.

11. Paragraph 68 confronts the harder case. What if State E’s domestic law grants no unilateral credit and relief flows only from tax conventions? The PE is not a “person” and not a “resident”, and is therefore not itself entitled to the benefits of State E’s conventions with third States (State S). Paragraph 69 frames the resulting question for dividends and interest received by the PE from a third State: whether, and to what extent, the PE State should credit the third-State tax that cannot be recovered.

12. Paragraph 70 records the consensus that double taxation does arise and some method of relief should be found. It observes that most member countries can grant credit on the basis of domestic law or of Article 24(3) itself. However it also provides that, States that cannot grant credit under their domestic law owing to absence of such a credit mechanism thereunder, or that wish to clarify the position, may supplement Article 24(3) with wording that permits the PE State (State E) to credit the third-State tax (State S) “by applying the rate of tax provided in the convention between the State of which the enterprise is a resident and the third State”, subject to a ceiling: the credit “shall not exceed the amount that an enterprise that is a resident of the first-mentioned State can claim under that State’s convention with the third State.” If the unrecoverable tax under the treaty or convention between State R and the third State (i.e. State S) is lower than that under the treaty or convention between State E and third State (State S), only the lower tax is credited. The PE, in effect, receives the less favourable of the two treaties, which amounts to a floor of protection and not a charter for treaty shopping.

V. THE TRIANGULAR CASE IN NUMBERS

13. The second and third sheets of the workings model the triangle with India as residence State (30 per cent), a PE in Sri Lanka (20 per cent) and interest of Rs.100 arising in Bangladesh suffering withholding at 25 per cent (Rs.25). PE profits are Rs.600 on revenue of Rs.1,000. [Again these assumptions are for illustrative purposes and do not represent the actual position under the respective domestic laws and the inter-se treaty position between the States.]

14. Route one — domestic-law relief (Sheet “Paragraph 10 of Commentary on Articles 23A and 23B read with Paragraph 67 on Article 24”). Sri Lanka is assumed to have a unilateral relief provision similar to section 91 of the Income Tax Act, 1961. Its tax of Rs.120 is reduced by credit at the lower of the Bangladesh rate (25%) and its own effective rate (12%), applied to the doubly taxed interest of Rs.100 resulting in a credit of Rs.12, leaving net Sri Lankan tax of Rs.108 (120-12). By applying Article 24(3), this domestic relief must be extended by Sri Lanka to the Indian enterprise’s PE. India then levies Rs.180 on the income inclusive of interest, allowing credit of Rs.18 for the Bangladesh tax (lower of Rs.25 and the Indian tax attributable to such interest of Rs.18) and Rs.108 for the Sri Lankan tax. The total foreign tax credit thus extended by India would be Rs.126 (Rs.108 + Rs.18), resulting in net Indian tax Rs.54 (180-126). Aggregate outflow across the three States would be Rs.187 (25+108+126).

15. Route two — the paragraph 70 treaty clause (Sheet “Paragraph 10 of Commentary on Articles 23A and 23B read with Paragraph 70 of Commentary on Article 24”). Here Sri Lanka is assumed to have no unilateral relief under its’ domestic law, but the India–Sri Lanka treaty contains the clause suggested by paragraph 70 of the Commentary on Article 24. Sri Lanka computes the credit under the India–Bangladesh treaty (Rs.18, being the lower of Rs.25 being Bangladesh Tax on interest and the Indian tax attributable to the interest) and caps it at what its own resident could claim under the Sri Lanka–Bangladesh treaty (Rs.12, being the lower of Rs.25 and the Sri Lankan tax attributable to the interest income). The credit is the minimum of the two i.e. Rs.12, and the net Sri Lankan tax is again Rs.108 (120-12). The Indian computation is unchanged, and the aggregate outflow is again Rs.187.

Illustration II — Triangular case (amounts in Rs.)	Para 10 (Art. 23A and 23B) r.w. Para 67 (Art 24) route	Para 10 (Art. 23A and 23B) r.w. Para 70 (Art 24) route
Tax in Bangladesh (source)	25	25
Sri Lanka: tax before credit	120	120
Sri Lanka: credit for Bangladesh tax	12 (s. 91-type relief)	12 (treaty clause)
Sri Lanka: net tax	108	108
India: tax before credit	180	180
India: total foreign tax credit (18 + 108)	126	126
India: net tax	54	54
Aggregate tax outflow	187	187

16. Two features of the illustrations deserve emphasis. First, in both routes the PE State’s credit is rate-capped at its own effective tax attributable to the doubly taxed income (12 per cent), so a residue of Bangladesh tax (Rs.13) remains unrelieved at the PE level. This difference however gets absorbed downstream while computing the tax credit given by India as State of residence as India being the State of residence extends credit for the taxes paid in Sri Lanka. However, with respect to taxes paid in Bangladesh, India does not extend full credit of Rs.25 (being the tax paid in Bangladesh on interest), but limits it to the Indian tax attributable to such interest being Rs.18. The difference of un-credited Bangladesh Tax of Rs.7 (i.e. 25-18) has resulted in the aggregate burden of Rs.187 exceeding the tax of Rs.180 (i.e. Rs.1000 * 60% profit percentage * 30% being tax rate in India) that a pure residence taxation would have produced. Relief in triangular cases is real but imperfect. Secondly, the paragraph 70 clause and a section 91-type domestic provision converge on the same result in this fact pattern, which is precisely its design i.e. to place PEs on par with, but not better than, local residents.

VI. CONCLUSION

17. The proposition that the residence State alone bears the burden of relieving double taxation is accurate only as a first approximation. Paragraph 9 of the Commentary on Articles 23A and 23B shows that where residence and source converge in one State and the income is attributable to a PE in the other, the PE State must credit the residence State’s source tax. Paragraph 10 of Commentary on Articles 23A and 23B, read with paragraphs 67 to 70 of the Commentary on Article 24, shows that in triangular cases the PE State must extend to the PE whatever unilateral relief its domestic law gives its own residents, or may by treaty bind itself to a credit capped at the less favourable of the two relevant conventions.

18. For Indian practice the lessons are concrete. Indian enterprises with foreign PEs earning Indian-source interest or dividends should examine whether the PE State has granted the paragraph 9 credit before computing relief under section 90 read with relevant article of the applicable treaty. Conversely, where a foreign enterprise operates a PE in India that receives third-country income, Article 24(3)-type non-discrimination clauses oblige India to extend section 91-type relief to that PE on par with residents. In triangular structures, the residual, unrelieved sliver of source-State tax is a costing reality that deserves a line in every cross-border financial model. The general rule tells us who usually pays for relief, the exceptions remind us that in treaty law, as in life, the burden does not always fall where one first expects.

WORKINGS AS PER PARAGRAPH 9 OF 2017 OECD COMMENTARY ON ARTICLES 23A AND 23B

Nature of case: There is a convergence of residence and source in the same State and income is effectively connected with a PE in the other State.

Assumptions made:

1. India is the resident State. India is also the source State inasmuch as interest is arising in India.

2. Enterprise has a PE in Sri Lanka and interest is attributable to such PE and is taxed as business profits in Sri Lanka at say 20%.

3. India has limited taxing rights under the Indo–Sri Lanka Treaty to tax the interest at a lower rate of say 10% on gross basis.

Tax on PE profits in Sri Lanka
PE revenue	1,000
Less: PE expenses	400
PE profits	600
Tax at 20%	120

Tax on Interest income in India
Interest	100
Tax at 10%	10

Tax on reworked PE profits in India
PE revenue (excluding interest)	900
Less: Proportionate PE expenses (i.e. 400 × 900/1000)	360
PE profits	540
Tax at 30%	162

Tax in Sri Lanka as per Paragraph 9 of OECD Commentary
Tax on PE profits	120
Less: Credit for Indian tax paid on interest included in PE profits in accordance with Article 23B(1)
1) Income tax paid in India on interest income (i.e. interest of Rs. 100 × 10% being tax rate in India)	10
2) Income tax payable in Sri Lanka which is attributable to interest income taxed in India (i.e. interest of Rs. 100 × 60% being profit percentage × 20% being tax rate in Sri Lanka)	12
Lower of the two amounts eligible for tax credit	10
Net tax in Sri Lanka	110

Tax in India
Tax on Interest [A]	10
Tax on PE profits	162
Less: Credit of Sri Lankan tax paid on PE profits
1) Income tax paid in Sri Lanka on PE profits [Rs. 110 being total tax paid in Sri Lanka × (Rs. 900 being income other than interest / Rs. 1000 being total income)]	99
2) Income tax payable in India which is attributable to PE profits taxed in Sri Lanka [Since income of Rs. 900 is taxed both in India and Sri Lanka, the tax of Rs. 162 which is paid in India on such income of Rs. 900 is considered]	162
Lower of the two amounts eligible for tax credit	99
Net Tax on PE profits [B]	63
Net Tax in India [A] + [B]	73

Total tax in India and Sri Lanka	183

WORKINGS AS PER PARAGRAPH 10 OF 2017 OECD COMMENTARY ON ARTICLES 23A AND 23B READ WITH PARAGRAPH 67 OF 2017 OECD COMMENTARY ON ARTICLE 24

Nature of case: Income derived by a resident of Residence State (R), from a source in Source State (S) but is considered as income of a PE situated in a Third State (€).

Assumptions made:

1. India is the resident State. India taxes profits as a resident State at full rate (assuming 30%).

2. Enterprise has a PE in Sri Lanka and interest is attributable to such PE and is taxed as business profits in Sri Lanka at 20%.

3. The interest is derived from a third State say Bangladesh (source State). Tax rate in Bangladesh presumed at 25%.

4. It is presumed that Sri Lanka has a provision similar to section 91 of the IT Act, 1961 in its domestic law.

Tax on profits in India
Revenue	1,000
Expenses	400
Profits	600
Tax on profits at 30%	180

Tax on PE profits in Sri Lanka
PE revenue	1,000
Less: PE expenses	400
PE profits	600
Tax at 20%	120

Tax in Bangladesh on interest income
Interest	100
Tax at 25%	25

Tax in India
Tax on profits	180
Less: Credit for Bangladesh tax paid on interest
1) Income tax paid in Bangladesh on interest income	25
2) Income tax payable in India which is attributable to interest income taxed in Bangladesh [Rs. 100 × 60% profit percentage × 30% tax rate in India]	18
Lower of two amounts eligible for credit	18
Less: Credit for Sri Lanka tax paid on profits
1) Income tax paid in Sri Lanka [Rs. 108 being tax paid on income of Rs. 1000 is considered]	108
2) Income tax payable in India [Rs. 180 being tax payable on income of Rs. 1000 is considered]	180
Lower of two amounts eligible for credit	108
Total FTC	126
Net Tax in India	54

Tax in Sri Lanka
Tax on PE profits	120
Less: Credit as per provision similar to section 91 of ITA
1) Bangladesh Tax Rate [(Rs. 25 / Rs. 100 interest income taxable in Bangladesh) × 100]	25
2) Sri Lanka Tax Rate [(Rs. 120 Sri Lanka Tax / Rs. 1000 total income) × 100]	12
Lower of two tax rates at which credit is available	12
Doubly taxed interest income	100
Eligible credit on doubly taxed income	12
Net Tax in Sri Lanka	108

Tax paid in Bangladesh
Tax paid in Bangladesh	25

Total tax outflow in India, Sri Lanka and Bangladesh	187

WORKINGS AS PER PARAGRAPH 10 OF 2017 OECD COMMENTARY ON ARTICLES 23A AND 23B READ WITH PARAGRAPH 70 OF 2017 OECD COMMENTARY ON ARTICLE 24

Nature of case: Income derived by a resident of Residence State (R), from a source in Source State (S) but is considered as income of a PE situated in a Third State (€).

Assumptions made:

1. India is the resident State. India taxes profits as a resident State at full rate (assuming 30%).

2. Enterprise has a PE in Sri Lanka and interest is attributable to such PE and is taxed as business profits in Sri Lanka at 20%.

3. The interest is derived from a third State say Bangladesh (source State). Tax rate in Bangladesh presumed at 25%.

4. It is presumed that Sri Lanka does not have a provision similar to section 91 of the IT Act, 1961 in its domestic law. However, it is presumed that the DTAA between India and Sri Lanka has a clause similar to that provided in paragraph 70 of the OECD Commentary on Article 24 which enables Sri Lanka to extend the credit available under the DTAA between India and a third State, subject to such credit not exceeding what is available as per the DTAA between Sri Lanka and such third State.

5. It is presumed that the tax rates at which credit is available in respective treaties is based on the rates mentioned above in respect of each jurisdiction.

Tax on profits in India
Revenue	1,000
Expenses	400
Profits	600
Tax on profits at 30%	180

Tax on PE profits in Sri Lanka
PE revenue	1,000
Less: PE expenses	400
PE profits	600
Tax at 20%	120

Tax in Bangladesh on interest income
Interest	100
Tax at 25%	25

Tax in India
Tax on profits	180
Less: Credit for Bangladesh tax paid on interest
1) Income tax paid in Bangladesh on interest	25
2) Income tax payable in India attributable to interest taxed in Bangladesh [Rs. 100 × 60% profit percentage × 30% tax rate in India]	18
Lower of two amounts eligible for credit	18
Less: Credit for Sri Lanka tax paid on profits
1) Income tax paid in Sri Lanka on profits [Rs. 108 being tax paid on income of Rs. 1000]	108
2) Income tax payable in India on profits [Rs. 180 being tax payable on income of Rs. 1000]	180
Lower of two amounts eligible for credit	108
Total FTC	126
Net Tax in India	54

Tax in Sri Lanka
Tax on PE profits	120
Less: Credit for Bangladesh tax paid on interest
1) Tax credit under Indo–Bangladesh DTAA
a) Tax paid in Bangladesh on interest	25
b) Tax payable in India attributable to interest taxed in Bangladesh [Rs. 100 × 60% profit percentage × 30% tax rate in India]	18
Lower of two amounts eligible for tax credit [A]	18
2) Tax credit under Sri Lanka–Bangladesh DTAA
1) Tax paid in Bangladesh on interest	25
2) Tax payable in Sri Lanka attributable to interest taxed in Bangladesh [Rs. 100 × 60% profit percentage × 20% tax rate in Sri Lanka]	12
Lower of two amounts eligible for tax credit [B]	12
Tax credit eligible being minimum of [A] and [B]	12
Net tax in Sri Lanka	108

Tax paid in Bangladesh
Tax paid in Bangladesh	25

Total tax outflow in India, Sri Lanka & Bangladesh	187

This article is based on the 2017 OECD Model Tax Convention and Commentary: paragraphs 8, 9, 9.1 and 10 of the Commentary on Articles 23A and 23B, and paragraphs 67 to 70 of the Commentary on Article 24, with illustrative computations assuming Indian tax at 30%, Sri Lankan tax at 20%, Bangladesh withholding at 25% and an Indian limited source rate of 10% on interest. Figures are illustrative only and do not represent the actual domestic law positions and the inter-se treaty positions between the Contracting States referred to.

BCAJ Admin

From The President

My Dear BCAS Family,

My association with BCAS began in 2002, in a communication course for Chartered Accountants, a first encounter whose full significance I could scarcely have imagined then. Twenty-four years later, serving as the 78th President of this Society feels less like a new chapter and more like the continuation of a journey, BCAS itself set in motion. I step into this responsibility with humility, hope and a deep sense of duty, inspired by the three guiding principles of Jainism; “सम्यक् ज्ञान”, “सम्यक् दर्शन”, and “सम्यक् चारित्र”, the wisdom to know, the vision to perceive, and the discipline to do what is right.

On Guru Purnima (29th July 2026 / Ashadhi Purnima), I offer deep gratitude to our Past Presidents and mentors at BCAS. Like one lamp lighting another, our visionary seniors have guided generations of young CAs with integrity, shaping BCAS into the institution it is today.

I express my sincere gratitude to CA Zubin Billimoria, the outgoing President, for his exemplary service, steadfast dedication, and invaluable contributions to BCAS. His legacy will continue to inspire us as we build upon his work.

Celebrating Krishna Janmashtami this month should reminds us of the timeless teachings in the Bhagavad Gita to uphold righteousness, protect good, and fulfill duty which are essential principle for every professional. To bring this enduring wisdom closer to the members, BCAS has released the Gujarati edition of “Gita for Professionals”, now available alongside the English edition. It serves as a practical compass to cultivate integrity, independence and professional skepticism, and to help members achieve greater excellence in profession.

During the year ahead, I hope to focus our collective efforts on strengthening professional capability, creating greater opportunities for young members and ensuring that BCAS remains responsive to the changing expectations of the profession.

The Soul of the Profession

The newly implemented India-UK Free Trade Agreement opens significant new horizons for our profession. It will unlock demand for advice relating to cross-border structuring, taxation, transfer pricing, customs, regulatory compliance, assurance and business establishment. With reduced trade barriers and easier mobility, our fraternity now has a wonderful gateway to offer high-value consulting to international businesses and showcase Indian professional talent on a global stage.

The world today continues to witness considerable political and economic volatility. As Bharat enjoys global trust, the world is looking up to her for guidance. BCAS was proud to support ‘Vasudhaiva Kutumbakam Ki Oar 4.0’, organised in January 2026 by Jyot India Foundation under the guidance of Jainacharya Yogbhushansuriji Maharaj. His message is deeply relevant today: our ancient wisdom reminds us that the whole world is one family. To resolve modern crises, we must restore core values and establish the ‘Rule of Justice’ in every walk of life.

As the 15th of August approaches, it brings with it a deep sense of pride as our nation celebrates Independence Day. Beyond celebrating our freedom, it is a reminder of our collective responsibility to build a strong Bharat.

As students, we were taught a simple principle: an auditor must always be independent. It sounds straight-forward in textbooks. But in real life, independence is rarely lost in one big, dramatic moment. It quietly slips away through small, comfortable choices.

You may wonder why this matters to an ordinary citizen. The RBI projecting a strong 6.6% growth for Indian economy look wonderful, but behind every economic number lies a set of financial statement audited by professionals like us. Most citizens may never meet the professionals who audit, certify and advise the institutions they depend on. Yet every time they invest, donate, borrow or place their trust in an organisation, they rely on the quality and honesty of our work. That is why professional independence is not just a personal value; it is the foundation of public trust. As India celebrates its freedom, let us renew our commitment to the freedom that our profession demands; the freedom to examine facts without prejudice, to express an honest view without fear, and to act without compromising our conscience. That is how we will honour both our profession and our nation.

Just as national independence grants sovereignty and dignity to our country, independence of thought and action is the very soul of the Chartered Accountancy profession. For a CA, independence is not merely a compliance checkbox or a regulatory mandate; it is a sacred state of mind. It demands unyielding objectivity, fearless professional skepticism, and an uncompromising commitment to truth.

It is my immense privilege to serve as the torchbearer for the milestone 60th Residential Refresher Course (RRC), scheduled from 10th to 13th December 2026 at Ahmedabad. I warmly request our Yuva Shakti to join and witness this historic moment first hand, while our senior members can relive old memories and experience the joyous nostalgia of togetherness.

BCAS is a family where every member’s voice matters. We have launched a members’ survey to understand your expectations from our Society. Please spare a few minutes to share your honest thoughts.

I extend my heartiest wishes for Parsi New Year (Navroz) and Raksha Bandhan. May these celebrations fill your homes with joy, peace and happiness.

Jai Hind.

CA. Kinjal Shah

President, BCAS

BCAJ Admin

A Compressed File – An Uncompressed Risk

A client emails a scanned copy of his Aadhaar card to your office for uploading on the GST registration portal. The file size is 3 MB, while the portal accepts uploads only up to 1 MB. The intern handling the registration opens a free online PDF-compression website, uploads the Aadhaar scan, downloads the compressed version and completes the filing. The registration is successful. The client is satisfied. No one in the office gives the compression website another thought.

Yet this simple and commonplace act illustrates one of the most overlooked data protection risks in professional practice.

Across Chartered Accountants’ offices, personal identity documents such as Aadhaar cards, PAN cards, passport copies and bank statements are routinely compressed, merged, converted, translated or subjected to OCR using freely available online tools. The convenience is undeniable. The legal implications, however, deserve closer attention.

The High Cost of free online tools

The Digital Personal Data Protection Act, 2023 (“DPDP Act”) introduces a statutory framework governing the processing of digital personal data. The principal compliance requirements including notices, consent management, security safeguards, breach reporting and data principal rights become operative from 13 May 2027.

Consider the Aadhaar example. Once the document is uploaded to an external website, the firm relinquishes direct control over how that file is processed, stored or deleted. Many online utilities process documents on servers outside the firm’s infrastructure, under terms that users seldom read and whose retention practices may vary. A complete identity document, in the wrong hands, is a master key: it is good enough to open a mule bank account, procure a duplicate SIM card through fraudulent e-KYC, apply for an unsecured loan in the client’s name, or register a shell entity. Even where a service claims to delete uploaded files after a specified period, the firm has entrusted sensitive personal data to a third party over whom it exercises no contractual control.

The DPDP Act applies to personal data processed in digital form, or to physical data that is subsequently digitised. Accordingly, while a physical photocopy of an identity document lying in a paper file may fall outside its scope, the moment that document is scanned, emailed, uploaded or electronically processed, the statutory framework becomes relevant.

For most professional engagements, a Chartered Accountant processes personal data on behalf of the client and becomes a Data Processor under the Act. At the same time, where the firm independently determines the manner or means of processing—for instance, deciding to use a particular software platform or online utility—it may also assume obligations associated with a Data Fiduciary under the Act. The precise legal characterisation will depend upon the facts of each engagement, but in either case the responsibility to handle personal data with appropriate care remains.

In the illustration above, several provisions of the DPDP framework could become relevant. The processing continues to serve the authorised purpose of GST registration. However, the firm’s decision to route the Aadhaar through an unapproved public website raises broader compliance questions. Was the client adequately informed that an external service provider might process the document and did he consent to that arrangement explicitly/implicitly? Has the firm exercised reasonable due diligence before entrusting personal data to that provider? Is there an appropriate contractual arrangement with the website governing confidentiality, security safeguards, retention and deletion of the data? The DPDP framework places the responsibility for these decisions squarely on the organisation processing the personal data. Convenience cannot substitute governance.

The DPDP Act prescribes substantial monetary penalties ranging upto Rs.250 crores for failure to put in place reasonable security safeguards to prevent a personal security breach. Many other contraventions also attract high penalties. These represent statutory maximums, and any penalty would necessarily depend upon the facts, the nature of the contravention, mitigating circumstances and the assessment of the Data Protection Board.

Fortunately, the solution to this specific risk is neither expensive nor complicated.

Every firm should adopt a simple written policy prohibiting the upload of client documents to public or unapproved online utilities for compression, conversion, OCR or similar processing. Where such functionality is required, firms should use licensed desktop software or approved applications operating within their own controlled environment. Equally important is a basic due diligence process before introducing any technology that handles client data, together with periodic sensitisation of staff who routinely process documents. This will necessarily require incurring of additional costs, but failure to do so may result in far higher financial penalties.

The most significant data protection risks seldom arise from sophisticated cyberattacks. More often, they emerge from ordinary shortcuts taken in busy offices by well-intentioned people. A seemingly harmless decision to compress a PDF using a free website may appear inconsequential, but it can expose sensitive personal information to risks that neither the client nor the professional intended.

Best Regards,

CA. Sunil Gabhawalla

Editor

BCAJ Admin

Laughter – The Therapeutic and Inveterate Stimulant

1. “Laughter”-a basic human expression – takes birth in a beatific smile and given the requisite wings transforms into laughter – an expression, invariably of pure joy and, sometimes, a manifestation, even in adversity, of the unbroken spirit. Laughter by releasing the mind of its mechanical regularity and freeing it of its inner demons has the effect of injecting the playful and joyous element into our daily existence while also imbuing it with a sense of richness thereby becoming as His Holiness, the Dalai Lama repeatedly emphasizes “an expression of inner peace, freedom, compassion and clarity” – accompanied with the all-pervading sense of bonhomie that it exudes and generates.

Laughter The Spirits Great Stimulant

2. Most spiritual and thought leaders and opinion makers have personified the power of laughter with their countenance almost always sporting a pleasant smile backed by the ability to break into spontaneous unrestrained laughter at the earliest available opportunity – the perpetually smiling and glowing face of the Dalai Lama being a perfect and live example. In the masterpiece – “The Book of Joy”, which chronicles a series of conversations between His Holiness the Dalai Lama and Archbishop Desmond Tutu, facilitated by Douglas Abrams – the two spiritual leaders discuss the challenges of a joyful life and among the eight pillars of joy, identify humour (a twin brother of laughter) as a necessary ingredient. Of course, in the book repeated references arise as to how both the Dalai Lama and Archbishop Desmond Tutu would break into guffaws and laughter at frequent intervals – a reflection of how they valued the inveterate necessity of laughter to lighten moods, recharge the brain and enliven the atmosphere even while discussing what may appear to be deeper theological issues. The book, while referring to how it seems that there is an evolutionary role for laughter and humour in managing anxiety and stress of the unknown, also notes how both the Archbishop and the Dalai Lama are masters of using humour to connect and forge relationships while meeting others.

3. Laughter as a fundamental human expression by lowering grief, anxiety and dissipating tension – even in the most adverse, tragic situations has the effect of implanting in the mind a Zen like serenity resulting in a subconscious meditative state and life becoming a celebration. Nay sayers may equate laughter to reflecting a somewhat lack of seriousness about life, to which the definitive answer is laughter as an antidote to the ego is a pure expression of the most joyous feelings and above all an intensely spiritual exercise – even bordering sometimes on praying. The capability to laugh is the ultimate route to inner joy and the most accessible path to turn adversity into opportunity. And, of course, the added capability to laugh at yourself is the proverbial icing on the cake with the approbation of society to such a quality being the added bonus.

4. Even the scriptures spanning all Religions and eons of Centuries recognize and emphasize the role of laughter. To take an example, the “Nāṭyaśāstra” (often described as the “Fifth Veda”) composed by the Sage Bharata Muni while in itself a comprehensive philosophy of human expression talks of “Hāsya Rasa” to experience the delight born of humour – it elevates laughter from being just a reaction to a refined authentic experience to be savoured.

5. The following words attributed to the Sage J Krishnamurti who, of course, was famously known for his love of jokes and the ability to portray an almost perpetually smiling countenance beautifully captures the essence of laughter:

“There is also laughter in life;

Laughter is a lovely thing;

To laugh without reason;

To have joy in one’s heart without cause;

To love without seeking anything in return.”

6. The following quote (the source of which I have not been able to discover) also perpetually encapsulates the essence of laughter by emphasizing that joy and peace are not mutually exclusive but rather work in tandem to aid navigation in an uncertain, dynamic and complex world:

“Laugh gently, for the world is already burdened;

Laugh kindly, for every face hides a story;

Laugh invariably and you will find peace does not resist joy;

Laughter by fostering inward harmony reduces fear and preserves freedom of spirit.”

BCAJ Admin

BCAS Foundation Annual Activities Report 2025-2026

During the year 2025–26, the BCAS Foundation continued its commitment to social development by undertaking and supporting a wide range of initiatives in the areas of education, environment, healthcare, skill development, women empowerment, and community welfare. Through strategic partnerships and direct interventions, the Foundation strengthened its efforts to create sustainable impact in underserved communities.

Education had always remained one of the key focus areas of the Foundation. The Foundation extended substantial assistance to institutions serving tribal and rural communities, with a focus on infrastructure development and improving learning conditions.

A major initiative undertaken during the year was the support extended to the V.K. Lakhani School.

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The Foundation sanctioned financial assistance of ` 6 lakhs for essential repairs to the school infrastructure, specifically, roof restoration and refurbishment of the science laboratory. The work was completed successfully during the year, and the school submitted the required documentation evidencing proper utilisation of the funds. Trustees visited the school personally to inspect the completed work and appreciated the positive outcomes achieved through the project.

The interaction with the school also led to discussions on future development possibilities. During the visit, it was observed that the school required extensive structural repairs estimated at approximately ` 20 lakhs. Discussions were initiated to mobilise additional resources through member contributions and fundraising efforts. A proposal to establish a vocational skills development centre on the school campus was also discussed, recognising the employment opportunities expected to arise in the surrounding region due to the upcoming Vadhvan Port development. This initiative is expected to become a significant long-term project for the Foundation.

The Foundation also continued its association with the digital classroom initiative. This year, on 2nd August, 2025, the Foundation donated 5 digital classrooms to the V. K. Lakhani High School, Bordi. President Zubin F. Billimoria along with other trustees of the Foundation and a group of 25 volunteers visited Bordi school during the inauguration function. Trustees and volunteers visited the tribal schools in Talasari, Bordi and Umargam areas to review the implementation of digital classrooms introduced earlier with the Foundation’s support. The visit provided an opportunity to assess the effectiveness of technology-enabled learning in rural educational settings and reaffirmed the Foundation’s commitment to educational advancement in tribal areas.

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Further, the Foundation extended support to Kumbharwadi Madhyamik School at Kolhapur by donating ₹2.5 lakhs towards the procurement of desks and benches for students. This assistance was aimed at improving the basic classroom environment and creating better learning conditions for students from economically weaker sections.

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This year, the Foundation also undertook the tree plantation programme in collaboration with Keshav Shrushti Foundation. The Tree Plantation Drive 2025 was conducted at Vada, Palghar. The initiative focused on increasing green cover and contributing to ecological conservation in the region.

A donation of ₹6.25 lakhs was collected to support the plantation programme. This initiative reflected the Foundation’s belief that environmental sustainability is an essential pillar of community development. The programme also facilitated active participation by members and strengthened collaboration with institutions dedicated to ecological preservation.

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The Foundation remained actively engaged in programmes aimed at enhancing employability and livelihood opportunities, particularly for women and underprivileged communities.

Its long-standing collaboration with the Rangoonwala Foundation (India) Trust continued during the year. The Foundation approved financial support of ₹5 lakhs for the Trust’s educational and skill-building activities. These initiatives included vocational training programmes aimed at equipping women and youth with practical skills for sustainable employment.

A report received from the Rangoonwala Centre highlighted the launch of a new community skills development programme. The same was formally taken on record by the Trustees as part of the Foundation’s ongoing developmental work. The programme aligns closely with BCAS Foundation’s objective of empowering communities through skill enhancement and self-reliance.

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Further, representatives of the Foundation attended the Women’s Day celebrations organised by Rangoonwala Foundation. During the event, women who had successfully completed beautician training courses were felicitated. Several of these beneficiaries had received sponsorship support under the BCAS Foundation’s skill development programme. This initiative showcased the direct impact of the Foundation’s support in creating employment opportunities and encouraging economic independence among women.

The Foundation also supported women’s empowerment initiatives under the CA-Thon programme. As part of this initiative, five sewing machines were donated to beneficiaries to enable income generation through tailoring and related vocational activities. The total expenditure for this programme was ₹92,500. This project was recognised as a meaningful contribution to empowering women through self-employment.

The Foundation, jointly with the Seminar, Membership & Public Relations Committee of BCAS, organised the annual Blood Donation Drive in association with Tata Memorial Hospital. The event received enthusiastic participation from members, office bearers, past presidents, and staff. A total of 54 eligible donors contributed blood during the drive.

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The programme also included a Platelet Donation Awareness Campaign, which helped educate participants about platelet donation and assess their eligibility for future participation. NSS volunteers from H.R. College of Commerce & Economics and Dharma Bharathi Mission played an active role in raising awareness and securing donor support. Donors were felicitated with “Life Saver” medals in recognition of their contribution to this noble cause.

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In addition, the Foundation has decided to donate ₹3 lakhs to Dignity Foundation to support its welfare programmes focused on senior citizens and community well-being. This continued the Foundation’s broader engagement with healthcare and social support institutions.

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The Foundation made significant progress in operationalising the Shri P. N. Shah Memorial Endowment Fund, an important initiative established to provide financial assistance to deserving students pursuing the CA curriculum.

During the year, the Trustees deliberated on the fund’s utilisation framework and constituted a dedicated committee comprising trustees and office bearers to identify appropriate beneficiaries and recommend support mechanisms. As part of due diligence, it was decided that applicants seeking assistance should provide recommendation letters, preferably from BCAS members, to ensure transparency and effective utilisation.

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The first instalment of scholarship support under the Endowment Fund was disbursed during the year, with selected beneficiaries receiving `37,500 each. This marked the formal commencement of the scholarship programme under the fund.

A significant development during the year was the receipt of a generous contribution of `21 lakhs from CA Anil Kumar Desai to the Shri P. N. Shah Memorial Endowment Fund.

The year 2025–26 was marked by purposeful growth in the Foundation’s outreach and impact. Through support to schools, environmental initiatives, healthcare programmes, women empowerment activities, and scholarship assistance, the BCAS Foundation continued to translate its vision of social responsibility into meaningful action.

INTERNATIONAL YOGA DAY CELEBRATIONS

On June 21, 2026, the BCAS Foundation organized “International Yoga Day Celebrations” Jointly with the Human Resource Committee of the BCAS and MaBap Foundation at Shree Goghari Lohana Bhuvan, Paliram Road, Andheri West, Mumbai 400058. In Andheri East, Mumbai, the event was co-organized with MaBap.

Mr. Pradeep Thakkar, the accredited Yoga Trainer, conducted the session.

The takeaways from the workshop are briefly given below:

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Participants were guided to do various exercises and were explained the benefits of doing the exercises.
The exercises dealt with Asanas and tips for Osteoarthritis, Knee Pain, Blood Pressure, Diabetes and a lot more.
Also, breathing exercises, along with their benefits, were explained to the participants.
The benefits of yoga for Flexibility, Strength and overall health were explained in detail.

Dr CA Mayur Nayak, a Certified Yoga Teacher, assisted in the conduct of the Yoga Session and ensured the smooth conduct of the yoga. BCAS Foundation was also awarded with the Certificate of Recognition from the Ministry of Ayush.

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We take this opportunity to thank all our donors, volunteers, sister NGOs, office bearers of schools, Office Bearers and the Staff of BCAS, participants of all conferences/seminars at BCAS, for their continued support and encouragement to carry out some noble work to make a positive difference to the world. We also thank all beneficiaries and students/children for giving BCAS Foundation the opportunity to serve them.

We welcome suggestions and volunteering. Kindly send volunteering requests to

bcasfoundation@bcasonline.org

Best Regards,

For BCAS Foundation

Trustees

BCAJ Admin

Learning Events At BCAS

1. Webinar on the Procedural Aspects of GSTAT held on Friday, 12th June 2026 @ Virtual

The Indirect Tax Committee of the Bombay Chartered Accountants’ Society (BCAS) successfully organized a webinar on “Procedural Aspects of GSTAT” on 12 June 2026.The webinar received an enthusiastic response from the professional community and was attended virtually by more than 700 members.

The session aimed to provide participants with practical insights into the procedural framework and operational aspects of the Goods and Services Tax Appellate Tribunal (GSTAT). The keynote address was delivered by Hon’ble Justice (Retd.) Dr. Sanjaya Kumar Mishra, President of GSTAT and Former Chief Justice of the Jharkhand High Court.

During the keynote session, valuable perspectives were shared regarding the role, functioning, and significance of GSTAT in the indirect tax dispute resolution mechanism. The technical session was conducted by Shri Vivek Chandel, Senior Consultant, NIC, who explained various technological and procedural facets associated with GSTAT.

The panelists highlighted practical aspects and key procedural considerations relevant for tax professionals and stakeholders in the interactive Question & Answer session, which was conducted after the above sessions, enabling participants to seek clarifications and engage directly with the experts and the same was skillfully moderated by CA Mandar Telang, who seamlessly guided the proceedings and facilitated meaningful engagement throughout the session.

The webinar concluded on a highly informative and engaging note, with participants appreciating the quality of discussions and practical insights shared during the session.

Scan to watch online at Youtube

Procedural Aspects of GSTAT

2. Finance, Corporate & Allied Laws Study Circle – Climate Finance: Opportunities, Regulations & Future Outlook held on Friday, 5th June 2026 @ Virtual

The study circle was led by Dr. Chetana Asbe, who is certified in Climate Finance by CFA Institute. She commenced the session with climate fundamentals and key concepts. She broadly covered the following aspects in the session.

– Climate Finance’s scope, Ecosystem, Global and Indian regulatory landscape.

– Impact of Climate change on the business and finance.

– professional responsibility and opportunities in Climate Finance.

The interactive format of the session, complemented by practical examples, made it highly engaging. The session was insightful, and all participant queries were comprehensively addressed by Dr. Chetana Asbe

3. AI Adoption & Peer Review Readiness held on Friday, 29th May 2026 @ BCAS

The Accounting & Auditing Committee of the Bombay Chartered Accountants’ Society organised this full-day hybrid programme at BCAS Hall, Mumbai and through Zoom. The seminar focused on the practical implementation of Artificial Intelligence in professional practice, together with ICAI Peer Review preparedness and Audit Quality Maturity Model (AQMM) implementation. The programme witnessed participation from around 93 members across physical and virtual modes.

The programme commenced with an inaugural and overview session by CA Raman Jokhakar, setting the context on the growing role of technology and quality frameworks in the profession. CA Devang Doshi conducted an insightful session on practical use cases of AI tools in Audit and Tax, demonstrating how professionals can leverage AI for efficiency, automation and better decision-making.

CA Murtaza Ghadiali delivered a practical session on the use cases of IDEA software in Audit, Income Tax and GST assignments, highlighting data analytics and risk identification techniques. The post-lunch session by CA Amruta Kulkarni focused on Peer Review preparedness, covering documentation standards, quality control measures and practical expectations during peer review processes.

The programme concluded with an informative session by CA Padmashree Crasto on practical implementation aspects of the Audit Quality Maturity Model (AQMM), helping participants understand structured approaches towards enhancing audit quality and compliance standards.

The seminar witnessed enthusiastic participation and interactive discussions throughout the day, providing members with practical insights into integrating technology with professional compliance and audit quality requirements.

Scan to watch online at BCAS Academy

AI Adoption & Peer Review

4. Direct Tax Laws Study Circle Meeting on Reassessment Provisions Under Income Tax Act 2025 held on Thursday 28th May 2026 @ Virtual.

The Direct Tax Laws Committee of BCAS organised this study circle session, covering the legal framework, judicial precedents, and practical strategies for handling reassessment notices.

1. Section 279 – AO can reassess escaped income and recompute losses/deductions. Reassessment is not a tool for review (CIT vs. Kelvinator of India Ltd.).

2. Reopening Notice (Sections 280 & 281) – Notice requires specific ‘information’ of escaped income; change of opinion does not suffice. Section 281 mandates a prior SCN with the information and an opportunity of hearing.

3. Section 282 – General limit: 4 years 3 months; extended to 6 years 3 months if escaped income ≥ Rs. 50 lakhs. No notice within 1 year from end of tax year.

4. Judicial Precedents – Reopening quashed on: no new material (Sapphire Foods, Alkem Laboratories); wrong authority (Skypak Travels); natural justice violation (Rajesh Kumar Agarwal); income below Rs. 50 lakh threshold (Sanath Kumar Murali).

5. JAO-FAO Controversy – Finance Act, 2026 retrospectively clarified via Section 147A (w.e.f. 1 April 2021) that JAO conducts the pre-assessment inquiry; NFAC completes reassessment in a faceless manner.

6. Validity of Section 147A – Sub judice before multiple High Courts; SC directed disposal by 30 September 2026. Pending writ petitions have an interim stay on reassessment proceedings.

7. Strategy – Raise all arguments at the first instance: change of opinion, time bar, wrong authority. Evaluate merits and exposure before choosing tax proceedings or writ petition.

The session was well-attended and generated active participation, providing practical clarity on the evolving reassessment framework under the Income Tax Act, 2025.

Speaker: Ujjval Gangwal, Khaitan & Co

5. ITF Study Circle meeting on “Recent Ruling in case of Bank of India on Issue of Foreign Tax Credit” held on 19th May 2026@ Virtual.

The Chairman of the session addressed the participants on the key aspects of the Background and Core Issues discussed in the Judgement. Thereafter, the Group Leader explained the nuances of the Foreign Tax Credit and the requirement to be subject to tax. He further analysed the key findings of the ruling for Assessment Year 2012–13, highlighting the critical considerations and judicial reasoning adopted. This was followed by a comparative discussion on Assessment Year 2013–14, wherein he elaborated on the nuanced distinctions and their implications

The session concluded with closing remarks from both the Chairman and the Group Leader, effectively summarising the deliberations and reinforcing the key takeaways for the participants

Speaker: Chairman of the session – CA Mayur Desai

Group Leader – CA Pranay Gandhi

6 Finance, Corporate & Allied Laws Study Circle – Virtual CFO Services & GCC: Emerging Opportunities for Professionals held on Saturday, 16th May 2026 @ Virtual.

The study circle was led by Ms. Kaveri Venkataraman, the learned speaker, who conducted an insightful session on emerging and non-conventional service offerings for chartered accountants, with a focus on roles such as Chief Financial Officer (CFO) and Global Capability Centers (GCC). Ms. Kaveri took the participants through the journey of virtual CFO in India – evolution to date. She highlighted that the extensive and rigorous training undergone by Chartered Accountants provides them with a distinct advantage over others in delivering such service offerings. She also emphasized the importance of keeping pace with technological advancements, particularly in the field of artificial intelligence, alongside developing complementary skill sets. The discussion on commonly encountered challenges and their proven solutions was particularly valuable and insightful

Ms. Kaveri also dealt with GCCs, inter alia, comprising its evolution types, finance function, career arch, etc. She also guided on ‘must have skills’ as well as ‘good to have skills’ to gain an advantage in service offerings. Her real-world examples, case studies, summarizing the options available along with a range of compensation trends for such services, added value to the session like icing on the cake.

Ms. Kaveri satisfactorily replied to all queries of the attendees. 75+ participants benefited from this session and expressed their appreciation.

7. FEMA Study Circle Meeting on FEMA Implications Arising Out of Cross-Border Structuring held on Friday, 8th May 2026 @Virtual.

The session examined FEMA implications across five areas of cross-border structuring –

Part I – Cross-border investment / acquisitions

Deferred consideration between PROI and PRII is capped at 25% of the total consideration with an 18-month timeline; transfers between two PROIs face no such restriction. Partly paid equity shares may be issued to PROIs with 25% upfront and balance within 12 months, whereas CCPS and CCDs must be fully paid-up. ODI regulations are comparatively flexible, permitting deferred consideration and indemnity obligations as contractually agreed between parties, subject to FEMA compliance.’
Press Note 3 of 2020 mandated Government Approval for investments from land-border countries (LBCs). Press Note 2 of 2026, implemented via the FEM (NDI) Amendment Rules 2026, expands this further covering direct LBC holdings, beneficial ownership via non-LBC entities exceeding 10% under PMLA, and cumulative indirect LBC holdings with drafting ambiguities persisting on aggregation.

Part II – Cross-border mergers

Inbound Mergers: The foreign company merges into Indian company subject to NDI Rules. RBI deemed approval available where the merger satisfies the FEM (Cross Border Merger) Regulations, 2018. Post-merger, overseas investments, ODI structures, and foreign assets acquired by Indian Company must be regularised within prescribed timelines.
Issuance of RPS to PROIs: While NCLT-approved merger schemes permit issuance of equity instruments to non-resident shareholders under the NDI Rules, the issuance of RPS or OCRPS remains contentious since such instruments are generally classified as debt instruments under FEMA. Consequently, their issuance may fall outside the automatic route and potentially require RBI approval and compliance with ECB regulations.
Outbound Merger: The Indian company merges into foreign entity and resident shareholders receive foreign securities, which are treated as ODI/OPI and must comply with the ODI framework with practical challenges including LRS constraints, host jurisdiction restrictions, and absence of tax neutrality under Indian tax laws.

Part III – ODI transaction

Investment in foreign startups (classified as “strategic sector”) is restricted to internal accruals for Indian entities, and own funds for resident individuals. For foreign startups with unlimited liability, any financial commitment may be regarded as exceeding the ODI limit, potentially requiring Central Government approval under the OI Rules.
SAFE Notes (Simple Agreement for Future Equity) raise interpretational questions on whether they qualify as “equity capital” under the OI Rules.
OI Rules restricts financial commitments in foreign entities that re-invest into India to two subsidiary layers. For resident individuals, ODI is further limited to operating entities not engaged in financial services and no subsidiary or SDS where individual has control. The definition of “control” creates interpretive challenges in multi-party structures.

Part IV – Conversions

Company ↔ LLP: Conversion of a company with foreign investment into an LLP is permitted under the automatic route where 100% FDI is allowed and no FDI-linked performance conditions apply. However, companies with outstanding ECBs may face compliance challenges, as LLPs were not recognised as eligible borrowers under the erstwhile ECB framework. Further issues arise where companies holding FDI-linked downstream investments seek conversion into LLPs. Conversion of an LLP (with foreign interest) into a company generally provides broader sectoral eligibility.
FDI ↔ ECB: While ECB to FDI conversion is expressly permitted under FEMA, conversion of FDI instruments (e.g., CCPS) into debt instruments (e.g., OCRPS) raises issues regarding prior RBI approval, ECB compliance, assured exit concerns, and whether such amendments constitute as transfer under the NDI Rules.

Part V – Repatriation

Capital reduction and buybacks involving PROI shareholders are treated as transfers under the NDI Rules, attracting pricing guidelines, reporting requirements, and applicable government approvals.
Resident shareholder buybacks of an Indian company may inadvertently increase foreign shareholding beyond the applicable sectoral cap, potentially triggering sectoral approval concerns despite no fresh foreign investment being received.

Closing Thoughts

FEMA an evolving and incomplete framework, early engagement with RBI is often preferable to relying on assumptions.
The foundational rule of FEMA – “What cannot be done directly, cannot be done indirectly.”

Group Leader – CA Parag Kiri, Partner at TransEdge Advisory LLP

Chairman – CA Shabbir Motorwala

8. Workshop on New Look at Proven Principles of Professional Success held on Saturday 25th April 2026 & Saturday 09th May 2026 @ BCAS

The Human Resources Development Committee Organized this half-day workshop spread over two days The speaker Mr. Walter Vieira explained the various Proven Principles for Professional Success, especially considering the current circumstances today. Through a combination of lectures and group discussions, he brought out the practical aspects of challenges faced today and how proven principles can be adjusted to achieve success.

The takeaways from the workshop are briefly given below:

How every CA needs to ideally convert the Profession into a passion.
The Group dealt with the Pros and Cons for CA’s in different categories – Single/Partners/Senate/SMP.
The Workshop also dealt with (i) The Role of an Independent (ii) The Role as an Independent and (iii) The Role of a Team Player. Participants were encouraged to assess their strengths and preferences to determine the role in which they can contribute most effectively
The Workshop discussed the critical role of ethics in the profession, especially in the context of ‘Intrapreneurship’ and ‘Extrapreneurship’
Working “Ethically” becomes much easier if each one subscribes to a list of Nine values articulated by Cyrus Vance were discussed at length.
The session highlighted communication as one of the fundamental pillars of success across professions. It was discussed that communication can manifest in both overt and covert forms, each significantly influencing professional outcomes. Participants actively engaged in group discussions, sharing illustrative examples of both effective and ineffective communication practices. A presentation was also made on the themes of jealousy and envy, examining how these emotions often surface through communication patterns and can adversely impact professional relationships. It was observed that such factors have, in several instances, contributed to setbacks in the careers of professionals.
Networking: The session also covered the importance of networking, with particular emphasis on building a strong managerial network to enhance professional performance and expand career opportunities. It further explored networking across various dimensions, including within the organization, the profession, peer groups at similar levels, and shared interests such as music and sports.
How do you assess yourself- Additionally, participants were encouraged to undertake self-assessment to determine their preferred career path, whether to function as an independent professional or to operate within the structured environment of a corporate framework.

Workshop on New Look at Proven Principles of Professional Success

9. Direct Tax Home Refresher Course – 7 held on Saturday 25th April 2026 to Saturday 9th May 2026 @ Virtual

The Direct Tax Committee of BCAS successfully organized the Direct Tax Home Refresher Course 7 (DTHRC 7) jointly with 14 professional organizations from across the country, namely:

Association of Chartered Accountants, Chennai
Chartered Accountants Association, Ahmedabad
Chartered Accountants Association Surat
CA Association of Jalandhar
The Chartered Accountants Study Circle, Chennai
Hyderabad Chartered Accountants Society
Karnataka State Chartered Accountants’ Association
Lucknow Chartered Accountants’ Society
Goa Chamber of Commerce and Industry
Tax Practitioners’ Association, Indore
Jaipur Chartered Accountants’ Group
All India Federation of Tax Practitioners (Western Zone)
Bbdbag Professional Association, Kolkata
Maharashtra Tax Practitioners Association, Pune

The virtual refresher course was conducted over 7 days from 25 April 2026 to 9 May 2026 and comprised 14 technical sessions covering important and contemporary developments under the Income-tax Act, 2025 and allied tax laws.

The topics covered during the course included:

Income-tax Act, 2025 – Structural Overview and Key Conceptual Changes vis-à-vis the Income-tax Act, 1961
Technology, Artificial Intelligence and Data Analytics in Tax Practice
Practical Issues relating to TDS/TCS – Outreach Programme
TDS & TCS Regime under the Income-tax Act, 2025
Salary Income under the New Income-tax Act, 2025 – Computation Framework, Deductions and Rules
Business Income under the New Income-tax Act, 2025 – Computation Framework, Deductions and Emerging Controversies
Issues under Corporate Taxation including MAT, Business Reorganisation, Buy-back and Tax Schemes for Corporates
Presumptive Taxation – Practical Issues and Case Studies
Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST-DS 2026)
Charitable Trusts Taxation – Recent Amendments, Registration and Compliance Requirements
Capital Gains relating to Real Estate Transactions and Redevelopment Issues
Transfer Pricing – Documentation and Safe Harbour Updates
Penalty Provisions, Immunity Provisions and Decriminalisation under Income-tax Law
Recent Important Judicial Decisions covering various provisions of Direct Tax Laws

The distinguished speakers shared their deep insights on the evolving tax landscape, particularly the implementation and interpretation of the Income-tax Act, 2025, practical challenges faced by taxpayers and professionals, and the latest judicial and legislative developments. Each session concluded with an interactive question-and-answer segment, enabling participants to engage directly with the faculty and seek practical guidance on complex issues.

The course witnessed enthusiastic participation of more than 1500 tax professionals, chartered accountants, advocates, and industry representatives from across India, reaffirming the significance of DTHRC as a premier knowledge-sharing platform in the field of direct taxation. The collaborative efforts of BCAS and the 14 participating associations contributed immensely to the success of the programme and strengthened professional learning across the country.

Speakers: The faculty for the course comprised eminent professionals and subject matter experts, including Adv. K.K. Chythanya, CA Karthikeya Shenoy, Mr. Amit K Singh (JCIT-TDS, Mumbai), CA Sandeep Kumar Jain, CA Ravikant Kamat, CA Bhadresh Doshi, CA Dhinal Shah, CA Pankaj Agarwal, CA Rishab Aggarwal, CA Deven Shah, CA Jagdish Punjabi, CA Riddhi Shah, Sr. Adv Dr. K. Shivaram & Adv. Rahul Hakani, Adv T. Banusekar

Scan to watch online at BCAS Academy

Direct Tax Home Refresher Course

10. Indirect Tax Laws Study Circle Meeting on GST Issues in Manufacturing Sector held on Friday, 24th April 2026 @ Virtual.

The session was led by CA. Jinesh Shah (Group Leader) under the mentorship of Adv. (CA) Harsh Shah (mentor), and witnessed active participation from members across the fraternity.

The presentation covered the following aspects for a detailed discussion:

GST Implications on Volume Discounts

It focused on GST implications of primary discounts, volume discounts, retail incentive schemes, secondary discounts and return of expired or obsolete goods. Deliberations were made on the valuation provisions under Section 15, treatment of credit notes, post-sale discount mechanisms and the impact of recent GST clarifications.

Input Tax Credit (ITC) Challenges on Solar Power Plant

The Study Circle thereafter examined complex input tax credit issues arising in the context of captive solar power plants established by manufacturing companies. Deliberations centred around the GST implications of electricity generation, captive consumption through the power grid, sale of surplus electricity, admissibility of ITC on EPC contracts and the applicability of ITC reversal provisions under Sections 17(2), Rule 42 and Rule 43 of the CGST Rules

Supply of moulds and dies by a manufacturer to outsourced vendors on a free-of-cost basis.

Discussions were made as to whether such arrangements constitute a supply under GST, the admissibility of ITC on moulds, valuation implications and the applicability of Circular No. 47/21/2018-GST. The valuation treatment of scrap retained by job workers and its possible characterization as consideration in kind also generated significant discussion.

Eligibility of ITC on Expenses incurred for an Initial Public Offering

Discussions were made regarding whether IPO-related expenditure, such as merchant banker fees, legal expenses, listing fees and advertising costs, could be regarded as incurred in the course or furtherance of business and whether issuance of shares could be regarded as a transaction in securities requiring reversal of ITC under Section 17.

Around 147 participants from all over India benefited while taking an active part in the discussion. Participants appreciated the efforts of the group leader and the mentor.

11. ITF Study Circle Meeting on “Transfer Pricing Provisions under the New Income Tax Act, 2025 & Income Tax Rules, 2026 and Impact of the current Middle East crisis on Transfer Pricing” held on 23rd April 2026 @ Virtual.

The session commenced with the opening address by the session Chairman on the key aspects of the Transfer Pricing provisions under the New Income Tax Act, 2025. Subsequently, the Group Leader provided a detailed overview of the Transfer Pricing provisions of the New Income Tax Rules, 2026.

The participants discussed an issue regarding significant changes to the definition of ‘Associated Enterprises’ and debated the impact of the change, expressing divergent views.

The Group Leader discussed the changes in the forms under the New Income Tax Rules, 2026, dealing with the additional disclosures under the Transfer Pricing provisions The Group Leader discussed the nuances of the new Safe Harbour regime for software companies and its application. Further, the Group Leader discussed the impact of war and other significant economic events on Transfer Pricing and the approach to be adopted in determining arm’s length price. The participants debated the implications with many senior members sharing their past experiences in similar situations.

The session concluded with closing remarks by the Chairman of the session and the Group Leader.

Speaker: Chairman of the session – CA Natwar Thakrar, Group Leader – CA Namrata Dedhia

12. Future Ready CA Summit Vadodara held on Saturday 18th April 2026 @ Hotel Grand Mercure – Surya Palace, Vadodara

Under the BCAS Sherpa Initiative, the Society organized the full-day summit that brought together members and non-members to explore emerging opportunities, regulatory developments, and strategies for building future-ready professional practices.

Future Ready CA Summit

CA Zubin Billimoria, President of BCAS, and CA Kinjal Shah, Vice President of BCAS, addressed the participants and highlighted the significance of BCAS membership and the wide range of professional development initiatives undertaken by the Society.

CA Anand Sanghvi spoke on Strategic Practice Development – Domestic & Global Pathways for CA Firms, highlighting the need for firms to embrace global delivery models, technology, and cross-border competencies to remain competitive in an evolving professional landscape.

CA Chirag Doshi’s session on CA Firm’s Valuation focused on building institutional value through robust systems, processes, and intellectual capital, while providing insights into the key drivers of firm valuation.

A Brain Trust Session on case studies on Direct and Indirect Taxes, led by CA Anil Sathe and CA Jatin Harjai and ably moderated by CA Manish Baxi, provided practical insights into recent tax developments, judicial precedents, and emerging challenges in professional practice.

In line with the summit’s theme of being “Future Ready,” Adv. (CA) Kinjal Bhuta, Treasurer of BCAS, shared her perspectives on the transition of assessment provisions from the Income-tax Act, 1961 to the Income-tax Act, 2025 and its implications for tax professionals.

The summit featured engaging discussions, interactive Q&A sessions, and valuable networking opportunities, enabling participants to exchange ideas and gain practical insights. The event successfully reinforced the importance of strategic growth, continuous learning, and adaptability in preparing the profession for the future.

13. M&A Summit 2026 held on 17th April 2026 @ Ginger by Taj, Mumbai Airport.

The Finance, Corporate & Allied Laws Committee of BCAS organised the M&A Summit bringing together regulators, investors, legal professionals, transaction advisors and corporate leaders to discuss developments shaping the mergers and acquisitions landscape.

The summit was inaugurated by Chief Guest Mr. Deep Mani Shah, Chief General Manager, SEBI, who shared his perspectives on the evolving deal environment and the growing importance of governance, transparency and investor confidence in transactions.

Mr. Ashok Wadhwa, Group CEO, Ambit Private Limted, in his keynote address on “India’s M&A Outlook 2030: What’s Driving the Next Wave?”, shared perspectives on the evolving deal landscape, discussing the factors likely to shape M&A activity over the next decade, including consolidation trends, capital flows and strategic growth opportunities.

Discussions during the summit highlighted the evolving regulatory landscape, increasing investor participation and the growing complexity of transaction structuring in today’s deal environment.

Participants gained insights into key considerations influencing M&A transactions, including governance, financing, tax implications, ESG factors and cross-border regulatory challenges. The deliberations underscored the importance of balancing commercial objectives with legal, regulatory and stakeholder expectations while executing transactions.

Industry experts shared practical perspectives on value creation, risk management and successful deal execution in a dynamic business environment. The summit concluded with an engaging exchange of views on emerging opportunities, challenges and future trends shaping the Indian M&A ecosystem.

14. Multi-Stakeholder Workshop on Reforming Tax Policy Consultation in India held on Tuesday, 15th April 2026 @ Jolly Bhavan Hall – BCAS, Mumbai

The Bombay Chartered Accountants’ Society (BCAS) partnered with the Bharti Institute of Public Policy (BIPP), Indian School of Business (ISB), to host a one-of-its-kind – Multi-Stakeholder Workshop on “Reforming Tax Policy Consultation in India” on 15th April 2026 at BCAS Office, Mumbai.

Multi-Stakeholder Workshop on Reforming Tax Policy Consultation in India

The workshop was organised as part of a larger research initiative by BIPP, ISB, promoted by the Consultative Group on Tax Policy (CGTP) at NITI Aayog, with the objective of developing a structured and inclusive framework for tax policy consultation in India. The Delhi leg of this initiative was held on 23rd February 2026 at India Habitat Centre, New Delhi where BCAS was invited and participated. The Mumbai workshop represented the second leg of stakeholder engagement, with BCAS as the proud partner.

The proceedings commenced with key note address by Dr. Pushpinder S. Puniha, Chairperson of the Consultative Group on Tax Policy at NITI Aayog who spoke for building a more consultative and collaborative policy ecosystem in India. This was followed by address of Dr. Aarushi Jain, Director Policy and Head, Government Affairs, at the BIPP, ISB, who emphasized the need to move from ad hoc consultation to a predictable process that strengthens trust between the government, the profession, and citizens.

The workshop was structured into two focused rounds of deliberation. The first round brought together senior tax practitioners to discuss the ground-level realities of how policy changes affect compliance and advisory work. The discussion provided suggestions on how the government could make consultations more structured and outcome-linked. The second round engaged corporate representatives of industry bodies. This group brought a complementary perspective — that of taxpayers navigating complex compliance landscapes while also trying to plan long-term investments.

Together, both rounds of discussion were practical, bringing in ground-level experiences, and provided recommendations that will provide meaningful inputs for a framework for tax policy consultation. The insights from the discussions will feed directly into the study’s final framework to be presented to NITI Aayog.
The workshop reflected BCAS’s enduring commitment to advocacy and contributing constructively to public policy processes that positively impacts the profession.

15. “Empowering the Profession — A BCAS Outreach on Firm Growth & Income Tax Imperatives” event held on 11th April 2026 at ICAI Bhawan, Indore.

On the sidelines of BCAS 30th International Taxation and Finance Conference, the Society conducted an Outreach Program in Indore jointly with the Indore Branch of CIRC of ICAI and the Tax Practitioners Association, Indore.

Empowering the Profession — A BCAS Outreach on Firm Growth & Income Tax Imperatives

The program was conducted on Saturday, 11th April 2026 at the ICAI Bhawan Indore from 4.30 pm to 6.30 pm. CA Samkit Bhandari, Chairman of ICAI Indore Branch along with CA. Vijay Bansal, President TPA Indore gave the welcome address. The CA Megha Jain, Treasurer of the Indore Branch Moderated the program. Then the President of BCAS, CA. Zubin Billimoria addressed the participants in which he made them aware about various initiatives, courses, activities conducted by the Society.

CA Shariq Contactor, spoke on the topic “India’s Big Four Moment: Are we Ready to Lead the World?”.

His session was followed by panel discussion, where the panellists CA. Jagdish Punjabi and CA. Naman Shrimal along with CA. Manish Dafria as moderator, enshrined on important practical issues under the Income-tax Act revolving around following topics:

Taxation of real estate transactions; and
TDS & TCS.

The co-ordination for this Outreach Program was done by CA. Chaitanya Maheshwari and CA. Chirayu Sodani.

The program was attended by about 50 participants.

II. BCAS IN NEWS & MEDIA

BCAS has been featured in several news and media platforms, showing our active involvement, professional contributions, and commitment to the field. This reflects the growing recognition of BCAS in the public and professional space.

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

QR code

News and Views

BCAJ Admin

Regulatory Referencer

I. FEMA

1. RBI issues framework for outward remittance services by non-bank entities through AD Category-I banks

Para 10 of the Master Direction – ‘Miscellaneous’ which provided a framework under which non-bank entities could obtain specific approval from RBI for tie-up arrangements with Authorised Dealers (AD) for facilitating international money transfers through third-party digital platforms has been deleted. The AD is now responsible to comply with instructions furnished in Annex to the Circular while facilitating cross-border outward remittance of funds for non-trade current account transactions using third party entity in online mode. To protect consumers, the third-party interface must prominently display the AD’s name, role, and category, the quoted foreign exchange (FX) rate with its timestamp and validity, a transparent breakdown of the total estimated transaction costs (separately outlining the interbank rate, mark-up, and service charges), the exact foreign exchange amount to be credited, the maximum credit timeline, and grievance contact details.

(A.P. (DIR Series 2026-27) Circular No.10, dated 13th May 2026)

2. AD Category-I banks must submit monthly BO/LO/PO and NRO remittance returns

The Reserve Bank of India has issued a new directive mandating that Category-I Authorised Dealer banks to electronically submit monthly data regarding the establishment and closure of Branch, Liaison, and Project Offices using return code R343 on the Centralized Information Management System (CIMS) starting 30 June 2026. Additionally, the reporting of fund transfers from Non-Resident (Ordinary) Rupee accounts must now be processed through the same digital portal under return code R006.

(A.P. (DIR Series) Circular No. 12, dated 5th June 2026)

3. RBI allows AD banks to exclude FCNR (B), ECB & forex swap positions from NOP-INR limits

The Reserve Bank of India (RBI) mandated that Authorised Dealers must ensure their Net Open Positions involving the Indian Rupee (NOP-INR) in the onshore deliverable market do not exceed USD 100 million at the end of each business day as per A.P. (DIR SERIES 2025-26) Circular No. 24, dated 27th March 2026 included in BCAJ May 2026 edition.

Through this circular, the RBI provided a specific relaxation to AD Category-I banks regarding how they calculate this limit. Banks are permitted to exclude swap positions that arise from Foreign Currency Non-Resident (B), or FCNR (B), deposits, External Commercial Borrowings (ECB) and Overseas Foreign Currency Borrowings.

(A.P. (DIR Series) Circular No. 13, dated 8th June 2026)

II. IFSCA

1) IFSCA Circular on FLA Return Obligations for GIFT City Financial Institutions

The International Financial Services Centres Authority (IFSCA) has issued an advisory to all Financial Institutions operating in GIFT IFSC drawing their attention to Q. Nos. 43, 44 and 45 of the RBI’s updated FAQs on the Annual Return on Foreign Liabilities and Assets (FLA) under FEMA, 1999 (updated as on March 25, 2026) which provided that the entities registered in IFSC shall also file the FLA Returns. The Authority has noted that the implications of the said FAQs are presently under discussion with the Reserve Bank of India, and has accordingly directed Financial Institutions to refrain from taking any action on the matter until further instructions are issued.

(Circular No. IFSCA-BDev0DEAC/1/2026 dated 1st May 2026)

2) IFSCA issues Master Circular for Broker Dealers and Clearing Members in GIFT IFSC

The IFSCA issued a comprehensive Master Circular for Broker Dealers and Clearing Members in GIFT IFSC, consolidating past circulars into a single, unified regulatory framework. It aligns with the CMI Regulations and supersedes various IFSCA Circulars issued between 2021 to 2025 and all applicable SEBI circulars issued prior to October 1, 2020, streamlining compliance and bolstering risk management. The Master Circular is organised across eleven chapters covering the full lifecycle of a Broker Dealer or Clearing Member, from registration and eligibility through ongoing supervision, technology and conduct obligations, to surrender of registration.

(Circular No. IFSCA/CMD/MIIT/MCBDCM/2026 and Press release dated 12th May 2026 )

3) IFSCA issues clarification on implementation services framework for Investment Advisers in IFSC

IFSCA issued a circular concerning the provision of implementation services by Investment Advisers in the International Financial Services Centre (“Circular”). The Circular is issued under the IFSCA (Capital Market Intermediaries) Regulations, 2025 (“CMI Regulations”), which, inter alia, permit investment advisers, in the IFSC, to provide implementation services to advisory client in securities market. By way of this Circular it is clarified that the term “implementation services” shall refer to the services provided for the purpose of executing or giving effect to the Investment Advice rendered by the Investment Adviser. It prevents investment advisors from functioning as unregulated brokers or distributors. It also protects investors through regulated execution channels, prescribes separate mechanism for foreign listed, IFSC listed and unlisted products.

(Circular No. E.F.No .IFSCA-PLNP/94/2025- Capital Markets dated 12th May 2026)

4) IFSC Authority updates consolidated framework for ship leasing activities in IFSCs

The IFSCA has issued a comprehensive regulatory framework to govern ship leasing operations within IFSC from time to time. Originally, the framework has been issued on 16th August 2022 which was last amended up to 7th April, 2025 incorporating all the intervening amendments. The IFSCA has again updated the said framework on 20th May, 2026 incorporating the amendments to the framework introduced through ‘IFSCA-FCR0SL/25/2025-Banking/2026-27/01’ dated April 22, 2026 doing away with the carve-out requiring a separate ancillary services authorisation for such Asset Management Support Services. The framework overall classifies operating and financial leases as distinct financial products, outlining specific capital requirements and licensing fees for each category. Prospective lessors must register through a digital single window and may operate as companies, trusts, or partnerships, provided they meet strict anti-money laundering and eligibility standards. Beyond basic leasing, the guidelines permit ancillary activities such as voyage charters and asset management support, provided the entities maintain adequate foreign currency reserves. Furthermore, the framework imposes rigorous compliance and reporting obligations to ensure transparency and financial stability in the maritime sector.

(Circular No. 496/IFSCA/FC/SLF/2022-23/001, dated 16th August 2026 and updated up to 20th May 2026)

5) IFSCA cautions IFSC entities on cyber risks arising from frontier AI models

The IFSCA has issued an advisory highlighting heightened cyber security risks arising from frontier AI models, which can significantly accelerate identification and exploitation of vulnerabilities. Regulated Entities in IFSCs have been advised to reassess cyber security risks, strengthen monitoring and detection capabilities, maintain software inventories, assess third-party risks & implement appropriate safeguards while deploying AI-assisted vulnerability management tools.

(Circular No. IFSCA-CSD/MSC/3/2026-DCS dated 4th June 2026)

6) IFSCA issues formats for reporting requirements prescribed in regulation 25 and 27 of CMI Regulations.

International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2025 (“CMI Regulations”), under regulation 25 requires CMIs to conduct an annual audit in respect of their compliance with CMI Regulations and submit a copy of such compliance audit report to the Authority. Also, under regulation 27, it provides that CMIs, including broker dealers, desirous of dealing in securities in foreign jurisdictions, shall comply with the norms and requirements specified by the Authority. Therefore, IFSCA has issued reporting formats and norms for annual compliance audits of Capital Market Intermediaries (CMIs) in IFSCs. Accordingly, all categories of CMIs must submit a copy of the Annual Compliance Audit Report (ACAR) along with the Annual Compliance Audit Checklist (ACAC) to the Authority in the specified format by September 30th of each year for the preceding financial year. Further, Global Access Providers have been directed to file ACAR and ACAC to the IFSCA annually in the formats specified therein. Along with the formats, the IFSCA has also provided the clarification on the criteria for appointment of the Compliance Auditor.

(Circular No. IFSCA-DSI/1/2026-Capital Markets dated 5th June 2026)

7) IFSCA issues master circular for Stock Exchanges and Clearing Corporations in IFSCs

IFSCA has issued a Master Circular for recognised Stock Exchanges and recognised Clearing Corporations in IFSC. The Master Circular consolidates various circulars and guidelines relating to trading, settlement, technology, governance, risk management, business continuity, reporting requirements and other operational aspects applicable to Market Infrastructure Institutions (MIIs) in IFSC. The circular supersedes various circular issued by the IFSCA previously and all circulars and guidelines issued by SEBI prior to October 1, 2020.

(Master Circular IFSCA/CMD/MIIT/MCSECC/2026-27 dated 5th June 2026)

BCAJ Admin

Tech Mantra

ReAlarm – Alarm Clock for Heavy Sleepers

Transform your habits with ReAlarm, the advanced smart interval alarm clock built especially for heavy sleepers who struggle to wake up on time. Stay perfectly notified with powerful scheduling and wake-up tools!

You can customize your alarms for daily, weekly, monthly, and other schedules. It supports very long repeat intervals with gradual volume increase. You may choose from built-in tones or add yours. Smart Wake-Up Challenges are available for Heavy Sleepers, includingMath Problems, QR Code Scanner, Walk to Dismiss and many more!

It also features a smart snooze system. You can customize the snooze duration and even make the snooze interval progressively shorter. Weather integration is also built-in, with an elaborate real-time weather display. You can set quiet hours to prevent alarms during certain times and change themes too!

A very customisable alarm clock for heavy sleepers, designed to help them wake up or be reminded of tasks more assertively!

Android : https://tinyurl.com/realarm

Google AI Edge Gallery – Minimalist Powerful AI for Android

Google

AI Edge Gallery is the premier destination for running the world’s most powerful open-source Large Language Models (LLMs) on your mobile device. Experience high-performance Generative AI directly on your hardware—fully offline, private, and lightning-fast.

It now features Gemma 4 which allowing you to test the cutting edge of on-device AI. Experience advanced reasoning, logic, and creative capabilities without ever sending your data to a server.

Core features include

Agent Skills: Transforming it from a conversationalist to a proactive assistant

AI Chat with Thinking Mode: Displays the reasoning that takes place behind the scenes to arrive at the final solution

Ask Image: Identify objects, solve visual puzzles, or get detailed descriptions using your device’s camera or gallery

Audio Scribe: Transcribe and Translate voice recordings into text in real time

and much more…..

AI Edge Gallery is an open-source project, free for all and designed for the developer community and AI enthusiasts alike. You can explore features, contribute your own skills, and help shape the future of the on-device agent ecosystem.

Android : https://tinyurl.com/gaiedge

Wispr Flow: AI Voice-to-Text

Talk naturally. Wispr Flow writes perfectly.

Wispr Flow is a voice-to-text accessibility tool for Android that turns rambling speech into perfectly formatted text, so you can just talk instead of type.

Unlike built-in voice dictation, Flow cleans up what you say as you speak. No filler words. No broken sentences. No reformatting before you hit send.

It works inside any app, including ChatGPT, WhatsApp, Instagram, Slack, and Gmail. It also eliminates filler words such as “ah” and “um” and accurately catches your corrections. Punctuation and formatting are automatic and you can train it to recognize new words that you use often.

Whether you’re texting friends, taking notes, drafting emails, or navigating pain, fatigue, or mobility challenges that make typing difficult, Wispr Flow makes it easier than ever to just talk instead of type. Flow supports users with motor impairments, Parkinson’s, arthritis, RSI, dyslexia, ADHD, stuttering, visual impairments, and more.

And the best part is that you can use it in 100+ languages: Communicate in the language that works best for you, including Español, Français, 中文, ไทย, हिन्दी, or Hinglish.

Very cool, one of my current favourites!

Android : https://tinyurl.com/wisprflo

Adaptive Volume

We have all been using Adaptive Display for a while – it adjusts the display based on the ambient light at that moment. This app does exactly that with sound – it adjusts the volume based on the ambient sounds around.

The app uses your microphone to detect ambient noise and intelligently increases or decreases the volume. Once installed, it runs quietly in the background and is lightweight and battery efficient. There is no data collection – everything is processed locally on your device.

Perfect for people who move between quiet offices, noisy streets, or busy cafes throughout the day.

Android : https://tinyurl.com/mvb37ba4

BCAJ Admin

ICAI and Its Members

ICAI CODE ETHICS

The revised Code of Ethics, 2026 represents a significant modernization of the ethical framework governing Chartered Accountants. The overall direction of change is towards greater professional visibility, digital engagement, expansion of permissible services, recognition of emerging practice areas, and strengthening audit-related accountability and independence requirements.

The revised Code of Ethics (13th edition)- Volume-I, II & III is applicable with effect from April 01, 2026 except for the s.no. (xxxi).

The s.no. (xxxi) “Assessment and evaluation of Social Impact, CSR Impact, Business Responsibility and Sustainability Reporting, and the like” under Management Consultancy and other services issued under Section 2(2)(iv) of the Chartered Accountants Act, 1949 in Code of Ethics, Volume-I, is effective from December 11, 2025.

The Code has been completely restructured:

Volume I now contains domestic ethical provisions and ICAI guidelines.
Link- https://resource.cdn.icai.org/92475coe2026v1.pdf

resourcecdnicaiorg

Volume II is aligned with the latest IESBA Code (2024 edition).
Link- https://resource.cdn.icai.org/92476coe2026v2.pdf

IESBA Code

Volume III introduces Ethics Standards for Sustainability Assurance.
Link- https://resource.cdn.icai.org/92477coe2026v3.pdf

Ethics Standards for Sustainability Assurance

The Case law referencer has been separated into an independent publication.

PUBLIC CONSULTATION

IAASB Consultation on Amendments – Working with Experts

The International Auditing and Assurance Standards Board (IAASB) has issued a public consultation on narrow scope amendments to align its standards with recent revisions to the IESBA Code regarding the use of external experts.

The targeted amendments focus on the following IAASB standards:

ISA 620, Using the Work of an Auditor’s Expert
ISRE 2400 (Revised), Engagements to Review Historical Financial Statements
ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information
ISRS 4400 (Revised), Agreed-upon Procedures Engagements

Stakeholders are invited to submit comments via the digital Response Template on the IAASB website by July 24, 2025.

Link: https://www.iaasb.org/publications/proposed-narrow-scope-amendments-iaasb-standards-arising-iesba-s-using-work-external-expert-project

IAASB

Announcement link: https://www.iaasb.org/news-events/2025-04/iaasb-requests-feedback-proposed-narrow-scope-amendments-related-working-experts utm_source=Main+List+New&utm_campaign=f2ddf45d11-EMAIL_CAMPAIGN_2025_04_25_09_11&utm_medium=email&utm_term=0_-f2ddf45d11-80733240

Announcement

ICAI PUBLICATIONS:

GST Act(s) and Rule(s) Bare Law: The revised (12th) edition of this publication has been updated with amendments up to 31st March 2026.

https://d23z1tp9il9etb.cloudfront.net/download/pdf26/GST%20Act(s)%20and%20Rule(s)-Bare%20Law.pdf

GST Act(s) and Rule(s) Bare Law

Handbook on Government Supplies under GST (Including TDS Provisions): This Handbook focuses specifically on the GST implications of supplies made to and by the Government and has been comprehensively updated up to 15th April, 2026.

https://d23z1tp9il9etb.cloudfront.net/download/pdf26/Handbook%20on%20Government%20Supplies%20under%20GST%20(IncludingTDS%20Provisions).pdf

Handbook on Government Supplies under GST

Practical Guide to GST Adjudication and Appeals including GSTAT

The GST & Indirect Taxes Committee of ICAI has released the Practical Guide to GST Adjudication and Appeals including GSTAT, updated to 31 March 2026. The Guide provides practical insights on handling GST disputes, demands, investigations, and appeals, with coverage of litigation strategy, drafting, evidence, revisionary proceedings, and ethics. It also includes a step by step guide to filing appeals on the GSTAT portal, equipping CAs to represent clients effectively across all stages of adjudication and appellate processes.

https://d23z1tp9il9etb.cloudfront.net/download/pdf26/Practical%20Guide%20to%20GST%20Adjudication%20and%20Appeals%20including%20GSTAT.pdf

Practical Guide

GIST OF OPINIONS

1. Capitalisation of Dry Dock Expenditure (Major Inspection Costs) as a Separate Component of Dredgers and Depreciation Thereon After Completion of Their Estimated Useful Lives

A. FACTS OF THE CASE

A public sector company engaged in dredging activities owned dredgers having an estimated useful life of 25 years. Out of 14 dredgers, 4 dredgers had completed their estimated useful life of 25 years but continued to operate. To continue operations, each dredger was required to undergo periodic inspections and obtain a fitness certificate from the Indian Register of Shipping (IRS). For this purpose, the company incurred substantial dry dock expenditure comprising repairs, overhauls, inspections and related activities.

The company treated such dry dock expenditure as major inspection costs and capitalised them under Ind AS 16. The CAG objected to such capitalisation on the ground that the useful lives of the dredgers had already expired and the expenditure should have been charged to repairs and maintenance. The company contended that the expenditure generated economic benefits up to the next dry-docking cycle and that the useful life of the dredgers had been reassessed and extended based on inspection results.

B. QUERY

Whether capitalisation of dry dock expenditure incurred on dredgers whose estimated useful lives had already expired is permissible under Ind AS.

Whether subsequent expenditure can be recognised as a separate component of property, plant and equipment even after expiry of the useful life of the main dredger.

C. POINTS CONSIDERED BY THE COMMITTEE

The Committee analysed the requirements of Ind AS 16 relating to replacement costs, major inspection costs, spare parts and subsequent expenditure. It observed that not every cost incurred during a dry-docking exercise qualifies for capitalisation. Each expenditure must be separately analysed to determine whether it satisfies the recognition criteria under paragraph 7 of Ind AS 16.

The Committee noted that inspection costs may be capitalised as a separate component if they satisfy the recognition criteria. Similarly, replacement costs may be capitalised where the relevant conditions are met. However, expenditure on repairs, maintenance, consumables and day-to-day servicing must be charged to profit and loss.

The Committee further observed that Ind AS 16 does not prohibit capitalisation of qualifying subsequent expenditure merely because the useful life of the main asset has expired. Where expenditure results in an increase in expected utility or useful life, the useful life of the dredger should also be reassessed. The Committee also remarked that the company should revisit its methodology for determining the useful life of dredgers since several dredgers had continued to operate beyond the originally estimated useful life.

D. OPINION

The Committee opined that Ind AS 16 does not prohibit capitalisation of qualifying subsequent expenditure after expiry of the useful life of the main asset. Expenditure incurred during dry-docking that satisfies the recognition criteria of Ind AS 16 may be capitalised, while expenditure in the nature of repairs and maintenance must be charged to the statement of profit and loss.

Replacement costs and inspection costs recognised as part of the dredger should be depreciated separately where their useful lives differ from that of the dredger.

2. Accounting Treatment of Grant (Structured Package of Assistance for Setting up a Hardwood Pulp Plant) under Ind AS 20

A. FACTS OF THE CASE

A listed company engaged in the manufacturing of newsprint and printing and writing paper received incentives from the Government of Tamil Nadu under a structured package for setting up a Hardwood Pulp Plant (Expansion Project II).

Originally, the incentive was linked to reimbursement of VAT/CST and was subsequently converted into a capital subsidy option after implementation of GST. Under the revised arrangement, the company became eligible to receive subsidy over a period of 15 years, subject to fulfilment of investment commitments, employment generation requirements, continued operation of the plant and maintenance of committed employment levels.

The company treated the subsidy as a grant related to income and recognised it in the Statement of Profit and Loss under “Other Income”. The Auditors objected to this treatment and viewed the subsidy as a capital subsidy requiring treatment as a grant related to assets.

B. QUERY

Whether the accounting treatment adopted by the company for the structured package of assistance relating to the Hardwood Pulp Plant under Ind AS 20 was appropriate and, if not, what would be the correct accounting treatment.

C. POINTS CONSIDERED BY THE COMMITTEE

The Committee examined whether the subsidy constituted a grant related to assets or a grant related to income under Ind AS 20.

It observed that the nature of a government grant is determined by its substance and not by the nomenclature used. Although the subsidy was described as a “capital subsidy”, eligibility depended not merely on investment in the plant but also on fulfilment of continuing employment obligations and continued operation of the plant throughout the incentive period.

The Committee noted that these operational and employment-related conditions were primary conditions for entitlement to the subsidy. Therefore, acquisition of the hardwood pulp plant was not the sole primary condition for obtaining the grant.

The Committee also observed that the method of computing the subsidy with reference to capital investment and the fact that the subsidy was paid annually were not determinative of the nature of the grant.

D. OPINION

The Committee concluded that the subsidy was not a grant related to assets because eligibility depended on several primary conditions beyond acquisition of a long-term asset.

Accordingly, the subsidy constituted a grant related to income under Ind AS 20, and the accounting treatment adopted by the company in recognising the grant as income was appropriate.

3. Accounting Treatment of Payment Made to NHAI for Development of Road Connectivity to Exhibition-cum-Convention Centre (ECC) Project

A. FACTS OF THE CASE

A public sector undertaking incorporated as a special purpose vehicle for development of an Exhibition-cum-Convention Centre (ECC) project incurred expenditure towards development of external road connectivity through NHAI. The approved project cost for road connectivity was ₹442.39 crore, of which ₹354.89 crore had already been paid.

The company initially recognised the expenditure as Capital Work-in-Progress and subsequently capitalised it as part of Property, Plant and Equipment upon commencement of commercial operations, considering the expenditure to be directly attributable to making the ECC operational.

The auditor objected and contended that the expenditure should have been charged to the Statement of Profit and Loss.

B. QUERY

Whether capitalisation of the amount paid to NHAI for development of road connectivity as part of the cost of the ECC project under Ind AS 16 was appropriate.

If capitalisation was not appropriate, what accounting treatment should be followed.

C. POINTS CONSIDERED BY THE COMMITTEE

The Committee examined whether the expenditure on road connectivity was directly attributable to bringing the ECC project to the location and condition necessary for it to operate in the manner intended by management.

It observed that Ind AS 16 requires capitalisation only of costs directly attributable to bringing an asset to the location and condition necessary for its intended operation. Not every expenditure incurred in connection with a project qualifies for capitalisation.

The Committee noted that the expenditure was incurred to provide connectivity and additional access to the ECC through dedicated entry and exit points from nearby roads and expressways. The road development and the ECC project progressed simultaneously and the road was not necessary for construction of the ECC itself.

The Committee concluded that although improved connectivity could enhance future economic benefits and attractiveness of the project, it was not necessary for making the ECC capable of operating in the manner intended by management.

D. OPINION

The Committee opined that expenditure incurred on development of road connectivity was not directly attributable to bringing the ECC Centre to the location and condition necessary for it to operate as intended.

Accordingly, the expenditure could not be capitalised as part of the cost of any property, plant and equipment and should instead be recognised as an expense in the Statement of Profit and Loss when incurred.

The Chartered Accountant June 2026 Pages 95-100

Link: https://resource.cdn.icai.org/92505cajournal-june2026-27.pdf

jUNE 2026

Case Digest – ICAI Disciplinary Committee

1. Case: Information by J&K Bank vs. M/s SK & A

File No.: PPR/333/2016/DD/03/INF/2017/DC/1260/2020

Date of Order: 21.01.2026

Particulars Details

Complainant Information received from J&K Bank

Respondent M/s SK & A; Member Answerable: CA. RS and CA. SKS

Nature of Case Failure of concurrent auditors to detect and report irregularities in Letter of Credit (LC) discounting transactions

Background J&K Bank reported irregularities in the discounting of high-value Letters of Credit at its Ghaziabad Business Unit. The respondent firm was appointed as Concurrent Auditor. The allegation was that the auditors failed to identify and report suspicious LC transactions, including discounting of LCs without proper verification, discounting within unusually short time gaps, and processing based on hand-delivered documents instead of authenticated banking channels. The matter was referred to the Disciplinary Committee after the Board of Discipline disagreed with the Director (Discipline)’s prima facie opinion of not guilty.

Key Allegations – Failure to report high-value LC discounting transactions beyond delegated powers.

– Failure to comment on LCs issued, accepted and discounted within unusually short periods.

– Failure to report discounting based on hand-delivered documents instead of authorised banking channels.

– Failure to obtain sufficient audit evidence and exercise due diligence during concurrent audit.

Respondent’s Allegations – Investigation report and concurrent audit reports were not supplied by the Bank.

– Audit reports were generated through the Bank’s software system and could not be downloaded or printed.

– Certain working papers were allegedly destroyed due to flooding of the office.

– Some respondents denied participation in the audit and sought to distance themselves from the engagement.

Findings

– The Committee held that concurrent auditors are required to verify not only supporting documents but also internal branch records and transactions reflected in the books of the Bank.

– Merely recording “No Record Found” was not considered an adequate audit response where material transactions existed.

– If records were unavailable, the auditors should have escalated the matter to higher authorities and performed additional verification procedures.

– High-value LC discounting transactions were reflected in the Bank’s records, yet no meaningful comments were made in the audit reports.

– The auditors failed to detect and report discrepancies in LC discounting and failed to exercise the degree of professional skepticism and diligence expected from concurrent auditors.

Charges Established Guilty under Clauses (5), (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

2. Case: Mr. MR & Ms. GR vs. CA. AT

File No.: PR/157/20-DD/159/2020/DC/1785/2023

Date of Order: 21 January 2026

Particulars Details

Complainant Mr. MR and Ms. GR

Nature of Case Alleged forgery of directors’ signatures in financial statements and negligent certification of Form AOC-4

Background

The Respondent was the statutory auditor of M/s MKJ since incorporation. The Complainants alleged that financial statements for FY 2016-17 and FY 2017-18 were filed with forged signatures of the directors. They contended that Mr. MR was outside India on the dates on which the financial statements were purportedly signed. A further allegation was that while filing Form AOC-4 for FY 2015-16, the Respondent attached the balance sheet of another company, M/s GIS, instead of the balance sheet of MKJ.

Key Allegations

(i) Filing Form AOC-4 for FY 2016-17 and FY 2017-18 with allegedly forged signatures of the directors.

(ii) Failure to verify authenticity of financial statements and Board approvals before signing as auditor.

(iii) Wrongly attaching the balance sheet of M/s GIS. while certifying Form AOC-4 of MKJ for FY 2015-16.

Respondent’s Defence The Respondent denied any role in forgery and stated that signed financial statements were routinely provided by the company’s accountant before audit signing. He contended that there was no evidence linking him to fabrication of signatures. Regarding AOC-4, he admitted that the balance sheet of GIS was attached due to a clerical error by office staff. He explained that filings of both companies were made on the same day (28.11.2016), resulting in the attachment mix-up, while the figures reported in Form AOC-4 remained correct.

Findings Forgery Allegation: The Committee noted that the Board Reports showed approval of financial statements by the Board and that the same directors had signed the financial statements for several preceding years. The Committee held that the Complainants failed to produce conclusive evidence establishing that the Respondent was involved in forging signatures. However, the outcome of proceedings before NCLT, ROC, ED and other authorities is pending and no conclusive findings have been presented to the Committee to establish the Respondent’s role. Therefore, the allegation remained unsubstantiated.

Wrong Attachment in AOC-4: The Committee accepted that the attachment of GIS’s balance sheet was a clerical error. It noted that both companies’ filings were made on the same date and that the financial figures reported in Form AOC-4 of MKJ were otherwise correct. The Committee held that the error did not affect the true and fair view of the financial statements and was insufficient to establish professional misconduct.

Charges Established None. The Committee held that the allegations were not substantiated by sufficient evidence.

Decision Not Guilty under Clause (7) of Part I of the Second Schedule. The Committee also ultimately held the Respondent Not Guilty of Professional and Other Misconduct, including the charge under Clause (2) of Part IV of the First Schedule.

3. Case: JKR vs. CA. UVB

File No.: PR/393/2021-DD/08/2022-DC/1858/2024

Date of Order: 06.02.2026 (Findings dated 26.12.2025)

Particulars Details

Complainant Shri JKR , Managing Director, GMI

Nature of Case Incorrect reporting of unabsorbed depreciation in Tax Audit Report (Form 3CD) resulting in tax demand on the company

Background

The Respondent acted as Tax Auditor of GMI for AY 2015-16 and had also been Tax Auditor for AY 2009-10. Unabsorbed depreciation of ₹2,00,89,668 pertaining to AY 2007-08 had been fully set off in AY 2009-10. However, in Form 3CD for AY 2015-16, the same amount was again reported as available unabsorbed depreciation. The company relied upon the tax audit particulars while filing its return, following which the Income-tax Department raised a demand of approximately ₹1.04 crore upon detecting the incorrect claim.

Key Allegations

– Incorrect certification of brought forward unabsorbed depreciation in Form 3CD for AY 2015-16.

– Failure to verify that the depreciation had already been fully set off in AY 2009-10.

– Lack of due diligence resulting in financial loss to the company.

Respondent’s Defence

– He had not filed the income-tax return of the company.

– The error arose during migration from “Tax Base” software to “Winman”, where historical XML data was imported.

– Incorrect depreciation figures were auto-populated due to software mapping issues.

– The lapse was inadvertent and there was no adverse action by the Income-tax Department against him.

– Sought leniency considering his 37-year unblemished professional career.

Findings

– The Committee found no conclusive evidence that the Respondent had filed the company’s ITR; however, he had admittedly signed the Tax Audit Report (Form 3CD).

– Form 3CD for AY 2015-16 incorrectly reported unabsorbed depreciation of ₹2,00,89,668 as available despite the same having been fully utilised in AY 2009-10.

– The Respondent himself had been Tax Auditor for AY 2009-10 and was expected to know that no such depreciation remained available for carry forward.

– Reliance on software-generated data without independent verification could not absolve the Respondent of responsibility.

– During hearing, the Respondent’s counsel admitted that reporting the figure without verification was a lapse on the Respondent’s part.

– The Committee held that certifying incorrect figures in Form 3CD constituted failure to exercise due diligence and professional negligence.

Charges Established- Guilty under Item (7), Part I of the Second Schedule – failure to exercise due diligence / professional negligence.

Punishment -Reprimand under Section 21B(3) (a) of the Chartered Accountants Act, 1949.

BCAJ Admin

Company Law

7. Saxena Multispecialty Hospital (P.) Ltd. vs.Tulip Multispecialty Hospital (P.) Ltd.

185 taxmann.com 529, NCLT, New Delhi

Date of Order 19th May, 2026

Where company allotted 1,20,000 equity shares through a rights issue without adhering to section 62 and principles of corporate fairness, such allotment was vitiated as an act of oppression under section 241. Hence, entire impugned share issuance was declared null and void, directing restoration of the shareholding and rectification of the register to its original pre-allotment position.

FACTS

Company is engaged in hospital services. Its paid-up capital consisted of 10,000 equity shares of Rs.10 each. The Petitioner held 5,000 shares (50%), while the Respondents held 2,500 shares each (25% each). Petitioners were directors from incorporation and resigned on 4th June 2019; their resignations were approved on 15th July 2019. Discussions for separation/exit commenced around June 2019
On 27th July 2020, the company’s lender asked for an improvement in the debt–equity ratio (as stated by the respondents). On 28th July 2020, the Board resolved to issue 2,40,000 equity shares on a rights basis and issued an offer letter dated 28th July 2020. The respondents stated that the offer was dispatched to Petitioner No. 1’s address by courier and speed post, delivered on 1st August 2020, and remained open until 19th August 2020. As the Petitioner did not accept the offer within the stipulated time, it was deemed to have declined the same. Thereafter, by Board resolution dated 20th August 2020, 60,000 shares each were allotted to the Respondents and statutory filings, including Form PAS-3, were made.
The petitioner filed the instant petition under sections 241 and 242 seeking reliefs viz., to declare and order that the affairs of the company had been carried on by the existing directors in a manner that was oppressive and that the affairs of the company had also been mismanaged in terms of Sections 241 (1)(b) read with Section 242; to declare that the dilution of the Petitioners’ shares was illegal and improper and to set aside the same; and to pass an order removing the current Board of Directors and appointing an independent Interim Board of Directors to manage the affairs of the company. Thus, the petition was filed under sections 241–242 seeking, inter alia, to set aside the dilution arising from a share issue and to restore the pre-allotment shareholding, along with governance-related reliefs.

HELD

Having considered the rival submissions and material on record, the primary issue for determination was whether the Rights Issue was undertaken in strict compliance with Section 62(1)(a) and Section 62(2), and whether the manner in which it was executed satisfies the test of fairness and probity expected in corporate governance, particularly in a closely held company with equal shareholding.
Section 62 confers a statutory pre-emptive right upon existing shareholders and mandates that a notice of offer be given specifying the number of shares offered and granting not less than fifteen days for acceptance. Compliance with Section 62 must therefore be real and substantive and not merely formal or technical.
In the present case, although the Respondents have produced proof of dispatch to the address reflected in MCA records, the surrounding circumstances raised serious doubts as to effective and meaningful service. It was not disputed that the address in question was also the registered office of the Company and was under the control of the then existing directors. The building belonged to the mother of one of the directors, as admitted by the company. The Petitioners had ceased participating in the management of the Company since June 2019. The delivery acknowledgment did not identify the recipient and merely mentioned “Family,” without clarity as to who accepted the communication. No attempt appeared to have been made to send the offer through electronic means, despite prior correspondence between the parties through such channels. In a situation where the consequence of non-subscription would be the complete erosion of a 50% shareholding, the Company was expected to ensure actual and demonstrable service upon the shareholder concerned.
The Tribunal was conscious that technical compliance with dispatch requirements may, in ordinary circumstances, suffice. However, in the context of a closely held company where two groups held equal shares and were in dispute, and where the impugned allotment would decisively tilt control in favour of one group, the obligation of fairness assumes heightened significance. Mere mechanical dispatch to an address under the control of the beneficiary group cannot, in these facts, be treated as adequate compliance with the spirit of Section 62.
The company relied upon a bank communication dated 27th July 2020 requiring improvement of the debt-equity ratio. Even assuming that such financial requirement existed, the manner in which the issue was executed remained questionable. The timing of the Board resolution immediately following the bank letter, the absence of any prior consultation with the 50% shareholder, and the ultimate allotment exclusively in favour of existing directors cumulatively indicated that the impugned issue had the effect of consolidating control. Corporate powers to issue shares cannot be exercised for the primary purpose of creating or perpetuating a majority. Where such issuance results in the drastic reduction of an equal shareholder to a negligible minority, the transaction must withstand strict scrutiny.
The company’s reliance on the alleged exit understanding and resignation of Petitioners from the Board does not advance its case. Resignation from directorship does not extinguish rights as a shareholder. In the absence of a concluded share transfer in accordance with law, Petitioner continued to enjoy full proprietary rights in respect of her 50% shareholding. Those rights could not be unilaterally diluted through a process lacking demonstrable fairness.
The effect of the impugned allotment was to reduce Petitioner from an equal participant in management and control to a marginal shareholder holding approximately 3.48%. Such a drastic alteration of the shareholding structure, conducted in circumstances where effective notice was doubtful and where the beneficiary group stood to gain complete control, constitutes conduct lacking in probity.
Oppression under Section 241 is established when the conduct complained of is burdensome, harsh, and wrongful, and such that it justifies interference by the Tribunal. In the present case, the cumulative circumstances like the questionable service, absence of meaningful opportunity to subscribe, and disproportionate dilution, establish that the impugned Rights Issue was not conducted in a fair and transparent manner.
In view of the foregoing discussion, the Tribunal held that the Rights Issue dated 28th July 2020 and the consequential allotment dated 20th August 2020 were not undertaken in a manner consistent with the requirements of Section 62 and the principles of corporate fairness. The impugned allotment therefore stood vitiated and constituted an act of oppression within the meaning of Section 241.
In view of the findings returned hereinabove holding that the Rights Issue dated 28th July 2020 and the consequential allotment dated 20th August 2020 to be invalid and unsustainable in law, the company Petition was allowed in terms of appropriate reliefs under Section 242.
Accordingly, it was ordered that the allotment of 1,20,000 equity shares made in favour of existing directors pursuant to the impugned Rights Issue was declared null and void and was set aside. The share capital of the company was restored to the position as it existed immediately prior to 20th August 2020
S was appointed as an Administrator in the Board of Directors of the company to take charge by all necessary means and conduct the day-to-day affairs of the company for a period of 90 days, and a sum of Rs.2,00,000/- (Rupees Two Lakhs Only) per month was fixed as remuneration. The remuneration and other incidental expenses of Administrator were ordered to be paid and shared by Petitioner (50%) and Respondent Company (50%). The Administrator would also take over all the functions of the Board qua the company, and the power and functions of the Board would remain in abeyance for a period of 90 days.
The Register of Members maintained by the company was ordered to be rectified to reflect the original shareholding pattern, restoring the Petitioner to a 50% shareholding as it stood prior to the impugned allotment. Such rectification was ordered to be carried out within a period of four weeks from the date of pronouncement of the Order.
The order further mentioned that:
The Administrator may appoint/engage Key managerial persons and skilled professionals to assist him in managing the affairs of the Company.
The Administrator may take steps to appoint an Independent Auditor for the purpose of ascertainment of the true and correct financial position of the company.
The Administrator shall take steps to convene the meeting for the board of the company within a period of thirty (30) days from the date of the Order.
The Administrator shall do all acts as necessary, keeping in view the complications involved in the case. All directors (existing and former), Key Managerial Personnel (KMPs), stakeholders, and officers of the Company were directed to extend full cooperation to the Administrator and provide all necessary documents, records, and assistance as may be required for the effective functioning of the Company, failing which necessary action shall be taken in accordance with law.
The Administrator was directed to file all the statutory document(s) along with prescribed fees/ additional fee/fine as determined by the Registrar of Companies within 30 days from the date of this Order.
The Administrator shall take steps to regularly file monthly compliance report, detailing all actions taken, compliance measures undertaken, and the overall functioning of the company. Furthermore, every action taken by the Administrator shall be in strict compliance with the provisions of the Companies Act, 2013, and any other applicable laws governing the Company. The Administrator was at liberty to approach the Tribunal for any clarification/direction with regard to the issues before him and may also seek an extension of the time period fixed by the Tribunal, if so required. The Administrator so appointed shall hand-over charge to the Board of the Company after 90 days from the passing of the order.

All the sections referred to above are of the Companies Act, 2013

8. Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund) vs. Zee Entertainment Enterprises Limited

APPEAL (L) NO.25420 OF 2021

Date of Order: 22nd March, 2022

The Bombay High Court, held that the provisions of Section 100(4) of the Companies Act, 2013 are mandatory in nature, obligating the Board of Directors to call an Extraordinary General Meeting (EGM) upon receipt of a valid requisition from shareholders. The court further stated that Section 430 of the Companies Acts bars civil courts from entertaining suits on matters that the National Company Law Tribunal (NCLT) is empowered to adjudicate.

The Division Bench of the Bombay High Court established several critical principles regarding shareholder rights and the duties of a company’s Board:

Mandatory Duty of the Board: Under Section 100 of the Companies Act, 2013, the Board has a mandatory obligation to call an Extraordinary General Meeting (EGM) if the requisition meets numerical and procedural requirements (representing at least 10% of the paid-up share capital).
Interpretation of “Valid Requisition”: The Board cannot refuse to act on a requisition by questioning the legality or effectiveness of the proposed resolutions before they are considered and passed by the shareholders.
Shareholder Democracy: Shareholders have the same right as the management to propose the removal or appointment of directors. They are not legally bound to disclose the reasons or “motives” behind such resolutions.
Jurisdictional Bar: Under Section 430 of the Companies Act, 2013, Civil Courts are barred from granting injunctions that interfere with matters falling within the domain of the National Company Law Tribunal (NCLT), such as the calling and holding of meetings.

IN CONCLUSION,

The Court clarified that Section 100 of the Companies Act, 2013, serves as a vital mechanism for shareholder democracy, ensuring that the Board remains accountable to the shareholders, regardless of whether it agrees with the proposed changes or considers them incapable of implementation.

BCAJ Admin

Outsourcing Directives For SEBI Regulated Intermediaries – Delegation V/S Accountability

SEBI’s 2011 guidelines regulate outsourcing to ensure investor protection and regulatory accountability.

While intermediaries may outsource ancillary tasks like technology support, “core” functions—including investment decisions, compliance, and risk profiling—must remain under their direct control
SEBI adopts a “substance-over-form” approach, intervening when third parties effectively assume regulated roles regardless of their formal titles
Recent enforcement orders demonstrate that accountability cannot be delegated; intermediaries must maintain effective oversight and remain fully liable for the acts and omissions of all service providers.

INTRODUCTION

Over a period of time, advances in technology, increasing regulatory complexity and the need for operational efficiency have led many SEBI regulated intermediaries to engage third-party service providers for a variety of support functions. While outsourcing can improve efficiency, scalability and cost effectiveness, it also raises concerns regarding investor protection, accountability, confidentiality, operational resilience and regulatory oversight.

Recognizing these concerns, the Securities and Exchange Board of India (“SEBI”) issued Circular No. CIR/MIRSD/24/2011 dated 15th December 2011 titled Guidelines on Outsourcing of Activities by Intermediaries (“Outsourcing Guidelines”). The Circular applies to all SEBI-registered intermediaries, including stock brokers, merchant bankers, portfolio managers, investment advisers, research analysts, mutual funds, depository participants, registrars and transfer agents, debenture trustees, custodians and other regulated entities. The principles enshrined in these guidelines extend to person’s (within or outside the group) who perform activities on behalf of the regulated intermediaries.

WHY REGULATE OUTSOURCING?

The Outsourcing Guidelines are substantially based on principles developed by the International Organization of Securities Commissions (“IOSCO”) for mitigating various risks associated with outsourcing which may be operational risk, reputational risk, legal risk, country risk, strategic risk, exit strategy risk, counter party risk, concentration and systemic risk. It also reflects SEBI’s broader regulatory objective of ensuring that investors continue to deal with regulated entities that remain responsible for the services provided.

If regulated intermediaries are permitted to outsource core functions without adequate oversight, a situation may arise where the licensed entity merely acts as a conduit while actual regulated activities are carried out by outsourced third parties. Such arrangements may undermine investor protection, dilute accountability and impair regulatory supervision.

Accordingly, the Circular seeks to ensure that:

Regulatory accountability remains with the registered intermediary;
Investors continue to receive services from regulated entities;
“Core” business activities are not outsourced to third persons;
SEBI’s supervisory and inspection powers remain unaffected; and
Intermediaries retain effective control over outsourced functions.

The central principle emerging from the Circular/Guidelines is that outsourcing should facilitate business operations, not substitute the intermediary’s regulated role.

SEBI has provided illustrative examples of activities considered core in nature:

Intermediary	“Core” Activities
Stock Broker	Execution of orders and monitoring of client trading activities
Depository Participant	Dematerialization of securities
Mutual Fund	Investment related activities
Portfolio Manager	Investment related activities
All Intermediaries	Compliance functions

The list above is illustrative rather than exhaustive. Whether a function constitutes a core activity depends on the nature of the intermediary’s regulated business and the extent to which the intermediary continues to exercise independent judgment, supervision and control.

The Accountability Anchor

As a general principle, functions involving investment discretion, advisory judgment, regulatory compliance, investor protection obligations and fiduciary responsibilities shall not be outsourced.

While designing the outsourcing framework for any organization, it is pertinent to keep the following parameters in mind:

i. Activities which can be outsourced

ii. Activities which cannot be outsourced

iii. To Whom Activities can be outsourced

iv. Terms of Outsourcing

v. Responsibilities & Obligations of the intermediary and third party in respect of outsourced activity towards client, regulator & market

BUILDING AN EFFECTIVE OUTSOURCING FRAMEWORK

The Outsourcing Guidelines require intermediaries to establish a comprehensive framework for managing outsourcing arrangements. The responsibility for such framework rests with the Board of Directors, partners or equivalent governing body of the intermediary.

The Key Constituents that should be kept in mind at the time of designing an Outsourcing Framework are as under:

1. Outsourcing Policy- Determining the activities that can be outsourced and are prohibited and its Governance and Monitoring arrangements

2. Risk Assessment – Effective Risk Assessment procedures should be carried out to address outsourcing risks and relationships with third party.’

3. Appropriate Due Diligence of Service Providers including evaluation of it’s: –

Financial strength;
Technical competence;
Experience and expertise;
Compliance track record;
Infrastructure capabilities;
Data protection standards; and
Business continuity arrangements.

4. Tightening of Contractual Obligations in Outsourcing Agreements

5. Ongoing Monitoring of Outsourced Services and Providers

6. Confidentiality and Data Protection

7. Business Continuity Planning Measures in case of Default of Service providers

8. Outsourcing within the Group wherein Shared Resources cannot overtake the responsibility of core functions and Implementation of Chinese Wall measures to ensure transactions are undertaken at arm’s length without compromising accountability.

The Circular permits intermediaries to outsource support and ancillary functions — for example, technology infrastructure maintenance, legal support and similar services that do not constitute core business activities. The line is crossed when external parties begin to participate in, generate, or drive core business activities. Therefore, it’s quintessential to have an outsourcing framework which by design does not defeat its core purpose and is also implementable in its true spirit. The situation should not arise whereby the market has only third parties to provide intermediation services while the registered intermediaries confine themselves to earning income.

ENFORECEMENT ORDERS

Although there are relatively few reported cases involving standalone violations of the Outsourcing Guidelines, SEBI has repeatedly relied upon the principles underlying the Circular
while examining whether intermediaries have impermissibly delegated core regulated functions to third parties.

A recent SEBI Final Order QJA/MN/IMD/IMD-SEC-4/32418/2026-27, dated May 26, 2026, (the “Order”), in the case of First Global Finance illustrates how these principles apply in practice. A SEBI-registered portfolio manager (the “Portfolio Manager”) had engaged in a technology consulting agreement with a third-party vendor. SEBI conducted an on-site inspection and a forensic audit covering a period of approximately two and a half years.

The findings revealed that the arrangement was, in substance, an outsourcing of core investment-related activities, wherein specific buy/sell allocations were generated by algo systems and transmitted for execution and personnel of the outsourced entity were involved in execution related communications & instructions.
Further, the compensation structures to the outsourced entity related to investment function and overall operational arrangement demonstrated substantial involvement in investment related activitiesOther multiple activities which corroborated and substantiated the role of technology consultant, detailed as under, had very well exceeded and surpassed his core responsibilities and his compensation structures were not commensurate to the title of services carried.
Governance documents i.e. the Board Resolutions did not separately identify the role of a consultant and was included to form a part of Investment Committee to take all investment related decisions. Distinguishing between technical invitees and core decision making members shall be made at the time of composition of committee and while circulating a Board Resolution and imposing a contemporaneous limitation reflecting such restricted role.
Participating, rendering an opinion and concurrence of collective decision making in substance cannot be viewed as originating separately and exclusively from a technical consultation, wherein the technology consultant was given authority and power to participate in decision making function of Investments.
The expression “investment decision” is broader than model portfolio approval and extends to all multiple inter-related determinants which involve governing actual deployment of client fund.
Sharing of performance linked fees is a clear indication that the outsourcing entity was contributing, participating or influencing the investment process which generated performance and can in no way be classified as fees for maintaining technological infrastructure.

Outsourcing cannot be examined in compartmentalized or an isolated manner but is a collation of multiple activities put together and the underlying intention to perform the activity.

It was further observed, in the matter of M/s AFCO Capital India Private Limited (QJA/SS/CFD/CFD-SEC-5/32324/2025-26) vide order dated 30 March 2026, a person who was not an employee of the company was assigned the responsibility to authorize and operate activities for the purpose of open offer. A serious compliance breach was identified as the merchant bankers desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. In the said case, outsourcing of core activities have been compromised, thereby dampening the core principle of outsourcing.

SEBI’s order the matter of Bharosa Technoserve Ltd (Order/AN/SM/2024-25/30748-30751) dated 11 September 2024 was explicitly clear that the core function of Risk Profiling & Suitability Assessment of clients was not carried out by the Investment Advisor and was outsourced to a technology platform provider and the client had access to investment advice without their intervention, which was in all practical sense violating the intent of the law.

Taken together, these cases demonstrate that, SEBI does not object to outsourcing per se. Rather, SEBI intervenes where the outsourced arrangement effectively transfers investment discretion, advisory judgment, merchant banking functions, compliance responsibilities or investor-facing regulated activities to third parties.

The enforcement actions reviewed above demonstrate that SEBI adopts a substance-over-form approach and focuses on whether a third party has effectively assumed functions that are expected to be performed by the regulated intermediary itself.

KEY TAKEAWAYS – PHILOSOPHY OF OUTSOURCING

A review of the Outsourcing Guidelines and enforcement actions indicates the following principles:

(a) Substance Prevails Over Form

SEBI examines the actual role performed by a third party and not merely the terminology used in agreements. A service provider described as a consultant, advisor, technology provider or support vendor may nevertheless be regarded as performing a regulated activity if it effectively influences or undertakes the relevant function.

(b) Investment Decisions Must Remain with the Registered Entity

Investment discretion, portfolio construction, security selection and investment recommendations are regarded as core functions that must remain with the regulated intermediary.

Responsibility for regulatory compliance remains with the intermediary irrespective of any outsourcing arrangement.

(d) Accountability Cannot Be Delegated

While operational activities may be outsourced, accountability for those activities cannot be transferred to a service provider.

(e) Effective Control Must Be Retained

The intermediary must continue to exercise independent judgment, supervision and oversight over all outsourced activities.

The intention of the directive is to distinguish between operational support functions and core regulated activities. While administrative, technological and ancillary support services may be outsourced subject to adequate safeguards; investment discretion, compliance functions, investor-facing regulated activities and other core business functions must remain under the direct control of the registered intermediary. Further, for functions outsourced, the arrangement shall not affect the rights of investors against the entity and the entity remains fully liable for omissions and acts of the third party.

“It is not what we do, but also what we do not do, for which we are accountable” – Molière

BCAJ Admin

Using Companies As Investment Vehicles: Reboot By RBI

Effective July 1, 2026, the RBI’s Amendment Directions introduce “Unregistered Type 1 NBFCs,” exempting companies with assets under ₹1,000 crore from registration if they avoid public funds and customer interfaces. This shift addresses legacy issues where investment vehicles were often penalised as “deemed NBFCs” for conducting financial business without a license. These entities are now ideal for family offices, providing benefits like perpetual succession without intensive systemic risk regulations. However, they are barred from overseas investments and must register if they seek public funds or exceed asset thresholds. This modernization streamlines compliance for smaller, low-risk financial entities

INTRODUCTION

If you took a quick dip-stick poll of the number of people who have violated the NBFC Directions by making investments via a company structure or using a corporate investment vehicle, you would have a resounding majority! Most of them would look at you with innocent faces and say that they invested with their own funds or that they did not trade and were only investors! None of these arguments used to cut any ice with the RBI, and the clear view of the regulator was that if the Principal Business of a company was from financial services activities, then the company was a deemed NBFC that commenced operations without obtaining a Certificate of Registration (CoR) from the RBI. Scores of companies ended up becoming deemed NBFCs that had violated these norms and this led to stringent action by the regulator.

The biggest hurdle with the deemed NBFC aspect was that a company could not be used for the purposes of a family office/as an investment vehicle. This led to most family offices being structured in the form of a trust/partnership firm.

All this is set to change for many companies by virtue of the Amendment Directions issued by the RBI, which will be effective from 1st July 2026. The effect of these amendments is the creation of a new class of NBFCs called “Unregistered Type 1 NBFCs”.

LEGACY ISSUES

To better appreciate the Amendment Directions, let us first understand the legacy problems that the Directions seek to address.

Legal Framework ~ In the year 1997, sections 45-IA to 45-IC were enacted in the Reserve Bank of India Act, 1934 (“the Act”) and these for the first time introduced requirements such as registration, net owned funds, reserve fund, etc., for an NBFC. A non-banking financial company was defined as a company that has as its principal business the receiving of deposits, or lending in any manner. It also included a company that carried on as a part of its business the acquisition of shares, debentures or other marketable securities. However, it did not include any company that carried on as its principal business any industrial activity, development of immovable property, etc.

Principal Business ~ Subsequently, vide the Press Release dated 8th April, 1999, the RBI laid down the criteria for identification of the principal business for being treated as an NBFC. In order to identify a particular company as an NBFC, the RBI considers both the assets and the income pattern as
evidenced from the last audited balance sheet of the company to decide its principal business. A company is treated as an NBFC if its financial assets are more than 50% of its total assets, and the income from financial assets are more than 50% of the gross income. Both these tests are required to be satisfied as the determinant factor for the principal business of a company.

Auditor’s Report ~ Based on the same, the RBI issued the NBFC Auditor’s Report (Reserve Bank) Directions, 2016 (Master Direction dated 29th September 2016). As per these Directions, conducting a non-banking financial activity without a valid CoR was treated as an offence under the Act. In such a case, the Auditor was required to make a report containing the details of his qualification and report it to the Regional Office of the Department of Non-Banking Supervision of the RBI.

CARO ~ In addition, the CARO 2020 contains a reporting item of whether the company is required to be registered under s.45-IA of the Act and, if so, whether the registration has been obtained.

Scale Based Directions – RBI has issued the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (“the Registration Directions”), which provide for the registration and other criteria for NBFCs.

Violations ~ For companies that were required to be registered with the Reserve Bank as NBFCs, and were found to be conducting non-banking financial activity, such as, lending, investment, etc., as their principal business, without obtaining Certificate of Registration from the Reserve Bank, the same was treated as contravention of the provisions of the RBI Act, 1934 and invited penal action viz., penalty or fine or even prosecution in a Court of Law.

AMENDMENT DIRECTIONS

Recently, the RBI has issued the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026 (“the Amendment Directions”), which amend the Registration Directions and are effective from 1st July 2026.

The RBI Reboot

UNREGISTERED NBFC

The Amendment Directions introduce a new class of NBFCs known as the Unregistered Type I NBFCs. The meaning of this NBFC is defined as one:

a) not availing public funds;

b) not having any customer interface, as defined in these Directions; and

c) exempted from the provisions of sections 45IA and 45IC of the RBI Act, 1934.

BENEFITS

Such NBFCs can avail of the following benefits:

(a) NBFCs not availing public funds and not having any customer interface, and having asset size of less than ₹1,000 crore as per the latest audited balance sheet are exempted from the provisions of sections 45IA and 45IC of the Act with effect from 1st July, 2026.

(b) Existing ‘NBFCs not availing public funds and not having any customer interface’, including those holding CoR, and fulfilling the prescribed criteria for exemption, may apply to the Reserve Bank for deregistration within a period of six months, i.e., by 31st December, 2026.

(c) NBFCs currently not fulfilling the prescribed criteria for exemption but fulfilling the same in future are also eligible to apply for deregistration at that point of time.

The application for deregistration shall be made through the PRAVAAH Portal of the RBI along with the prescribed documents. One of the important documents is the Statutory Auditor’s Certificate certifying that the NBFC does not have public funds and also does not have a customer interface as of the date of application. The Statutory Auditors are also required to submit an Exception Report to the RBI in case of violation of conditions on public funds, customer interface or any other conditions for the exemption. RBI would grant deregistration if it is satisfied that all conditions are met. According to the RBI, the regulatory concerns on systemic risk and customer protection issues are not relevant in the case of these NBFCs. These companies normally undertake investments out of their own funds, and hence, their potential to pose systemic risk is very low. Furthermore, as per RBI, since they cannot have any customer interface, KYC regulations prescribed by the Reserve Bank may not be relevant for them due to absence of any account-based relationship. They are required to comply with applicable AML requirements as also adhere to requirements emanating from Prevention of Money Laundering Act (PMLA), 2002 and Rules framed thereunder, as applicable to them.

MEANING OF CERTAIN KEY TERMS

Certain key terms appearing in the Amendment Directions are explained below:

‘Customer interface’ is defined to mean the interaction between an NBFC and its customers in carrying on its business. Thus, granting of loans would be a customer interface. Customer interface can be through an account-based relationship, lending relationship or interaction with the customers as part of business of the NBFC. Any customer-oriented activity like lending or providing guarantee, or placing inter-corporate deposits, including to ‘entities in the Group’, its shareholders, its directors, or providing any other product or service to these entities would constitute ‘customer interface’. However, loans to employees as per terms of employment condition/ contract and not on commercial terms, shall not be treated as customer interface.

‘Public Funds’, which is the most important term, is defined inclusively to include funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance, and all funds received from outside sources, such as funds raised by the issue of Commercial Papers, debentures, etc. However, it excludes funds raised by the issue of instruments compulsorily convertible into equity shares within a period not exceeding 5 years from the date of issue. As such, loans from directors and/ or shareholders will be classified as public funds. Further, money availed through margin trading facility shall also be classified as public funds. The Amendment Regulations further provide that the NBFC should not even have an indirect receipt of public funds, i.e., funds received not directly but through associates and Group entities that have access to public funds. Thus, if a company that has raised public funds, in turn, lends or invests (even in securities) in an NBFC, that would violate the Amendment Directions and hence, not be eligible for the exemption.

OVERSEAS INVESTMENTS

If an ‘Unregistered Type I NBFC’ intends to undertake an overseas investment in the financial services sector, then it shall be required to be registered with Reserve Bank and be regulated like an NBFC holding a Certificate of Registration. Further, an ‘Unregistered Type I NBFC’ shall not undertake overseas investment in the non-financial sector.

VIOLATIONS

Any ‘Unregistered Type I NBFC’ intending to avail public funds and/ or have customer interface must seek registration with the Reserve Bank as ‘Type II NBFC’ prior to having either of these, to avoid penal action. It may also be noted that ‘NBFCs not availing public funds and not having any customer interface’ with asset size of ₹1,000 crore & above shall invariably be required to seek registration as ‘Type I NBFC’ even if they do not avail public funds and do not have a customer interface. New companies desirous of not accessing public funds and not having customer interface are not required to seek registration till they attain the asset size of ₹1,000 crore. In other words, companies (including new companies) desirous of accessing public funds and/ or engaging in operations involving customer interface are compulsorily required to seek registration with the Reserve Bank, irrespective of their asset size or any other factor. Failure to comply with registration requirements would attract penal provisions under the RBI Act, 1934.Violation of any of the provisions applicable to ‘Unregistered Type I NBFC’ shall be viewed seriously and shall invite penal action under the provisions of the RBI Act, 1934.

USE FOR FAMILY OFFICES

In light of these amendments, companies can now be used for the purposes of family offices. Of course, from a tax perspective, the dual taxation issue remains, but there may be situations where a corporate structure is preferred over a trust or a firm, such as perpetual succession, liability ring fencing, etc. In such cases, a
company can now be freely used. While structuring the entity, the restriction on making overseas investments by Unregistered NBFCs should be remembered.

CONCLUSION

Exempting smaller NBFCs from registration is the right step by the RBI. Scores of companies were unwittingly caught up in the regulatory glare of the RBI. There have been countless instances of prosecution cases/ show cause notices, etc., languishing against companies. As a follow-up the RBI could probably even come up with a one-time amnesty scheme for companies that have already violated the Principal Business Test and become deemed NBFCs!

BCAJ Admin

Allied Laws

15. Kulsum Nisha v. State of U.P. & Ors.

2026 INSC 617

Succession – Compassionate allotment – Married daughter – Exclusion from definition of “family” – Marital status cannot be the sole ground for denial of consideration. [Constitution of India, Arts. 14, 15, 19(1)(g) and 21; Uttar Pradesh Essential Commodities (Regulation of Sale and Distribution Control) Order, 2016] (Ratio )

FACTS

The appellant’s mother was a fair price shop dealer. Upon her death, the appellant sought allotment of the shop under the dependent quota. The application was rejected solely on the ground that the appellant was a married daughter and was excluded from the definition of “family” under the applicable Government Order. The appellate authority affirmed the rejection. The High Court dismissed the writ petition following earlier Division Bench decisions.

The appellant challenged the decision before the Supreme Court.

HELD

The Supreme Court held that the exclusion of a married daughter from consideration solely based on marital status is arbitrary and constitutionally impermissible.

Dependency is a question of fact and cannot be determined solely based on marriage. A beneficial scheme intended to provide financial support upon the death of a dealer cannot deny consideration merely because the dependent is a married daughter. The competent authority must examine actual dependency and eligibility instead of applying a blanket exclusion.

The Appeal was allowed.

16. Shishu Pal @ Shish Ram & Ors. v. Surjeet & Ors.

2026 INSC 634

Motor accident compensation – Homemaker – Economic value of domestic work – Contribution of homemaker requires realistic assessment – Fixed at a minimum of 30,000/- per month. [Motor Vehicles Act, 1988]

FACTS

The deceased, a homemaker, died in a motor accident in 2001. The Tribunal awarded compensation, which was subsequently enhanced by the High Court after nearly two decades of pendency.

The claimants sought further enhancement before the Supreme Court, contending that the contribution of the deceased homemaker had not been adequately valued.

HELD

The Supreme Court observed that the services rendered by a homemaker constitute a substantial economic contribution to the family and society. Domestic labour performed by a homemaker cannot be treated as having no pecuniary value merely because it does not generate direct monetary income.

Assessment of compensation must account for the multifaceted contribution of a homemaker and should not be based on outdated assumptions regarding unpaid domestic work. The Court stated that home makers are, in fact, the ‘nation builders’ and fixed the minimum value of the loss of domestic care rendered by the deceased homemaker at ₹30,000 per month.

The Court also expressed concern regarding extraordinary delays in the adjudication of motor accident claims and emphasised the need for expeditious disposal.

The Appeal was allowed in part.

17. K. Ranganayakulu v. State of Telangana & Ors.

2026 INSC 555

Dishonour of cheque – Authorised signatory – Liability under section 138 – Person responsible for transaction treated as drawer. [Negotiable Instruments Act, 1881, S.138]

FACTS

An NGO entered into an arrangement for the collection and remittance of electricity bill payments. The appellant, acting as Treasurer of the NGO, executed the relevant documents and signed the cheque that was subsequently dishonoured.

The appellant contended that he was merely an authorised signatory and not the drawer of the cheque and, therefore could not be prosecuted under section 138 of the Negotiable Instruments Act.

The High Court affirmed the conviction.

HELD

The Supreme Court held that liability under section 138 of the Negotiable Instruments Act depends upon the role undertaken by the person in the transaction. The appellant was the individual authorised to execute the agreement, sign negotiable instruments and undertake remittances on behalf of the NGO. In the factual context of the case, the appellant effectively functioned as the drawer of the cheque and was responsible for the consequences arising from its dishonour.

The conviction was upheld. However, the sentence was modified.

The Appeal was partly allowed.

18. Shephali Chakraborty v. State of West Bengal

2026 INSC 621

Minor’s property – Permission for development agreement – Court’s scrutiny under section 8 – Benefit to minor to be assessed prospectively.

[Hindu Minority and Guardianship Act, 1956, S.8]

FACTS

The appellant, mother and natural guardian of a minor, sought permission to transfer and develop immovable property in which the minor held an undivided share inherited from his deceased father.

A development agreement had been entered into with a developer under which the family would receive consideration and residential units in the redeveloped property. The District Judge rejected the application, holding that no material had been produced to demonstrate necessity or evident advantage to the minor.

The High Court affirmed the order. The appellant approached the Supreme Court.

HELD

The Supreme Court held that proceedings under section 8 of the Hindu Minority and Guardianship Act require an assessment of the proposed transaction from the standpoint of the minor’s future welfare and benefit. The inquiry is essentially prospective and not confined to a rigid evaluation of existing utilisation of the property.

Where the proposed transaction demonstrably advances the interests of the minor, courts should adopt a practical and welfare-oriented approach.

The matter was remitted for fresh consideration in accordance with law.

The Appeal was allowed.

19. H.N. Dhananjaya v. H.N. Malleshappa

RFA No.1835 of 2022 (Kar)(HC) August 7, 2025

Recovery of money – Acknowledgement through WhatsApp message – Limitation – Electronic evidence corroborated by bank transfers – suit held within limitation. [Limitation Act, 1963, S.18; Indian Evidence Act, 1872, S.65B]

FACTS

The plaintiff advanced a hand loan of Rs.2,00,000 to the defendant, who was his brother. The amount was transferred through bank transactions in October 2015.

Alleging failure to repay the loan, the plaintiff instituted a suit for recovery of money. The defendant denied the loan transaction and contended that the amounts were paid pursuant to a family arrangement. It was further contended that the suit was barred by limitation.

The Trial Court relied upon the bank statements evidencing transfer of funds and a WhatsApp message dated 11.10.2017 acknowledging the liability, and decreed the suit. Aggrieved, the defendant preferred an appeal before the High Court.

HELD

The Court held that the bank statements unequivocally established the transfer of Rs.2,00,000 from the plaintiff to the defendant.

The defence that the payments formed part of a family arrangement was unsupported by any documentary or oral evidence. The defendant also failed to establish repayment.

The WhatsApp message acknowledging the liability was not effectively disputed during the trial. The evidentiary value of the electronic record stood reinforced by the admitted bank transfers. The acknowledgement dated 11.10.2017, having been made within the original period of limitation, meant that the suit instituted on 20.10.2018 was within time. No perversity or illegality was found in the judgment of the Trial Court.

The Appeal was dismissed.

BCAJ Admin

From Published Accounts

COMPILER’S NOTE:

Given below is the Auditor’s Report (report) on the consolidated financial statements of a leading global telephone operator headquartered in UK and operating in several countries, including India – it operates in India as Vodafone Idea Limited (or VI) and is in the news for state ownership on conversion of government telecom dues into Equity and also for sizable further liabilities payable to the government.

The report on the group’s consolidated financial statements is very informative and includes many disclosures not so far applicable in India. Some of these are:

Mention of non-audit services provided by the auditor and how the same did not affect independence;
Period for which the firm is acting as auditors;
Audit process and methodology including reporting to the audit and Risk Committee;
Addressing concerns regarding ‘Going Concern’;
Key risks and how addressed;
Impact of Climate change;
Involvement with Component Teams (as per ISA 600) – there is no ‘Other Matters’ paragraph which is the norm for reports by auditors in India on Consolidated Financial statements

The report is very relevant to get a glimpse of how the auditing professionals will have to adapt to the global reporting trends.

VODAFONE GROUP PLC

Independent auditor’s report to the members of Vodafone Group PLC (year ended 31st March 2026)

OPINION

In our opinion:

Vodafone Group PLC’s consolidated financial statements and Parent company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Parent company’s affairs as at 31 March 2026 and of the Group’s loss for the year then ended;
the consolidated financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards (‘IAS’), with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’);
the Parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Vodafone Group PLC (the ‘Parent company’ or ‘Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2026 which comprise:

Group	Parent company
Consolidated income statement for the year then ended	Company statement of financial position as at 31 March 2026
Consolidated statement of comprehensive expense for the year then ended	Company statement of changes in equity for the year then ended
Consolidated statement of financial position as at 31 March 2026	Related notes 1 to 11 to the Company financial statements including material accounting policy information
Consolidated statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 33 to the financial statements, including material accounting policy information

The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and UK-adopted international accounting standards, with IFRS as issued by the IASB. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

INDEPENDENCE

We are independent of the Group and Parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent company, except as discussed below, and we remain independent of the group and the parent company in conducting the audit.

Provision of non-audit services prohibited by the FRC’s Ethical Standard

This exception related to the provision of translation services of the local audited statutory financial statements for the years ending 31 March 2020, 31 March 2021, 31 March 2022, 31 March 2023 and 31 March 2024 of a subsidiary in Germany.

For audit periods covering 31 March 2021 to 31 March 2024, we note this is a breach under FRC Ethical Standard 2019, as the service is not permitted under paragraph 5.40 of FRC Ethical Standard 2019.

The service was performed by EY Germany with a total fee across the five years of service delivery of €13k. We considered that the provision of the service did not create a self-review threat as the prohibited service could only be delivered once the audit has been completed and there was therefore no risk of self-review. Appropriate safeguards also existed as the individuals who performed the prohibited services were not part of the audit engagement team. We informed the Audit and Risk Committee of the inadvertent breach in September 2025. We considered this to be a minor breach of the FRC’s Ethical Standard.

Reliance on M&A Transition Provision in relation to the Acquisition of Hutchison 3G UK Holdings Limited

We are required to provide an explanation of how we have maintained our independence where we have applied paragraph 1.31 of the FRC’s Ethical Standard 2024 (“the M&A Transition Provision”).

Vodafone Group PLC became the ultimate parent of Hutchison 3G UK Holdings Limited (“Three UK”), following the acquisition of Three UK on 31 May 2025.

During the course of our independence procedures prior to the completion of the acquisition, it was identified that we provided non-permissible services for which Three UK was a beneficiary. Except for certain tax advisory services provided by EY UK, all non-permissible services were ceased prior to completion of the acquisition.

The tax advisory services that could not be reasonably terminated by the effective date of the acquisition were terminated within the three-month transition period allowed under the M&A Transition Provision. Appropriate safeguards existed as the individuals who performed the prohibited services were not part of the audit engagement team.

We informed the Audit and Risk Committee of the matter in September 2025.

We consider that an objective, reasonable and informed third party would not conclude that our independence was impaired as a result of these matters; and that we remain independent of Vodafone Group PLC in conducting the audit.

CONCLUSIONS RELATING TO GOING CONCERN

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Parent company’s ability to continue to adopt the going concern basis of accounting included:

confirming our understanding of the directors’ going concern assessment process, including the controls over the review and approval of the budget and long-range plan;
assessing the appropriateness of the duration of the going concern assessment period to 30 June 2027 (“the going concern assessment period”) and considering the existence of any significant events or conditions beyond this period based on our procedures on the Group’s long-range plan and knowledge arising from other areas of the audit;
verifying inputs against board-approved forecasts and debt facility terms and reconciling the opening liquidity position to the balance sheet as at 31 March 2026;
reviewing borrowing facilities to confirm both their availability to the Group and the forecast debt repayments through the going concern assessment period and to validate that there are no financial covenants in relation to any of the borrowing facilities;
understanding and evaluating the appropriateness of management’s model, including testing the assessment, including forecast liquidity, for clerical accuracy;
challenging whether sensitivities in respect of potential downside scenarios were reasonable and appropriately severe, in light of the Group’s relevant principal risks and uncertainties and our own independent assessment of those risks;
evaluating management’s historical forecasting accuracy and the consistency of the going concern assessment with information obtained from other areas of the audit, such as our audit procedures on the long-range plans, which underpin management’s goodwill impairment assessments;
evaluating the impact of the subsequent events relating to transactions expected to close within the going concern period, including with respect to Safaricom, VodafoneZiggo and VodafoneThree;
independently evaluating the mitigating actions available to respond to a severe, but plausible downside scenario, and whether those actions are feasible and within the Group’s control. These mitigations were not modelled by management as they were not relied upon for their conclusion;
reviewing management’s reverse stress test to understand how severe conditions would have to be to breach liquidity and whether the required reduction in profitability metrics has no more than a remote possibility of occurring when compared to current performance and forecasts;
performing independent sensitivity analysis on management’s assumptions, including applying incremental adverse cashflow sensitivities. These sensitivities included the impact of certain severe but plausible scenarios, evaluated as part of management’s work on the Group’s long-term viability materialising within the going concern assessment period; and
reviewing the Group and Parent company’s going concern disclosures included on page 125 of the Annual Report to assess that the disclosures are consistent with the basis upon which the Board have concluded, and in conformity with the reporting standards.

OUR KEY OBSERVATIONS

The directors’ assessment forecasts that the Group will maintain sufficient liquidity throughout the going concern assessment period. This included the scenario of non-refinancing of certain debt maturities in the assessment period, with continuing availability of the Group’s €7.6 billion revolving credit facilities, which were undrawn as at 31 March 2026.
Furthermore, management’s reverse stress test to model the extent of reduction in profitability compared to forecasts required to breach liquidity during the going concern assessment period is considered by management to have only a remote possibility of occurring.
The controllable identified mitigating actions available to increase liquidity over the going concern assessment period were not modelled by management due to the level of headroom in the directors’ assessment forecasts.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Parent company’s ability to continue as a going concern for a period from when the financial statements are authorised for issue to 30 June 2027.

In relation to the Group and Parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.

Overview of our audit approach

Audit scope	We performed an audit of the complete financial information of 7 components and audit procedures on specific balances for a further 9 components. We also performed specified audit procedures on certain accounts on 1 additional component. We performed certain central procedures on financial statement line items as detailed in the ‘Tailoring the scope’ section below.
Key audit matters	Carrying value of cash generating units, including goodwill (Germany). Recognition and recoverability of deferred tax assets in Luxembourg and Vodafone Three. Revenue recognition. Merger of Vodafone Limited and Hutchison 3G UK Holdings Limited in the UK.
Materiality	Overall Group materiality of €270m (FY25: €215m) has been calculated based on the Group’s Adjusted EBITDAaL. This represents approximately 2.5% (FY25: approximately 2.0%) of the Group’s Adjusted EBITDAaL

AN OVERVIEW OF THE SCOPE OF THE PARENT COMPANY AND GROUP AUDITS

Tailoring the scope

We have followed a risk-based approach when developing our audit approach to obtain sufficient appropriate audit evidence on which to base our audit opinion. We performed risk assessment procedures, with input from our component auditors, to identify and assess risks of material misstatement of the consolidated financial statements and identified significant accounts and disclosures. When identifying components at which audit work needed to be performed to respond to the identified risks of material misstatement of the consolidated financial statements, we considered our understanding of the Group and its business environment, the potential impact of climate change, the applicable financial reporting framework, the Group’s system of internal control, the existence of centralised processes, applications and any relevant internal audit results.

The goodwill balance was audited centrally by the Group audit team. In addition, we determined that certain centralised audit procedures would be performed on investments in associates and joint ventures, other investments, deferred tax assets, post-employment benefits, derivative financial instruments (classified within trade and other receivables and trade and other payables), taxation recoverable, cash and cash equivalents, equity, borrowings, deferred tax liabilities, taxation liabilities, roaming revenue (classified within revenue), other income, investment income, financing costs and one-off transactions (including the accounting for the merger with Three UK). For these audit areas, audit procedures were also performed by the Group audit team with input from Component audit teams.

Vodafone has centralised processes and controls over certain areas within its Vodafone Intelligent Solutions (“VOIS”) finance shared service centre locations. The Group audit team and our audit teams at VOIS form an integrated audit team to perform centralised testing for certain controls and accounts, including procedures on property, plant and equipment, other intangible assets and centralised purchase to pay processes (impacting trade and other payables, cost of sales, selling and distribution expenses and administrative expenses).

We then identified 17 components as individually relevant to the Group due to our assessment of risks of material misstatement or a significant risk impacting the consolidated financial statements. We also considered the materiality of the components relative to the Group.

For those individually relevant components, we identified the significant accounts where audit work needed to be performed at these components by applying professional judgement. We considered the Group significant accounts on which centralised procedures would be performed, the reasons for identifying the component as an individually relevant component and the size of the component’s account balance relative to the Group significant financial statement account balance.

We then considered whether the remaining Group significant account balances not yet subject to audit procedures, in aggregate, could give rise to a risk of material misstatement of the consolidated financial statements.

Having identified the components for which work would be performed, we determined the scope to assign to each component.

Of the 17 components selected, we designed and performed audit procedures, including tests of controls, on the entire financial information of 7 components (“full scope components”). For 9 components, we designed and performed audit procedures, including tests of controls, on specific significant financial statement account balances or disclosures of the financial information of the component (“specific scope components”). For the remaining 1 component, we performed specified audit procedures to obtain evidence for one or more relevant assertions on specific account balances.

Our scoping to address the risk of material misstatement for each key audit matter is set out in the Key audit matters section of the report.

INVOLVEMENT WITH COMPONENT TEAMS

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the Group audit engagement team, or by component auditors operating under our instruction. Of the 7 full scope components, audit procedures were performed on 2 of these directly by the Group audit team with the remaining 5 being performed by component audit teams. For the 9 specific scope components, the audit procedures were performed on 4 of these directly by the Group audit team with the remaining 5 being performed by component audit teams. For the 1 specified procedures scope component, audit procedures were performed by the Group audit team. Where the work was performed by component auditors, we determined the appropriate level of oversight to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole.

The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor, or another Group audit team member, visits all full and specific scope locations each year. During the current year’s audit cycle, visits were undertaken by the Group audit team to the component teams in Germany, UK, South Africa, Turkey and Egypt as well as to VOIS in India. These visits involved meetings with local management, understanding the overall audit approach, including key issues and responses as well as reviewing key work papers on risk areas. The Senior Statutory Auditor, also remotely attended audit closing meetings with component teams and management of all full scope and specific scope locations.

The Group audit team interacted regularly with the component teams where appropriate, during various stages of the audit, were responsible for the scope and direction of the audit process and reviewed relevant working papers. Where relevant, the section on key audit matters details the level of involvement we had with component auditors to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.

This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the consolidated financial statements.

CLIMATE CHANGE

Stakeholders are increasingly interested in how climate change will impact the Group. The Group has determined that the most significant future impacts from climate change on its operations will be from its Planet activities and commitments set out on pages 28 to 32 and the material climate-related physical and transitional risks explained on pages 65 to 70 in the required Task Force for Climate related Financial Disclosures, both of which form part of the “Other information,” rather than the audited consolidated financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”.

In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its financial statements.

The Group has explained in Note 1 Basis of Preparation to the consolidated financial statements, environmental, regulatory and other factors responsive to climate change risks are still developing, and are outside of the Group’s control, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. The degree of uncertainty of these changes may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK-adopted international accounting standards. The significant accounting estimates and judgements assessed by management to be potentially impacted by climate risks have been described in Note 1.

Our audit effort in considering the impact of climate change on the consolidated financial statements was focused on evaluating management’s assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks disclosed on pages 65 to 70 and the significant judgements and estimates disclosed in note 1, and whether these have been appropriately reflected in asset values and associated disclosures where values are determined through modelling future cash flows, being ‘Goodwill’, ‘Other intangible assets’ and ‘Deferred tax assets’, and in the timing and nature of liabilities recognised, being ‘Asset Retirement Obligations’. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists, to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit.

We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above.

Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to materially impact a key audit matter.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Risk

Carrying value of cash generating units, including goodwill (Germany)

As more fully described in Note 4 to the consolidated financial statements, in accordance with IAS 36 Impairment of Assets, the Group calculates the recoverable amount for cash generating units (‘CGUs’) based on value in use (‘VIU’) to determine whether an impairment to the carrying value of the CGU, and therefore, goodwill, is required. As at 31 March 2026, the Group has recorded €21,918 million (FY25: €20,514 million) of goodwill, including €16,092 million (FY25: €15,985 million) with respect to Germany. The Group’s assessment of the VIU of its CGUs involves estimation about the future performance of the local market businesses. In particular, the determination of the VIU for Germany was sensitive to the significant assumptions of projected Adjusted EBITDAaL growth, timing and amount of future capital expenditure, licence and spectrum payments, the long-term growth rate, and the discount rate.

Auditing the Group’s annual impairment test for the Germany CGU was complex and involved significant auditor judgement, given the estimation uncertainty related to the significant assumptions described above and the sensitivity to fluctuations and market specific factors in those assumptions.

Our response to the risk

We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the Group’s goodwill impairment review process, including, for example, management’s controls over the significant assumptions described above.

We evaluated, with the involvement of EY valuation specialists, the methodology applied in the Germany VIU model, as compared to the requirements of IAS 36, including the mathematical accuracy of management’s model. We performed procedures to assess the significant assumptions used in the Germany VIU model, including:

evaluating projected Adjusted EBITDAaL growth, for example by comparing underlying assumptions including Average Revenue Per User (‘ARPU’) to external data, such as economic and industry forecasts and competitor data for the German telecoms market, supporting contracts and benchmarking provided by management, and for consistency with evidence obtained from other areas of our audit;
comparing the cash flow projections used in the Germany VIU model to the Long-Range Plan approved by the Group’s Board of Directors as part of their annual budgeting exercise and evaluating the historical accuracy of management’s German business projections, which underpin the VIU model, by comparing the prior years’ forecast to actual results for each of the last five years;
comparing forecast capital expenditure and license and spectrum payments to actual historical spend, assessing market specific events such as network deployment plans, industry analysis and competitor data, where available;
comparing the long-term growth rate and discount rate assumptions to independently determined ranges, with the involvement of EY valuation specialists;
performing sensitivity analyses on the VIU model, to evaluate the impact that changes in assumptions would cause to the valuation of the Germany CGU; and
in considering the existence of contrary evidence, for management’s assessment of implied recoverable value, we compared the Germany CGU EBITDAaL multiple to market listed peers and considered independent analyst valuations for the Germany CGU.

We also assessed the adequacy of the related disclosures provided in Note 4 of the consolidated financial statements, in particular the sensitivity disclosures in relation to changes in assumptions that would lead to an impairment being recorded.

KEY OBSERVATIONS COMMUNICATED TO THE AUDIT AND RISK COMMITTEE

Based on our audit procedures, we considered management’s assessment supporting the recoverability of the goodwill balance allocated to the Germany CGU, including the conclusion that no impairment charge was required, to be reasonable. Accordingly, no impairment charge has been recognised for the year.

The disclosures in Note 4 of the consolidated financial statements in respect of the Germany CGU are consistent with the requirements of IAS 36 including the sensitivity disclosures.

How we scoped our audit to respond to the risk and involvement with component teams

The recoverability of the Group’s Germany CGU carrying value was audited centrally by the Group audit team with support from the component audit team on certain procedures at the local market level.

Risk

Recognition and recoverability of deferred tax assets in Luxembourg and VodafoneThree

As more fully described in Note 6 to the consolidated financial statements, the Group recognises deferred tax assets in accordance with IAS 12 Income Taxes, based on whether management determines that it is probable, which requires significant judgement, that there will be sufficient and suitable taxable profits in the relevant legal entity or tax group to allow the recognized assets to be recovered.

Deferred tax assets amounting to €15,248 million (FY25: €15,563 million) are recognised in Luxembourg in respect of losses and €2,067 million (FY25: Nil) for VodafoneThree, primarily relating to excess capital allowances.

Management concluded it is probable that the related entities will continue to generate taxable profits in the future against which the deferred tax assets will be recovered over a period of 46 to 50 years (FY25: 47 to 52 years) in Luxembourg and 46 years for VodafoneThree. The Company does not currently recognize deferred tax assets which are forecast to be used 60 years beyond the reporting period.

The nature of the respective forecasts impacts the timeframe over which the deferred tax assets in Luxembourg and for Vodafone Three are expected to be recovered.

The Luxembourg companies’ income is primarily derived from internal financing, centralized procurement and international roaming activities. The forecasted future finance income considers assumptions of future interest rates and levels of intragroup financing, as well as forecasted income from the activities described above.
The VodafoneThree income is derived from the operating activities of the VodafoneThree UK tax group. Management’s forecast assumes an expected level of future profitability, expected levels of intercompany debt and reflects inherent risks related to the telecommunications sector.

Auditing the Group’s recognition and recoverability of deferred tax assets in Luxembourg and of VodafoneThree is significant to the audit because it involves material amounts, and the judgements and estimates in relation to future taxable profits and the period of time over which the Group expected to utilise these assets, results in increased estimation uncertainty.

Our response to the risk

Overall procedures in respect of both jurisdictions

We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the recognition and recoverability of deferred tax assets specifically relating to the Luxembourg and the VodafoneThree tax groups, including the calculation of the gross amount of deferred tax assets recorded and the preparation of the prospective financial information used to determine the Luxembourg and VodafoneThree entities’ future taxable income.

We involved our tax professionals and tax specialists, in the performance of our audit procedures which includes, among others, assessing the existence of available losses for both jurisdictions and excess capital allowances for VodafoneThree, and evaluating management’s position on the recoverability of the losses and excess capital allowances with respect to local tax law and tax planning strategies adopted. We also evaluated the nature of reconciling items between forecast profit before tax and taxable profit and considered their appropriateness in accordance with IAS 12. We performed sensitivities to understand the impact of changes in key assumptions of forecast taxable income, on the utilisation period, including historical profitability against forecast.

We evaluated the adequacy of the disclosures in respect of the recognition of the deferred tax asset against the requirements of IAS 12.

Luxembourg specific procedures

Our additional audit procedures included, among others;

evaluating the forecast finance income by, on a sample basis, recalculating income with reference to underlying agreements, comparing future interest rates utilised in the forecasts to relevant external benchmarks and assessing the projections of internal debt levels for consistency with our understanding of the business and relevant tax regulations in respect of transfer pricing of financial transactions;
assessing whether contrary evidence exists that is not consistent with either management’s stated intention that the financing structures, as projected, as well as the intercompany debt levels, will remain in place or that it is probable that sufficient future taxable profits will exist in the relevant jurisdictions;
evaluating how the assumptions used in the impairment model for the Germany CGU impact Luxembourg’s forecast interest income from Vodafone Germany, and therefore, the recoverability of the deferred tax assets in Luxembourg; and
assessing the reasonability of forecasted procurement and roaming taxable profits utilised in management’s assessment, by considering historical forecasting accuracy, and comparing forecasts with evidence obtained from other areas of our audit.

VodafoneThree UK specific procedures

Our additional audit procedures included, among others:

corroborating that the VodafoneThree UK forecast trading activities used within the deferred tax asset recognition model are consistent with those used as an input into the going concern, long-term viability statement, impairment assessment and the information approved by the Board related to management’s business plans;
assessing management’s expected future profitability, by comparing underlying assumptions, to external data, such as economic and industry forecasts and competitor data for the UK telecommunication sector, and supporting contracts and benchmarking provided by management; and
evaluating the reasonability of expected future profitability by comparing underlying assumptions to historical performance, commercial rationale, the application of transfer pricing policies and with evidence obtained from other areas of our audit.

KEY OBSERVATIONS COMMUNICATED TO THE AUDIT AND RISK COMMITTEE

We agree with the recognition of the deferred tax assets in Luxembourg and VodafoneThree, and consequently the long recoverability period, on the basis of forecast profits, which are considered probable. In the case of Luxembourg, this reflects the commercial rationale and management’s intention to retain current activities in Luxembourg and the intergroup debt levels, over the longer term and this reflects the track record of historical profitability. In the case of the VodafoneThree, this reflects the commercial rationale for the merger. Both VodafoneThree and Luxembourg have established market structure for telecoms including high barriers to entry for new market entrants, the long-dated funding structure and local tax law.

Changes in key assumptions, in particular Luxembourg, including a plausible reduction in the level of intra-group debt levels with Germany could lead to an increase in utilisation period beyond 60 years.

The Group does not currently recognise deferred tax assets which are forecast to be used 60 years beyond the balance sheet date and consequently, should the assumptions change, a different conclusion could be reached in respect of the level of deferred tax asset recognised.

We consider that the disclosures included within Note 6 to the consolidated financial statements acknowledges both the judgement made in respect of the timing and profile of the utilisation of the losses in the short to medium term and the longer-term uncertainties in relation to the carrying value of the related deferred tax asset.

How we scoped our audit to respond to the risk and involvement with component teams

Audit procedures on the recognition and recoverability of deferred tax assets on tax losses in Luxembourg were performed by the Group audit team and its tax professionals, with support from Luxembourg tax and transfer pricing specialists for certain procedures. Audit procedures on the recognition and recoverability of deferred tax assets in VodafoneThree were performed by the Group audit team and its tax professionals and with support from UK tax specialists for certain procedures.

Risk

Revenue recognition

As more fully described in Note 2, Note 14 and Note 15 to the consolidated financial statements, the Group reported revenue of €40,461 million (FY25: €37,448 million), contract assets of €2,982 million (FY25: €2,969 million) and contract liabilities of €2,262 million (FY25: €2,228 million) for the year ended or as at 31 March 2026. Management records revenue according to the principles of IFRS 15, Revenue from Contracts with Customers, including following the 5-step model therein.

We identified a risk of management override through inappropriate manual topside revenue journal entries, given revenue is a key performance indicator, both in external communication and for management incentives.

We also consider auditing the revenue recorded by the Group to involve greater auditor effort and attention, due to the multiple IT systems and tools utilised in the initiation, processing and recording of transactions, which includes a high volume of individually low monetary value transactions. The involvement of IT professionals was required to determine the audit approach to test and evaluate the relevant data that was captured and aggregated, and to assess the sufficiency of the audit evidence obtained.

Our response to the risk

Our audit procedures at full scope and specific scope component locations included, among others obtaining an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the Group’s revenue recognition process, which includes management’s determination of the timing of revenue recorded. With the support of our IT professionals, we also evaluated the design and tested the operating effectiveness of management’s controls over the appropriate initiation and flow of transactional data through the IT systems and tools and the reconciliation of the transactional data to the accounting records. Where we were unable to rely on controls within the underlying IT systems, we designed alternative procedures to mitigate the risk.

For significant revenue streams, which include service and equipment revenue, at full and specific scope locations, our audit procedures included the following, on a sample basis:

We used data analytic tools to identify revenue related manual journal entries posted to the general ledger and traced these back to underlying source documentation, to evaluate the propriety, completeness and accuracy of the postings. We also performed analytical procedures to consider the completeness of journal entry postings;
Where it was deemed to be most effective, at certain components we extended the use of data analytics. These incremental procedures involved testing full populations of transactions, including performing a correlation analysis between invoiced revenue, receivables and cash. We performed targeted audit procedures over items above our testing threshold that did not correlate as expected;
In order to support our data analytic approach, we performed a completeness test over the underlying data to ensure this data reconciled to the financial statements;
At components where the above procedures were not used, for the significant revenue billing systems, we obtained the billing data to general ledger reconciliation, which included the relevant adjustments to deferred and accrued revenue balances. We reperformed these reconciliations, including assessing the accuracy of the revenue adjustments by vouching billing data inputs to underlying source documentation, including contractual agreements where applicable. In addition, we tested the mathematical accuracy and completeness of the reconciliations and reconciling items above our testing threshold, including significant revenue postings outside of the billing systems; and
We recalculated the revenue recognised to evaluate whether the processing of the revenue recognition by the Group’s IT systems was materially correct. Where relevant, for multi-element arrangements, we used contractual data to apply the Group’s accounting policy to allocate transaction price to the identified performance obligations and recalculate the revenue to be recognised.

We also assessed the adequacy of the Group’s disclosures in respect to the accounting policies on revenue recognition.

KEY OBSERVATIONS COMMUNICATED TO THE AUDIT AND RISK COMMITTEE

Based on the procedures performed, including those in respect of manual adjustments to revenue, we concluded that revenue has been appropriately recognised in accordance with IFRS 15, in the year ended 31 March 2026.

How we scoped our audit to respond to the risk and involvement with component teams

Our component audit teams performed audit procedures over this risk area in 5 full scope and 3 specific scope components, which covered 74% of the Group’s revenue. The Group audit team also performed centralised audit procedures over certain revenue streams which covered 1% of the Group’s revenue.

For the remaining 25% of revenue, we performed risk assessment, and selective analytical and controls testing procedures to ensure the risk of material misstatement was sufficiently low. We also performed targeted journal entry testing procedures to mitigate residual risk of material misstatement.

We held regular discussions with component teams throughout the audit, including in person on site visits at all locations. We participated in the development of their planned audit strategy for revenue recognition, reviewed all component deliverables and additional key and supporting workpapers prepared by the component teams to address the risk identified.

Risk

Merger of Vodafone Limited and Hutchison 3G UK

Holdings Limited in the UK

As more fully described in Note 27 to the consolidated financial statements, on 31 May 2025, the Group completed a transaction to merge Vodafone Limited (‘Vodafone UK’) and Hutchison 3G UK Holdings Limited (‘Three UK’), to form VodafoneThree Holdings Limited (‘VodafoneThree’) for a total consideration valued at €2,446 million. The transaction was accounted for using the acquisition method, which resulted in the recognition of identifiable intangible assets of €2,555 million, tangible assets of €3,457 million and goodwill of €1,358 million.

The audit of the merger required significant auditor judgement, in assessing control over VodafoneThree, including whether the Group has the power and ability to use that power to affect its returns. Significant judgement was also involved in evaluating the valuation of the consideration and the identified intangible and tangible assets, given the estimation uncertainty and sensitivity of key assumptions, including those relating to future performance.

Our response to the risk

We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over its accounting for the acquisition. We tested controls over management’s review of the control assessment, valuation of the consideration and valuation of identifiable intangible and tangible assets, including the review of the valuation models and significant assumptions, as described above, used in the valuation.

To test the control assessment, our audit procedures included, an evaluation of the terms of the Shareholder Agreement, including the rights of minority shareholders, and management’s own assessment against the requirements of IFRS 10.

To test the valuation models used to fair value the acquired identifiable intangible assets, our audit procedures included, among others:

assessing the competence, capabilities and objectivity of management’s specialists;
testing the completeness and accuracy of the underlying data used in the purchase price allocation by comparing to supporting ledgers, and evaluation of the valuation methodologies applied against the requirements of IFRS 13, with the involvement of our internal valuation specialists, and;
for identified intangible assets impacted by prospective financial information, we identified key assumptions and benchmarked them to available competitor data and external industry reports, and performed sensitivity analysis over the key assumptions.

To test the valuation of consideration, our audit procedures include, assessing the valuation of the Vodafone UK equity value contributed based on its standalone valuation model, market assumptions and review of the Shareholder Agreement.

In addition, we evaluated the adequacy of the related disclosures, in particular the description of the transaction and the purchase price allocation.

KEY OBSERVATIONS COMMUNICATED TO THE AUDIT AND RISK COMMITTEE

Based on the procedures performed, we agree that the assumptions, methodologies and judgements applied as part of the purchase price allocation (‘PPA’) are reasonable.

The disclosures in Note 1 and 27 are appropriate.

HOW WE SCOPED OUR AUDIT TO RESPOND TO THE RISK AND INVOLVEMENT WITH COMPONENT TEAMS

The Accounting for the merger with Three UK was audited centrally by the Group audit team with support from the component audit team on certain procedures at the local market level.

OUR APPLICATION OF MATERIALITY

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined our materiality for the Group to be €270 million (2025: €215 million), which is approximately 2.5% (2025: 2.0%) of Adjusted EBITDAaL. We believe that Adjusted EBITDAaL provides us with the most relevant performance measure for the continuing business on which to determine materiality, given the prominence of this metric throughout the Annual Report and consolidated financial statements, investor presentations, profit metrics focused on by analysts and its alignment to the management remuneration metric of adjusted EBIT. When calculating our final materiality, we consider the need to make adjustments to the basis for materiality to reflect a consistent view of the underlying business.

We determined materiality for the Parent company to be €588 million (2025: €421 million), which is approximately 1.5% (2025: 1.0%) of the Parent company’s equity. However, since the Parent company was a full scope component, for accounts that were relevant for the consolidated financial statements, a performance materiality of €43 million was applied.

The increase in the materiality for the Group and Parent company reflects the completion of significant portfolio changes as well as the overall stability of the industry and business as well as the viability of the Group.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the effectiveness of the Group’s overall control environment to prevent or timely detect and correct material errors, our judgement was that performance materiality was 75% (2025: 75%) of our planning materiality, namely €200m (2025: €160m).

Audit work was undertaken at component locations for the purpose of responding to the assessed risk of material misstatement of the consolidated financial statements. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was €39m to €200m (2025: €32m to €160m).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of €13m (2025: €11m), which is set at 5% of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report set out on pages 1 to 126, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the Parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.

CORPORATE GOVERNANCE STATEMENT

We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the UK Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 125;
Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on page 64;
Directors’ statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 64;
Directors’ statement on fair, balanced and understandable set out on page 125;
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 122;
The section of the annual report that describes the review of effectiveness of risk management and internal control systems, including the material control weakness described, set out on page 122; and
The section describing the work of the Audit and Risk Committee set out on page 92.

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on page 125, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and management.

We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are those that relate to the reporting framework (UK-adopted International Accounting Standards, with IFRS accounting standards as issued by the International Accounting Standards Board (IASB), Financial Reporting Standard 101 ‘Reduced disclosure framework’ (‘FRS 101’), the UK Companies Act 2006, UK Corporate Governance Code, the US Securities and Exchange Act of 1934 and the Listing Rules of the UK Listing Authority), the relevant tax compliance regulations in the jurisdictions in which the Group operates, the EU General Data Protection Regulation (GDPR) and other local Data Regulations.
We understood how the Group is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and compliance procedures and the Company Secretary. We supplemented our enquiries through our review of board minutes and papers provided to the Audit and Risk Committee, correspondence received from regulatory bodies and attendance at all meetings of the Audit and Risk Committee, as well as consideration of the results of our audit procedures across the Group, including our testing of entity level and group-wide controls.
We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by meeting with management from various parts of the Group, including management and finance teams of the local markets designated as full scope and specific scope locations, management at Head Office, the Audit and Risk Committee, the Group Internal Audit function, the Group Legal function, the Group Corporate Security team and individuals in the fraud and compliance department, to understand where it considered there was susceptibility to fraud; and assessing whistleblowing logs and associated incidences for those with a potential financial reporting impact. We also considered performance targets and their propensity to influence efforts made by management to manage earnings or influence the perceptions of analysts. We considered the programmes and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud, and how senior management monitors those programmes and controls.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations or fraudulent financial reporting, where the impact on the financial statements of such non-compliance or fraudulent financial reporting could be material. These procedures included, where necessary, the use of forensic and other relevant specialists. Our procedures involved enquiries of external legal counsel and other specialists, management and finance teams of the local markets designated as full and specific scope locations, management at Head Office, the Audit and Risk Committee, the Group Internal Audit function, the Group Legal function, the Group Corporate Security team and individuals in the fraud and compliance department. We also performed journal entry testing, with a focus on manual consolidation journals, journals indicating large or unusual transactions and journals with key words that could indicate management override, based on our understanding of the business; and challenging the assumptions and judgements made by management in respect of significant one-off transactions in the financial year and significant accounting estimates, as referred to in the key audit matters section above. At a component level, our full and specific scope component audit teams’ procedures included enquiries of component management; journal entry testing; and testing in respect of the key audit matter of revenue recognition. We also leveraged our data analytics capabilities in performing work on the purchase to pay process and fixed asset balances and leases, to assist in identifying higher risk transactions and balances, for testing. Any instances of non-compliance with laws and regulations, including in relation to fraud, were communicated by/to components and considered in our audit approach, if applicable.
Where the risk of fraud, including the risk of management override, was considered to be higher, including areas impacting Group key performance indicators or management remuneration, we performed audit procedures to address each identified material fraud risk or other risk of material misstatement. These procedures included those on revenue recognition referred to in the key audit matters section above and testing journal entries that we judged to be of higher risk and were designed to provide reasonable assurance that the financial statements were free from material fraud or error.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

OTHER MATTERS WE ARE REQUIRED TO ADDRESS

Following the recommendation from the Audit and Risk Committee, we were appointed by the Parent company on 23 July 2019 to audit the financial statements for the year ending 31 March 2020 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is seven years, covering the years ending 31 March 2020 to 31 March 2026.
The audit opinion is consistent with the additional report to the Audit and Risk Committee.

USE OF OUR REPORT

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

BCAJ Admin

IFRS Disclosures About Uncertainties: What Finance Leaders Need To Know

The IASB’s 2025 illustrative examples clarify existing IFRS disclosure requirements regarding uncertainties, particularly climate-related risks. They emphasize that materiality includes qualitative factors, requiring transparency in critical assumptions and estimates even when financial impacts appear small. Financial statements must provide a coherent narrative consistent with sustainability reports to meet growing stakeholder expectations. Key themes include linking climate-related matters to credit risk and enhancing disaggregation. These principles apply equally to Ind AS, with regulators expecting companies to reassess their disclosures to ensure they faithfully reflect all significant strategic, economic, or operational uncertainties.

INTRODUCTION

In November 2025, the International Accounting Standards Board (IASB) issued a set of illustrative examples titled Disclosures about Uncertainties in the Financial Statements. These examples were added to the guidance accompanying IFRS 7, IFRS 18, IAS 1, IAS 8, IAS 36 and IAS 37. Although the examples use climate-related scenarios, the principles apply to all forms of uncertainty affecting financial reporting. Importantly, the guidance does not introduce new accounting requirements; instead, it demonstrates how existing IFRS requirements should be applied in practice.

The initiative reflects increasing expectations from investors, regulators and other stakeholders that financial statements, management commentary and sustainability disclosures should tell a coherent and consistent story. Concerns had been raised that some entities were discussing significant risks—particularly climate-related risks—in sustainability reports while providing little or no related information in their financial statements. The IASB’s examples seek to address this perceived disconnect.

WHY THE GUIDANCE MATTERS

The examples reinforce a fundamental IFRS principle: material information must be disclosed when it could reasonably influence the decisions of users of financial statements. Materiality is not determined solely by numerical size. Qualitative factors—such as strategic importance, regulatory developments, industry trends, or stakeholder expectations—can make information material even when the immediate financial impact appears limited.

Consequently, management must look beyond the face of the financial statements and consider the broader context in which investors evaluate the business. Information discussed in sustainability reports, climate-transition plans, industry developments, or public commitments may create expectations that require corresponding explanations within the financial statements.

KEY THEMES FROM THE ILLUSTRATIVE EXAMPLES

1. Materiality Requires Both Quantitative and Qualitative Assessment

The first example presents two contrasting scenarios. In one case, a company concludes that explaining why its climate-transition plan has not yet affected its financial statements is material because investors would reasonably expect to see such effects. In the second scenario, a company with limited exposure to climate-related risks determines that a similar disclosure would not be material.

The lesson is that materiality is highly entity-specific. Management must consider not only the magnitude of financial effects but also factors such as the business model, industry exposure, regulatory environment and stakeholder expectations.

The transparency Gap

2. Assumptions and Estimates Must Be Transparent

The guidance highlights that disclosures should focus on assumptions that truly drive outcomes.Under IAS 36, companies performing impairment testing should disclose key assumptions whenever they are material to understanding recoverable amounts, even when no impairment is recognised.

Similarly, IAS 1 and IAS 8 require disclosure of significant estimation uncertainties. Companies may need to explain assumptions that could lead to material changes in asset or liability values in future periods, even if those uncertainties will not be resolved within the next year.

For preparers, the implication is clear: boilerplate disclosures are increasingly unlikely to satisfy users or regulators. Investors want insight into the assumptions management considers most critical.

3. Climate Risk and Credit Risk Are Connected

The IFRS 7 example demonstrates how climate-related factors may affect credit risk assessments. Financial institutions and other lenders may need to explain how climate-related risks influence expected credit losses, portfolio quality and risk management practices.

This example is particularly significant because it shows that climate considerations are no longer viewed solely as sustainability matters. They can directly affect financial instruments, credit quality and valuation decisions.

4. Small Accounting Amounts Can Still Require Disclosure

One of the most practical examples relates to decommissioning and site-restoration provisions under IAS 37. The provision recognised in the financial statements may be quantitatively small because future cash outflows are discounted to present value. However, the underlying obligation and the undiscounted settlement costs may be substantial.

The example illustrates that disclosures may still be necessary when the nature of an obligation or the uncertainty surrounding it is significant, even if the carrying amount appears immaterial.

5. Greater Focus on Disaggregation

The final example addresses aggregation and disaggregation requirements under IFRS 18. Companies may need to separate information about assets that are currently reported together if they are exposed to different risks or uncertainties. For example, this may involve disclosing separately the carrying amounts of two types of PP&E in the notes to the financial statements.

The example illustrates possible factors an entity might consider when determining whether the two types of PP&E have sufficiently dissimilar risk characteristics such that disaggregating them would result in material information. These factors may include the size of the PP&E carrying amount, the significance of climate related transition risks to the entity’s operations, and external climate related qualitative factors (such as market, economic, regulatory and legal framework).

The objective is to ensure that users receive information that is sufficiently detailed to understand how different parts of the business are affected by evolving economic, regulatory or climate-related developments.

PRACTICAL IMPLICATIONS FOR COMPANIES

Regulators are likely to expect entities to consider them in upcoming reporting cycles. The examples represent the IASB’s current thinking on how existing disclosure requirements should be applied. As a result, companies should reassess whether their financial statement disclosures adequately reflect significant uncertainties discussed elsewhere in the annual report.

Management teams should consider the following questions:

Are climate-related or other strategic risks discussed outside the financial statements adequately reflected within the financial statement disclosures?
Do impairment models disclose the assumptions that genuinely drive valuation outcomes?
Have significant estimation uncertainties been described with sufficient specificity?
Could qualitative factors make an apparently small item material?
Would investors benefit from more disaggregated information about assets, liabilities or risk exposures?

CONCLUSION

The IASB’s new illustrative examples do not create new accounting rules. Instead, they raise expectations around transparency, judgement and connectivity in corporate reporting. The overarching message is that financial statements should provide a faithful and coherent explanation of how uncertainties—whether climate-related, economic, regulatory or operational—affect an entity’s financial position and performance.

For finance leaders, the challenge is no longer simply determining whether an uncertainty has produced a measurable accounting impact. Increasingly, the question is whether investors would expect to understand how that uncertainty has been assessed, even when the immediate financial consequences appear limited. The examples signal that meaningful disclosure, supported by robust judgement, will remain central to high-quality IFRS reporting. The examples do not have an effective date or transition requirements. Entities are entitled to sufficient time to implement any changes resulting from the illustrative examples.

Ind AS and IFRS requirements are aligned (barring some legacy differences). Whilst the above discussion is presented in the context of IFRS, it equally applies to Ind AS, and NFRA would expect to see disclosures that comply with the spirit of the change that IASB is seeking to achieve. The examples discussed above, do not introduce any new disclosure requirements; rather, they explain existing disclosure requirements. The Examples are not included in Ind AS because of prevailing copyright issues. Therefore, preparers applying Ind AS should refer directly to these examples in the IFRS guidance discussed above and comply with the spirit of those requirements, without exception.

BCAJ Admin

Recent Decisions in GST

I HIGH COURT

30. (2026) 43 Centax 124 (Del.) Directorate General of GST Intelligence vs. Girish Sachdeva dated 05.06.2026

Prior notice before coercive action is an important safeguard, but it does not restrict the department from continuing its investigation or taking lawful action thereafter.

FACTS

Petitioner initiated investigation against M/s. Daak International Pvt. Ltd. on intelligence that the company had issued high-value E-way bills without filing GST returns. During verification, the company was found non-existent at its registered address. Respondents were identified as directors/persons connected with the company. Petitioner alleged availment of ineligible ITC and circular trading resulting in substantial tax evasion. Summons were issued requiring the respondents to appear and produce records. Respondents furnished replies but allegedly did not appear as required. They filed anticipatory bail applications before the Sessions Court. The Sessions Court rejected anticipatory bail but directed the petitioner to give seven day’s prior notice before taking coercive action. Being aggrieved only by the prior-notice direction, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that economic offences involving tax evasion require serious investigation. Petitioner retained full power to investigate and proceed in accordance with law. Since only summons had been issued and there was no imminent threat of arrest, the Court declined to grant anticipatory bail. The Court further held that the direction requiring seven days’ prior notice before any coercive action did not amount to blanket protection, as it neither restricted the investigation nor prevented the department from proceeding in accordance with law. Accordingly, the petition was dismissed.

31. (2026) 43 Centax 73 (All.) Samarpan Jain vs. State of U.P. dated 21.05.2026

An Advocate cannot be criminally prosecuted for bona fide professional acts performed during client representation, absent independent material showing conspiracy

FACTS

Petitioner was an Advocate engaged by a registered taxpayer for the purpose of filing statutory appeals under section 107 of the Goods and Services Tax Act. The appeals challenged tax, interest, and penalty orders passed against the assessee. Acting on instructions, the petitioner filed two online appeals before the respondent. Petitioner debited the statutory pre-deposit from the assessee’s Electronic Credit Ledger by utilising ITC. Respondent rejected this mode and dismissed the appeals as not maintainable. Thereafter, respondent lodged an FIR against the assessee and the petitioner. The FIR alleged illegal debit of ITC and conspiracy to evade tax. The police filed a charge-sheet and cognizance was taken. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that criminal proceedings against the petitioner were legally unsustainable. In Union of India vs. Yasho Industries Ltd. (2025) 30 Centax 352 dated 28-07-2025, ECL utilisation for pre-deposit was considered permissible. This supported the petitioner’s professional understanding while filing appeals. The petitioner acted only as an Advocate in the appellate proceedings. A professional act, even if legally debatable, could not constitute conspiracy with the client. Criminal prosecution for filing appeals would impair fearless legal representation and citizens’ right to legal assistance. The FIR, charge-sheet, and cognizance order were quashed against the petitioner.

32. (2026) 43 Centax 51 (Del.) IBA Crafts Pvt. Ltd. vs. Union of India dated 26.05.2026

Statutory IGST refund on zero-rated exports cannot be denied or stalled merely due to absence of departmental procedure.

FACTS

Petitioners exported goods through authorised Foreign Post Offices during July 2017 to June 2018. For July to December 2017, the exports were made on payment of IGST. From January 2018 onwards, the exports were made under LUT. Export proceeds were received through authorised banking channels. Petitioner claimed refund of IGST paid on zero-rated exports. They submitted export details, postal receipts, GSTR-1 records, and proof of tax payment. However, the refund claim was not processed due to absence of a prescribed procedure and data-capture mechanism. The Foreign Post Office stated that Customs was required to process the refund. The respondent-authorities, particularly Customs officers, expressed inability due to lack of Board-prescribed procedure. Being aggrieved, the petitioners approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that a statutory refund of IGST paid on zero-rated exports cannot be denied or kept pending merely due to the absence of a prescribed procedure or data-capture mechanism. Having fulfilled the statutory requirements and furnished the necessary documents, the petitioners were entitled to refund. The Court observed that procedural gaps or administrative inaction could not defeat a substantive statutory right and directed the respondents to take concrete steps for processing the refund claims.

33. [2026] 187 taxmann.com 233 (Madras) Noordeen Enterprises vs. Additional Director General Directorate of GST Intelligence dated 03-06-2026] dated 03-06-2026

When the GST Department issued recovery notices to the customers of petitioner before completion of adjudication, the Hon’ble Court declared the pre-adjudication recovery communications invalid, while preserving the department’s right to undertake lawful recovery after determination of liability.

FACTS

The respondents (GST authorities) issued letters to the customers of the petitioners directing them to remit amounts payable to the petitioners directly to the Government GST account. These communications were issued during the investigation stage when only a tax proposal existed and no adjudicated tax liability was determined against the petitioners. Pursuant to such communication, one customer remitted ₹15 lakh to the GST authorities. Similar letters were allegedly issued to other customers of the petitioners. The petitioners challenged the validity of such actions. Meanwhile, adjudication orders determining tax liability were subsequently passed and were separately under challenge.

HELD

The Hon’ble Court held that any letters issued by the GST authorities to customers of the petitioners prior to the issuance of an Order-in-Original determining tax liability are invalid and cannot form the basis for recovery proceedings. In MNS Enterprises vs. Additional Director General Directorate of GST Intelligence WP No.20067 of 2021 dated 04/03/2022 recovery before crystallization of liability was held impermissible. The Court reiterated that when the communications were issued, the alleged tax demand was not crystallized into an enforceable liability. Therefore, neither section 79 (recovery proceedings) nor section 83 (provisional attachment) could be invoked for such recovery. However, the Court clarified that after issuing adjudication orders determining tax liability, the authorities are at liberty to initiate recovery proceedings in accordance with the law, including recourse to section 79(1)(c) of the GST enactment.

34. [2026] 187 taxmann.com 287 (Gauhati) Metal Syndicate vs. Union of India dated 05-06-2026

Unless evidence exists showing collusion, fraud or lack of bona fides on the part of the purchaser, the ITC cannot be denied to the bona fide purchasers of the goods if the supplier has failed to pay tax to the Government.

FACTS

The petitioner, engaged in the business of trading scrap batteries, purchased goods from registered suppliers located in Kolkata during the period July 2017 to March 2019. The petitioner received the goods, paid the value of the goods along with GST through banking channels, and possessed valid tax invoices.

The petitioner duly filed GSTR-1 and GSTR-3B returns and availed Input Tax Credit (ITC) in accordance with section 16 of the CGST Act. Subsequently, the Directorate General of GST Intelligence (DGGI) alleged that the petitioner had availed ineligible ITC on certain invoices without actual receipt of goods. Summons were issued and the petitioner produced all relevant documents, including purchase invoices and GST returns. A search conducted at the business premises did not result in recovery of any incriminating material. The petitioner also confirmed that goods were received and payments were made through banking channels. Despite this, a Show Cause Notice was issued proposing the denial of ITC amounting to ₹78.70 lakh along with interest and penalty alleging that the petitioner had wrongly availed and utilized the ITC of Rs.78,70,952/- in violation of section 16(2)(a)(b) of the CGST Act, 2017 without actual receipt of goods and thereby proposed recovery of tax along with interest and penalty. The demand was confirmed through an Order-in-Original and subsequently upheld in appeal. The petitioner challenged both orders before the High Court.

HELD

The Hon’ble Court observed that the issue was squarely covered by the earlier decision in the case of National Plasto Moulding vs. State of Assam. [2024] 129 GSTR 544 (Gauhati). The Court reiterated that where a purchasing dealer has purchased goods from a registered supplier, received valid tax invoices, received the goods, paid consideration including GST through banking channels, and complied with statutory requirements, ITC cannot be denied merely because the supplier subsequently failed to deposit the tax with the Government. The Court emphasized that a bona fide purchaser cannot be expected to ensure that the supplier remits tax to the Government. Such an interpretation would place an impossible burden upon the purchaser. It further held that the proper remedy for the department is to proceed against the defaulting supplier and recover the unpaid tax from such supplier rather than denying ITC to the purchasing dealer. However, if evidence exists showing collusion, fraud or lack of bona fides on the part of the purchaser, the department would be free to initiate proceedings in accordance with law. Accordingly, the Order-in-Original and Order-in-Appeal were quashed and set aside.

35. [2026] 187 taxmann.com 185 (Gauhati) MD. Nekib Hussain vs. Union of India dated 01-06-2026

The Hon’ble Court permitted the petitioner to approach the jurisdictional authority within sixty days seeking restoration of GST registration by fulfilling the requirements of proviso to Rule 22(4) of the CGST Rules.

FACTS

The petitioner, a proprietorship concern engaged in execution of works contract services, was a registered person under the GST law. Due to non-filing of GST returns for a continuous period of six months, a Show Cause Notice was issued by the Superintendent, CGST. Simultaneously, the GST registration of the petitioner was suspended and was subsequently cancelled. The petitioner contended that the default occurred because of negligence on the part of the tax consultant, who failed to inform him about the non-compliance. The petitioner was willing to file all pending returns and pay the entire tax dues along with applicable interest, penalty, and late fees but could not do so because of restrictions on the GST portal and expiry of the prescribed time for seeking revocation. The petitioner relied upon the earlier decision of the Gauhati High Court in Dhirghat Hardware Stores vs. Union of India [2025] 180 taxmann.com 73 (Gauhati), which involved identical facts and legal issues.

HELD

The Hon’ble Court observed that the controversy was fully covered by its earlier decision in Dhirghat Hardware Stores vs. Union of India. The Court noted that the proviso to Rule 22(4) provides that where a registered person, instead of replying to the show cause notice issued for non-filing of returns, furnishes all pending returns and pays the entire tax liability together with applicable interest and late fees, the proper officer may drop the cancellation proceedings and restore the registration. Considering that cancellation of GST registration results in serious civil consequences and that the petitioner was willing to regularize all defaults, the Court held that the petitioner deserved an opportunity to restore the registration. Accordingly, the petitioner was permitted to approach the jurisdictional authority within sixty days seeking restoration of GST registration. Upon filing all pending returns and making payment of tax, penalty, interest, and late fees as required under Rule 22(4), the authority was directed to consider the application and take necessary steps for restoration of registration expeditiously. The Court further directed that the limitation period prescribed under section 73(10) shall be computed from the date of the Court’s order, except for Financial Year 2024-25, which would be governed by section 44 of the CGST Act.

36. [2026] 187 taxmann.com 74 (Allahabad) Sai Auto Mobiles vs. Commissioner Central Goods Service Tax and Central Excise dated 29-05-2026

Where the Adjudication Order is passed adversely and against the petitioner without supplying to him relied upon documents even after specific requests made by the petitioner, the Hon’ble Court set aside the order and remanded the matter for adjudication afresh.

FACTS

The petitioner, a registered person under the GST regime, challenged an adjudication order passed under section 74 of the CGST Act confirming tax demand, interest and penalty. During adjudication proceedings, the petitioner specifically applied to the Department for supply of copies of the Relied Upon Documents (RUDs) forming the basis of the Show Cause Notice. However, neither was the application decided nor were the requested documents supplied. The petitioner contended that due to non-supply of RUDs, it was deprived of an effective opportunity to defend itself. It was also argued that certain accounting discrepancies, including alleged double entries, had been explained in the reply but were not considered by the adjudicating authority. Aggrieved by the confirmation of demand without supply of the relied upon documents, the petitioner approached the High Court under Article 226. The Revenue failed to produce satisfactory material showing that the RUDs had been supplied before passing the adjudication order.

HELD

The Hon’ble Court held that where a demand is proposed based on specific RUDs, supply of such documents is an essential requirement of natural justice. The Court observed that without access to the RUDs, a taxpayer’s reply to the Show Cause Notice would remain incomplete and the right to effectively contest the proposed demand would be seriously impaired. Since the Revenue failed to establish that copies of the RUDs had been supplied and the petitioner had specifically pleaded non-supply, the Court inferred that the documents had not been furnished prior to confirmation of the demand. Accordingly, the impugned adjudication order was set aside, and the matter was remanded for fresh adjudication for passing a speaking order and allow cross-examination of witnesses where adverse statements are relied upon, unless valid reasons exist for refusal.

II GST APPELLATE TRIBUNAL

37. (2026) 43 Centax 75 (Tri. – GST – Delhi) DG Anti Profiteering, Director General of Anti-Profiteering, DGAP vs SJP Hotels & Resorts Pvt. Ltd. dated 26.05.2026

A concluded anti-profiteering determination cannot be reopened through a fresh complaint for the same project, period, respondent, and cause.

FACTS

Respondent developed the real estate project after GST was introduced. Earlier, some homebuyers had filed complaints alleging profiteering in the same project. The DGAP investigated those complaints and computed profiteering for the entire project. The computation also included the amount attributable to the petitioner. The competent authority confirmed violation of section 171 of the CGST Act. The respondent challenged that order, but the writ petition was dismissed. Thus, the earlier findings became final. Later, the petitioner filed another complaint for the same project and period. The Standing Committee recommended fresh investigation. During proceedings, the petitioner withdrew the complaint after receiving possession. A full settlement deed was also produced. The DGAP placed the matter before the Hon’ble Tribunal.

HELD

The Hon’ble Tribunal held that fresh investigation was not maintainable for the same respondent, project, period, and cause. In DG Anti-Profiteering vs. SJP Hotels & Resorts Pvt. Ltd., (2026) 43 Centax 75 dated 26-05-2026, final adjudication barred reopening. The earlier profiteering determination had been investigated, adjudicated and affirmed by the Hon’ble High Court. The issue had therefore attained finality on facts and law. Res judicata prevented repeated proceedings on an already concluded subject. The unconditional withdrawal and settlement deed further rendered the complaint infructuous. Accordingly, the proceedings were dropped, and no further action was directed.

BCAJ Admin

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.2/2026-Central Tax dated 07.05.2026

By above notification, the GSTAT Principal Bench is notified as the National Appellate Authority for Advance Ruling (NAAAR) with effect from 1st April 2026.

ii) By Office Order No.3/GSTAT/PB/2026 dt.14.05.2026, the constitution of the GSTAT Bench has been specified.

B. ADVISORY

i) GSTN has issued an Advisory dated 18.05.2026 in relation to the filing of Annexure-B for refund applications involving accumulated ITC using the offline utility on the GST portal.

ii) GSTN has issued Advisories dated 20.05.2026 & 21.05.2026 informing Taxpayers and Stakeholders about enhancements in the E-Way Bill (EWB) Portal.

iii) GSTN has issued an Advisory dated 09.06.2026 regarding the extension of the timeline for implementation of the “Ship to GSTIN” and Voluntary Closure of E-Way Bill functionalities. The timeline has been extended to 01.08.2026.

C. ADVANCE RULINGS

Easy Flux Polymers Pvt. Ltd. (AAAR Order No. 01/2026-2027 dt. 02.04.2026)(Raj)

16. Classification – Only Biodegradable Bags are eligible for the benefit of the concessional rate of tax, under Entry No. 319 of Schedule I to Notification No. 09/2025-Central Tax (Rate).

FACTS

This appeal arose out of the order of the Ld. AAR, Rajasthan, reported in 2026-VIL-36-AAR. The appellant is engaged in the manufacture and supply of compostable plastic bags, which are claimed to be eco-friendly substitutes for conventional plastic bags. The Appellant holds valid CPCB / CIPET / TÜV Rheinland certifications confirming compostability and biodegradability as per ISO 17088 and EN 13432 standards in respect of said product.

Vide Notification No. 09/2025-CTR dated 17th September, 2025 (effective from 22.09.2025), the Government inserted an entry at Serial No. 319 in Schedule- I, prescribing GST @ 5% for “Paper Sacks/Bags and Biodegradable Bags” under Chapters 39 & 48.

The appellant applied for an advance ruling before the Ld. AAR regarding the classification of its product.

The Ld. AAR ruled that the bags in question are made from polymer materials and are classifiable under Chapter 39 – Plastics and articles thereof, specifically under heading 3923, being articles for the conveyance or packing of goods. It was held that this classification is independent of whether the material is biodegradable or not. Regarding the rate of tax, the Ld. AAR held that it was not in a position to decide whether the product is biodegradable or compostable and ruled that, if bags are biodegradable, then the benefit of Entry No. 319 of Schedule I to Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025 would be available and GST would be payable at the rate of 5% (2.5% CGST + 2.5% SGST); otherwise, GST would be payable at 18%.

In appeal, the appellant reiterated its submission that the Ld. AAR failed to appreciate that the CPCB/CIPET certification is conclusive and that the ruling lacks clear findings and is arbitrary and unsustainable.

The appellant further clarified the nature and quality of the goods so as to merit classification as biodegradable bags.

HELD

The Ld. AAAR, on the basis of the certificates and other material, appreciated the factual position that the bags manufactured by the appellant fall under Chapter 39- ‘Plastics and articles thereof’ and that rate of 5% applies if they are bio-degradable.

However, the Ld. AAAR concurred with the ruling of the AAR, observing as under:

“15. We agree with the findings of the AAR, Rajasthan that advance ruling authorities do not possess the jurisdiction to determine whether a product meets environmental, technical or scientific standards of bio-degradability or compostability and that determination of bio-degradability of any product is not in the scope of this advance ruling forum. We find that advance ruling authority is preordained forum for interpretation of GST law to answer questions on the issues as prescribed under Section 97(2) of CGST Act, 2017. And therefore, it can only be concluded that if the products of the applicant are bio-degradable, then the same would be eligible for benefit of concessional rate of tax under Entry No. 319 of Schedule I to Notification No. 09/2025-Central Tax (Rate) dated 17th September, 2025, otherwise the applicable rate for plastic bags under Chapter 39 would apply.”

The Ld. AAAR also observed that the jurisdictional GST field formation may draw samples and get the same tested and decide the applicability of the rate depending upon the findings regarding the biodegradability of the product.

17. Akhil Arun Naik (AAAR Order No. GOA/GAAAR/01 of 2025-26/1973 dt.31.7.2025)(Goa)

Classification – Drinking water not in sealed bottles. Supply of drinking or potable water through water tankers is exempt from Tax.

FACTS

The appellant received a work order from the Indian Institute of Technology (IIT), Goa for the staggered delivery of potable drinking water for students. The said water was to be transported either from a well or from an R.C.C. storage tank of the Public Works Department(PWD) for students.

The appellant sought an advance ruling as to whether GST would be applicable if a bulk quantity of water is supplied through tankers.

The members of the Advance Ruling Authority differed on the GST applicability on the supply of the said water. The SGST Member found the supply of water through water tankers exempt under Entry No. 99 of exemption Notification No. 2/2017-CT (Rate) dated 28.06.2017, whereas the CGST Member held opposite view. Accordingly, the impugned Advance Ruling Order No. GOA/GAAR/04 of 2023-24 dated 31.01.2025 – 2025-VIL-222-AAR was passed, and the said order was referred to the Appellate Authority for hearing and decision, as envisaged under Section 98(5) of the GST Act.

HELD

The Ld. AAAR noted that the water sourced from a well or an RCC storage tank (containing chlorinated water) maintained by the PWD is supplied via tankers by the appellant to IIT, Goa for use by students.

The Ld. AAAR reproduced the relevant Entry No. 99 of Notification No. 2/2017-CT (Rate) dated 28.06.2017, which reads as under:

“Water [other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container]” – NIL rate of CGST.

The Ld. AAAR analyzed the entry and observed that:

“- The entry provides GST exemption for supply of “water”, subject to certain exclusions;

– Excluded from this exemption are specific types of aerated water, mineral water, purified water, distilled water, distilled water, medicinal water and water sold in sealed containers.”

The Ld. AAAR also referred to Circular No. 56/26/2018-GST dated 09.08.2018 explaining the applicability of GST on the supply of potable or drinking water for public purposes, which had not been considered by the members of AAR. The Ld. AAAR, after analysis, held that “it is an undisputed fact as observed from the work order submitted by the applicant that the drinking or potable water was required to be supplied by the applicant through water tankers to IIT Goa students. Hence, it clearly comes out in the instant case that the drinking or potable water is not supplied in a sealed container and is clearly for public purpose. Accordingly, exemption for GST to the impugned supply of drinking or potable water through water tankers to IIT Goa for students is available under Sl. No. 99 of Notification No. 2/2017-CT (Rate) dated 28.06.2017 as amended.”

Accordingly, the Ld. AAAR held supply of water as exempt.

18. Indian Oil-Adani Gas Pvt. Ltd. (AAAR Order No. GOA/GAAAR/02 of 2025-26/2209 dt.18.8.2025)(Goa)

RCM on Government Services: PWD Goa, being the service provider, falls under the category of State Government or Local Authority, and the service receiver (being business entity) is liable to pay GST under RCM.

FACTS

The appeal arose from the ruling of the AAR vide order no. GOA/GAAR/01 of 2024-25 dated 30.01.2025.

The appellant had sought an advance ruling for determination of the following questions:

“Whether GST on permission charges, reinstatement charges, road cutting charges and ground rent charges levied by Goa PWD authorities is to be paid under reverse charge by IOAGPL in terms of Serial No. 5 of Notification No. 13/2017- Central Tax (Rate) dated 28-06-2017?”

The Ld. AAR held that RCM is leviable on the charges paid as above to the Goa PWD.

In appeal, the appellant reiterated its submission that, as per section 7(2), activities or transactions undertaken by the Central / State Government, or any Local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of service.

Reference was also made to Entry No.4 of the Twelfth Schedule to the Constitution, which entrusts the municipalities i.e. the local bodies/authorities, with the construction of roads and bridges within their respective jurisdiction, which includes maintenance, repairs, restoration etc. of the roads. The argument was that, since the functions of construction, repairs, maintenance of the roads were undertaken by the PWD department (which is the State Government itself), the same did not constitute a taxable supply by the PWD and, hence, no RCM was leviable.

HELD

After discussion, the Ld. AAAR held as under:

“11.2 Here, we observe that Sl. No. 5 of Notification No. 13/2017-CT dated 28.06.2017 clearly states that GST on the services that supplied by the Central Government, State Government, Union territory or local authority to a business entity is payable by the service recipient i.e. the business entity. In the instant case, PWD Goa, the service provider falls under category of State Government or Local Authority and the appellant (IOAGPL), the service receiver is a business entity. Hence, the appellant are rightly liable to pay GST under RCM, in the instant matter, in terms of Sl. No. 5 of Notification No. 13/2017-CT dated 28.06.2017.”

The Ld. AAAR refrained from deciding the taxability of the services under reference, as the same was not under challenge before AAR.

One more issue raised by the appellant was that the original Advance Ruling was passed after 90 days, as provided under section 98(6). The appellant argued that the Advance Ruling should be declared void. However, the Ld. AAAR held that although the Advance Ruling should be passed within 90 days, no consequences are prescribed under section 98(6) in the event of a delay in passing the Advance Ruling. In view of the above, the Ld. AAAR held that the Advance Ruling, though passed after 90 days, was still validly effective.

19. Nichirin Imperial Autoparts India Pvt. Ltd. (AAAR Order No. HAAAR/2022-23/03 dt.29.4.2026) (Haryana)

Classification – Brake Hoses – Interpretation of entries

FACTS

The appellant is engaged in the manufacture and import of automotive components, including Brake Hoses for two-wheelers and four-wheelers. The appellant sought an advance ruling from the AAR regarding the classification and applicable GST rate for its product, “Brake Hoses.” The AAR, in Order No. HAAR No. HR/ARI/09/2021-22, dated 13.12.2021, classified Brake Hoses for four-wheelers under HSN 8708 with a GST rate of 28% and brake hoses for two wheelers under HSN 8714 with a GST rate of 5%. Aggrieved by this ruling, the Appellant filed the present appeal before the AAAR.

The appellant contended that Brake Hoses are essentially rubber hoses with fittings and should be classified under HSN 40093100 & 40093200, which covers “Tubes, pipes and hoses, of vulcanized rubber other than hard rubber, with fittings,” attracting GST rate of 18%.

HELD

The Ld. AAAR considered three relevant Headings for classification of the above product – namely Heading 4009, 8708 and 8714 – as applicable prior to 22.9.2025.

The Ld. AAAR also referred to the classification methodology under the Customs Act and considered the relevant Chapter Notesas well as the General Rules for Interpretation.

The Ld. AAAR referred to Notification No. 72/93-Cus. dated 28.02.1993 issued under the Customs Act, wherein the product in question was also shown as classifiable under Chapter 4009.

The Ld. AAAR further referred to the decisions in M/s Track Parts Corporation [1992 (57) ELT 98 (Tri.) – 1991-VIL-15-CESTAT-DEL-CU] and M/s. Dunlop India Ltd. [1997 (91) ELT 673 (Tri.)], wherein the Tribunal consistently recognized that products composed predominantly of rubber and retaining their material identity must be classified under Chapter 40, even if used in automobiles. The mere fact that the hoses are sold to automobile manufacturers does not automatically reclassify them as “motor vehicle parts” under Chapter 87.

In view of the above, the Ld. AAAR held that the Brake Hoses manufactured and supplied by the appellant, being primarily composed of vulcanized rubber and retaining the essential characteristics of hoses, are appropriately classifiable under Heading 4009 of Chapter 40 and taxable at 18% GST.

The Ld. AAAR allowed the appeal and classified the product under Chapter 4009.

20. Chelliah Rangaraj (AAR Order No. 45/ARA/2026 dt.5.5.2026)(TN)

Business – Taxability of License fees: Activity of granting a license to collect hair from the temple premises against consideration by way of license fees is a taxable activity.

FACTS

The applicant, a registered person, is engaged in the collection of human hair from Arulmigu Mariamman Temple, Samayapuram, Tiruchirappalli Dist. Tamil Nadu (hereinafter known as the temple). The applicant stated that Temple Authorities conduct an auction for the activity of sale of human hair within the Temple premises, The Applicant participates in such auctions and pays the auction amount to the Temple Authorities. The applicant further stated that the Temple is collecting GST on the auction amount on the ground that the said activity falls within the ambit of GST.

Under above circumstances, the applicant has sought advance ruling on the following questions:

“1. Whether, the Auction amount that is collected by the Temple Authorities, which is controlled by the HR & CE Department for collection of human hair falls within the ambit of section 7 of CGST Act.

2. Whether the Temple is business premises.

3. Sale of Human hair is exempted from GST Tax liabilities, and whether as a consequence the Auction amount paid to the Temple for conducting the activity of collection of hair is also exempted.”

The applicant explained that the temple is managed by the Hindu Religious and Charitable Endowments Department, Tamil Nadu (HR & CE department). The public offers hair as part of a religious practice. The Temple grants a license to the successful tenderer to collect human hair from the premises of the temple against licence fees. The applicant argued that undertaking such activity from the temple premises does not amount to carrying on any business activity, nor does it amount to providing any service under the GST Act.

It was also argued that human hair is exempted from GST and that the payment of fees in terms of the tender cannot be considered as “consideration”. In the absence of any consideration, GST cannot be collected by the Temple Authorities.

Although the Ld. AAR was initially reluctant to entertain the Advance Ruling application on the ground that the applicant himself was not a supplier, it entertained the same after considering the judgment of Hon. Calcutta High Court in M/s. Anmol Industries Limited vs The West Bengal Authority for Advance Ruling, Goods and Services Tax & Others (M.A.T. 630 of 2023 with I.A. No. CAN 1 of 2023 dated 21.04.2023) (2023-VIL-251- CAL).

HELD

The Ld. AAR noted that the temple is not raising any invoice but merely grants a license to collect human hair from the temple.

The Ld. AAR noted one of the conditions in E-tender, as under:

“18. The successful bidder is entitled to collect only the hair offered by the devotees. Any share in tonsure ticket or any other tickets will not be given.”

The Ld. AAR also noted that the temple charges fees from devotees for allowing tonsuring and observed that such activity is exempt, being a religious activity. The Ld. AAR further noted that the process of granting a license to collect the tonsured hair is a different activity altogether.

The Ld. AAR observed that all the activities undertaken by a temple or any place of worship are not exempt from GST. It was observed that commercial activities undertaken from a place of worship are liable to tax.

The Ld. AAR compared the activity in question with the renting of rooms by charitable institutions, which is a taxable service, and accordingly held the activity of granting a license to collect hair against consideration by way of license fees is a taxable activity.

The Ld. AAR also noted that although the sale of human hair is exempt under Notification No. 10/2025-Central Tax (Rate) dated 17.09.2025, the activity of granting a license to collect human hair, being an independent supply of service, is liable to tax.

The Ld. AAR ruled that the license fees collected by the temple are liable to GST in its hands.

BCAJ Admin

When Stakes Overrule Skills: Supreme Court’s Verdict On Online Gaming

The Supreme Court, in DGGI vs. Gameskraft, ruled that staking money on any game—whether based on skill or chance—constitutes “betting and gambling” under the GST framework. Reversing the Karnataka High Court’s decision, the Court validated a 28% GST levy on the full face value of bets rather than just the platform’s commission. It established that platforms create “actionable claims” and act as “suppliers”. Furthermore, the Court held that 2023 legislative amendments are clarificatory and retrospective, significantly impacting the digital economy by prioritizing the act of staking over player skill

INTRODUCTION

The advent of online gaming, fantasy sports, and digital casino platforms has brought longstanding debates regarding the boundaries between skill and chance, commerce and speculation, and regulation and prohibition into renewed focus within the Goods and Services Tax (GST) regime. Recently, the Supreme Court, in the case of DGGI vs. Gameskraft Technologies Private Limited 2026-VIL-51-SC ruled that placing monetary stakes on any game—irrespective of whether it is a game of skill or chance—constitutes “betting and gambling” under the GST framework, thereby validating the levy of GST on the full face value of the bets placed. This article analyses the said decision in detail and discusses the wide-spread impact thereon on GST jurisprudence.

LEGISLATIVE BACKGROUND

Prior to the introduction of the GST regime via the Constitution (One Hundred and First Amendment) Act, 2016, the legislative competence to levy taxes on betting and gambling was traceable to Entry 62 of List II of the Seventh Schedule to the Constitution, which empowered States to impose taxes on luxuries, including entertainments, amusements, betting, and gambling. Therefore, under the erstwhile service tax regime, betting, gambling, and lottery were placed in the negative list of services under Section 66D(i) of the Finance Act, 1994, thereby excluding them from the levy of service tax by the Union. Section 65B(15) of the Finance Act, 1994 defined “betting or gambling” as putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or contest whose result may be determined by chance or accident.

Following the 101st Constitutional Amendment, the earlier taxing fields under Entry 62 of List II were subsumed within the comprehensive GST framework under Article 246A, which conferred simultaneous legislative competence upon Parliament and State Legislatures to enact laws with respect to GST. Drawing upon the said powers, Section 9 of the CGST Act levies CGST on all intra-State supplies of goods or services or both. Section 2(52) of the CGST Act defines “goods” as every kind of movable property other than money and securities but explicitly includes “actionable claim”. An “actionable claim” is assigned the same meaning as in Section 3 of the Transfer of Property Act, 1882, which refers to a claim to any debt or to any beneficial interest in movable property not in the possession of the claimant, which civil courts recognise as affording grounds for relief.

While actionable claims are included within the definition of goods, Section 7(2) read with Schedule III of the CGST Act carves out certain activities which shall be treated neither as a supply of goods nor a supply of services. Entry 6 of Schedule III explicitly listed “Actionable claims, other than lottery, betting and gambling”. The entry was amended w.e.f. 01.10.2023 to list “Actionable claims, other than specified actionable claims”. In turn, the phrase “specified actionable claims” was defined under section 2(102A) to mean betting, casinos, gambling, horseracing, lottery and online money gaming. Therefore, even prior to its amendment on October 1, 2023, this entry excluded lottery, betting, and gambling from the general exemption granted to actionable claims, meaning actionable claims arising from these three activities remained expressly taxable under GST.

Further, Section 15 of the CGST Act mandates that the value of a supply of goods or services shall be the “transaction value”, which is the price actually paid or payable for the supply. Where the value cannot be determined under Section 15(1), Section 15(4) allows it to be determined in a prescribed manner. Section 15(5) additionally allows the Government, upon recommendations of the GST Council, to notify the value of certain supplies in a prescribed manner notwithstanding Section 15(1) or 15(4). Pursuant to these rule-making powers, Rule 31A of the CGST Rules was introduced, prescribing that the value of supply of actionable claim in the form of a chance to win in betting, gambling, or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalizator.

when stakes overrules skill

THE CONTROVERSY IN BRIEF

The genesis of the present nationwide constitutional and fiscal controversy stems from show cause notices (SCNs) issued by the Directorate General of Goods and Services Tax Intelligence (DGGI) to several online gaming platforms, fantasy sports operators, and physical casinos.

In the lead case involving M/s. Gameskraft Technologies Pvt. Ltd. (GTPL), the DGGI issued an SCN proposing to recover allegedly short-paid or unpaid GST amounting to Rs.20,989 crores for the period between 2017 and 2022. GTPL operated online platforms allowing users to play skill-based games, principally Rummy, against each other. GTPL had classified its activities as “services” under Service Accounting Code (SAC) 998439 and discharged 18% GST exclusively on the “platform fee” or commission it retained from the players for facilitating the game. For instance, if two players deposited Rs.200 each, the winner received Rs.360, and GTPL retained Rs.40 as a platform fee, upon which GST was paid.

The Revenue, however, alleged that by allowing players to play Rummy with monetary stakes, the platform was essentially supplying “actionable claims” in the nature of betting and gambling. Therefore, the Revenue sought to levy 28% GST on the entire “buy-in” or gross bet value (the full Rs.400 in the illustration) by invoking Rule 31A(3) of the CGST Rules, treating the entire pooled amount as the taxable value.

The industry, encompassing rummy platforms, fantasy sports operators like Dream 11, and physical casinos, vehemently contested this. The operators argued that their games were “games of skill”, which have historically and constitutionally been distinct from “games of chance”, and therefore outside the purview of “betting and gambling”. They argued that the 100% face value taxation was confiscatory, arbitrary, and legally baseless. This conflict led to multiple writ petitions across various High Courts, ultimately culminating in the Supreme Court transferring and consolidating the cases for a definitive ruling.

THE HIGH COURT DECISION AND ITS BASIS

In the focal judgment, the High Court of Karnataka (in Gameskraft Technologies Private Limited v. Directorate General of Goods Services Tax Intelligence) delivered a comprehensive order on May 11, 2023, allowing the writ petitions and quashing the SCN issued to GTPL.

The core issue adjudicated by the High Court was whether offline or online games such as Rummy, which are mainly or preponderantly based on skill and not on chance, when played with stakes, tantamount to “gambling or betting” as contemplated in Entry 6 of Schedule III of the CGST Act.

The High Court anchored its reasoning deeply in decades of Supreme Court jurisprudence, primarily what it termed the “Chamarbaugwala Jurisprudence.” The Court analyzed the landmark Constitution Bench decisions in State of Bombay v. R.M.D. Chamarbaugwala¹ (RMDC-1) and R.M.D. Chamarbaugwalla v. Union of India² (RMDC-2). In RMDC-1, the Supreme Court had evaluated the Bombay Lotteries and Prize Competitions Control and Tax Act, 1948, noting that a competition where success does not depend to a substantial degree upon the exercise of skill is recognized as being of a gambling nature. In RMDC-2, the Supreme Court applied the doctrine of severability to hold that the Prize Competitions Act, 1955 would apply only to competitions of a gambling nature and not to those involving substantial skill, which are protected business activities under Article 19(1)(g) of the Constitution.

1. 1957- VIL-05-SC

2.1957- VIL-06-SC

Building on this, the High Court referred to State of Andhra Pradesh v. K. Satyanarayana³, where the Supreme Court explicitly held that Rummy is not a game entirely of chance but is mainly and preponderantly a game of skill, comparable to bridge. The High Court observed that the Satyanarayana decision protected Rummy under the Hyderabad Gambling Act and did not criminalize it merely because it was played for stakes. The Revenue’s reliance on a specific sentence in Satyanarayana—that the offence of a common gaming house might be attracted if the club makes a profit or if there is “gambling in some other way”—was rejected by the High Court. The High Court clarified that this meant side-betting by third parties or the club taking a stake in the outcome, not the mere collection of a platform fee for facilitating the game.

The High Court also heavily relied on K.R. Lakshmanan v. State of Tamil Nadu⁴, wherein the Supreme Court held that horse racing is a game of mere skill (preponderance of skill) and that wagering or betting on horse racing does not constitute “gaming” or gambling. The High Court derived the principle that a game of skill does not transform into a game of chance merely because stakes are involved.

Addressing the interpretation of the terms under the GST framework, the High Court applied the principle of nomen juris. It held that words of legal import occurring in a statute should be construed in their established legal sense. Since the terms “gambling,” “game of chance,” and “game of skill” have developed distinct meanings in judicial parlance over 60 years, the expression “betting and gambling” in Entry 6 of Schedule III of the CGST Act must be interpreted to exclude games of skill. The High Court ruled that a game of mixed chance and skill is not gambling if it is substantially a game of skill, and Rummy, whether played online or offline, with or without stakes, is not gambling.

The High Court dismissed the Revenue’s reliance on M.J. Sivani v. State of Karnataka⁵, which had upheld regulations on video games. The High Court distinguished Sivani, noting it involved arcade video games that were tampered with to eliminate the player’s chance of winning, thus rendering them pure games of chance. In view of the High Court, Sivani did not erase the functional distinction between skill and chance.

3 1967 INSC 269
4 1996 (2) SCC 226
5 (1995) 6 SCC 269

The High Court therefore concluded that GTPL merely provided a platform service, and the pooled stake amounts held in a fiduciary capacity were not “consideration” for actionable claims supplied by GTPL. Therefore, the High Court declared the SCN illegal, arbitrary, and without jurisdiction, effectively shielding online skill-based games from the 28% GST levy on gross bet value.

THE REVENUE APPEAL AND 2023 LEGISLATIVE AMENDMENTS

In view of the high stakes involved, the Revenue preferred an appeal before the Hon’ble Supreme Court. In the interregnum, to resolve the prevailing ambiguities, the GST law was amended with effect from October 1, 2023. This amendment altered Entry 6 of Schedule III to explicitly exclude “specified actionable claims” from the general exemption granted to actionable claims. These “specified actionable claims” were statutorily defined to include actionable claims involved in betting, casinos, gambling, horse racing, lottery, and online money gaming.

Concurrently, numerous online gaming platforms, fantasy sports operators, and physical casinos received notices and such taxpayers were forced to approach various courts across the country. Consequently, a multitude of similar writ petitions, transferred cases, and appeals were tagged together by the Supreme Court to comprehensively settle the constitutional and statutory questions surrounding the taxation of the gaming industry, culminating in the recently delivered, consolidated landmark decision.

ARGUMENTS PRESENTED BY THE TAXPAYERS IN THE SUPREME COURT

In the Supreme Court, the taxpayers advanced extensive arguments defending the High Court’s ruling and challenging the GST imposition.

A. The Distinction Between Skill and Chance is Immutable

It was argued that the distinction between games of skill and games of chance is a binary, mutually exclusive constitutional classification. Relying on the Chamarbaugwala cases, Satyanarayana, and Lakshmanan, they asserted that activities where skill predominates fall outside the ambit of “betting and gambling”. A game of skill does not suddenly transform into a game of chance merely because money is staked. It was argued that players of online rummy exercise training, expertise, and strategic judgment, making it a constitutionally protected business activity under Article 19(1)(g).

In the context of Fantasy Sports, it was emphasized that selecting a virtual team of players requires analytical and strategic decision-making akin to a real-life coach. Since the mathematical combinations are vast and depend on player form and conditions, fantasy sports are games of skill. Multiple High Courts (Rajasthan, Punjab & Haryana, Bombay) had previously ruled fantasy sports as games of skill, and the Supreme Court’s dismissal of SLPs against those judgments meant the issue was no longer res integra.

B. Absence of an “Actionable Claim” and Lack of “Supply”

It was contended that no “actionable claim” comes into existence in the structure of online games. Relying on the historical concept of a chose in action, it was argued that an actionable claim must confer an enforceable right to money. Under Section 30 of the Indian Contract Act, 1872, agreements by way of wager are void and unenforceable. Consequently, it was argued that if the Revenue alleges that these are gambling transactions, the resulting “chance to win” is legally unenforceable and thus fails the statutory definition of an actionable claim under Section 3 of the Transfer of Property Act. Furthermore, it was argued that even if an actionable claim existed, there is no “supply” from the platform to the player. The gaming operators act purely as technology facilitators. The money deposited into digital wallets remains the property of the players and is held in escrow. When players join a game, their funds move into a common pool administered by the operator, but the operator has no beneficial interest in the pool. Applying the Quistclose trust doctrine (from Barclays Bank Ltd. v. Quistclose Investments Ltd. and Twinsectra Ltd. v. Yardley), it was argued that funds advanced for a specific purpose are impressed with a trust; if the operator went bankrupt, these funds would not form part of its liquidation estate. The operator only ever takes its predefined platform fee. The Supreme Court’s ruling in Sunrise Associates (holding lottery tickets as actionable claims) was distinguished, as lotteries involve a sovereign “grant” transferred to a buyer, whereas private online games involve mutual rights in personam which are merely discharged, not transferred.

C. Rule 31A is Ultra Vires Section 15 and Manifestly Arbitrary

The taxpayers also challenged the valuation mechanism under Rule 31A(3), which taxes 100% of the face value of the bet. They argued that under Section 15(1) of the CGST Act, GST must be levied on the “transaction value,” which is the price actually paid or payable. Because the operator only retains a platform fee (e.g., Rs.10 out of a Rs.100 pot), levying 28% on the entire pool (Rs.28) artificially inflates the tax base, making it a tax on the activity rather than the supply, thereby violating Article 246A. It was argued that the prize pool money is characterized as a “deposit” under the proviso to Section 2(31) of the CGST Act, meaning it cannot be treated as consideration. Furthermore, it was argued that Section 15(5) of the CGST Act requires a mandatory two-step process: first, the Government must notify the class of supplies, and second, prescribe the valuation rule. While the 2023 amendments followed this process for Rules 31B and 31C, Rule 31A lacked the foundational Section 15(5) notification prior to 2023, rendering it unenforceable.

D. The Casino Perspective: GGR versus GBV

It was argued that casinos do not supply actionable claims since bets are placed and settled instantaneously with chips that serve merely as tokens of convenience, not tradable goods. However, the crux of the casino argument was valuation. Historically and globally, casinos are taxed on Gross Gaming Revenue (GGR)—the net amount retained by the casino after payouts to players. The Revenue’s attempt to tax the Gross Bet Value (GBV) under Rule 31A was deemed mathematically absurd and practically impossible. In a dynamic physical casino environment, chips are continuously reused and circulated across multiple tables; tracking the face value of every single bet is unworkable. To calculate GBV, the Revenue resorted to an arbitrary “best judgment” extrapolation based on “House Advantage” from a limited 66-day sample, resulting in astronomical, confiscatory demands. For instance, one casino had a net revenue of Rs. 1,640 crores, but the GST demand computed via GBV was Rs. 11,139 crores. The casinos argued that a “chance to win” has a net value of zero at the time a bet is placed because there is an equal “chance to lose” and a simultaneous contingent liability incurred by the casino; thus, no transaction value accrues until the game ends.

E. Prospective Nature of the 2023 Amendments

The taxpayers submitted that the 2023 amendments to the CGST Act—which introduced specific definitions for “online money gaming” (Section 2(80B)), “specified actionable claims” (Section 2(102A)), and Rules 31B and 31C—were substantive changes rather than clarificatory. The very introduction of a deeming fiction in Section 2(105) (deeming the platform operator as the supplier) proved that platforms were not suppliers under the pre-amendment law. Therefore, these amendments could only operate prospectively from October 1, 2023, and the SCNs issued for the period between 2017 and 2023 lacked statutory backing.

ARGUMENTS PRESENTED BY THE REVENUE IN THE SUPREME COURT

The Revenue vehemently countered the taxpayers’ assertions on the following broad grounds:

A. Definition of Betting and Gambling

The Revenue highlighted several “Sutras” (principles), the core of which was that gambling arises whenever stakes are placed upon an uncertain outcome, irrespective of whether the underlying game is one of skill or chance. While a game of skill per se is not gambling, the introduction of stakes transforms the activity into gambling. A wager on a game of skill and a wager on a game of chance share the same preponderant uncertainty. The Revenue pointed out that the GST enactments use the phrase “betting and gambling,” not “betting on gambling” as interpreted by the High Courts. The statutory exemptions granted to games of skill under State police or gaming acts merely shield participants from penal/criminal consequences; they do not alter the inherent commercial character of the activity as betting or gambling for taxation purposes.

B. Supply of Actionable Claims by Platforms

The Revenue clarified that it was not arguing that pre-existing actionable claims were “transferred”; rather, the platforms “create” and “supply” actionable claims. Under Section 7 of the CGST Act, “supply” is defined with broad inclusivity and is not restricted to traditional sale or transfer of title. The moment a player stakes money on an uncertain outcome on the platform, a contingent beneficial interest in movable property (the prize pool) is created, fulfilling the criteria of an actionable claim under Section 3 of the Transfer of Property Act.

The Revenue dismantled the “trust” and “deposit” arguments by highlighting the Terms and Conditions of platforms like Gameskraft. Once a player deposits money into the “Deposit Segment” of the RC Account and commits it to a game, they lose unfettered dominion and control over that money. Withdrawals are heavily restricted by minimum thresholds and KYC requirements, proving there is no genuine entrustment.

Addressing the enforceability argument (Section 30 of the Contract Act), the Revenue asserted that while a wagering agreement inter se between players might be void, the collateral agreement between the player and the platform facilitating the game is perfectly valid and enforceable. Furthermore, the platform acts as the “supplier” because it orchestrates the entire ecosystem: it invites players, structures the game, regulates the algorithm, and distributes winnings.

C. Valuation: Gross Bet Value is Consideration

The Revenue maintained that the entire amount staked by the player constitutes “consideration” under Section 2(31) of the CGST Act. The payment is made “in respect of, in response to, and for the inducement of the supply” of the chance to win. The Revenue relied on Skill Lotto Solutions⁶, where the Supreme Court held that the value of lottery tickets is the full face value and deductions for prize payouts are not permissible. Rule 31A(3), which mandates 100% of the face value of the bet as the taxable value, was enacted on the explicit recommendations of the GST Council (Agenda Items 48-51) and thus satisfied statutory requirements.

6 2020-VIL-37-SC

D. Casinos and Fantasy Sports

Regarding Casinos, the Revenue argued that the GGR model is a flawed income-tax concept that conflates taxable supply with business profitability. The taxable event is the supply of gambling services upon placing a bet. When a player loses, the casino treats it as consideration; when a player wins, the casino nets the loss against other receipts. This netting off is impermissible in GST, which taxes gross supply. Because casinos failed to maintain records of every bet, the Department was justified in using Rule 31 (residual method) to extrapolate GBV using the mathematical “House Advantage”.

For Fantasy Sports, the Revenue argued that it is effectively “side betting”. Participants do not exercise physical skill in the sport; they merely wager on the performance of real-world athletes. The prior dismissals of SLPs by the Supreme Court were in limine non-speaking orders or kept the GST questions open for review, meaning the issue had not attained constitutional finality.

KEY OBSERVATIONS OF THE SUPREME COURT AND FINAL DECISION

The Supreme Court comprehensively reversed the Karnataka High Court’s decision, upholding the Revenue’s demands and validating the taxation of online gaming, fantasy sports, and casinos at 28% on the gross bet value.

A. Interpretation of “Betting and Gambling”

The Supreme Court fundamentally disagreed with the High Courts of Madras and Karnataka, calling their interpretation of Entry 34 of List II as “betting on gambling” a “clear Constitutional aberration, tinkering with the Constitution or actually rewriting the Constitutional text”. The Court clarified that “betting and gambling” is a composite and interchangeable expression referring to the act of staking money or money’s worth upon uncertain outcomes.

The Court held that the essential element of betting and gambling is the staking of money on an uncertain outcome with the hope of gaining more. Crucially, the Court ruled that “when the element of betting and gambling enters the picture, the nature of the game ceases to be of relevance”. Even if the underlying game is one of substantial skill (like Rummy or Fantasy Sports), once participation is conditioned upon staking money on uncertain outcomes, the transaction acquires the character of betting and gambling for the purposes of the GST framework. The Court observed that earlier judgments like RMDC-1 and Lakshmanan protected games of skill from being classified as gambling only in the context of specific penal statutes that carved out explicit exemptions for skill; these precedents did not immunize the wagering on such games from taxation.

B. Constitutional Validity of the Levy

The Court affirmed that the GST framework enacted under Article 246A of the Constitution gives Parliament and State Legislatures wide latitude to tax supplies. The inclusion of actionable claims within the definition of “goods” under Section 2(52) is constitutionally valid and does not transgress Article 366(12) or 366(12A). The levy is upon the “taxable supply of actionable claims” and not a direct tax on the activity of betting or gambling simpliciter. The Court also dismissed challenges under Articles 14, 19(1)(g), and 21, noting that the doctrine of res extra commercium applies to betting and gambling, removing fundamental right protections, and that mere commercial hardship or high tax incidence does not render a fiscal measure unconstitutional.

C. Existence and Supply of Actionable Claims by Platforms

The Court countered the taxpayers’ arguments regarding actionable claims. It held that once participants place stakes in the organized gaming framework, a pooled stake fund (movable property) comes into existence. Each participant acquires a “contingent beneficial interest” in this property, which fits the definition of an actionable claim under the Transfer of Property Act.

The Court rejected the Quistclose trust argument, finding that players relinquish unrestricted dominion and control over their funds once committed to gameplay. The funds cease to be a “refundable deposit” under the proviso to Section 2(31) and transform into consideration for the supply. Regarding Section 30 of the Contract Act, the Court held that the legal definition of an actionable claim does not require every wagering element to be independently enforceable; the proprietary interests created within the platform’s ecosystem are legally cognizable.

Importantly, the Court ruled that the online gaming platforms themselves are the “suppliers” under Section 2(105) of the CGST Act. They do not merely facilitate a transaction inter se between players; they control the architecture, pool the stakes, and administer the payout, thereby creating and supplying the actionable claim.

D. Valuation, Rule 31A, and 2023 Amendments

The Court upheld Rule 31A(3) as a valid machinery provision intra vires the CGST Act, traceable to Sections 15(4), 15(5), and 164. It operationalizes the concept of “transaction value” under Section 15(1) by establishing that the entire amount staked (face value of the bet) is the consideration paid for the chance to win.

Regarding the 2023 amendments (which introduced Rules 31B and 31C and specific definitions for “online money gaming”), the Court held that they did not create a fresh levy but were clarificatory and explanatory in nature. Therefore, they operate retrospectively.

E. Rulings on Fantasy Sports and Casinos

For fantasy sports, the Court ruled that previous SLP dismissals were non-speaking orders and did not establish binding law under Article 141. Fantasy sports involve pooled stakes on uncertain future outcomes, thereby acquiring the character of betting and gambling under the GST framework.

For physical casinos, the Court rejected the GGR methodology as incompatible with the GST structure, which taxes gross supply rather than business profits. The Court upheld the applicability of the newly inserted Rule 31C (which taxes the total amount paid for chips/tokens) as retrospectively applicable. For the pre-amendment period where casinos failed to maintain individual betting records, the Department’s use of best judgment assessment via Rule 31 (using the House Advantage method to extrapolate GBV) was deemed permissible. However, the actual quantification of the tax was left open for reconsideration by adjudicating authorities based on the clarified Rule 31C principles.

CONCLUSION:

The Supreme Court’s decision in the Gameskraft batch of matters transcends the online gaming and casino sectors. It establishes jurisprudential precedents that will influence the interpretation of the GST framework across all industries. The following observations carry significant legal implications across multiple sectors:

1. Expansive Interpretation of “Supply” Over Traditional Transfer:

The Court reaffirmed that GST marks a paradigm shift from a sale-centric model to a supply-centric one. The term “supply” in Section 7 is of the widest amplitude. It encompasses not just the traditional transfer or assignment of pre-existing rights, but the very creation of a contingent beneficial interest (such as a chance to win). Industries dealing in digital assets, intellectual property, derivatives, or complex financial instruments must note that the mere generation of a recognizable right can trigger a taxable supply.

2. Transformation of “Deposits” into “Consideration” :

The Court provided clarity on the proviso to Section 2(31). Monies held in wallets, escrows, or trust accounts lose their character as “deposits” the moment the user relinquishes unrestricted dominion and the funds are committed or appropriated toward a specific activity or supply. This strict standard affects e-commerce platforms, telecommunication operators, aggregators, and gig-economy apps holding user funds, dictating exactly when tax liability crystallizes.

3. Inapplicability of the Quistclose Trust Doctrine to Commercial Operations:

By rejecting the application of the Quistclose trust principle (where funds advanced for a specific purpose are shielded from the recipient’s general assets), the Court signaled that complex fiduciary structuring in mass digital platforms does not shield pooled funds from being characterized as consideration for a supply if the platform controls the operational matrix.

4. Intermediary vs. Supplier Distinction in Digital Platforms:

The judgment alters how digital platforms are classified. By holding that platforms controlling the algorithms, pooling of funds, and distribution of payouts are actual “suppliers” of the underlying actionable claim (rather than mere facilitators or intermediaries), the Court has set a high bar. Any platform exerting pervasive control over the transactional ecosystem may find itself vulnerable to GST on the gross transaction value rather than just its commission.

5. Gross Valuation (GBV) Over Net Profits (GGR):

The Court drew a sharp line between income tax jurisprudence and GST jurisprudence. GST is a transaction-based tax on the gross value of supply. The Court explicitly rejected the notion of netting off business expenses, payouts, or losses to arrive at a taxable value (the GGR model). Industries operating on narrow margins with high throughput (like trading, brokering, or certain financial services) must ensure their valuation models reflect gross supply if they act as principals.

6. Retrospective Application of Clarificatory Amendments:

The Court reaffirmed that statutory amendments designed to cure defects, standardise practices, or explain legislative intent can operate retrospectively, even if they introduce specialized machinery provisions (like Rules 31B and 31C). The use of a non-obstante clause or the insertion of detailed sub-rules does not automatically imply a substantive, prospective change if the core taxable event already existed in the parent act.

7. Unenforceability in Civil Law Does Not Preclude Taxability:

In a fascinating intersection of contract and tax law, the Court held that a transaction’s unenforceability under civil law (e.g., wagering agreements voided by Section 30 of the Contract Act) does not nullify its taxability. As long as a legally cognizable beneficial interest exists within an organized framework, the fiscal statute will apply. This reinforces that tax law operates independently of the strict enforceability paradigms of contract law.

8. Harmonious Construction of Subordinate Valuation Legislation:

The Court validated the use of executive rule-making power to determine valuation. Sections 15(4) and 15(5) of the CGST Act allow the Government to prescribe specific valuation methods that may deviate from the standard “transaction value” if authorized by the GST Council. The Court noted that fiscal legislation permits a greater degree of flexibility, and rules (like Rule 31A) that bear a reasonable nexus to the taxable event will not be easily struck down for manifest arbitrariness.

9. HSN Classification is Not a Prerequisite for Taxability:

The Court clarified that the Harmonized System of Nomenclature (HSN) or Customs Tariff entries are merely procedural tools for administrative convenience. The absence of a specific HSN code does not invalidate a levy if the charging section (Section 9) and the definition of goods (Section 2(52)) cover the supply. This is vital for emerging tech industries creating novel products that do not yet fit neatly into global tariff schedules.

10. Doctrine of Res Extra Commercium and Proportionality in Taxation:

By invoking the doctrine of res extra commercium for betting and gambling, the Court confirmed that activities considered noxious or injurious to public welfare do not enjoy fundamental right protections under Article 19(1)(g). Consequently, taxation on such activities can be intentionally burdensome or regulatory, and courts will not test such fiscal measures strictly on the anvil of proportionality or commercial hardship.

In conclusion, the Supreme Court’s judgment in the Gameskraft saga is a watershed moment in Indian indirect tax jurisprudence. By decisively settling the “skill versus chance” debate in the context of GST and endorsing the taxation of gross stakes, the Court has not only safeguarded massive public revenues but also provided a rigorous, modernized interpretation of “supply”, “consideration”, and “valuation” tailored for the digital economy.

BCAJ Admin

Glimpses Of Supreme Court Rulings

5. L.K. Trust vs. Commissioner of Income Tax and Ors.- SC

Civil Appeal No. 527/2012 decided on 07.05.2026

Deduction – Interest – Section 36(1)(iii) – The provisions of Section 36(1)(iii) concern capital borrowed and not other debts or liabilities – for determining the allowability, the court should examine the transfer of borrowed funds from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

The Assessee borrowed a sum of Rs.3.80 crore from Corporation Bank to purchase shares of Shaw Wallace and Company Limited in pursuance of an Agreement dated 19-11-1987. Under the said Agreement, the Company had committed to sell 7.80 lakh shares for a total consideration of Rs.3.8 crore.

The Assessee filed its return of income for the Assessment year 1989-90 declaring total income of Rs.7,55,67,530/-. The return was processed under Section 143(1)(a) of the Act, and later a notice was issued under Section 143(2). While passing the Assessment Order in 1992, the Assessing Officer noted that the Assessee had availed a loan of Rs.3,80,00,000/- from Corporation Bank and had paid interest of Rs.21,74,234/-. However, the AO further noted that the amount had been transferred to M/s Gayatri Holdings Private Limited, a group company, through purchase of its shares, which in turn transferred the amount to Shri G Venkateshwaran for the purchase of shares of M/s Shaw Wallace and Company Limited.

In the circumstances referred to above, the AO took the view that the Assessee was not entitled to claim deduction under Section 36(1)(iii) of the Act and, accordingly, the interest paid on the loan was disallowed.

The Assessee went in appeal before the CIT(A). The CIT(A) also disallowed the deduction. The matter then went in appeal before the ITAT. The ITAT allowed the appeal preferred by the Assessee.

The ITAT noted that the Hon’ble Supreme Court, in the case of Madhav Prasad Jatia v. CIT, (118 ITR 200), while dealing with Section 10(2)(iii) of 1922 Act (which was akin to the present section 36(1)(iii) of the Income-tax Act, 1961), laid down three pre-requisites to be complied with before allowing the deduction of interest expenses. First, the loan must have been borrowed by the Appellant; second, it must have been borrowed for the purpose of Appellant’s business; and third, the Appellant must have paid interest on the loan and claimed deduction for the same.

According to ITAT, the first condition, namely, that the Assessee must have borrowed the monies, is fully satisfied in the instant case. The second condition was also satisfied, in its view, on the basis of detailed discussion in its decision wherein it was concluded that the money had been raised and utilized for the purposes which were integral to the business of the Appellant. Thirdly, the Assessee had paid the entire interest of Rs.21,74,234/- to the bank on the borrowings made by it and had claimed the said amount as a deduction by way of charge to P&L A/c.

The ITAT observed that the Appellant had more than one source of income under the head ‘business’ as it was deriving income from businesses of money-lending, speculation business, film distribution, and investment in shares. The Appellant-trust had maintained only one common set of books of account in which entries pertaining to these businesses of film distribution, money lending, investments, speculation etc. were incorporated. The management of the entire set of operations was vested in the trustees, and there was complete interlocking of funds. Therefore, according to ITAT, the business of the Appellant was a composite one in as much as it carried on several businesses, including the business of investment in shares through its subsidiaries.

The ITAT noted that the Hon’ble Supreme Court of India, in the case of CIT v. Associated Fibre and Rubber Industries (P) Ltd. (236 ITR 471), had opined that as long as the assets purchased from borrowings had been treated as business assets, the interest outgo on such borrowings was allowable. Also, the Apex Court in Veecumsees v. CIT (220 ITR 185) had taken the view that so long as the loans had been obtained for the purposes of business, the fact that the particular part of the business for which the loans had been obtained was closed or transferred subsequently did not alter the fact that the loans had (when raised), been for the purpose of Assessee’s business; and, that the interest paid on such loans could not be denied as the management was common, though the line or branch of business for which loan was raised had been closed down.

According to the ITAT, an irresistible inference that could be drawn from a reading of the judgments of the Apex Court was that the existence or otherwise of the composite nature of a business is essential in considering the allowability of interest on loans borrowed by an Assessee, and in the present case, it was found that the business was composite nature.

The ITAT concluded that a sum of Rs.21,74,234/- paid by the Appellant-trust as interest to Corporation Bank on borrowings of Rs.3.80 crore was eligible for deduction under Section 36(1)(iii) of Income-tax Act.

The Revenue, being dissatisfied with the Order passed by the ITAT, went before the High Court.

The High Court answered the questions of law referred to it in favour of the Revenue, holding as under:

“That the Appellant Trust has borrowed a loan from the Bank in order to invest the same in its share business. It is also not in dispute that a sum of Rs.3,80,00,000/- has been transferred to M/s. Gayathri Holdings Private Limited by the Assessee. It is also not in dispute that the Assessee has paid the interest payable to the Bank on the entire borrowings. It is also not in dispute that out of Rs.3,80,00,000/- transferred to M/s. Gayathri Holdings Private Limited, certain amounts of shares of Shaw Wallace and Company are also transferred to the name of the Assessee. Therefore, we are of the view that the Assessing Officer was justified in granting the relief to the Assessee in respect of the value of the shares purchased by it through M/s. Gayathri Holdings Private Limited in respect of shares of Shaw Wallace and Company Limited. We are also of the view that the Assessing Officer is justified in disallowing the interest paid by the Assessee to the Bank in respect of the amount which was lying with M/s. Gayathri Holdings Private Limited in the account of the Assessee.”

In the circumstances referred to above, the Assessee filed an appeal before the Supreme Court.

According to the Supreme Court, the short point that fell for its consideration was whether the Appellant – Assessee was entitled to a deduction of Rs.21,74,234/- being the interest paid by it in respect of the loan availed from the Corporation Bank under Section 36(1)(iii) of the Income-tax Act 1961.

On reading of the provisions of section 36(1)(iii) of the Act, the Supreme Court observed that the sub-section has three important words or phrases, i.e, (i) Interest, (ii) Borrowed and, (iii) For the purpose of business or profession.

The Supreme Court noted that the definition of “interest” in Section 2(28A) means “interest payable in any manner in respect of any moneys borrowed or debt incurred”. However, for the purposes of Section 36(1)(iii), “interest” is restricted to that on money borrowed and not on debt incurred. In other words, the essence of interest is that it is a payment which becomes due because the creditor has not had his money at his disposal. It may be regarded either as representing the profit he might have made if he had the use of his money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation.

The provisions of Section 36(1)(iii) concern capital borrowed and not other debts or liabilities. A loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources, and a loan is one of such sources. The legislature has, under this clause, permitted as an allowance interest paid on capital borrowed for the purposes of the business; and the capital, in this context, means money and not any other asset purchased on credit [Bombay Steam Navigation Co. Pr. Ltd. v. CIT, 56 ITR 52 (SC)].

The Supreme Court further noted that the expression “for the purpose of business” occurs in Section 36(1)(iii) and also in Section 37(1). A similar expression, with different wording, also occurs in Section 57(iii), which reads as “for the purpose of making or earning income”. This issue came up for consideration before this Court in the case of Madhav Prasad Jatia v. CIT reported in (SC) 118 ITR 200. The Court held that the expression occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii). Thus, meaning thereby that the scope for allowing a deduction under Section 36(1)(iii) would be much wider than the one available under Section 57(iii).

On a plain reading of the impugned order, it appeared to the Supreme Court that, according to the High Court, the business of the subsidiary company could not be considered in law as the business of the Assessee. The High Court took the view that the finding of the Tribunal based on commercial expediency was not correct. The High Court went on to observe that the amount borrowed was ultimately utilised for the benefit of the subsidiary company of the Assessee and not for the business of the Assessee as such.

According to the Supreme Court, the High Court fell into error in taking the aforesaid view.

The Supreme Court observed that in Sharp Business System v. CIT, reported in 479 ITR 1, one of the questions considered by it was whether interest on borrowed funds invested by the Assessee in its sister concern and its directors is an allowable business expenditure.

In aforesaid context, the Supreme Court made an analysis of Section 36 of the Income Tax Act, 1961, more particularly, Section 36(1) (iii) thereof. After referring to its earlier decision in S.A. Builders v. CIT, reported in 288 ITR 1, it opined that the court should examine the transfer of borrowed funds from the point of view of commercial expediency and not from the point of view of whether the amount was advanced for earning profits.

In the facts of that case, it was held that the Assessee was entitled to claim allowance of interest on the borrowed funds invested in a sister concern for acquiring a controlling interest.

The Supreme Court agreed with the line of reasoning assigned by the ITAT insofar as the interpretation of Section 36(1) (iii) of the Act 1961 was concerned. In the result, the Appeal of the Assesee-Appellant was allowed and the impugned Judgment and Order passed by the High Court was set aside.

The Supreme Court declared that the Assessee was entitled to seek deduction of the amount of the interest paid in respect of the capital borrowed to the tune of Rs.3.80 crore for the purposes of the business.

BCAJ Admin

TDS — Section 195 — Payment of interest to a Non-resident — Payment under a judgment debt — Execution of decree — Retains the character of a judgment debt — Cannot be subjected to deduction of tax in the absence of a provision in the decree.

22. DLF Home Developers Limited v. Anto Thomas

2026 (6) TMI 505 – (Ker):

Date of order 19/05/2026:

S. 195 of ITA 1961

TDS — Section 195 — Payment of interest to a Non-resident — Payment under a judgment debt — Execution of decree — Retains the character of a judgment debt — Cannot be subjected to deduction of tax in the absence of a provision in the decree.

A dispute between the Petitioner and the Respondent was referred to an Arbitrator, and by way of an award dated 16/07/2018, the Arbitrator directed the Petitioner to refund the amount paid by the Respondent along with interest. The arbitration award was challenged in appeal before the High Court, and the High Court dismissed the appeal filed by the Petitioner. The Petitioner further challenged the order of the High Court by way of an SLP, which also came to be dismissed by the Supreme Court.

Subsequently, the Petitioner submitted a calculation statement regarding the balance amount payable. The said amount was computed after deducting TDS. The amount, as per the statement, was
deposited. The Respondent raised a dispute regarding the deduction of TDS from the interest amount payable. The District Court directed the Petitioner to pay the amount of TDS deducted to the Respondent.

Being aggrieved by the said order of the District Court, the Petitioner filed a writ petition before the High Court and contended that there was a statutory obligation to deduct TDS from the interest payable to a non-resident and, since the Respondent was a non-resident, the amount was paid after deducting TDS to avoid any action from the Income-tax Department.

The Kerala High Court dismissed the petition and held as follows:

“i) As per the judgment of a learned Single Judge of the Delhi High Court in Voith Hydro Ltd. & Ors. v. NTPC Ltd. [2021 SCC OnLine Del. 1325], TDS was not liable to be deducted on amounts payable under a decree.

ii) The Delhi High Court in the said judgment has relied on the judgment of the Hon’ble Supreme Court in All India Reporter Ltd. v. Ramachandra D. Datar [AIR 1961 SC 943] and the decision of the High Court of Bombay in Islamic Investment Co. v. Union of India [(2002) 3 Mah. LJ 555], Sino Ocean Ltd. v. Salvi Chemicals Industries Ltd. [2017 SCC OnLine Bom. 9401] and DSL Enterprises Pvt. Ltd. v. Maharashtra State Electricity Distribution Co. Ltd. [EP No.422 of 2018, decided on 13.03.2018], which are also judgments which took the same view.

iii) In All India Reporter (supra), the Hon’ble Supreme Court held that under the scheme of the Civil Procedure Code, a decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code and as between the judgment debtor and the decree holder, the amount payable represented a judgment debt. The Court held that for payment of income tax on such debts, no provision was made in the decree and the judgment debtor cannot hence deduct at source the tax payable by the decree holder.

iv) Section 195 of the Income Tax Act, 1961 which requires to deduct TDS does not speak of a decretal debt. The definition of ‘interest’ in Section 2(28A) says that ‘interest’ means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation). The said definition also does not include interest payable on a decree amount. In view of the judgments in All India Reporter Ltd. (supra), Voith Hydro Ltd. (supra), Islamic Investment Co. (supra) and Sino Ocean Ltd. (supra), I do not find any reason to interfere with the order dated 10/11/2025 in EP No.202 of 2023 of the 2nd Additional District Court, Ernakulam.”

BCAJ Admin

Stay of demand — S. 220(6) — Pre-deposit of 20% of the disputed demand — Not a mandatory condition — Issue is decided by the Jurisdictional High Court — Assessee eligible for grant of complete stay of demand.

21. Cadence Design Systems India Pvt. Ltd. v. PCIT:

TS – 652 – HC – 2026 (Del.):

A. Ys. 2020-21 & 2021-22: Date of order 04/05/2026:

S. 220(6) of ITA 1961

Stay of demand — S. 220(6) — Pre-deposit of 20% of the disputed demand — Not a mandatory condition — Issue is decided by the Jurisdictional High Court — Assessee eligible for grant of complete stay of demand.

In the scrutiny assessments for A. Y. 2020-21 and A. Y. 2021-22, additions were made by disallowance in relation to the expenditure incurred in respect of the employee stock option plan. The assessment were completed and demands were raised for both the years. The assessee filed appeals and filed applications for stay of demand u/s. 220(6) of the Income-tax Act, 1961. The assessee’s application for stay of demand was rejected, and the assessee was required to deposit 20% of the demand.

The assessee filed a writ petition before the High Court challenging the rejection of stay of demand, primarily on the ground that when the issue is decided in favour of the assessee by the jurisdictional High Court, the requirement of deposit of 20% of the demand would not be applicable.

The Delhi High Court allowed the petition and held as under:

“i) The leeway granted in the circular which gives the impression that the Assessing Officer may ask the assessee to deposit a lesser amount than 20%, cannot be construed to mean that in every case the Assessing Officer or the Competent Authority shall ask the assessee to deposit 20% of the due demand.

ii) Once the jurisdictional High Court has taken a view, in normal circumstances, the Assessing Officer or the Competent Authority deciding an application u/s. 220(6) of the Act of 1961 is supposed to grant a complete stay, because judgments of High Court are binding on all the authorities, including the authority deciding the stay application.

iii) The writ petitions are allowed and the impugned orders passed by the Deputy Commissioner of Income Tax, Circle 4(2) Delhi dated 21/05/2024 (2020-21) and 18/08/2025 (2021-22) and the order dated 15.09.2025 passed by the Competent Authority for both A. Ys. (2020-21 and 2021-22), to the extent they require 20% of demand pursuant to the impugned assessment orders dated 27/09/2023 (2020-21) and 23/12/2024 (2021-22) to be deposited as a condition for grant of stay of remaining recovery, are set aside. Needless to observe that till disposal of the appeals, the recovery proceedings against the petitioner shall remain stayed. The Assessing Officer to do requisite entry in Income Tax Business Application (ITBA) Portal.”

BCAJ Admin

Settlement of case — Application for settlement in assessment pursuant to search and seizure — Undisclosed income in jewellery business — Modus operandi of inflation of refinery loss — Full and true disclosure in application of the manner in which undisclosed income derived — Rejection of application on ground of failure to make a full and true disclosure — Single Judge of the High Court dismissed the writ petition — Division Bench of the High Court allowed the appeal and held that failure of competent authority to scrutinize the assessee’s application in detail resulted in the dismissal of the writ petition — Order in the writ petition and order rejecting application for settlement of the case set aside — Matter remanded to the competent authority with a direction to scrutinize the application.

20. Khazana Jewellery (P) Ltd. v. Income-Tax Settlement Commission:

(2026) 487 ITR 19 (Mad): 2026 SCC OnLine Mad 3939:

A. Y. 2011-12 to 2017-18: Date of order 16/02/2026:

Ss. 245C(1) and 245D(4) of ITA 1961

Settlement of case — Application for settlement in assessment pursuant to search and seizure — Undisclosed income in jewellery business — Modus operandi of inflation of refinery loss — Full and true disclosure in application of the manner in which undisclosed income derived — Rejection of application on ground of failure to make a full and true disclosure — Single Judge of the High Court dismissed the writ petition — Division Bench of the High Court allowed the appeal and held that failure of competent authority to scrutinize the assessee’s application in detail resulted in the dismissal of the writ petition — Order in the writ petition and order rejecting application for settlement of the case set aside — Matter remanded to the competent authority with a direction to scrutinize the application.

The petitioner/assessee is a company engaged in the business of manufacturing and trading of jewels. A search u/s. 132 of the Income-tax Act, 1961 was conducted at its premises on April 21, 2016. During the course of the search proceedings, the Managing director admitted, in response to question No. 8 in his sworn statement, that the company’s inflated refinery loss would be around three per cent. to five per cent and that excess gold from the refining process was siphoned off and sold in the black market. By virtue of the inflation of refinery loss, the assessee had generated a sum of Rs. 70.66 crores during A. Ys. 2011-12 to 2016-17, which was stated by the assessee in its letter dated June 29, 2016. In the aforesaid letter dated June 29, 2016, the assesee had offered an amount of Rs. 80 crores (268.200 kgs. of gold bullion) towards stock-in-trade kept with and held by the employees, goldsmiths, agents, etc., in the year of search, i. e., A. Y. 2017-18.

During the pendency of the assessment u/s. 153 of the Act pursuant to the search, the assessee submitted a settlement application dated October 16, 2018 before the competent authority. The application came to be rejected.

The rejection order was challenged by filing writ petition. The learned single judge of the Madras High Court, vide impugned order (Khazana Jewellery Pvt. Ltd. v. ITSC [(2026) 487 ITR 1 (Mad).]), concluded that, in order to be eligible for settlement, the provisions contained in section 245C(1) of the Act require full and true disclosure. As the Settlement Commissioner arrived at the conclusion that there was no full and true disclosure, the rejection of the application could not be faulted. Moreover, it was held that the question of changing the stand by converting the undisclosed portion of income into the income u/s. 69B of the Act was beyond the scope of settlement proceedings.

The assessee filed an appeal. The Division Bench allowed the appeal and held as under:

“i) We have perused the application filed by the writ petitioner before the authority. The application itself titles “Confidential Enclosure ‘D’: The manner in which the additional income has been derived”. This contains the details of the assessee’s involvement in inflating refinery loss. The process of refinery, as to how the loss was being assumed and periodically accumulated has been explained in great detail. The details run in as many as 25 paragraphs.

ii) The order passed by the authority rejecting the application, however, says that full and true particulars of the materials and evidence have not been disclosed with regard to the manner in which the undisclosed income, i. e., Rs. 80 crores was derived.

iii) We are of the view that the assessee has submitted details of the manner in which the undisclosed income, i. e., Rs. 80 crores was derived. According to the assessee, the stock-in-trade is directly related to Rs. 80 crores which in turn was a result of inflation of refinery loss, which perhaps the assessee was not correct in claiming as such, and this appears to be only a device not to disclose an income which the assessee otherwise had accumulated.

iv) The aforesaid aspect, in our view, was not taken into consideration in a proper manner by the competent authority. Since the rejection of the application for settlement not only results in imposition of interest, penalty, but also in prosecution, we are of the view that the competent authority was required to closely examine and scrutinise the manner in which income was derived, as was stated by the assessee in his application dated October 16, 2018.

v) We are, therefore, of the view that interest of justice would be served if the competent authority scrutinises in detail the manner in which the assessee derived undisclosed income of Rs. 80 crores. We make it clear that even according to the Revenue, as far as the remaining Rs. 70 crores is concerned, the writ petitioner is already eligible for settlement.

vi) In view of the above consideration, the impugned order passed by the learned single judge (Khazana Jewellery Pvt. Ltd. v. ITSC, 1) is set aside. Consequently, the order dated June 11, 2020 is also set aside. The case is remanded to the competent authority for consideration afresh of the writ petitioner’s application for settlement, keeping in view the observations made by this court, more particularly, the detailed application filed by the writ petitioner explaining the manner in which it derived the undisclosed income.”

BCAJ Admin

S. 115BBE — Scope of amendment — Enhancement of rate of tax from 30% to 60% — Prospective or retrospective operation of taxing statutes — Absence of express retrospective language — Onerous fiscal amendment — Applicable prospectively from 01/04/2017 and not from F. Y. 2016-17.

19. Deepak Maratha (S/o Ramchandra Maratha) v. UOI:

2026 (6) TMI 371 – (Raj):

A. Y. 2017-18: Date of order 27/05/2026

Ss. 115BBE and 271AAC of ITA 1961

S. 115BBE — Scope of amendment — Enhancement of rate of tax from 30% to 60% — Prospective or retrospective operation of taxing statutes — Absence of express retrospective language — Onerous fiscal amendment — Applicable prospectively from 01/04/2017 and not from F. Y. 2016-17.

The Assessee was engaged in the business of jewellery and bullion. During F. Y. 2016-17, the assessee deposited a sum of Rs. 66.17 lakhs (including Specified Bank Notes) in his bank account during November – December 2016, i.e., the demonetisation period. The assessee filed his return of income on 30/10/2017 declaring a total income at Rs. 7,92,860.

Subsequently, the assessee’s case was selected for scrutiny, and the assessment was completed vide an order dated 21/12/2019 passed u/s. 144 of the Act. The books of account of the assessee were rejected u/s. 145(3) of the Act, and it was held that the assessee could not explain the cash deposit of Rs. 66,17,500 in the bank account. Accordingly, the said amount was treated as unexplained money and was added to the total income u/s. 68 of the Act. Further, tax was computed at 60% on the addition of Rs. 66,17,500, and a separate penalty notice was issued under the newly inserted section 271AAC of the Act.

Section 115BBE was amended by way of the Taxation Laws (Second Amendment) Act, 2016, enhancing the rate of tax from 30% to 60% with an additional surcharge of 25% on such tax, resulting in an effective rate of 75% plus 10% of tax as penalty with cess, resulting in an aggregate tax liability of 83.25% w.e.f. 01/04/2017 on income falling u/ss. 68 to 69D of the Income-tax Act, 1961.

The assessee challenged the retrospective application of the amended provisions of section 115BBE, whereby income earned prior to 01/04/2017 was taxed at the higher rate of 60% plus surcharge and penalty was also imposed.

The assessee challenged the order by way of a writ petition challenging the validity and vires of the retrospective operation of the amended provisions of section 115BBE of the Act. The core issue before the Hon’ble High Court was as follows:

Whether the amendment to Section 115BBE, which enhanced the rate of tax from 30% to 60%, can lawfully be applied to income arising from transactions completed during Financial Year 2016-17 w.e.f. 01/04/2016 to 31/03/2017, and/or more specifically, whether such enhanced rate operates from 15/12/2016, being the date of notification/Presidential assent to the amending Act, or only from 01/042017, being the effective date expressly specified in the amending provision itself?

The Rajasthan High Court allowed the petition and held as follows:

“i) The assessee had voluntarily disclosed that the relevant sum of Rs.66,17,500/- deposited in his bank accounts during November/December, 2016 was part of his business income for F. Y. 2016-2017. True, the Assessing Officer was not satisfied the explanation of the assessee about this income. But the fact remains that there was absolutely no concealment of income by the assesse in this case.

ii) The rate prescribed in the principal charging section, Section 115BBE itself, is an integral and inseparable component of the substantive tax liability. It determines the precise fiscal consequence that attaches to the taxable event. An assessee who completes a transaction under a regime prescribing 30% tax acquires, at that moment, a vested right to be assessed at that rate. The subsequent doubling of that rate, from 30% to 60%, without express retrospective language, cannot reach back to alter the consequence of a transaction already complete.

iii) The distinction between “imposing a new tax” and “enhancing an existing rate” has never been recognised as a basis for implying retrospectivity in taxing statutes. Both create or increase a fiscal burden on the subject. As Vatika (supra) holds, citing Halsbury: “retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment.” An enhancement of the rate from 30% to 60%, i.e., doubling the burden, plainly “affects or alters” existing rights and cannot be treated as a mere procedural or clarificatory change.

iv) In our opinion, enhancement of principal tax certainly creates new liability. The rate prescribed in the principal charging section is an integral and inseparable component of the substantive tax liability. It defines the precise fiscal consequence that attaches to the taxable event, and an assessee who completes a transaction under a regime prescribing 30% acquires, at that moment, a vested right accrues in his favour to be assessed at that rate. The subsequent doubling of that rate, without any express language for retrospectivity of the doubling of rate of tax cannot relate back and to alter the legal consequences of a transaction already completed.

v) The fundamental rule of interpretation is that legislation is presumed to operate prospectively unless a contrary intention clearly appears, grounded in the principle of lex prospicit non respicit, i.e., law looks forward not backward, since every person is entitled to arrange his affairs by relying on existing law without finding later on that his plans have been upset retrospectively.

vi) The correct legal position which emerges is summarized as below:

“(a) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.

(b) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.

(c) The amendment to Section 115BBE came into force on 01/04/2017 i.e. the first day of F. Y. 2017-18. For F. Y. 2016-17, the law in force on 01/04/2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01/04/2017 and can apply only from that date, i.e. from financial year 2017-18 onwards.

(d) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for its retrospective effect of section 115BBE. We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15/12/2016, except the amendment of Section 115BBE, which is effective from 01/04/2017).” ‘

vii) The question framed in para 8.1, in the preceding part, is answered accordingly. The appellate authority shall therefore proceed further to adjudicate the assessment order impugned before it keeping in mind what has been enunciated hereinabove, in accordance with law.”

BCAJ Admin

Revision u/s. 264 — Scope of power of Commissioner u/s. 264 — Capital gain — Exemption u/s. 54F — Failure to claim exemption u/s. 54F in the return — Revised return not filed — Claimed raised in revision u/s. 264 — Commissioner rejected application u/s. 264 — Held by the High Court that the Power of Commissioner is wide enough to grant relief even for the assessee’s errors and mistakes — Power u/s. 264 is intended to prevent miscarriage of justice and grant relief even where errors are committed by the assessee — Rejection order quashed and set aside — Matter remanded to the Principal Commissioner to consider afresh and decide in accordance with law.

18. Nisarg Ajaykumar Vakharia v. Principal CIT:

(2026) 488 ITR 75 (Bom): 2026 SCC OnLine Bom 3455:

A. Y. 2022-23: Date of order 03/02/2026:

S. 54F and 264 of ITA 1961

Revision u/s. 264 — Scope of power of Commissioner u/s. 264 — Capital gain — Exemption u/s. 54F — Failure to claim exemption u/s. 54F in the return — Revised return not filed — Claimed raised in revision u/s. 264 — Commissioner rejected application u/s. 264 — Held by the High Court that the Power of Commissioner is wide enough to grant relief even for the assessee’s errors and mistakes — Power u/s. 264 is intended to prevent miscarriage of justice and grant relief even where errors are committed by the assessee — Rejection order quashed and set aside — Matter remanded to the Principal Commissioner to consider afresh and decide in accordance with law.

For A. Y. 2022-23, the assessee filed the return of income on July 19, 2022, declaring his income at Rs. 18.10 crores. The assessee’s income included long-term capital gains of Rs. 11.69 crores. The assessee had purchased an immovable property for Rs. 23.06 crores in December 2020, which was registered on February 1, 2021. The assessee had disclosed the new property under Schedule AL (Assets and Liabilities) of the income-tax return for A. Y. 2022-2023. Accordingly, the assessee was entitled to claim any deduction u/s. 54F but by mistake the assessee had not claimed any such deduction u/s. 54F. The return was processed, and an intimation order u/s. 143(1) of the Income-tax Act, 1961 was passed on October 19, 2022.

Therefore, the assessee filed a revision application u/s. 264 making a claim for deduction u/s. 54F. The assessee submitted that while filing the income-tax return for A. Y. 2022-2023, an inadvertent mistake had crept in as he did not make a claim u/s. 54F of the Income-tax Act against the long-term capital gains on the sale of shares. The assessee also submitted a copy of the intimation order, the sale deed, computation of income, etc.

The Principal Commissioner of Income-tax concluded that since the petitioner had not made the claim in his original return and had also not filed any revised return, he could not make the aforesaid claim before the Commissioner u/s. 264, for the first time. Accordingly, the Principal Commissioner dismissed the application filed by the assessee u/s. 264 of the Income-tax Act. While doing so, the Principal Commissioner relied upon the decision of the hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC); 2006 SCC OnLine SC 1446.].

The assessee filed a writ petition and challenged the order. The Bombay High Court allowed the petition and held as under:

“i) We find that the issue raised in the above writ petition is squarely covered by several decisions of this court in favour of the petitioner. This court has time and again held that revisional powers u/s. 264 are not only wider in their scope but are also intended for preventing miscarriage of justice and providing relief to an assessee, which it is otherwise entitled to.

ii) This court has also taken into consideration the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC); 2006 SCC OnLine SC 1446.] and held that the said decision would be wholly inapplicable since the Hon’ble Supreme Court was not considering the revisional powers as conferred under the provisions of section 264 of the Income-tax Act, but was in the context of a deduction claimed by the assessee by a letter, after the return was filed, without filing of a revised return. If one needs to take support from any decision of this court, the decision rendered in Swaminarayan Mandir Trust v. CIT (Exemptions) [(2026) 488 ITR 65 (Bom).] (Writ Petition No. 2162 of 2025, decided on December 24, 2025) would be apposite.

iii) In view of the aforesaid settled position in law, we are clearly of the view that respondent No. 1 ought to have considered the revision application of the petitioner (filed u/s. 264) even though mistakes/errors were committed by the petitioner itself in the return of the income. Once we are of this view, the impugned order passed u/s. 264 cannot be sustained and would have to be set aside.

iv) The matter is remanded to the Principal Commissioner for fresh disposal in accordance with law.”

BCAJ Admin

Charitable trust — Charitable purpose — Exemption — Filing of audit report within the prescribed time is a condition precedent — Assessee, a trust engaged in providing medical aid to the underprivileged — Delay of 687 days in filing of audit report not condoned by CIT(E) — High Court held that, considering the nature of the work done by the assessee and the fact that the audit report had already been filed, and that the reason for the delay in filing was bona fide, this was a fit case to condone the delay.

17. Manav Vikas Bahuuddeshiya Gramin Seva Sanstha v. CIT (Exemption):

(2026) 486 ITR 427 (Bom): 2025 SCC OnLine Bom 6396:

A. Y. 2017-18: Date of order 03/03/2025

S. 119(b) of ITA 1961

Charitable trust — Charitable purpose — Exemption — Filing of audit report within the prescribed time is a condition precedent — Assessee, a trust engaged in providing medical aid to the underprivileged — Delay of 687 days in filing of audit report not condoned by CIT(E) — High Court held that, considering the nature of the work done by the assessee and the fact that the audit report had already been filed, and that the reason for the delay in filing was bona fide, this was a fit case to condone the delay.

The assessee is a trust engaged in providing medical aid to the underprivileged. There was a delay of 687 days in filing audit report in Form 10B for the accounting years 2016-17. Therefore, on August 18, 2018, the assessee filed an application before the Commissioner of Income-Tax (Exemption) for condonation of delay of 687 days in filing the audit report in form 10B. The reason given for delay was that the Chartered Accountant of the petitioner was not aware of the online filing requirement, which was newly introduced, and that the mistake was unintentional and due to oversight. By an order dated July 25, 2024, the Commissioner of Income-Tax (Exemption) rejected the application, holding that it was not a genuine reason for the grant of condonation of delay u/s. 119(b) of the Income-tax Act, 1961.
The assessee filed a writ petition challenging the order. The Bombay High Court allowed the writ petition and held as under:

“i) Considering that the petitioner is a trust, engaged in providing medical aid to the underprivileged, considering what has been held in Al Jamia Mohammediyah Education Society v. CIT (Exemptions) [[2025] 482 ITR 41 (Bom); 2024 SCC OnLine Bom 1157; [2024] DGLS (Bom) 1521.] and the nature of work being done by the petitioner and the fact that the audit report has already been filed and considering the reason appears to be an honest one, we deem it a fit case to condone the delay.

ii) In view of this, the impugned order is quashed and set aside. and the delay in filing the audit report in form 10B was to be condoned subject to costs of Rs. 10,000 to be paid to the Raman Science Centre and Planetarium, Subhash Road, Empress City, Nagpur, Maharashtra 440 018.”

BCAJ Admin

Article 5 of India-Denmark DTAA – Software sold through a distributor’s channel on a principal-to-principal basis cannot constitute a dependent agent permanent establishment.

8. [2026] 184 taxmann.com 194 (Delhi – Trib.)

Milestone Systems A/S vs. ACIT(IT)

A.Y.: 2022-23 Dated: 06 March 2026

Article 5 of India-Denmark DTAA – Software sold through a distributor’s channel on a principal-to-principal basis cannot constitute a dependent agent permanent establishment.

FACTS:

The Assessee, a Danish company, was engaged in the business of distributing video management and surveillance software through its distributor channel in India. It contended that the receipts constituted business income and, in the absence of a Permanent Establishment (“PE”) in India, were not taxable in India. Accordingly, it claimed a refund of taxes withheld by distributors.

The AO observed that the Assessee sold customised software and exercised significant control over the distributors’ operations, including the price at which the software could be sold to customers. The AO noted that resellers in the distribution channel were approved by the Assessee. The AO held that the distributors constituted dependent agents and triggered dependent agency PE (“DAPE”) for the Assessee.The AO attributed 50% of receipts from distribution of software as profit attributable to DAPE. The Ld. DRP upheld the finding of DAPE but restricted the profit attribution to 25% of the receipts. The primary contention of the Assessee was that the transactions between it and the distributors were on a principal to principal basis and not that of principal-agent.

Aggrieved by the final order, the department preferred an appeal before the ITAT.

HELD

The AO has not demonstrated that the distributors concluded contracts or played a principal role leading to their conclusion on behalf of the Assessee. Under the distribution agreement, the distributors sold the software on their own account and assumed the associated risks.

The distributors were free to determine the sale price of the software, subject only to the condition that the price should not exceed the maximum retail price. This restriction on ceiling retail price cannot establish that the Assessee exercised control over the distributor’s operations.

The distributors were also distributing competitors’ products. On comparison, the revenue generated from the Assessee’s products constituted a minuscule portion of their overall sales.

The approval of resellers in the distribution chain was intended solely to ensure the quality of service and product installation, and it could not be equated with control over the distributors’ business operations.

Based on the above, the ITAT held that distributors do not constitute a DAPE of the Assessee. Accordingly, in the absence of a PE, the business income was taxable only in Denmark.

BCAJ Admin

Article 4 & 12 of India-USA DTAA – Even in the absence of a specific reference in Article 4(1)(b) of the DTAA, a single-member LLC is entitled to the benefits of the DTAA as it satisfies the ‘liable to tax’ requirement. The consideration for offshore repairs to aircraft engines is taxable only in the US in the absence of fulfillment of the make-available condition.

7. [2026] 184 taxmann.com 238 (Delhi – Trib.)

GE Engine Services LLC vs. ACIT

A.Y.: 2021-22

Dated: 11 March 2026

Article 4 & 12 of India-USA DTAA – Even in the absence of a specific reference in Article 4(1)(b) of the DTAA, a single-member LLC is entitled to the benefits of the DTAA as it satisfies the ‘liable to tax’ requirement. The consideration for offshore repairs to aircraft engines is taxable only in the US in the absence of fulfillment of the make-available condition.

FACTS I:

The Assessee, a single-member LLC owned by a US resident, was engaged in aircraft repair services. The Assessee obtained a tax residency certificate (“TRC”) from the US tax authorities. During the year, it earned INR 37.71 Lacs and claimed a refund of INR 60.22 Lacs. The AO noted that the Assessee received a sum of INR 471.64 Crores towards repairs of aircraft (including supply of parts), which was not offered to tax.

The AO observed that a single-member LLC was regarded as a fiscally transparent entity (“FTE”) in the USA and was not specifically included as a resident under Article 4(1)(b) of India-USA DTAA; hence, it was not entitled to treaty benefits. The Ld. DRP confirmed the draft order.

Aggrieved by the final order, the tax authority preferred an appeal before the ITAT.

HELD I:

The Assessee was allotted a tax identification number and also obtained a TRC from the US tax authorities. As per the TRC, the Assessee was certified to be a business unit of a US resident, and the US resident discharged tax on the LLC’s income.

The coordinate benches in the cases of General Motors Company USA v. ACIT (IT) [2024] 209 ITD 60 (Delhi-Trib), Wild West Domains, LLC v. ACIT [IT Appeal No.1774 (Delhi) of 2022, dated 29-7-2024] and Go Daddy.Com LLC v. Dy. CIT [2025] 123 ITR(T) 29 (Delhi – Trib.) held that while an LLC is not specifically referred to under Article 4(1)(b) of the India-US DTAA, it satisfied the requirement of being ‘liable to taxation’ by virtue of the tax being discharged by the US owners on the LLC’s income. The term ‘liable to tax’ is used in the treaty to determine fiscal domicile and refers to the powers of taxation, while the actual incidence/payment of tax may differ.

Following the coordinate bench rulings, the ITAT held that the Assessee was entitled to the benefits of the India-USA DTAA.

FACTS II:

Without prejudice, the AO treated the receipts from aircraft engine repair services as FTS under the Act and the DTAA, contending that the Assessee had provided technical guidance and expertise to its customers, enabling them to identify issues requiring repair.

HELD II:

The ITAT observed that the AO failed to produce any evidence demonstrating that the Assessee had made available technical knowledge, experience, or skill to its customers.

The customers’ learning or expertise acquired through their interactions with the Assessee over the years did not amount to the Assessee making such knowledge available. There must be a conscious effort by the Assessee to make such knowledge available.

Post-repairs, the customers remained dependent on the Assessee for future repairs and were not enabled to perform such services independently.

Based on the above, the ITAT held that the offshore repair services do not satisfy the make available condition; hence, in the absence of a permanent establishment, the receipts are taxable only in the US.

BCAJ Admin

Amounts deposited in the bank account of a Chartered Accountant for payment of clients’ taxes, supported by corresponding tax challans and matching debits, cannot be treated as unexplained money under section 69A in his hands.

33. (2026) 186 taxmann.com 1084 (Chennai Trib)

Bose Saravanan v. DCIT

A.Y.: 2016-17 Date of Order: 11.05.2026

Section: 69A

Amounts deposited in the bank account of a Chartered Accountant for payment of clients’ taxes, supported by corresponding tax challans and matching debits, cannot be treated as unexplained money under section 69A in his hands.

FACTS

The assessee was a Chartered Accountant. He filed his return of income for AY 2016-17 on 14.10.2016 declaring total income of Rs.2,95,197. The A.O received information that the assessee had deposited substantial amount of cash into his bank account. Since the income declared by the assessee in the return of income was not commensurate with the cash deposit, the A.O held that he had a reason to believe that the income of the assessee had escaped assessment and accordingly reopened the assessment by issuing notice under section 148. The assessee submitted before the A.O that the said bank account was opened for the purpose of paying taxes on behalf of the clients and that the entire amount deposited was with respect to the amount received from the clients towards payment of various taxes such as income tax, VAT, TDS, service tax, etc. The A.O, however, did not accept the submissions of the assessee and proceeded to make addition of Rs. 23 Crores under section 69A.

Aggrieved, the assessee filed an appeal before the CIT(A), who enhanced the addition by Rs. 6,87,60,832, by considering the credits in another bank account as unexplained.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Considering the affidavit filed by the assessee and the various other documents, the Tribunal observed:

(a) On sample basis, the tax challans matched with the debits reflected in the bank account of the assessee and that the lower authorities, while making the addition, had completely ignored the debits in the bank account of the assessee, which in the narration clearly mentioned the various government authorities.

(b) Considering the overall facts and circumstances, there was merit in the submission that the assessee had acted as a conduit for payment of taxes on behalf of the clients and that the deposits reflecting in the bank account of the assessee did not belong to the assessee.

Accordingly, the Tribunal directed the AO to delete the addition.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

Where assessee deposited employees’ contribution to PF and ESI after due date under the respective Acts but before due date of return under section 139(1) during COVID-19 period, since issue regarding deductibility was debatable and pending before Supreme Court, adjustment under section 143(1) was not permissible.

32. (2026) 186 taxmann.com 1020 (Jodhpur Trib)

Yadvendra Dhabhai v. ITO

A.Y.: 2021-22

Date of Order: 21.05.2026

Sections: 36(1)(va), 143, 154

Where assessee deposited employees’ contribution to PF and ESI after due date under the respective Acts but before due date of return under section 139(1) during COVID-19 period, since issue regarding deductibility was debatable and pending before Supreme Court, adjustment under section 143(1) was not permissible.

FACTS

The assessee filed his return of income for AY 2021-22. The return was processed by the CPC under section 143(1) making an addition of Rs. 1,85,03,917 on account of delayed deposit of employees’ contribution as per due dates prescribed under the PF and ESI Acts, though such payments were admittedly deposited before the due date of filing the return of income under section 139(1). The assessee filed a rectification application under section 154 with a request to grant relief since the delay was due to unprecedented disruption caused by COVID-19 pandemic. However, the CPC rejected the said application.

Aggrieved, the assessee filed an appeal before CIT(A), who did not grant any relief.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) Recently, the Supreme Court had issued a notice in the case of Woodland (Aero Club) Pvt. Ltd. v. ACIT [SLP No. 1532 of 2026, dated 15-1-2026] to examine the issue of due date for deposit of employer contribution to PF and ESI interpretation amid lingering conflicts where the proceedings were pending and judgment was awaited. Thus, the claim for deduction on deposit of employer contribution to PF and ESI before the due date under respective Acts or due date of filing of return of income u/s 139(1) of the Act was a debatable issue.

(b) Considering the EPFO Circular (infra) on granting relaxation from levy of damages and penalty for delay deposit during the lockdown period and that the issue was sub-judice for review before the Supreme Court, showed that it was an issue which involved interpretation of law at the level of Supreme Court, which was out of the scope of section 143(1) which allows for making prima facie adjustments by the CPC to the return of income of the assessee.

(c) The relaxation from penalties, made by EPFO vide Circular dated 15.05.2020, made it apparently clear that the EPFO authorities had acknowledged genuine hardship, and hence, intended to grant relief to the assessee from levy of penalty on acceptance of delayed payments under the exceptional circumstances such as the COVID-19 pandemic. Meaning thereby, that the relaxation of penalty by the competent authority from the Employees Fund Organization, Ministry of Labour and Employees, Government of India, acknowledged the genuine hardship and intended to grant relief.

(d) In circumstances of the COVID-19 pandemic, the non-levy of penalty tantamounted to acceptance of delay under exceptional circumstances and the absence of formal extension of due date did not negate the intent of relief. Therefore, such delays during the COVID-19 pandemic deserved to be viewed pragmatically and not in a strict technical manner.

Accordingly, the Tribunal held that the impugned order of CIT(A) rejecting the application under section 154 was perverse to the facts on record and did not appreciate the genuine hardships of the COVID-19 period as duly acknowledged by EPFO authorities, and thereby deleted the addition.

As a result, the appeal of the assessee was allowed.

BCAJ Admin

A trust engaged in teaching of Islamic studies, Quranic texts or Arabic language to the public, without conducting religious rituals, ceremonies, or worship, is carrying on an educational activity rather than a religious activity and accordingly, such trust is eligible for registration under section 12AB and approval under section 80G.

31. (2026) 186 taxmann.com 769 (Bang Trib)

An-Nauman Educational Religious Social Charitable and Welfare Trust v. CIT(E)

A.Y.: N.A.

Date of Order: 19.05.2026

Sections: 12AB, 80G

A trust engaged in teaching of Islamic studies, Quranic texts or Arabic language to the public, without conducting religious rituals, ceremonies, or worship, is carrying on an educational activity rather than a religious activity and accordingly, such trust is eligible for registration under section 12AB and approval under section 80G.

FACTS

The assessee was a charitable trust established on 8.4.2013 with the primary object to establish, set up and run educational institutions. It was also imparting religious education on the tenets of Islam in Arabic and governed by the SUNNI-HANAFI sect of school of thought. It was also decided to set-up an Arabic Madarasa for imparting Arabic courses after generating funds and creating regular infrastructure such as building.

It filed applications for grant of registration under section 12AB and approval under section 80G. The CIT(E) observed that the nature of the trust was religious-cum-charitable since the building intended for use as an educational institution was proposed to be constructed in the land belonging to a Masjid, and that the trust was imparting religious education on tenets of Islam and running a Madarasa. Accordingly, he rejected the applications under section 12AB and section 80G.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed as follows:

(a) The trust was not doing any religious activities except to impart Arabic education which was nothing but a language. Similarly, the tenets of Islam were also taught to the public and not to any particular group of persons.

(b) The tax department did not have any documentary proof to show that the assessee trust was carrying on religious activities such as religious worship, rituals, ceremonies or propagation. When there was no proof to show that the trust was doing these activities, merely relying on some words in the trust deed would not be a reason to treat the trust as a religious trust.

(c) Nowhere in the trust deed was there a restriction that the education was to be imparted to a particular group of persons, and in fact, the trust served the entire public at large.

(d) Learning a language as well as owning a Madarasa (which was nothing but a place for education) could not be treated as religious in nature. (e) The assessee trust was carrying on various activities such as relief to the poor, provision of education, etc. and therefore the trust could not be treated as carrying out the religious activities.

(e) The assessee trust was carrying on various activities such as relief to the poor, provision of education, etc. and therefore the trust could not be treated as carrying out the religious activities.

(f) Imparting of education in Arabic language and Islamic academic instruction could at best be termed as education and not providing any religious practice. When the assessee trust was not engaging in any religious worship or rituals, it could not be presumed that the assesse was engaging in religious activities, and on that basis, a trust could not be termed as a religious trust.

(g) The teaching of Islamic studies, Quranic texts or Arabic language academically did not amount to religious worship or religious activity. When the assessee’s trust deed was examined, it was noticed that the dominant objective was to impart education, establish institutions, provide scholarships, develop knowledge, operate libraries and offer language, professional and technical courses. The aforesaid activities were not for a particular religious community but to the general public.

(h) The academic teaching of religious texts at best could be termed as an educational activity whereas the religious worship, rituals or propagation could be termed as a religious activity. In the present case, the assessee trust was engaged in the imparting of education and therefore the assessee trust could not be termed as a religious trust. There was no evidence to show that the assessee trust was engaged in religious activities such as religious worship, rituals, ceremonies and propagation.

(i) Relying on the madarasa to term the assessee trust as doing the religious activity was also not correct. The teaching of Arabic and establishing an Arabic madarasa could not be treated as doing the religious rituals. In fact, several universities in India were having Arabic departments and therefore the imparting of education in the Arabic language could not be treated the institution as a religious trust. The madarasa was performing the function of a school, i.e. imparting structured learning, teaching languages, moral studies, general subjects or vocational skills and therefore the madarasa could at the best be treated as educational institution and no religious worship was carried out in that place and therefore the madarasa could not be equated with mosque. Mosque was a place of religious worship whereas madarasa was a school imparting academic instruction. When the dominant purpose is providing education, the other incidental things done by the assessee could not term the assessee as a religious trust.

Accordingly, the Tribunal set aside both the rejection orders and directed the CIT(E) to grant registration under section 12AB to the assessee trust as a public charitable trust and also grant approval under section 80G.

As a result, the appeals of the assessee were allowed.

BCAJ Admin

Utilization of borrowed funds does not alter the character of investment transactions where other indicators of business activity are absent. In terms of para 3(b) of CBDT Circular No. 6/2016, the Assessing Officer is bound to accept the treatment adopted by the assessee where shares are held for more than 12 months and are consistently reflected as investments in the balance sheet and there is no allegation of bogus or sham transactions.

30. TS-590-ITAT-2026 (Ahmedabad)

DCIT v. Kutir Navinchandra Patel

A.Y.: 2017-18

Date of Order: 23.4.2026

Sections: 28, 45

Utilization of borrowed funds does not alter the character of investment transactions where other indicators of business activity are absent.

In terms of para 3(b) of CBDT Circular No. 6/2016, the Assessing Officer is bound to accept the treatment adopted by the assessee where shares are held for more than 12 months and are consistently reflected as investments in the balance sheet and there is no allegation of bogus or sham transactions.

FACTS

The assessee, an individual engaged in the business of manufacturing corrugated boxes and trading in cloth filed his return of income for assessment year 2017-18 declaring total income of Rs. 8,62,20,910, which included Short Term Capital Gain (STCG) of Rs. 8,51,46,889 and exempt Long Term Capital Gain (LTCG) of Rs. 4,58,83,452 arising from sale of listed equity shares.

In the course of assessment proceedings, the Assessing Officer (AO) issued a show cause notice proposing to treat the capital gains as business income. The assessee filed reply along with documentary evidences explaining that the shares were held as investments, transactions were delivery-based, and investments were made out of own funds and business surplus. The assessee also submitted that the shares were consistently reflected as investments in the books and that there was no intention to carry on trading activity.

However, the AO rejected the explanation primarily on the ground that the assessee had utilized unsecured loans for making investments in shares and that such loans were repaid upon sale of shares, indicating a systematic and profit-oriented activity akin to business. The AO held that the entire activity constituted business activity. Accordingly, he treated both STCG of Rs. 8,51,46,889 and LTCG of Rs. 4,58,83,452 aggregating to Rs. 13,10,30,341 as business income and made addition under the head “Profits and Gains of Business or Profession.”

Aggrieved, the assessee preferred an appeal to the CIT(A) where he inter alia submitted that even if borrowed funds were used, the same would not ipso facto convert investment transactions into business transactions.

The CIT(A) allowed the appeal and held that the AO had failed to carry out any objective analysis of relevant factors such as intention, holding period, frequency, and accounting treatment, and had instead proceeded merely on presumptions regarding use of borrowed funds. With regard to LTCG, the CIT(A) held that in terms of para 3(b) of CBDT Circular No. 6/2016, the AO was bound to accept the treatment adopted by the assessee. On these specific facts, the CIT(A) held that the LTCG of Rs. 4.58 crores was rightly claimed as exempt under section 10(38) and could not be recharacterized as business income.’

As regards STCG, the CIT(A) applied the judicially settled tests, and having examined the specific facts of the assessee’s case, held the gains to be on investment account.

On the issue of borrowed funds, the CIT(A) held that the AO’s reliance on this factor was misplaced and contrary to settled law.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

HELD

The CIT(A) has passed a well-reasoned and speaking order after duly appreciating the factual matrix and the settled legal position governing the issue. The Tribunal noted that there is no allegation by the AO that the transactions in shares are bogus, sham or in the nature of penny stock transactions. The genuineness of purchase and sale of shares, supported by demat statements, contract notes and banking channels, has not been doubted. Also, admittedly, the shares giving rise to Long Term Capital Gains were held for more than the stipulated period of 12 months and were consistently reflected as “investments” in the books of account of the assessee.

The CIT(A) has correctly applied the binding CBDT Circular No. 6/2016 dated 29.02.2016, particularly para 3(b), which mandates that where listed shares are held for more than 12 months and the assessee treats the same as investments, the AO shall not dispute the characterization of income as capital gains. It observed that the AO, in the present case, has disregarded the said binding circular without recording any finding that the transactions were non-genuine. Therefore, the CIT(A) was justified in holding that the LTCG of Rs. 4,58,83,452 is to be assessed under the head “Capital Gains” and is eligible for exemption under section 10(38) of the Act.

With regard to the STCG, the Tribunal observed that the CIT(A) has examined the issue in the light of well-settled judicial principles governing distinction between investment and trading. The factual findings recorded by the CIT(A) were not controverted by the Revenue, clearly demonstrating that the shares were held on delivery basis in dematerialized form, the investments were largely concentrated in a single scrip, there was no frequency or multiplicity of transactions indicative of systematic trading, and the assessee did not have any infrastructure or organized activity for dealing in shares as a business. Further, the accounting treatment consistently reflected the shares as investments and not as stock-in-trade. These factual findings, according to the Tribunal, establish that the intention of the assessee was to hold the shares as investments and not to trade.

It observed that the sole basis adopted by the AO for recharacterizing the income is the alleged use of borrowed funds. It held such reasoning is unsustainable in law. It noted that the jurisdictional High Court in CIT vs. Bhanuprasad D. Trivedi (HUF) [(2017) 87 taxmann.com 137 (Guj)], following the earlier decision in CIT vs. Rewashanker A. Kothari [(2006) 283 ITR 338 (Guj)], has categorically held that mere utilization of borrowed funds or volume of transactions does not alter the character of investment into stock-in-trade if the intention of the assessee is to hold the shares as investments.

The Tribunal dismissed the appeal filed by the Revenue.

BCAJ Admin

Once the assessee has demonstrated that capital gains has been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate or complete set of bills were not furnished. The provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities.

29. TS-571-ITAT-2026 (Bangalore)

Javaji Naga Darshan v. ITO

A.Y.: 2022-23

Date of Order: 15.4.2026

Sections: 54, 54F

Once the assessee has demonstrated that capital gains has been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate or complete set of bills were not furnished.

The provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities.

FACTS

The assessee, in his return of income returned long term capital gains of Rs 33,18,773 on sale of immovable property and claimed entitlement to deduction under section 54 of Rs 45,00,000, but restricted the same to Rs 33,18,773 being amount of capital gains.

In the course of assessment proceedings, the Assessing Officer (AO) called for details and evidence such as purchase of land, evidence for construction and proof of ownership of constructed property. The assessee furnished only sample copies of bills of construction material which were held to be insufficient. The AO, accordingly, denied the claim for deduction of Rs 33,18,773 under section 54 of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) and submitted that the AO has not appreciated the fact that the assessee had entered into a Joint Development Agreement and a copy thereof was placed on record to establish ownership and development of the property. The CIT(A) dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal before the Tribunal where it was submitted that copy of sale deed of original property, Joint Development Agreement, details of reinvestment in construction of residential house, bank statements evidencing flow and utilisation of funds and sample copies of invoices relating to construction have been furnished.

It was contended that the assessee has established that the amount of capital gains stood reinvested and that the claim for deduction has been denied on alleged deficiencies in documents without disproving the core fact of investment; substantive compliance cannot be denied on technical lapses; once the source of funds and their utilisation for construction is established, minor deficiencies such as non-submission of certain documents such as approval letters or complete bills cannot be a ground to deny exemption. The claim has been denied on mere suspicion and that neither the AO nor CIT(A) have conducted an independent enquiry. Such an action is violative of principles of natural justice.

HELD

The Tribunal noted that from the facts on record that it is not in dispute that the assessee has earned capital gain on sale of immovable property and has claimed deduction on account of construction of a residential house. The only basis for denial of the claim by the lower authorities is alleged insufficiency of documentary evidence.

On perusal of the records, it observed / held that –

(i) the assessee has furnished a Joint Development Agreement (JDA) entered between the assessee and his family members to substantiate the claim of construction of residential house. The CIT(A) has rejected the same by observing that the agreement mentions nil consideration and is executed on a stamp paper of Rs. 200, thereby treating it as doubtful; the Tribunal held the reasoning of the CIT(A) to be not sustainable;

(ii) the JDA placed on record evidences the arrangement for construction and cannot be disregarded merely on the ground that the consideration mentioned therein is nil or that the stamp duty is nominal, especially when the arrangement is within family members. It held that these factors, by themselves, do not disprove the factum of construction activity undertaken by the assessee;

(iii) the assessee has furnished sample bills for the purchase of building materials aggregating to Rs. 24,25,282. The Revenue authorities have rejected such evidence in a general manner without pointing out any specific defect or discrepancy in such bills. The Tribunal held that in absence of any adverse finding regarding genuineness of these documents, the same cannot be brushed aside as insufficient;

(iv) it is also pertinent to note that the assessee has furnished details of construction expenses exceeding Rs. 21 lakhs incurred through banking channels, along with the names of parties and nature of materials purchased or services availed but formal bill or voucher was not available. It held that such evidence clearly demonstrates the flow and utilization of funds towards construction. It also held that, the lower authorities have failed to consider these details in proper perspective and have proceeded to reject the claim without any verification or rebuttal.

The Tribunal held that the approach adopted by the AO as well as by the CIT(A) is hyper-technical. Once the assessee has demonstrated that the capital gains have been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate, or complete set of bills were not furnished. It is well settled that the provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities. Considering the JDA, material purchase bills, and details of expenditure incurred through banking channels, the Tribunal held that the assessee has satisfactorily demonstrated the construction of a residential house and utilization of capital gains for the said purpose. Accordingly, the Tribunal deleted the disallowance made by the AO and confirmed by the CIT(A) amounting to Rs. 33,18,773 as not sustainable.

BCAJ Admin

In the absence of consideration and absolute possession, capital gains cannot be taxed u/s 45(1).

28. TS-567-ITAT-2026(HYD)

Vasudeva Rao v. ITO

A.Y.: 2014-15

Date of Order: 17.4.2026

Sections: 2(47), 45

In the absence of consideration and absolute possession, capital gains cannot be taxed u/s 45(1).

FACTS

The assessee, for the first time, filed a return of income in response to a notice issued under section 147 of the Act, declaring total income to Rs 11,029 being interest income. In the course of assessment proceedings, the assessee denied any liability to capital gains tax on account of execution of Joint Development Agreement (JDA) dated 11.1.2013, in respect of which the Assessing Officer (AO) had information in his possession. Since the share of the assessee in respect of land which was subject matter of JDA was 1/8th, the AO taxed 1/8th of the total consideration of Rs 5.30,50,000 under JDA i.e. Rs 66,31,250 to be the long-term capital gains taxable in the hands of the assessee.

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

The primary issue raised by the assessee before the Tribunal was that during the year under consideration there is no taxable event of `transfer’ u/s 2(47) of the Act since during the year under consideration neither was any consideration received under the JDA nor was absolute possession granted by the assessee. This proposition was sought to be supported by the decision of the jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam vs. ITO (170 taxmann.com 754).

HELD

The Tribunal observed that, on perusal of clauses 1 to 3 of the JDA, it is evident that the possession of the property has been handed over by the assessee to the developer only for the limited purpose of development of the property, and not as an absolute transfer of possession in terms of section 53A of the Transfer of Property Act, 1882. It also noted that there is also no dispute about the facts that the assessee has not received any consideration from the developer on account of the said JDA during the year under consideration.

The Tribunal noted that the jurisdictional High Court in the case of Smt. Shanta Vidyasagar Annam (supra) has, in paras 17 and 18, categorically held that unless consideration is received by the assessee or possession is handed over in the manner contemplated under section 53A of the Transfer of Property Act, no “transfer” can be said to have taken place for the purpose of section 45 of the Act.

Since Revenue did not bring on record any material to demonstrate that the assessee has received any consideration, whether monetary or otherwise, during the year of execution of the JDA and neither was there any material to show that the possession was handed over to the developer in a manner other than for the limited purpose of development, the Tribunal held that the very foundation for invoking section 45(1) of the Act in the year under consideration fails.

Following the binding decision of the jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam vs. ITO (supra), it held that no taxable capital gain arose in the hands of the assessee during the year under consideration.

BCAJ Admin

The issuance of valid notice u/s. 143(2) by a jurisdictionally competent AO is a mandatory requirement for completing assessment u/s. 143(3) of the Act and failure to issue such a notice, or issuing it without proper jurisdiction vitiates the entire assessment and renders it void ab initio. Section 292BB is only confined to service of notice and does not apply to issuance of notice.

27. TS-500-ITAT-2026(DEL)

Rachit Jain v. DCIT

A.Y.: 2019-20

Date of Order: 6.3.2026

Sections: 143(2), 153A, 292B

The issuance of valid notice u/s. 143(2) by a jurisdictionally competent AO is a mandatory requirement for completing assessment u/s. 143(3) of the Act and failure to issue such a notice, or issuing it without proper jurisdiction vitiates the entire assessment and renders it void ab initio.

Section 292BB is only confined to service of notice and does not apply to issuance of notice.

FACTS

The Tribunal in an cross appeal by the assessee was required to decide the legal issue viz. that a notice under section 143(2) issued by a non-jurisdictional Assessing Officer (AO) renders such a notice illegal, invalid, non-est and without jurisdiction and the consequent assessment order to be illegal. The facts relevant for deciding the issue were as under –

In the assessment proceedings u/s. 153A r.w.s. 143(3) of the Act for AY 2019-20, the AO claimed to have issued a notice u/s. 143(2) dated 30.9.2020. However, as per the record, the jurisdiction over the case was transferred to DCIT, Central Circle-31, New Delhi only on 15.10.2020, vide order u/s. 127 of the Act which was communicated to the assessee only on 25.02.2021. Therefore, on the date of issuance of notice, the AO did not have valid jurisdiction over the assessee. Also, on the assessee’s e-filing portal, a notice under section 143(2), a copy of the first page of the appraisal report was attached in place of the statutory notice.

During the appellate proceedings before CIT(A), the assessee raised the specific ground that no valid notice u/s. 143(2) had been issued by a jurisdictionally competent Assessing Officer (AO). However, in response thereof, the CIT(A) called for a remand report from the AO and in the remand report, the AO reiterated the issuance of notice dated 30.09.2020. The AO, however, failed to address that jurisdiction under section 127 was assumed after the date of notice. Despite this fact, the CIT(A) upheld the validity of the notice, holding that since the notice was visible on the portal and the assessment was completed u/s. 153A, the defect was curable.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the Apex Court in the case of ACIT vs. Hotel Blue Moon [(2010) 324 ITR 372 (SC)] has held that in the absence of the notice u/s. 143(2) of the Act, the assessment framed by the Assessing Officer is liable to be quashed.

The Tribunal held that the notice u/s. 143(2), which is mandatory, has not been served on the assessee and thus, the consequent assessment order is void ab initio and deserves to be quashed. It directed accordingly.

Since the Tribunal quashed the assessment on jurisdictional ground in the assessee’s appeal, the appeal filed by the revenue was held to have become infructuous and was dismissed as such.

BCAJ Admin

Globalisation Readiness Self-Assessment For Indian Mid-Sized CA & Professional Services Firms

These questions accompany seven articles in this Annual Issue of BCAJ on the Globalisation of Indian Accounting Firms. They are intended to provoke honest reflection, serve as a mirror, and surface gaps that domestic incumbency may be concealing. We hope that the user will answer them with evidence rather than intention — and that the distance between the two will tell you something useful.

HOW TO USE THIS QUESTIONNAIRE

Work through every section with your full partnership leadership team.
Answer with evidence, not aspiration. Where you cannot point to a concrete fact, name, decision, or number — record it as a gap.
Each question leads to an action. Use the right-hand column to commit to a specific action, owner, and date.
Rate each section GREEN (answered with evidence) / AMBER (answered aspirationally) / RED (cannot answer honestly) in the Readiness Summary at the end.
Answer the Diagnostic Question last. It is the single most important question in this document.

1	STRATEGIC INTENT & CLIENT REALITY Why are you going global — and does the market actually validate it?

#	Question	Our Position Today / Action, Owner, Date
Q1	Why do we want to globalise — and can we articulate a reason that is not prestige, not a vanity address, and not ‘because others are doing it’?	Response: Prompt: Name the specific client need or market opportunity. If you cannot name it, reconsider the premise before spending a rupee.
Q2	Are we going global out of genuine ambition to build a better, stronger firm — or because domestic growth has slowed and we are looking for an exit from a problem?	Response: Prompt: Globalisation does not fix a weak home practice. It exposes it. Be honest about which dynamic is at work.
Q3	Have we made a documented, partnership-level decision to globalise — with a board resolution, a committed budget, and a named owner — or is this the initiative of one or two enthusiastic individuals?	Response: Prompt: Without a formal commitment, it is an intention, not a strategy. The difference matters when the first setbacks arrive.
Q4	Do our existing clients have genuine cross-border needs we currently cannot serve — and are we demonstrably losing mandates because of that gap?	Response: Prompt: Name 3 specific situations in the last 2 years where a global capability was needed and absent. These are your actual business case.
Q5	Is there a specific overseas market where Indian client need is forming ahead of full maturity — where early presence would give us a decisive, compoundable first-mover advantage?	Response: Prompt: Which market? What is the trigger — regulatory change, trade flow, or capital movement? What is the entry timing window?
Q6	Beyond serving existing Indian clients abroad, can we win clients who are not Indian — local clients, third-country multinationals — in the target market?	Response: Prompt: If the honest answer is ‘probably not yet’, the international office is a client-servicing outpost, not a global practice. Both are valid but require very different capital commitments.
Q7	Have we mapped the full advisory chain generated by India’s FDI and ODI flows — entry strategy, valuation, FEMA, transfer pricing, audit — and identified which links we handle end-to-end vs. which we refer out?	Response: Prompt: Every dollar of cross-border investment creates a chain of advisory needs. Where in that chain does our capability actually start and end?
Q8	Are we going global to become a better firm — or merely to look like a larger one? If the international office closed in Year 3, would the home practice be stronger or weaker for the experience?	Response: Prompt: The right answer is ‘stronger, because we will have identified and fixed gaps the domestic market conceals.’ If the honest answer is ‘we are not sure’, globalisation is premature.

2	HONEST SELF-ASSESSMENT OF CAPABILITY What would remain if domestic incumbency were removed?

#	Question	Our Position Today / Action, Owner, Date
Q1	What are our one or two genuinely distinctive capabilities — the things a sophisticated overseas client, who owes us nothing, would pay meaningful fees for?	Response: Prompt: Not ‘we are good at tax.’ Name the specific sub-domain, jurisdiction, client type, and problem we solve better than competitors. ‘Inbound FDI tax structuring for Japanese manufacturers entering India’ is a capability.
Q2	Are those capabilities embedded in the firm as an institution — or do they reside in one or two senior partners who could leave next year?	Response: Prompt: If your two best partners resigned today, which client mandates and technical capabilities would walk out with them? The answer is your institutional capability gap.
Q3	Have we tested our quality against international benchmarks — through a quality review, a joint engagement, a network inspection, or competitive selection against global firms?	Response: Prompt: Domestic reputation is not a proxy for international quality. Have any of our professionals worked in or been assessed by international firms? What external evidence of our capability exists beyond long-standing client loyalty?
Q4	Do we have genuine specialisation by domain and by industry sector — or are we still a generalist practice that claims expertise in everything and is truly differentiated in nothing?	Response: Prompt: List your firm’s specialised practices. Is each staffed by a dedicated team with documented methodologies? Or is ‘specialisation’ just a website heading?

3	REGULATORY & COMPLIANCE READINESS Do we understand the rules of the game in every market we intend to enter?

#	Question	Our Position Today / Action, Owner, Date
Q1	Do we have a jurisdiction-wise map of what services can be delivered from India, what requires local registration, what requires local collaboration, and what we cannot do at all in each target market?	Response: Prompt: For each target market: What are the licensing requirements? Is the Indian CA qualification recognised? Can Indian staff sign deliverables? These are non-negotiable baseline facts before any office investment.
Q2	Have we mapped our independence obligations under all applicable frameworks — ICAI, local auditor independence rules, IESBA, and PCAOB if relevant — and do we have a live, firm-wide conflict-check system?	Response: Prompt: An independence failure in one office can compromise the entire firm’s global reputation. Is there a partner whose specific and sole responsibility is independence governance?
Q3	Do we understand and have we prepared for peer review, external inspection, and regulatory scrutiny in every market we intend to enter?	Response: Prompt: Welcoming inspection, not resisting it, is the mark of a globally ready firm. Regulation is the architecture of trust — not the enemy of growth.
Q4	Have we built our globalisation plan within ICAI’s current regulatory framework on firm structure, branding, advertising, multidisciplinary partnerships, and external capital — or are we betting on regulatory reform that has not yet happened?	Response: Prompt: ICAI reform is necessary but not yet complete. Build for the regulations as they are, with optionality for reform. A strategy that requires ICAI to change before it works is not a strategy.

4	PEOPLE, LEADERSHIP & INSTITUTIONALISATION Has this firm built something genuinely larger than its founding individuals?

#	Question	Our Position Today / Action, Owner, Date
Q1	Do we have a deliberate, documented hiring plan for the new office — naming specific roles, profiles, languages, and qualifications — or will we default to sending whoever is available from India?	Response: Prompt: Name the first 3 roles you will hire locally. If you cannot profile them specifically today, the hiring plan does not exist.
Q2	Does our international team plan genuinely reflect the local market — culturally, linguistically, professionally — or is it an Indian team operating in another country?	Response: Prompt: What percentage will be local hires vs. seconded India staff after Year 1 and Year 3? What is the explicit path to local leadership of the office?
Q3	Can we retain the best local hires once attracted? What is our answer when a senior local professional asks: ‘Is my growth path connected to this firm’s trajectory — or am I an instrument of delivery?’	Response: Prompt: What equity, authority, or growth opportunity are we offering senior local hires beyond a salary? If the answer is ‘nothing yet’, retention risk is very high.
Q4	Do we have a formal HR function — with a dedicated HR head — or is people management a part-time responsibility of the managing partner?	Response: Prompt: Once a firm reaches critical mass, a professional HR head is not optional. At what headcount does your firm plan to appoint one?
Q5	Is succession planned, documented, and known to the full partnership — or would a founder stepping back create a client and capability crisis?	Response: Prompt: Name the next three people who could lead the firm in five years. What specific development plan is in place for each of them today?
Q6	Are client relationships owned by the firm as an institution — or by individual partners who could take those clients with them if they left?	Response: Prompt: Name your top 5 clients. How many have meaningful working relationships with more than one partner or senior manager? That number is the firm’s actual institutional client ownership.
Q7	Do we have a genuine second line of leadership — partners and directors with real authority, real accountability, and real client ownership — or does everything flow through two or three founders?	Response: Prompt: Name them. In the last 12 months, what significant decisions did they make independently, without founder sign-off? If you cannot name a decision, authority has not actually been transferred.
Q8	Will our current equity and governance structure survive when top talent demands a fairer share — or will it fracture under that pressure before the international practice reaches maturity?	Response: Prompt: When was the equity split last reviewed? Is it defensible to the next generation of partners who are already watching and making their own calculations?
Q9	Are we prepared to give real authority to the next generation before they have been fully tested — and absorb the uncertainty that involves?	Response: Prompt: In the last 12 months, name one significant decision made by a next-generation leader without founder sign-off.
Q10	Have we moved from a founder-name firm to an institution with its own identity, systems, and client relationships that are larger than any individual?	Response: Prompt: Obsession with founder names prevents meaningful consolidation and global scale. What is the firm’s institutional name and identity independent of its founders?
Q11	Have we seriously evaluated merger with one or more complementary Indian firms as a faster route to the scale required for credible global presence — before investing in international offices?	Response: Prompt: The Big Four were built through merger and consolidation over decades. Is domestic scale the missing precondition for our globalisation ambition? What formal conversations have we initiated in the last two years?

5	CULTURE & ETHICS What happens when no one senior is in the room?

#	Question	Our Position Today / Action, Owner, Date
Q1	Would a junior team member in an overseas office raise a difficult client complication at 11 pm — or find a workaround because no one senior is watching?	Response: Prompt: When did a junior professional last raise an inconvenient issue with a client proactively? How the firm responded to that moment is more diagnostic than the incident itself.
Q2	Does our culture depend on physical proximity to the founders — or is it genuinely internalised and portable across cities, countries, and time zones?	Response: Prompt: What would change in how work gets done in the new office if a founding partner visited only once per quarter? If the answer is ‘a great deal’, it is supervision, not culture.
Q3	Have we ever explicitly defined what is non-negotiable in our culture — and demonstrated that commitment by making a costly decision to uphold it in the last three years?	Response: Prompt: Name one client mandate or piece of work we declined or resigned because it conflicted with our standards. If you cannot name one, the standard may not be as firm as believed.
Q4	Do we have a single P&L across all offices — or separate economics that create invisible incentives for each office to optimise locally at the expense of firm-wide standards?	Response: Prompt: How is the new office’s performance currently measured? Is it integrated with or separate from the home practice? Shared economics create shared accountability.
Q5	Do we have an ethics partner or governance function with real authority — not just a name on a policy document — and do partners see that independence breaches and lapses are taken seriously?	Response: Prompt: A global firm cannot operate with variable ethics. The firm’s ethical floor must be consistent everywhere. Where local law is less stringent, the firm’s own standard must still prevail.
Q6	Are we building institutional brand through knowledge publications, sector alerts, and thought-leadership — and can we show a sceptical new international client tangible evidence of our expertise?	Response: Prompt: What published content has the firm produced in the last year that a prospective overseas client could read to assess our capability? If the answer is ‘nothing’, the knowledge marketing programme does not yet exist.

6	TECHNOLOGY INFRASTRUCTURE Can our systems support global delivery today — not eventually?

#	Question	Our Position Today / Action, Owner, Date
Q1	Where are we honestly on the technology maturity curve: Level 1 (email and spreadsheets), Level 2 (integrated cloud tools with standardised workflows), or Level 3 (unified, AI-enabled, continuously improving)?	Response: Prompt: Be specific. List the actual systems in use for practice management, document control, client collaboration, time recording, and quality review. Do not describe the aspiration — describe the current reality.
Q2	Are we allocating 5–10% of annual revenues to technology — or treating it as a residual cost that gets funded only after every other priority is met?	Response: Prompt: What was actual technology spend last year as a percentage of revenue? Who owns the technology investment decision, and does that person have authority to commit to multi-year infrastructure spend?
Q3	Can a colleague in another country pick up exactly where a Mumbai team member left off — with full access, no version confusion, no data privacy breach, and no loss of audit trail?	Response: Prompt: Test this. Name one current engagement and map how work would actually flow between Mumbai and, say, Dubai or Singapore. Where are the friction points today?
Q4	Do we have governance embedded into daily workflows — so that conflict checks, independence clearances, and quality sign-offs are systemic and cannot be bypassed?	Response: Prompt: Can a partner sign off on a deliverable without completing the required governance steps within the system? If yes, the governance is illusory regardless of what the policy document says.
Q5	Have we addressed compliance with India’s Digital Personal Data Protection Act 2023 and applicable data privacy laws in target markets (GDPR for Europe) — and do we have documented cybersecurity controls for multi-jurisdiction client data?	Response: Prompt: When was the last independent security audit? Is there a documented incident response plan? Have client data processing agreements been reviewed for DPDP 2023 compliance?

7	CAPITAL & FINANCIAL READINESS Are we financially built for this?

#	Question	Our Position Today / Action, Owner, Date
Q1	Do we have an explicit, board-approved, multi-year capital plan covering technology, talent, brand building, overseas compliance, and office infrastructure — with committed rupee figures, not aspirational ranges?	Response: Prompt: Produce a 3-year capital requirement estimate with specific line items. If you cannot do this today, the globalisation plan is an intention, not a strategy.
Q2	Are our charge-out rates internationally competitive? Can senior partners bill at USD 500–800/hr equivalent for cross-border advisory — and does the international office stand on its own economics?	Response: Prompt: Compare your current blended rate per partner to market benchmarks. What would it need to be for the international office to be self-sustaining within 3 years without subsidy from the home practice?
Q3	Are we growing revenues at 15–20% annually with EBIT margins of 20–25%? If not, what specifically is preventing it — and is the cause structural or managerial?	Response: Prompt: Structural causes (equity model, service mix, pricing architecture) require strategic intervention. Managerial causes (execution quality, focus, talent gaps) require operational intervention. The diagnosis determines the solution.
Q4	If PE or other external capital becomes relevant, are we investor-ready — with documented governance, auditable MIS, credible second-line leadership, and a strategic plan not dependent on any one founding partner?	Response: Prompt: Could you hand an investor a board pack for the last 4 quarters today — with credible management accounts, KPIs, and a coherent strategic narrative? If not, when realistically could you?
Q5	Do we fully understand ICAI’s current position on external investment — including the separation of audit and non-audit practices required before PE capital can be accepted — and have we taken formal regulatory advice on this?	Response: Prompt: The firm must address statutory audit independence before signing a term sheet, not after. Assuming ICAI flexibility on this specific point is a material planning risk.

8	MARKET POSITIONING, NETWORKS & EXPANSION Do we know what we are selling, who we are selling to, and how we will reach them?

#	Question	Our Position Today / Action, Owner, Date
Q1	Have we decided: are we building a full-service firm or a boutique? Or are we drifting between the two without having made the choice?	Response: Prompt: Write the answer in one sentence. If the sentence contains ‘both’ or ‘it depends’, the decision has not been made. Indecision on this question is visible to sophisticated clients and investors.
Q2	If boutique: is there genuinely a niche in the market, and — more importantly — is there a market in that niche large enough to sustain a viable international practice?	Response: Prompt: Estimate the addressable fee pool in your specific niche in your target geography. Is it large enough? Is it growing? Who else is competing for it?
Q3	Have we identified the 2–3 industry sectors where we can build differentiated cross-border credibility — pharma, engineering goods, SaaS, renewables, family-owned multinationals — rather than claiming relevance in every sector?	Response: Prompt: Sector-lens competition allows a mid-sized firm to compete on insight rather than size. Which sectors? What is the existing evidence of depth, not just familiarity?
Q4	Have we mapped the competition in the target market — who is already there, what they charge, what clients say about them, and where the genuine opening for an Indian firm lies?	Response: Prompt: Could you produce a 1-page competitor map for your target geography right now? If not, market research is the immediate next action before committing capital.
Q5	Have we consciously chosen our expansion model — organic greenfield, merger/acquisition, network membership, bilateral alliance, or building our own network — and can we articulate why we chose it over the alternatives?	Response: Prompt: Defaulting to the most familiar option without evaluating the alternatives is not a strategic choice — it is a habit. What is our chosen model and why?
Q6	If we are considering network membership, have we rigorously assessed whether it genuinely adds clients and capability — or primarily adds a brand name, quality reporting obligations, and fee payments?	Response: Prompt: What specific mandates has the network generated for member firms of comparable size in the last 3 years? What are the exclusivity terms, governance obligations, and exit conditions?
Q7	Do we have a cross-border referral network — formal alliances, best-friend relationships, or network memberships — with demonstrated referral flow in both directions?	Response: Prompt: Name the three overseas firms who would send us a referral today. When did a senior partner last visit them in person? Relationships that have never generated a referral are contacts, not alliances.

9	BRANDING & VISIBILITY Are we building a firm — or just a name?

#	Question	Our Position Today / Action, Owner, Date
Q1	Within ICAI’s framework — which was meaningfully revised effective 1 April 2026 — are we doing everything permitted: strong website, LinkedIn presence, client roundtables, conference participation, authored publications?	Response: Prompt: Audit each of these. Which are active and regular? Which are absent? Assign ownership and a 90-day action to each absent item.
Q2	Are our senior professionals active in public forums of peers — study circles, seminars, BCAJ events, global conferences? Is this tracked, encouraged, and resourced by the firm?	Response: Prompt: In the last 12 months, how many times did a partner from your firm speak at an external professional forum? What is the firm’s target, and how is it supported?
Q3	Are we building institutional brand — or relying entirely on individual partner relationships that will not survive those partners stepping back?	Response: Prompt: What would remain of the firm’s market visibility if the two most senior partners stopped attending external events tomorrow? That residual is your institutional brand.

THE DIAGNOSTIC QUESTION — Answer This Last & Answer It Honestly

If we removed our domestic structural advantages — long-standing client relationships, regulatory barriers to foreign competition, and the market’s limited ability to distinguish excellent advice from confident mediocrity — what would a new client in a new market actually see when we walked through their door?

Write your honest answer below. This is not a question for the pitch deck. It is the question a sophisticated international client — a CFO of a cross-border MNC, a family office, a private equity fund — will answer for themselves in the first two meetings. Answer it before they do.

Our honest answer:

√	READINESS SUMMARY Complete this after all nine sections.

After completing all nine sections, classify each section into one of three categories:

GREEN — Answered with evidence

Concrete facts, names, decisions and numbers support the answer.

AMBER — Answered aspirationally

The answer describes intent or plans, not current reality.

RED — Cannot answer honestly

Honest response is ‘we don’t know’ or ‘we haven’t thought about this.’

Section	GREEN	AMBER	RED	Priority Gap / Next Action
1. Strategic Intent & Client Reality
2. Honest Self-Assessment of Capability
3. Regulatory & Compliance Readiness
4. People, Leadership & Institutionalisation
5. Culture & Ethics
6. Technology Infrastructure
7. Capital & Financial Readiness
8. Market Positioning, Networks & Expansion
9. Branding & Visibility

Readiness Level	What It Means
Sections answered confidently with evidence	Globalisation-ready: proceed to market selection and capital planning.
Sections answered partially or aspirationally	Globalisation-capable: address specific gaps before committing capital abroad.
Sections where honest answer is ‘we don’t know’	Globalisation-premature: invest in institutional foundations first.
The Diagnostic Question unanswerable honestly	Do not globalise yet. Fix the home practice first. The market will not wait indefinitely — but neither will it reward an unprepared entry.

BCAJ Admin

Learning From Global Firms, What Indian Firms Can Adopt And What They Can Avoid

Indian accounting firms struggle to compete with global giants due to deep fragmentation and lack of scale. To survive and grow, they must learn from the Big Four by prioritizing institutionalization over individual ownership, investing heavily in technology and AI, and developing deep industry and domain specializations. Furthermore, Indian practices need robust governance, talent management, and quality control systems. However, instead of mimicking the rigid silos of global networks, Indian firms can carve a competitive edge by offering highly integrated, personalized services and dedicated relationship management, particularly to mid-sized clients.

INTRODUCTION

The Indian accounting sector is highly fragmented, with over 72% of 1,00,000+ firms operating as sole proprietorships. With only 13 firms having more than 50 partners, these small firms lack the scale to invest in technology and talent and thus lose significant market share to large global giants.

GLOBAL FIRMS – A PERSPECTIVE

This article is about learning from global firms, and whilst there are many global firms other than the Big Four (such as BDO and Grant Thornton), for the purpose of this article, some statistics regarding the Big Four have been highlighted just as a reference point, especially to understand the difference in scale, and to keep in mind the big picture.

The global revenue and employment generation of the Big Four firms for the year 2025 is given in the table below.

Firm	FY 2025 ($)	Employees
Deloitte	70.5 B	4,73,000
PwC	56.9 B	3,64,000
EY	53.2 B	3,95,000
KPMG	39.8 B	2,76,000

Each of these “firms” (actually networks) have been built, on an average, over a hundred years and it is important to recognize that these are not firms which are, so to speak, majority owned by a handful of people; they are not. First of all, in most countries, the individual firms are part of a network and it is not that one country “owns” the entities in the other countries. It is often wrongly thought that USA would own, say, the Indian counterpart; local firms are owned by local partners, and the branding is the result of, say to speak, a franchise. There are, of course, some exceptions, such as that the US firm may have a joint venture with the Indian firm for some parts of the business, such as a back office or a global capability center, but that is not the same as saying that there is a holding company which owns all other entities. Also, this is not the same as consulting firms like, say, McKinsey or BCG or Accenture, where it is not a confederation or a network, but like a multinational MNC; it is very important to bear this distinction in mind to understand how these firms function and what could be the learnings therefrom.

The Indian Accounting Evolution

BIG FOUR IN INDIA

The Big Four in India are a minuscule part of the global operations, although obviously, India being the fifth largest economy in the world, it is very important to these firms. One of the reasons for this importance is not the revenue, but a gap in the ability to service MNCs across the world is a major issue; also, India often also has back office capabilities which are often leveraged by larger global firms, either as joint ventures or otherwise.

The 2025 March India revenues and employees of the Big 4 was estimated as under:

Firm	FY 2024 (Rs. cr)	Approximate employees in India
EY India	13,400	~ 1,00,000+
Deloitte India	10,000	~ 55,000 – 60,000
PwC India	9,200	~ 30,000 – 35,000
KPMG India	5,900 – 6,200	~ 25,000 – 30,000

SOME CHARACTERISTICS OF GLOBAL FIRMS

The single biggest characteristic of Global firms is institutionalization; as mentioned above, these are not individual partner owned and even the chairman of the firm at the global level (he is chairman of a network as such), or let’s say the chairman of an Indian Big Four firm does not “own” the firm, and therefore is not the “promoter/founder”. Majority of the people at the Chairman/CEO level (and there are some exceptions), are usually there for 8 to 10 years, and, in a sense, it’s like a rotating position; in a sense, this is like being the first amongst equals.

There are several other characteristics of a big global firm that are important to understand for aspiring large Indian firms in terms of learnings and aspirations and also what to avoid; some of these are elaborated below:

1. Big global firms have significant specialization, both domain and industry. In a sense, it’s a matrix organization; usually, the Global firms are divided into three broad service lines:

– Audit (or what is called “assurance”)

– Advisory/consulting

– Tax and regulatory services

Very often, internal audit is a part of the advisory practice and not the assurance practice.

2. The advisory practice has a large number of specializations in terms of domain, such as the following:

– Technology consulting, which is usually the biggest

– Cyber consulting

– Financial advisory

– HR/people consulting

– Strategy consulting

– Operations consulting

– Government advisory practice

The above list is not exhaustive and indeed may differ somewhat across firms, but it would possibly be substantially representative of most of them. It is important to understand that even within the above, there are several subdivisions; so for example, in financial advisory services, one would have corporate finance/investment banking, due diligence and valuations, each of which is a significant size practice in its own right.

The key thing is that there is a very vast range of services with significant specialization, which gives Global firms tremendous muscle power, in the sense that it gives it the ability to service clients across a spectrum of needs. Of course, it also has the disadvantage of being too “siloed” in some sense, which is a drawback that Indian firms can leverage on.

Another characteristic of a Big Four is industry specialization; for example, financial services in most Big Four firms as a part of the tax and regulatory practice is a separate SBU. So while direct tax, indirect tax, transfer pricing, expatriate taxation and transaction tax could be separate SBUs, none of which is industry specialized, very often, financial services is a separate specialization because it has its own peculiarities. Indeed, even within that, there are sub segments such as asset management, FIIs, private equity and others, recognizing the completely different nature of the respective animals. Obviously, that means that the professionals who work in these are specially trained for that purpose and obviously develop that knowledge over a period. Indeed, even within the assurance/audit practice, partners are often identified based on domain specialization, such as financial services, power sector, FMCG, pharma, etc., and that is one of the considerations that clients often use in deciding which firm to use even for audit.

WHAT ONE CAN LEARN FROM GLOBAL FIRMS

There are three pillars to a professional services firm: clients, people, and infrastructure. However, if one thinks deeply, it is essentially people, people, and people because with the right talent, the clients will come and the infrastructure will be built. Of course, this in one sense is an oversimplification, but it is important to bear in mind that global firms lay a lot of emphasis on people.

There are a variety of dimensions that one can learn from global firms and some of these are as follows.

– Institutionalisation is a critical aspect and institutionalise comes with size and also the other way around i.e. once you grow in size, you require the firm to be institutionalised; in simple terms, it means that the ownership mentality has to give way and if the founder or the owner has, let’s say, 60% equity and 20 or 30 other partners have 40% equity, it’s a model which will at some point face a challenge, although there are a large number of firms, (including law firms), which do have this model. However, if the talent is really top class, at some point, this model will face challenges; accordingly, a model needs to be thought upfront, or at least may need to be evolved once the firm acquires a critical mass as to what is the model in terms of institutionalisation versus non-institutionalisation. In the latter situation, there are likely to be challenges to growth and also to the attraction and retention of top talent. Of course, if it is a small boutique firm, the non-institutionalised model can work well.

– Governance is another major dimension, and it becomes complex because most global firms (and especially the Big Four) are networks and as such, not one unified firm. As such, the global governance involves a global Chairman who represents the network and the network entity which is not a service entity lays down standards, brand rules, independence rules, risk issues, etc, the enforcement being through membership service agreements. It’s important to recognize that each service line will also have a global service leader, such as an assurance global leader, a tax global leader, and an advisory global leader; the respective local entity service leaders do not report to them directly, but may have something like a dotted line relationship, but there is no direct enforceability by the network except through the membership agreements. This obviously creates its own complexities and tensions, which is unavoidable, given the overarching architecture . Most of the individual firms have an executive committee or an India leadership team, and there is usually also a “partner oversight committee” (or some similar body) which deals with partner related issues. It’s overall a very complex ecosystem which emerges out of the need for significant institutionalization and the checks and balances.

– Quality standards and reviews is again a major issue and it partly emerges out of what is stated in the point above; as such, there are quality control reviews and of course, this becomes even more important in the assurance practice, which gets further complicated by regulatory issues such as PCOAB and NAFRA; most network firms, in any case, have their own quality departments not only for the assurance practice, but even for other service lines such as tax and advisory. In relation to tax, for example, there are reviews in relation to the quality of communication, technical positions, etc.

– Independence and conflict of interest management are also extremely important; as such, client acceptance is usually a long and sometimes painful process because it requires checks by an independence team. There is also often a conflict between different service lines, including on client ownership and, in relation to assurance clients, this becomes even more complex and of course has also significant regulatory constraints. The assurance practice has obviously got much more stringent independence requirements but even otherwise, overall, the independence and conflict of interest ecosystem is very elaborate and quite complex.

– Partner compensation is often a very sensitive topic and while the general principle is “eat what you kill” and it’s like a modified lockstep, this issue is always sensitive; some firms have a “grid”, and others have points, but the bottom line is that it is usually a combination of firm performance, service line performance, responsibilities assumed and individual performance. It is overseen by the executive committee and leadership team at an overall level, but in certain cases by specific remuneration committees somewhat on the lines of an NRC of a limited company. Very often, the issue of management responsibility vis a vis the delivery responsibility and the compensation becomes a complex issue and has inbuilt tensions.

– Global firms normally have robust structures and with structures, there is specialization. If one sees also from the perspective of knowledge/content, for a professional to say that “I do audit and I do tax and I do internal audit and I do cybersecurity”, does not sound credible, and in these days of deep knowledge and specialization, it will definitely not give comfort to a client. In other words, while some people at the top may be able to do work across different domains, more operating teams will need to have specialization. Obviously that means one needs structures; in practical terms, this means clearly defined service lines and SBUs within service lines; for example, even in a 50-people tax firm, one could have a Direct tax SBU, Indirect tax SBU and a transfer pricing SBU, each with, say, 15 to 20 people, so that the client gets comfort of specialisation.

– As mentioned elsewhere in this article above, industry specialisation is becoming crucial. In some sense, it could be a matrix of domain + industry. Usually, the industries where one may need to specialize is financial services, infrastructure, real estate, and, of course, the larger the firm, the larger the number of industries in which one could specialize. This industry specialization, along with domain specialization, is often seen as a critical differentiator of global firms; for example, if one is doing work for a NBFC, then a direct tax professional, an indirect tax professional, and a transfer pricing professional all of whom are specializing in financial services would create a better impact on the NBFC client than generalists who may not understand the special aspects involved in an NBFC.

– One other aspect of global firms is the quality of presentation and packaging; there is a lot of stress on communication, both oral and written, and there are detailed guidelines on fonts, formatting, presentation formats, etc. It would be helpful for Indian firms to also create certain templates so that there is a standardization; also, it’s important to have focus on oral communications and softer skills, so that the overall “packaging” is professional and creates a good impression. This is particularly relevant in situations where there is interaction with the C-suite.

– Linked with the issue of quality, as also with the issue of packaging, is the ability of big global firms to charge larger fees. Of course, their costs are also higher, but the combined effect of quality, domain specialization, industry specialization, and packaging is integrated into the ability to charge larger fees. Without getting over-commercial, it is important to recognize that earning good fees will also enable people to be paid well, and this creates a vicious cycle of talent and quality, which Indian firms could do well to emulate to the extent possible.

– Coming again to talent, there is a huge amount of training that would need to go in; this could be a combination of seminars, in-house trainings, international trainings, etc. This updation is critical because at the end of the day, one is in a knowledge profession and knowledge updation is a crucial dimension. Large global firms have significant budgets in this regard and it may be worth considering for Indian firms, (at least those who are 50 to 75 people or more), to actually have a formal budget for this aspect (equivalent of an R&D budget for manufacturing companies).

– As an elaboration of the above, Knowledge access is a critical part of large firms; some of them have knowledge centers or a Knowledge and solutions team, technical teams for audit, etc. Given that developments in regulations, specific industry related developments and judicial precedents are all making it a huge challenge to keep up to date, it is very important for Indian firms to have a knowledge updation architecture, and unless that engine fires and fires effectively, on an ongoing basis, the ability to make a difference qua clients will be impacted.

– Big global firms often tend to come up with publications on a variety of aspects; as an example, this could encompass developments on Ind AS/NFRA (both of which are very relevant for assurance practice) or changes in tax laws or changes in SEBI or RBI regulations, developments on Artificial Intelligence, Cyber Security related etc. These publications are usually significantly researched and very well presented. Indian firms may first of all not be engaged in many of these areas, but in relation to services they are engaged in, it would be a
good idea to think of periodical publications where there is some trigger; for example, Income Tax Act coming into force or a monthly newsletter would demonstrate pro-active capability and helps to build branding also.

– We are in a world where technology is becoming crucial and investment in technology is very crucial. Now, of course, there is a new dimension of technology which is artificial intelligence and hence, training in AI is becoming crucial and, of course, subscribing to AI tools like ChatGPT and Claude across the firm would be crucial because there is obviously going to increase productivity and quality, including in knowledge and drafting.

– Large global firms tend to have robust evaluation processes and HR practices and that is another aspect that Indian firms need to invest in. This obviously means that one may need to recruit an HR head, once the firm acquires a critical mass; HR is a very specialised function and the ability to have a proper professional people focus will come with an organized HR department headed by an HR professional. This obviously would include evaluations, trainings, surveys, proper recruitment processes, exit interviews, etc. This focus on talent is an extremely crucial learning from large firms.

One of the key items of focus for a big four firm or for a global firm is risk management. This manifests itself in various forms beginning from client acceptance to quality control checks and in many other ways. In audit/assurance practice, of course, the level of rigor is extremely high given the oversight also by NFRA as well as extreme focus by boards, proxy advisory firms, analysts and the press; this focus on risk management is an important learning for Indian firms although, of course, constraints of size both of the firm and of the clients, and often the inefficiency built into large firms, can be appropriately cut down in what would obviously be relatively small Indian firms, but the concept of risk management is extremely crucial to acknowledge and put into practice.

While the above and many more could be the learnings from large firms, it is important to recognize that the sheer scale and size of the big firms, the depth of the talent, the geographical spread and indeed, quite often, the compensation levels, is a significant issue in relation to the ability to compare. The compensation part is often a serious constraint in attracting talent, where the ground reality is that the growth of the Indian economy has led to quite a few average people being promoted to senior levels in global firms, at least in India; what is actually happening is that the “banding” concept in global firms is leading to people being in bands and being promoted. This is not to say that high quality talent does not exist in large firms in India; it does, but the practical reality which one has seen from experience is that very often the top 15% or 20% take completely disproportionate load, and very often average professionals tend to get overcompensated and this becomes a huge constraint for Indian firms to attract talent.

THE BRANDING IMPERATIVE … AND RELATIONSHIPS

Branding is another significant advantage that the large firms have and whilst one there are often risks associated with branding in the sense that something going wrong, it can seriously damage the brand, as a broad concept, the brand is a major attraction for clients because larger clients (and decision makers within those clients) usually want the “shelter” of going with a brand name, rather than sticking their neck out for relatively unbranded names. As such, global firms often tend to have the “pull factor” of a brand and a network, whereas an Indian firm may not have that brand or at least, not a level anywhere comparable to global firms, and therefore, the ability to build relationships and connects is crucial for Indian firms.

One of the issues that Indian firms face is that they rely primarily on individual contacts, and that is, of course, important, but global firms, including the Indian counterparts of these large firms, have a significant institutional connect more so with MNCs, but increasingly, also with large Indian corporates. The important thing to recognize is that when one is dealing with large clients, the size of the firm which deals with large clients becomes important, and in a sense, as one senior professional one put it, the institutional connect like “a building talking to a building, as opposed to the normal model in India of a person talking to a person”. As seen, both are important i.e. individual relations are extremely important, but institutional branding and networking is very crucial and a large advantage for global firms.

In this context, one has to recognize that the ICAI regulations have also lagged behind contemporary reality, and the ethical framework rooted in Clause 6 of Part 1 of the first schedule to the Chartered Accountants Act has traditionally been very restrictive. However, the professional services landscape has evolved significantly, and recognizing this, important revisions to the ethical framework has been announced with effect from 1st April 2026, signalling a glide path to what may be described as enabling professional visibility, at least to some extent. While one need not get into details in this article, (and much of this has been brought out in a very useful article in the BCA Journal of April 2026), suffice it to say that Indian firms can do a lot more in terms of institutional branding; here are some examples.

– A strong, robust and updated website

– Writing articles in professional/business journals/newspapers.

– A good social media presence, particularly on LinkedIn.

– Hosting webinars and/or podcasts.

– Holding roundtables for clients (this can be extremely effective if targeted properly; for example, separately for independent directors, separately for CFOs, separately for some specific industry, etc).

– Sponsoring some events.

Obviously, larger Indian firms can do this on a meaningful scale, but mid-size firms can also do this, although at a much smaller scale. One of the issues that will arise is funding, but that’s a “chicken or the egg” situation and that is indeed also one of the reasons why Indian firms are now looking at collaborating or merging, which obviously means that the mind set will have to change in terms of big a fish (maybe a big one) in a pond, as opposed to being the pond itself.

WHAT ASPIRING INDIAN FIRMS COULD DO ….. AND AVOID

Having discussed quite a few aspects of big firms and the constraints of relatively much smaller Indian firms, there are aspects of big global firms which Indian firms can avoid, and, in fact, do the converse in some sense. This is very important keeping in mind that the client landscape can also be segmented and different clients have different needs and also have need for different approaches.

Before one gets into that, as a broad concept, one of the temptations that Indian firms must avoid is getting into all kinds of work and accepting clients without understanding risks or cultural fit. Of course, in the last decade or so, both from a regulatory standpoint, the ability to raise funds and the market cap imperative, the overall quality of governance has gone up significantly and yet, Indian firms would do well to be careful and accepting clients only where the cultural fit is good and the governance levels are high.

One important dimension that has to be recognized is that a professional practice will need to architecture its path. Is it to be a full service firm, in which case size will become critical, or will it be a boutique firm? For example, a boutique firm which does only audit or only internal audit or only specialized tax work or only litigation. In fact, there could be many other examples, such as doing only structuring work, or only forensic work or only back office work. One important question to ask, in order to go down the niche path, “is there a niche in the market” and more importantly, “is there a market in the niche”? If the answer to both is yes, then that could be the model, but it is critical to recognize that if one is going the niche/boutique path, there has to be clearly demonstrated differentiation and skill. It’s like saying that “this is not a multi-cuisine restaurant, it’s a specialized Mexican food restaurant, but our Mexican food is the best”.

Global firms derive significant advantage from cross-border referral networks. Indian firms, especially those aspiring to serve inbound FDI clients or outbound Indian MNCs could seek to become part of formal networks or “best friend” alliances in order to create a larger catchment area in relation to cross border work.

Given that AI is fundamentally reshaping the audit, tax and advisory landscape, Indian firms can learn from the global firms as to how they are embedding AI in audit workflows, the risks of AI-driven commoditization of some services, and how Indian firms can use AI as a leveller against larger firms.

One critical aspect that Indian firms should do even if it is not fully institutionalised is regarding succession planning; that gives both team and clients, greater comfort.

Some further aspects which Indian firms would do well to keep in mind.

– Large firms often tend to work in silos due to the specialization and the structural imperatives Indian firms would also need structures, but have the ability often to provide a more “integrated” face to the clients and that becomes very important; for example, if one is doing tax work, an integrated approach between a direct tax partner, an indirect tax partner and a transfer pricing partner to present a coordinated face to the client is often very important. This does not mean that large firms are not doing it, but the sheer size and structure makes it more difficult for them to do so and that is where Indian firms can do better.

– In a Big Four, relationships are usually is normally institutional and that becomes sometimes a put-off for mid-sized companies, especially those which are promoter driven; what Indian firms can do is to have a more personalized, less commercial approach.

– Big firms will obviously have a large number of service lines and significant geographical spread; Indian firms may not be able to match up to this and should therefore avoid the temptation to spread too thin, both in terms of number of services as well as geography, but try and focus on quality and personalized service as their USP.

– Big firms have several internal constraints in partners accepting Board memberships (usually not permitted at all), whereas in Indian firms, that constraint may not be there; while one has to be careful in getting onto boards given the risks involved, it is worth considering joining high-quality boards because it leads to a lot of learning, creates stature and also enables creating a business and professional network that can be of benefit to the firm.

– Becoming a member of committees of professional organizations (and preferably business chambers of commerce) is often very helpful and Indian firms should have a framework to enable their partners to do so.

– Big firms normally have relationship partners for large accounts and that becomes a very important aspect for the clients; however, the relationship partner concept is usually for very large clients and the definition of what is “large” will obviously be very different from Indian firms and therefore, Indian firms which service mid-sized clients that can provide them with a relationship partner, especially where the firm is rendering different kinds of services, would be an important attraction for such clients as opposed to going for a global firm.

CONCLUSION

There is a lot to learn from global firms and Indian firms have a long way to go in that respect. Some key issues are that institutionalisation is a very important aspect of growth and talent retention. Also, that size does matter because investing in people, investing in technology, investing in knowledge is very difficult for a firm of smaller sizes. Also, alternatively of course, one can go the niche path, but then very specialized knowledge and clear differentiation is necessary.

As such, adapting the learning of big global firms to an Indian context, particularly in terms of structure, knowledge, updation, technology and focus on talent will enable Indian firms to get to the next level and reinvent themselves; it is however, important to bear in mind that the need to reinvent is not a one-time exercise, but needs to be revisited every few years in an incredibly fast changing world.

However, as mentioned above, there are a large number of things that large Indian firms that Indian firms can do in terms of personalized service, relationship building, providing work-life balance, and indeed, within the constraints of the size of the firm, also create visibility. At the end of the day, however, content and technical skill is also extremely important, and providing that content with personalised relationship and an integrated approach are very important dimensions where Indian firms can do better, particularly with mid-sized clients, and sometimes even with large ones.

BCAJ Admin

Financing Global Growth

As Indian businesses globalise, Indian accounting firms must evolve from founder-centric, domestic practices into scalable global institutions. This transformation demands significant capital investment in enterprise technology, brand building, and top-tier talent, which traditional partnership economics can no longer sustain. Consequently, Private Equity (PE) is increasingly financing professional service firms, drawn by their high client stickiness and predictable revenues. However, attracting private capital requires adopting alternative practice structures to maintain strict statutory audit independence. Ultimately, firms seeking PE funding must professionalize governance, establish strong second-line leadership, and rigorously balance aggressive growth targets with uncompromising professional integrity.

Financing global growth is very critical for accounting firms — and, for that matter, for all types of professional service firms that are looking to grow. When it comes to capital requirements, private equity, and business economics, there are a few things I think are worth saying plainly, from the vantage point of someone who has lived this transition from the inside.

For decades, Indian accounting firms operated within a stable and predictable professional ecosystem. Growth was relationship-led, partner-driven, and largely domestic in orientation. Capital requirements were modest. Expansion was linear. International presence, if any, was through correspondent relationships or selective referrals. That world has fundamentally changed.

Today, Indian accounting firms operate in an environment shaped by cross-border transactions, global regulatory frameworks, multinational clients, digital delivery models, private capital flows, and rising client expectations around quality, responsiveness, and scalability. As Indian businesses globalise and international investors deepen their presence in India, professional firms are being compelled to evolve from founder-centric practices into scalable institutions. That transformation requires capital — more capital than traditional partnership firms and their underlying economics can comfortably generate.

I. CAPITAL REQUIREMENTS: WHAT IT ACTUALLY TAKES

Capital requirements fall into two broad categories: expenditure on the firm’s foundational assets, and expenditure on the people and activities that sustain and grow it. Both demand explicit planning and committed allocation. Neither can be treated as discretionary.

A. TECHNOLOGY

Every accounting firm today has to think about a reasonable but fair allocation to technology — and must do so without inhibition. Technology here means technology infrastructure, software, tools for automation, custom development tools, and specific aspects of AI that will help execute faster and in a much more efficient way than today.

What this means in practice is that firms need dedicated IT teams, or outsourced vendors, who can provide an honest estimate of technology spend on an annual basis. The subscription stack alone is longer than most managing partners appreciate: Microsoft 365 or equivalent, AI tools, audit tools, practice management platforms, HRMS, performance evaluation tools, timesheet and attendance systems, high-quality accounting and ERP software, CRM — each carrying annual licence costs that compound with headcount growth.

Firms need to provide for technology and technology-related spend constantly and without inhibition. For a typical mid-sized firm with INR revenues of around ₹50 crore, I would expect technology spend to be anywhere between 5 and 10% annually — so up to ₹5 crore per year. I would ideally like to go more, but I am careful about the relative size of the firm: a ₹50 crore practice would mean anywhere between 100 and 200 people, and all of them are using infrastructure, laptops, and service tools every day. All of that needs technology spend. None of it is optional. The example of ₹50 crores is merely an illustration — the 5 to 10% spend can be higher or lower depending on what is the priority for a particular firm. None of these percentages or numbers are cast in stone, so readers will need to consult their IT specialists and technology firms which specialise in servicing professional services firms, and then budget this aligned to their individual requirements.

Scaling the Global Accounting Firm

B. STRATEGIC INVESTMENTS: BRAND BUILDING

All views expressed in this section must be read in conjunction with the specific rules and advertising guidelines of the Institute of Chartered Accountants of India (ICAI) in respect of brand building, and the nuances thereof. Nothing herein should be construed as suggesting any practice or ideas which fall outside of ICAI’s regulations and ambit.

It is very important that accounting firms think about brand building in a manner that is recognised and appreciated. That means marketing and PR, a thought-through branding strategy, podcasts with well-known personalities and with partners and individual brilliant technical people who disseminate knowledge. For me, branding in a professional services firm is really about knowledge marketing. It is participation in events, conferences, seminars, and workshops. It is knowledge partnerships and sponsorships where the brand becomes visible.

But the most important thing in a professional services firm — especially an accounting firm — when it comes to branding, is clear technical speakers who talk about what is happening in the world of accounting, tax, M&A, valuation, and all the service areas in a consistent, crisp manner that shows expertise. Public speaking in study circles, seminars, workshops, global and national events — that, to my mind, is the finest form of branding one can do. Because when a professional is heard in a public forum of peers, and when those peers accept and respect that professional — there is no substitute to that kind of branding. No marketing budget can replicate it.

For both of the above, it is important that the budget for expenditure on brand building and on events is well thought through and planned in advance, such that capital raise discussions or investor conversations become easier and sharper — given the express and articulated need for funds.

C. OPERATING EXPENDITURE: TALENT

When it comes to operating expenses, the key lever for a professional services firm to grow is talent. It is really the people — good-quality, high-performing individuals — who are not only qualified as Chartered Accountants or Certified Public Accountants, but who have the right experience at every level. A firm can expect to grow positively only and only if the people are growing themselves.

That means real investment in two things: attracting high-quality people, and retaining them. Retention means learning and development programs, motivating people constantly, taking care of what they really need, having off-sites, dinners, and coffee chats — taking interest in their L&D and their growth at an individual level, as opposed to only the group level. A senior employee who is technically brilliant may need some help in soft skills and social skills. Somebody who is a great communicator may not have the best technical skills. Each individual is different in their thought process and in their work approach. The talent that one needs for running a professional service firm must take into account diversity of thought process, diversity of skill sets, and diversity of experience. Therefore, accounting firms must align on the right expenditure to be incurred for the right talent, and this should be very much part of the budgeting process.

D. OPERATING EXPENDITURE: GLOBAL EXPANSION AND COMPLIANCE

Global expansion is really about globalisation. Can a firm in India think about setting up licensed practices in locations like Dubai, Abu Dhabi, Singapore, Japan, Australia, London, and other English-speaking countries? I think it is about licensing, about having a vision, about ensuring that the plans are ambitious enough and have global aspirations — and that the firm can be the firm of choice for the global growth of its clients.

But global expansion comes with compliance obligations that are complex and non-negotiable.

A firm growing internationally has to ensure that all the laws of the overseas country, as well as India, are always fully complied with. There is transfer pricing. There is permanent establishment.There are tax withholding rules. There is documentation for each of these. And therefore, it is very important that a professional services firm — an accounting firm above all — thinks about the full level of compliance before thinking about growth. In this profession, a compliance failure overseas should be best avoided.

II. REVENUE ECONOMICS: SCALABILITY, MARGIN PROFILES, AND CROSS-BORDER PRICING

For an accounting firm, revenue has to sustainably grow at 15 to 20% year on year. Some service lines will grow faster — 25 to 30%. For high-growth firms, even 25 to 30% aggregate growth is not unachievable and is very much within the range of what disciplined firms have demonstrated.

For that to happen, the firm has to have a strong vision of scalability. It needs to invest in partners, directors, senior managers, and managers — and invest in their growth. It needs to identify the next-generation leaders from within the ecosystem of interns, associates, and assistant managers who are becoming managers, then directors, then partners. And for that, the firm has to have a high-quality culture of performance — which means merit-based promotions, not just general year-end conversations. High-quality processes, practice management, and policies that encourage and inspire growth, such that the firm scales both organically and inorganically. It is also important to cap the growth aspirations with a reasonable degree of focus. One cannot be generating revenues without direction — growth that is stunted or scattered is not what investors or the partnership expects. Focus on key core domain areas. In those focused areas, scalable growth at reasonable margins is possible and sustainable.

Investors evaluating revenue forecasts want to see achievable numbers — a trend that clearly demonstrates the firm’s growth trajectory without overpromising. Revenue projections, growth assumptions, and the partnership’s collective thinking on scale must be in alignment. When in doubt, err on the side of being conservative; a forecast that is met or exceeded builds far more investor confidence than one that is missed.

MARGIN PROFILES AND CHARGE-OUT RATE ARCHITECTURE

When we are talking about growth and global growth, one of the most important aspects that private equity investors — and investors in general — look at is the firm’s ability to scale at good margins. There is no value in revenue increase with losses or sustained cash burn. Scale has to happen at decent margin profiles.

From what I am seeing currently and basis my experience, typical charge-out rates for senior partners in India across mid-sized firms with specific expertise in say Tax or Valuation or Advisory would be between USD 500 and 800 per hour. For mid-level and junior partners, USD 300 to 500. For directors, USD 200 to 400. For senior managers, USD 150 to 300. For anybody below senior manager level, up to USD 150. These are the benchmarks of a firm that is competitive at an international level, and they should serve as directional targets even for firms that are earlier in the journey. Again these are perhaps averages and there will always be exceptions to these for a few firms.

Whilst the above is the way to think about high-quality margin profiles and charge-out rates, this is again not cast in stone. Individual firms may have higher charge-out rates or a different value-based pricing methodology, and there could be smaller or mid-sized firms charging lower. It all depends on the market being served, the customer value proposition being offered, and the way a particular firm — its partners and its services — is perceived in the market. The above is guidance, and one of several ways to think about this. It is by no means the only way to think.

CROSS-BORDER PRICING: A CALIBRATED APPROACH

When it comes to cross-border engagements, pricing must be well thought through at cross-border rates. Cross-border rates will carry a premium over Indian rates — but how much depends entirely on what type of work is being done. For high-end work — high-end tax advisory, complex M&A structuring, specialised assurance — one can even go to two, three, or four times Indian rates. For routine work — accounting, auditing, routine compliance taxation — one must be cognizant and not overcharge.

Cross-border pricing must therefore be approached thoughtfully and within a defined range: 10 to 15% for routine services, going to 30, 40, or 50% depending on the actual complexity and value of the work being done, and up to 2 to 4 times for genuinely high-end advisory. Price to the value delivered, not to the location of delivery.

III. PRIVATE EQUITY TRENDS IN ACCOUNTING FIRMS

Private equity is, of course, one of several financing levers available to a professional services firm, and it is worth briefly placing it in that context before going further. Firms across the globe have long used, and continue to use, discounting of outstanding receivables to manage working capital, lease financing for office infrastructure and equipment, and working capital facilities from banks for shorter-term needs. These tools remain valid and, for many firms, sufficient. What has changed is that for firms with genuinely global ambitions — multi-country expansion, large technology investment, and scaled talent acquisition — these traditional levers are often not enough on their own, and that is where private equity has entered the conversation.

Over the last five to six years, specifically in the United States, we have seen high and increasing interest from private equity in financing — through equity capital, convertible debt, and sometimes straight debt — of professional services firms, and especially accounting firms. This is not speculation. The transactions are on the record, and they tell a very clear story.

Table 1: Major PE Investments in Global Accounting Firms (2021–2025)

Year	Firm	PE Investor	Deal / Valuation	Structure
2021	EisnerAmper	TowerBrook Capital Partners	Undisclosed	Minority (non-audit)
2021	Citrin Cooperman	New Mountain Capital	Undisclosed	Majority stake
2022	Cherry Bekaert	Parthenon Capital	Undisclosed	Majority stake
2024	Baker Tilly	Hellman & Friedman + Valeas Capital	USD 2 billion+	Majority stake
2024	Grant Thornton US	New Mountain Capital	USD 2.4 billion (rev); majority stake	Majority (non-audit)
2025	Citrin Cooperman	Blackstone (secondary)	First PE-to-PE transfer in profession	Secondary buyout

Sources: Journal of Accountancy, Accounting Today, Financial Times, CFO Brew, Transacted (2024–25)

Limitation: Data shared to the extent publicly available from reliable sources.

Five of the top 26 US accounting firms received private equity backing in less than three years. Three of the top four fastest-growing US accounting firms — EisnerAmper, Citrin Cooperman, and Cherry Bekaert — were PE-backed, with year-on-year topline growth of between 38 and 100%, against an industry average of 18%. And in 2025, Citrin Cooperman completed the first-ever PE-to-PE transfer in the profession, with Blackstone acquiring the stake from New Mountain Capital. This flip is validation of why PEs got interested in the first place.

Private equity looks at accounting firms as businesses with annuity growth backed by strong partners, strong clients, and very high client stickiness. In an accounting firm, growth is directly proportionate to and corresponds with how the professional services firm has built its client base over years. Accountants by nature do not splurge. They do not spend too much money, which means most of the profits are retained in the business. Partners withdraw money as and when there is cash, but that is limited to their needs. The balance is typically reinvested. That frugality, i.e. a natural tendency toward cash accumulation, is a green tick in private equity investments. These are businesses that can effectively declare a dividend every month or every quarter, and do so reliably.

Even in an AI-driven environment and across all market climates — whether markets are up or down — accounting firms continue to play an essential role. Their value is increasingly recognised when greater assurance is required on the quality of earnings and the quality of numbers. When tax laws change and tax becomes complex, good accounting firms are needed. An M&A transaction or a funding transaction cannot happen without accounting firms conducting due diligence exercises, their audits, their M&A tax structuring. Private equity understands this well.

THE INDIA PICTURE: A MARKET AT THE BEGINNING OF ITS PE JOURNEY

India is at an early but accelerating stage of the same transition. The transactions completed so far are small by global standards, but highly significant as signals of direction.

NAVIGATING THE REGULATORY FRAMEWORK

This Indian picture must be read against the regulatory framework that governs it. ICAI does not, at present, permit external or private equity capital to be infused directly into a firm holding audit practice. Some of the transactions referenced above have been structured using an Alternate Practice Structure model (“APS”) in international firms that house the advisory, valuation, tax, and other non-audit lines of business, kept entirely separate from the audit practice, which continues to be owned and controlled exclusively by its partners in the manner the local regulations require. This is not a workaround; it is the operative model for any firm seeking external capital today, and it has direct implications for how a firm structures itself, its governance, and its independence safeguards. The AICPA has provided guidance on APS which then has been adopted by various regulators worldwide. ICAI regulated firms need to tread cautiously and seek appropriate advice before proceeding on these lines.

Table 2: PE and Institutional Investments in Indian Professional Services Firms (2022–2026)

Year	Firm	Investor	Deal / Valuation	Notes
2022	Uniqus Consultech (USA/ Mumbai)	Nexus Venture Partners + Sorin Investments	Seed / Series A	First Indian PS firm to receive PE
2024	KNAV Advisory Inc. (Atlanta / India)	NKSquared (Nikhil Kamath)	Minority	For acquisitions, talent, technology
2025	Uniqus Consultech (USA/ Mumbai)	Nexus + Sorin (Series C)	USD 20 million; valuation USD 250 million	Doubled valuation from Series B
2025	Springline Advisory (PE-backed, US)	Acquired Smart Accountants + Infinity Globus, Ahmedabad	Undisclosed	PE-backed firm acquiring Indian outsourcing firms
2025	Dhruva Advisors (Mumbai, India)	Ryan LLC, USA (global tax services firm)	Undisclosed	Ryan acquires majority stake in Dhruva, forming a JV in India; Dhruva partners receive equity in Ryan

Sources: Accounting Today, Uniqus Consultech, Economic Times, Tracxn, The Finance Story, Ryan LLC / Dhruva Advisors press release, BusinessWire (2024–26).

Limitation: Data shared to the extent publicly available from reliable sources.

The Indian accounting services market was valued at approximately USD 28.38 billion in 2025 and is expected to reach USD 65.63 billion by 2033, according to IMARC Group. PE capital will follow that growth. (Source: https://www.imarcgroup.com/india-accounting-services-market)

If a firm is generating 25% or more revenue growth over the last three to five years, and generating EBIT of 20 to 25%, that is a very strong green tick mark for any private equity investor. Capital will not be a constraint for firms that have built those foundations. The question is whether the firms are in readiness.

It is also important to note that when a firm attracts private capital, here would be expectations on accelerated growth. PE investors typically work to a five-to-seven year horizon, and within that window they expect to see growth, margin expansion, and a credible exit, whether through a secondary sale, a strategic acquisition, or in due course a public listing. That creates real pressure: pressure to grow faster than may be organically comfortable, to professionalise governance on a compressed timeline, and to demonstrate the kind of consistent reporting and forecasting discipline that an institutional investor expects. Firms that take private capital without a clear-eyed view of this pressure, and without the governance maturity to manage it, will find the relationship harder than they anticipated. This is precisely why readiness or willingness to adapt, is perhaps the way to evaluate the decision.

IV. VALUATION TRENDS AND VALUE DRIVERS

Typical valuations observed in PE transactions involving accounting firms have ranged from four and five times to mid-teens EBITDA as a broad range. Firms that have shown consistent growth in revenue and profitability and have great, diversified client relationships will typically end up on the right side of that equation. Firms which have not grown as fast, which are looking to exit, which have founder challenges or partner disputes, will be at the lower end of that range.

The drivers of premium valuation are really questions of firm quality. How strong is the brand in the market? How solid is the advice the firm delivers — is it the firm of choice for a certain type of problem? What are people saying when they come in as clients, and what are they saying when they leave? Has there ever been a partner dispute in the firm? How partner-dependent is it — could the firm have delivered the same outcome differently if key individuals had left? These are the questions that will come up in any due diligence. The answers will impact the valuation offered.

Leadership depth and succession planning deserve particular emphasis. A firm where client relationships and technical authority are concentrated in one or two founding partners faces a structural valuation discount, because the investor is effectively acquiring individuals rather than an institution. Building a genuine second line of leadership — ensuring that clients have relationships with multiple partners and senior managers, and that institutional knowledge is documented rather than residing in individual heads — takes years to execute but is among the highest-return investments a firm can make in its own future valuation.

V. GOVERNANCE CONSIDERATIONS: INDEPENDENCE, TRANSPARENCY, AND FIDUCIARY DISCIPLINE

INDEPENDENCE

Whenever there is an investor on the cap table, independence rules and conflict of interest rules become paramount. If investor has invested in an accounting firm, then the firm cannot accept audit mandates of the investor group. Even for investor’s portfolio companies, anything, if at all, will need proper conflict waivers and independence checks and the right governance approvals, without which the firm cannot accept engagements.

To be precise, this is not a single rule with an exception, but two distinct scenarios.

Audit services: largely, not possible. If an investor has invested in the firm, the firm cannot accept audit mandates for that investor or its portfolio companies.

Non-audit services: largely, possible, but only with fiduciary discipline. If the investor instructs the firm to handle a portfolio company’s financial planning, tax matters, MIS reporting, or similar advisory tasks, this may be structured as a non-audit engagement that does not create the same independence conflict — but only after the firm has reviewed independence pro-actively.

GOVERNANCE QUALITY: CAPITAL DEPLOYMENT AND TRANSPARENCY

One would also tend to look at governance from a broader perspective as well. Is the firm able to take the right decisions on deploying capital, on allocating capital, on using capital wisely? Is there proper transparency in decision-making – in the monthly and quarterly MIS meetings? Are the plans well shared and articulated? Is decision- making done through clearly defined processes and SOPs, so that there is no ambiguity about how divisions are driving growth and how resources are being allocated?

These are not bureaucratic requirements. They are the substance of what makes a PE-backed professional services firm actually work. Investors investing in an accounting firm are not investing in a project; they are investing in the firm’s leadership and in the firm’s processes. The governance processes of the firm, demonstrated through consistent investor reporting, credible and process driven performance reviews and clear strategic execution are what help in maintaining and growing investor relationship over the full investment cycle.

VI. STRATEGIC CONSIDERATIONS: BALANCING GROWTH, FUNDING, AND PROFESSIONAL INTEGRITY

It is very, very important for firm leaders to recognise that whilst funding will come, funding is a fiduciary responsibility that the partners — the CEO and the partners collectively — are assuming. Every single dollar, every single rupee raised from an investor has to be treated with the highest level of integrity and as a fiduciary obligation.

What this means is that no partner or leader can decide to spend money in isolation. Whether it is events and conferences, branding initiatives, or technology investments, every rupee of investor capital must flow through approved budgets and well-defined processes. The fiduciary standard demands discipline, structure, and accountability in every spending decision.

At the same time, professional integrity must be preserved not only in how capital is spent, but in how growth is pursued. The pressure to demonstrate returns to investors within a defined time horizon is real. It can, if left unmanaged, create incentives to prioritise revenue growth over quality, or to accept clients and mandates that compromise the firm’s independence or professional standards. Firm leaders must be explicit — with themselves and with their investors — about what growth the firm will and will not pursue. A reputation for integrity, once damaged, is not easily or quickly rebuilt. In a profession where reputation is the primary asset, protecting it is of paramount importance. It cannot be called a constraint.

The firms that will succeed in balancing growth, funding, and professional integrity are those whose leadership has thought carefully about all three before signing a term sheet. They will have a strategic plan that is ambitious, a governance framework that is robust, and a culture that holds the fiduciary standard as an extension of their core values. Those are the firms that will build enduring global institutions — and that will be remembered, decades from now.

CONCLUSION

The globalisation of Indian accounting firms is no longer aspirational. Clients, talent, regulation and capital are all globalising. Professional firms must adapt and evolve with this trend.

This evolution requires capital — for technology, for talent, for brand, for global presence. It requires a revenue model built for scale: growing at double-digit rates, priced appropriately for the value delivered, and structured to improve margins as the firm grows. It requires an understanding of what private equity investors see in this sector — and the governance discipline to manage their capital with the fiduciary responsibility. And it requires the strategic clarity to pursue growth in a way that preserves, rather than compromises, the professional integrity that makes accounting firms worth investing in at all.

Indian accounting firms have the talent, the reputation and the ambition to become genuine global institutions. What remains is the resolve to invest accordingly; and all this with the wisdom to do so in a manner worthy of our noble profession.

The views expressed are personal.

BCAJ Admin

Technology as Infrastructure

For Indian accounting firms aiming for global scale, technology is no longer a mere support function; it is the core infrastructure driving growth. To seamlessly deliver services across borders, firms must invest strategically in cloud computing, artificial intelligence, and integrated collaboration platforms. This technological foundation enables standardized workflows, centralized knowledge management, and robust professional governance. However, successful adoption requires navigating significant challenges, particularly change management, cybersecurity threats, and stringent data privacy regulations. Ultimately, technology should not replace professional judgment but rather amplify human expertise, ensuring firms maintain the unwavering quality and trust demanded in a complex global marketplace.

As leaders of professional services firms, we are witnessing a defining shift in how accounting firms must prepare for growth. India’s accounting firms today operate in an increasingly global, connected, and demanding marketplace, where ambition is no longer limited by geography, but enabled by capability.

In this environment, technology must be understood not as a support function, but as core infrastructure. It is the foundation that allows firms to scale consistently, serve clients across jurisdictions, navigate regulatory complexity, and maintain the standards of quality and trust on which the profession is built. The firms that will lead in the years ahead will be those that deliberately embed technology into how they operate, collaborate, and deliver value. The firms should empower partners and practitioners to choose their technology roadmap that aligns with the firm’s purpose, ethics, quality standards while staying compliant with the laws of the land.

This article breaks down why technology is the very infrastructure that keeps modern global service delivery running. We’ll look at how to build scalable models, where to invest your capital, how to manage the risks, and how to tackle the practical challenges that come with it.

I. TECHNOLOGY IN GLOBAL DELIVERY

Global delivery is the beating heart of a modern accountancy practice, and technology is the circulatory system that keeps it running smoothly. Where the focus used to be simply on labor arbitrage – offshoring work and providing round-the-clock service coverage – today’s real value lies in a unified experience built on cloud, analytics and artificial intelligence.

TECHNOLOGY IN GLOBAL DELIVERY

The cloud completely dissolves physical boundaries. Clients expect information on demand, not just when their partner finishes travelling between meetings. At the same time, businesses are squeezing margins to the limit, forcing service providers to focus their energy on genuine value creation rather than back-office housekeeping. The friction of moving data across physical offices disappears when teams log onto a common platform.

The global delivery model powered by technology is often called a process-driven model. Standardized workflows are defined once and carried out synchronously across geographies.

These workflows can move from the UK to India to Australia without interruption, with quality checkpoints embedded into the daily routine so that consistency is built into the process. Technology also makes each stage of work transparent and traceable, replacing the older approach in which senior partners often reviewed only the final output.

EXAMPLE – BORDERLESS COLLABORATION

Client onboarding can be made much simpler through digital workflows. Instead of exchanging scanned forms over email, firms can use secure cloud-based portals where clients submit their information directly. A client entering data in New Delhi can have it instantly available to teams in Mumbai, while automated checks can identify potential issues early and partners in Dubai can review exceptions in real time. Processes that once depended on people working in the same office can now connect teams across cities and countries, making collaboration faster, smoother, and more efficient.

Today, firms can operate seamlessly across time zones, turning global teams into a round-the-clock delivery model. As one team finishes its day, another can pick up the work, helping projects move forward continuously. By using tools such as Microsoft SharePoint for document management, OneDrive for file sharing, and Teams for collaboration, firms can reduce version-control issues and improve visibility across locations. A deliverable can be prepared in one country, reviewed in another, and checked for compliance elsewhere—all while working from the same set of documents and maintaining clear audit trails. The real opportunity is not simply working across geographies but creating an infrastructure that enables teams to collaborate as if they were in the same office.

A. CLOUD

Cloud infrastructure is the baseline of global delivery. Data and applications live in secure remote data centers maintained by specialists, accessible from anywhere with a safe login. This eliminates upfront server costs, removes local installation headaches, and unlocks serious computing power right when you need it most – like during quarter-end reporting or heavy year-end reviews. Typically, mid-sized professional services firms invest between 5–10% of their revenue into overall technology, with the lion’s share going into storage, compute power, and integration layers. Larger firms push that figure toward 10–15% or more to support thousands of simultaneous users¹.

1 Gartner Nasscom

From a technical standpoint, the big wins are centralized identity management, common APIs and built-in redundancy. These enable secure access to sensitive client data, seamless integration across tax, audit, and accounting systems, and uninterrupted service delivery. From a business perspective, the pay-as-you-go model ties your cost directly to consumption, aligning your expenses with the client engagements that bring in revenue.

The Borderless Firm

EXAMPLE – SCALABILITY POWERED THROUGH CLOUD

Business demands can change quickly, especially during peak periods such as year-end financial closes when workloads increase significantly. With cloud platforms like Microsoft Azure, firms can scale their computing capacity up or down as needed, often within hours rather than weeks. Additional resources can be deployed securely and in line with regulatory and compliance requirements, helping teams manage higher workloads without investing in permanent infrastructure. Once demand returns to normal, those resources can be scaled back, ensuring organizations pay only for what they use. For finance and BPO firms, this flexibility helps ensure that technology capacity supports business needs, even during the busiest periods.

B. ARTIFICIAL INTELLIGENCE AND ANALYTICS

AI is no longer a futuristic concept. It sits right alongside a practitioner’s desk, embedded directly into core platforms. Machine learning models classify account balances, flag deviations from normal patterns, draft narrative commentary, and turn complex regulatory updates into quick reminders. When you combine analytics with visualization tools, engagement managers can spot trends across hundreds of clients at once, scanning a clear heatmap instead of drilling into endless spreadsheets.

EXAMPLE – GENERATIVE AI FOR INTERNAL AUDIT FUNCTION

Generative AI can help firms review internal control documentation more efficiently by identifying potential gaps, inconsistencies, and areas that may not align with established compliance frameworks. While human expertise remains essential for validation and decision-making, AI can significantly reduce the time spent on manual reviews. This allows professionals to focus on higher-value advisory work, improve productivity, and support a growing client base without a proportional increase in headcount.

Professionals reviewing tax computations, audit observations, or compliance outputs provide feedback on AI-generated results, allowing the models to learn from corrections and improve over time. However, if the underlying training data or human inputs contain inconsistencies or biases, the system can reinforce those patterns. This makes robust model governance, periodic validation, documented audit trails, and oversight by experienced professionals essential to ensure accuracy, fairness, and regulatory compliance.

Firms must budget beyond AI platforms, account for data management, cybersecurity, model monitoring, and skilled talent. Investments often include analytics tools, RPA, predictive engines, and ongoing model refinement, making AI a continuous capability rather than a one-time expense.

C. COLLABORATION PLATFORMS

Collaboration is the glue that keeps distributed teams together. Platforms that bring together messaging, video, document editing and project tracking eliminate the constant context-switching tax that happens when practitioners are forced to juggle half a dozen disconnected tools.

A half-hearted adoption leaves email as the only common denominator and completely defeats investment.

Enterprise-grade chat and document management systems enforce retention policies, role-based access, and detailed audit logs. Because they integrate directly with the cloud backend, clicking a link opens the correct version of a spreadsheet instantly without forcing you to download it to your desktop. The business benefit is highly measurable: teams report 40–60% less time wasted chasing status updates, leaving more room to focus on client insights.

EXAMPLE – COLLABORATION TOOLS

Microsoft Teams enables multiple teams to communicate seamlessly through chats, virtual meetings, and shared workspaces, while SharePoint serves as a centralized repository for engagement files, standard templates, and knowledge resources with robust version control. Project management tools such as Asana help track assignments, statutory deadlines, and team responsibilities. Meanwhile, DocuSign streamlines client interactions by enabling secure digital execution of engagement letters, approvals, and other critical documents. Together, these tools foster better collaboration, governance, and operational efficiency across the firm.

EXAMPLE – SMART BOARD FOR GLOBAL TASK MANAGEMENT

Digital collaboration platforms can help firms manage work more efficiently across teams and locations. Tasks can be assigned, tracked, and reviewed through a shared workspace, giving everyone real-time visibility into progress and responsibilities. AI-powered tools can further support teams by summarizing key updates, highlighting outstanding items, and facilitating smoother handoffs between team members. By reducing the need for frequent status meetings and manual follow-ups, firms can free up more time for focused, value-added work while improving overall productivity.

II. STRATEGIC ROLE OF TECHNOLOGY

Technology is a strategic asset, not a commodity. Too often firms treat IT spend as a line-item cost center to be minimized. They adopt a bare minimum of tools, piece them together in an ad hoc way, and then wonder why workflows fall apart across engagement teams.

A more enlightened view positions technology alongside people and capital as one of the three core pillars of the business. When technology is consciously backed by investment – and aligned with professional judgment, it becomes a powerful engine for scalability, consistency, and continuous improvement.

A. SCALABILITY AND STANDARDIZATION

Firms that scale responsibly are the ones that standardize their work. The invisible scaffolding of reliable templates, defined roles and prebuilt workflows allows partners to redeploy talent from one client to another without endless retraining. Standardization makes the intangible tangible: Standardization helps firms maintain consistent quality and deal with exceptions in a structured and efficient manner.

Technically, this means using common APIs across systems, standardized file naming conventions, and centralized repositories indexed by task rather than office location. The core business logic is simple: when an associate in Pune produces work measured in the same units as one in New York, there’s zero translation cost for the partner overseeing both.

SCALABILITY AND STANDARDIZATION

EXAMPLE – STANDARDIZING ACROSS OFFICES

As professional services firms grow, they often develop different ways of working across teams and locations. Standardizing processes and moving from scattered spreadsheets to a unified system with built-in controls, workflows, and templates can help create greater consistency in service delivery. With a common approach, teams can complete work more efficiently, reduce variations in output quality across offices. Quality reviews can then focus less on identifying routine errors and more on applying professional judgement.

B. KNOWLEDGE MANAGEMENT

Knowledge is the core currency of any professional services firm. Technology unlocks it from the closed circuits of individual minds and puts it into a shared communal vault. By centralizing precedents, templates, rationales, regulatory interpretations, and benchmarks in easily searchable hubs, firms can help everyone reach top-level performance.

The technical building blocks here include knowledge graphs, tagging schemas, version-controlled wikis, and QMS systems integrated with engagement workflows. Business rules drive mandatory usage: a partner literally cannot proceed until the appropriate checklist is ticked or a required commentary is entered. Meanwhile, confidentiality is woven into the fabric of the platform, meaning any unexpected exposure of client data immediately triggers alerts and audit actions.

EXAMPLE – CENTRALIZED KYC REPOSITORY

Knowledge retention and easy access to information are increasingly important challenges for growing organizations. As teams expand and expertise becomes distributed across locations, firms need effective ways to capture, organize, and share institutional knowledge. Interactive learning and development platforms can help address this by digitizing training materials, best practices, and subject-matter expertise, making them easily accessible whenever employees need them.

C. PROFESSIONAL GOVERNANCE

Professional firms are strictly bound by codes of conduct, ethical obligations and rigid quality standards. Without technology that encodes those expectations into the daily workflow, governance simply lives in unread manuals and on whiteboards – inert and quickly forgotten.

A modern professional governance platform ties compliance directly to daily actions. The digital signature itself records who signed to what and when.

For instance, to sign off on a piece of work, a partner must confirm that the conflict check passed, peer review was completed, and no open issues remain. Behind the scenes, the system simply ensures that each required step is completed and verified before work can move to the next stage. This turns broad ethical and quality requirements into clear day-to-day actions that everyone follows consistently. Over time, the information collected helps identify where additional training is needed, where delays occurring, and where existing processes need to be updated.

D. SUSTAINING AND GROWING THE BUSINESS

Clients now demand the same accuracy and speed from professional services firms, that they would expect in their day-to-day life. With technology in everyday use, firms that fail to provide digital touchpoints will lose business to more tech-forward firms as these firms will be able to provide better outcomes at cheaper price. Embracing technology has become inevitable for the firms to remain in business.

Firms who have embraced technology will also be able to launch new-age services, increase global reach and build efficient processes thereby leading to business growth.

III. TECHNOLOGY STRATEGY IN ACTION

Technology delivers the greatest value when it is aligned with an organization’s operational needs and long-term business goals. However, many firms struggle with where to begin their transformation journey and how to prioritize investments. As organizations grow and expand across geographies, success often depends on a combination of standardized processes, integrated systems, and strong governance. While challenges are a natural part of any transformation effort, a phased and practical approach can help firms manage change effectively, build momentum, and achieve sustainable results.

A. FIRM SIZE AND TECHNOLOGY MATURITY

Technology maturity does not necessarily correlate with firm size. While larger firms often have greater resources to invest in technology, smaller firms can also achieve high levels of digital maturity through focused investments and cloud-native platforms. A firm’s position on the maturity curve is shaped by factors such as leadership priorities, legacy systems, client expectations, operational complexity, and investment strategy rather than headcount alone.

A straightforward maturity framework helps a firm decide exactly where to invest next:

Level 1 (Emergent): Technology barely touches the core process.
Level 2 (Established): common tools are adopted and basic integration begins.
Level 3 (Optimized): the tech stack is unified, intelligent and continuously improved.

Smaller firms often begin at Level 1 and progressively adopt integrated platforms as they grow, while many mid-sized and larger firms aim for Level 2 or Level 3. However, these are broad tendencies rather than fixed rules, and firms of any size may operate at any maturity level depending on their strategic priorities and technology investments.

EXAMPLE – A FIRM’S JOURNEY THROUGH MATURITY LEVELS

Technology transformation journey is a series of incremental improvements rather than a single transformation project. As firms grow, manual processes, spreadsheets, and disconnected systems often become difficult to manage, prompting the move from Level 1 (Emergent) to Level 2 (Established). This transition usually involves adopting integrated practice management, collaboration, or workflow tools. Common challenges include process standardization, data migration, training, and resistance to change.

The progression from Level 2 (Established) to Level 3 (Optimized) focuses on connecting systems, improving data quality, automating routine activities, and leveraging analytics and AI to support decision-making. At this stage, firms often face challenges related to integration, governance, cybersecurity, and ensuring that technology investments generate measurable business value.

Firms may pursue this journey through either a phased implementation or a full-scale transformation. A phased approach spreads costs over time, reduces disruption, and lowers implementation risk, although benefits may take longer to materialize. A full-scale transformation can deliver faster and more comprehensive benefits but requires greater upfront investment, stronger change management, and carries higher execution risk.

The appropriate path depends on the firm’s strategic objectives, operational complexity, available resources, and readiness for change.

B. TECHNOLOGY AS A STRATEGIC INVESTMENT

Investing in technology means accepting upfront costs in exchange for serious operational agility down the line. Firms that underinvest risk being left behind by competitors who harness automation, analytics and connectivity to deliver deeper insights at a much lower marginal cost. Too many practices view their IT spend through a narrow, defensive lens. A better approach sees extra spend as purchasing optionality – giving you – more flexible infrastructure, more powerful tools, and richer data at your fingertips.

Typical benchmarks for professional services put IT spend around 4–7% of revenue for nascent firms, 5–10% for those on a clear growth trajectory, and 10–15% or more for advanced global players.

These ranges are not strict rules but benchmarks to climb. Firms calibrate them to their own strategy, risk appetite, and long-term ambition.

EXAMPLE – ROI-DRIVEN TECHNOLOGY SCALING

Allocating a small percentage of revenue to a cloud-based CRM platform can help improve client engagement, strengthen relationship management, and create opportunities for repeat business. As the firm matures, investments may expand to include integrated finance, reporting, and analytics platforms that provide deeper operational and client insights. To maximize value, technology investments should be evaluated regularly against business outcomes, ensuring they are viewed as strategic enablers of growth rather than simply operating expenses.

A balanced investment approach carefully weighs cost vs. actual value and opportunity cost. If the firm doesn’t invest today, competitors will; if it overinvests in the wrong tech, it will end up locked into rigid, unfit solutions. Smart investors balance a solid baseline of core capabilities with a small portfolio of experimental bets, listening closely to feedback from practitioners and partners alike.

C. GLOBAL SCALING & THE DELIVERY MODEL

Scaling a firm beyond a single geography means divorcing knowledge from physical location. A report might be drafted in Chennai, reviewed in Cape Town, and filed in London. Technology dissolves that distance, but only if it’s paired with absolute process discipline.

Standardized end-to-end workflows break complex assignments into segments that can be assigned. Automated reminders and real-time deadlines keep progress on track, while quality gates built directly into the workflow orchestration ensure client data stays completely current.

The journey from partner-centric to institution-centric delivery requires codifying historical knowledge. The institution now embeds smart cues right into the workflow itself, so the next person can effortlessly pick up where the last person left off.

Cloud encryption and identity management ensure that only the parties with a strict ‘need to know’ can ever see the relevant portions of a file.

EXAMPLE – FOLLOW-THE-SUN DELIVERY

Firms with multi-geography teams can benefit significantly from standardized processes and shared digital platforms. By establishing common workflows and review standards, work can move seamlessly between teams in different time zones, creating a continuous delivery model. A task initiated by one team can be reviewed, refined, and finalized by others as the workday progresses around the world. This enables firms to accelerate turnaround times, improve collaboration across locations, and respond more quickly to client needs while maintaining consistency and quality.

D. INTEGRATION & GOVERNANCE

Going beyond individual tools, integration is where the real value starts to compound. Without it, email attachments and manual reconciliations remain the norm. An integrated platform shares a single source of truth: the numbers in a client’s balance sheet appear identically across the risk dashboard, the delivery timeline, the team’s mobile app, and the partner’s briefing pack.

Integration requires a reliable backbone bus or API contract with a common language, shared endpoints, and consistent schemas. Role-based access and strong identity management enforce the principle of least privilege. Retention policies are automatically applied so that records expire or transfer to archives strictly according to local law and firm policy. Every single click and keystroke is securely recorded in audit logs.

The system prevents a partner from overlooking the firm’s obligations, and the partner ensures the system doesn’t escape unchecked scrutiny.

EXAMPLE – INTEGRATION OF SYSTEMS FOR CLIENT MANAGEMENT

A firm can capture all leads in a centralized CRM platform and integrate it with contract management, finance, and other operational systems. This enables client information to flow seamlessly across the organization, reducing manual effort, improving data accuracy, and providing a unified view of client relationships across service lines.

Approval workflows live directly within the application. A draft simply cannot be moved to “signed” until the reviewer explicitly acknowledges all open issues and the contract manager has digitally countersigned. These fine details are what build a true governance culture.

EXAMPLE – ENTERPRISE IDENTITY AND TWO-FACTOR AUTHENTICATION

Implementing technologies such as multi-factor authentication, role-based access controls, and biometric verification can help validate user access before information is shared or transferred. At the same time, automated audit trails can record key access and activity events, providing greater transparency, strengthening governance, and supporting compliance requirements.

E. IMPLEMENTATION CHALLENGES & APPROACH

The journey to becoming a technology-enabled firm is full of real-world obstacles. The primary challenge is managing the change and people’s expectations. Most technology implementations fail because of change mismanagement. Integrating legacy systems, navigating interoffice politics, managing vendor divergence and fighting resistance to change can all slow progress down.

Another challenge that firms face is to get comfort on an ROI which is way in the future. As mentioned earlier, investment in technology will not just help in growing the business but also in sustaining the existing business. If this is factored in the decision making, ROI becomes much clearer and obvious. Implementation demands genuine patience; a credible program typically runs for 24–36 months and treats technology as a living art rather than a one-time sunk cost.

One of the other subtle challenges is the balance between global vs. local alignment: central policies need local context to actually resonate, otherwise they remain paper tigers. For example, technology implemented centrally for KYC compliances without taking into consideration local law requirements may not have acceptance in some regional offices.

One of the most significant decisions firms face is whether to pursue a phased implementation or a full-scale transformation. As discussed in Section III-A, the right approach often depends on the firm’s technology maturity. Firms at Level 1 (Emergent) typically benefit from a phased approach, introducing foundational systems and standardizing processes before moving to deeper integration and automation. Firms at Level 2 (Established) may be better positioned for broader transformation initiatives involving analytics, AI, and enterprise-wide integration.

While a phased approach reduces disruption and implementation risk, a full-scale transformation can deliver benefits faster but requires greater investment, stronger change management, and higher execution discipline. The appropriate path depends on the firm’s readiness, strategic priorities, and capacity to manage change.

IV. RISK AND GOVERNANCE

Firms today face a faster, more interconnected risk landscape that traditional governance models – periodic reviews, spreadsheets, siloed teams and annual audits – can no longer manage. Regulators aren’t just looking for a compliance manual gathering dust on a shelf – they want real time proof that your controls work in the real world.

The key is having an integrated Governance, Risk and Compliance (GRC) platform. Only integrated, technology-enabled GRC platforms can provide real-time visibility across risks, controls, incidents, vendors, and compliance obligations.

A. CYBERSECURITY AS A STRATEGIC PRIORITY

Cybersecurity has shifted to become one of the most critical strategic priorities for governments, businesses, and individuals alike due to the rapid evolution of threats, technologies, and global dynamics. Cyber attacks are becoming faster, more complex, and significantly harder to detect. AI has further added to the risk. AI is a double-edged sword: it powers smart, automated defences, but it also gives rise to highly sophisticated, automated attack vectors Build a Cyber-Aware and Security –First Culture, with a theme – “Do your part be Cybersmart”.

CYBERSECURITY AS A STRATEGIC PRIORITY

This calls organizations to Prioritize cybersecurity investments based on risk criticality and business impact. Strengthening Supply Chain and Third-Party Cyber Security are commonly referred to as Vendor Risk Management. Cyber security requires a proactive and resilience –focused approach. (Refer table for some proactive measures).

CYBERSECURITY CHECKLIST FOR CA FIRMS

√ Restrict access to client files based on roles and responsibilities.

√ Use strong passwords, multi-factor authentication, and secure login practices.

√ Ensure vendors, software providers, and outsourcing partners follow adequate security standards.

√ Clearly define data protection responsibilities in vendor and client agreements.

√ Periodically review systems for vulnerabilities and promptly fix identified issues.

√ Establish clear policies on the use of AI tools and prevent sharing confidential client information on unapproved platforms.

√ Maintain regular backups and periodically test whether critical data can be restored successfully.

√ Have a business continuity and disaster recovery plan for major disruptions.

√ Conduct regular employee awareness sessions on phishing, fraud, and data protection.

√ Encourage every team member to treat client information as confidential and report suspicious activities immediately.

B. DATA PRIVACY AND LOCALIZATION

Data privacy and localization are no longer mere footnotes: many jurisdictions strictly require client data to remain on local soil and be processed under local laws. Robust GRC means tying data sovereignty rules directly back into your access permissions and embedding them into the platform so that a file stays in the right country, even when it moves across a global screen. Local jurisdictions also need the contracts to be localized ensuring the local compliance as well as industry compliance (eg: Standard global engagement contract by client in US or UK may need localization like GST, AML obligations, professional standards issued by ICAI, for appointing Indian CA firm). Some jurisdictions may not accept DSC and will mandate wet signatures.

India’s Digital Personal Data Protection (DPDP) Act, 2023 places clear obligations on organizations to collect, use, store, and protect personal data responsibly. It requires appropriate consent mechanisms, security safeguards, and breach reporting procedures, while holding organizations accountable for protecting personal information throughout its lifecycle. For CA firms, compliance with DPDP has become a critical component of technology governance and client trust.

EXAMPLE – PRIVACY BREACH RESPONSE IN ACTION

Even with strong controls in place, firms may occasionally face situations where sensitive information is shared unintentionally. In such instances, a structured incident response process can help contain the issue, assess potential impact, notify affected stakeholders where necessary, and implement corrective actions. These experiences often highlight opportunities to strengthen privacy controls through technologies such as data loss prevention tools, access monitoring, and automated alerts that can detect unusual data-sharing patterns and help prevent future incidents.

PRIVACY BREACH RESPONSE IN ACTION

Governance is the art of guiding emerging capabilities toward professional benefit and away from emergent harm.

Other modern risks demand the exact same discipline: AI bias (unfair or inaccurate outcomes), model poisoning (manipulation of AI training data), privacy leaks (exposure of confidential information), rogue insider access (misuse by authorized users), algorithmic opacity (difficulty in understanding how an AI system reached a conclusion), and the dangerous assumption by a partner that technology somehow absolves them of professional responsibility instead of actively amplifying it.

Firms should ensure that client engagement letters, technology vendor agreements, and data processing contracts clearly define responsibilities, liability limits, and data protection obligations. Appropriate professional indemnity and cyber insurance can provide an additional layer of protection against residual risks.

CONCLUSION

Technology is no longer a support function for accounting firms – it is the infrastructure that enables scale, consistency, collaboration, governance, and client trust. Firms that adopt cloud platforms, AI-assisted workflows, integrated collaboration tools, and strong governance frameworks will be better positioned to serve global clients and deliver higher-value services.

However, technology adoption must be purposeful. Underinvestment can leave firms inefficient and uncompetitive, while investing in disconnected tools can create unnecessary complexity. The goal is to build a coherent digital foundation aligned with the firm’s strategy, service model, and professional obligations.

For Indian accounting firms operating in a global environment, technology is now central to sustainable growth. It helps standardize processes across offices, preserve institutional knowledge, strengthen cybersecurity and data privacy, and manage risk more effectively.

EXAMPLE – TECHNOLOGY ENABLING GLOBAL CLIENT DELIVERY

Consider a client with operations across India, the UK, and the Middle East. Using a common cloud platform, standardized workflows, collaboration tools, and centralized knowledge repositories, teams across locations can work on the same engagement while maintaining consistent quality standards and complete visibility. Client queries can be routed to the appropriate specialists, documents can be accessed securely, and progress can be tracked in real time. The result is faster turnaround, greater transparency, and a seamless client experience regardless of where the work is performed.

The firms that will succeed will not be those that adopt the most software, but those that combine technology with sound professional judgement, strong governance, and a clear client-centric strategy. Technology should amplify human expertise – not replace the responsibility and trust at the heart of the profession.

BCAJ Admin

Talent, Leadership, and Culture Building Firms That Travel Well

Indian professional firms have a unique opportunity to expand globally, driven by client needs and the desire to elevate professional standards rather than domestic limitations. Successful globalization requires moving beyond commoditized compliance to offer high-value, partner-led judgment. Rather than merely exporting Indian staff, firms must build diverse, local teams to establish true international credibility. Furthermore, firms must transition from personality-driven models to systemic leadership architectures. Ultimately, globalization acts as a rigorous diagnostic test, exposing structural weaknesses and demanding an internalized culture of uncompromising quality and excellence across all borders.

I have been asked many times—by younger professionals, by firm founders, by partners considering their next move—what it actually takes to build a practice that works across borders. My honest answer is always the same: less than you think on the infrastructure side, and far more than you expect on the human side.

People focus on the relatively irrelevant things. They talk about office locations, billing structures, brand guidelines, referral arrangements. All of that matters, eventually. But none of it is the hard part. The hard part is whether your institution’s thinking—not just its name, but its actual standards, instincts, and culture—can survive being transplanted into a different location, a different country, a different language, a different commercial environment, and a different set of professional norms.

Most of the time, it may not. And the reason it may not is rarely what the firm’s leaders think it is.

WHY GO GLOBAL AT ALL?

Let me start with a question that doesn’t get asked enough: why should an Indian professional firm globalise in the first place?

I ask because the answer is not as obvious as it sounds, and because firms that get the answer wrong tend to globalise badly. If the motivation is prestige—if it is about having an address in Dubai or Singapore so that the firm can describe itself as international—then the result is typically a small, under-resourced outpost that serves as a vanity project and a drain on the home practice. I have seen this happen. It is more common than it should be.

As I speak to a number of professionals including Chartered Accountants, lawyers and other advisors, the point I invariably hear is that opportunities in India are limitless. Why go elsewhere? This is very understandable. India is a high performing growth story. Others are coming to India; why should we go elsewhere? The real reasons to go global are different. They certainly are not lack of opportunity in India.

The Indian Chartered Accountant is, by any honest assessment, among the most capable professionals that any accounting and advisory practice can employ. The qualification is genuinely hard. The training is genuinely broad. When an Indian CA sits across from a client or a counterpart anywhere in the world and demonstrates what they know—across financial reporting, taxation, corporate law, regulatory frameworks—there is a recognition that this person has been through something serious. That credibility is real, and it is portable. What is not portable, historically, is the institutional framework around that individual. We produce excellent professionals. We have been slower to produce excellent firms.

That gap is the opportunity. And the pressure to close it is now coming from the market itself.

Indian companies are not domestic businesses that occasionally venture abroad. They are genuinely global—acquiring overseas assets, managing cross-border supply chains, listing on international exchanges, navigating BEPS and Pillar Two and transfer pricing regimes across multiple jurisdictions simultaneously. These clients need advisors who can follow them. Not advisory networks that pass files between loosely affiliated member firms, but integrated practices with genuine multi-jurisdictional competence and a single point of accountability.

Beyond the client imperative, there is a professional one. A firm that operates only in one market tends, over time, to mistake local convention for universal best practice. It stops questioning its own assumptions because those assumptions are never tested from the outside. Global exposure—the discipline of competing in markets where your incumbency and relationships give you no advantage—forces a rigour that purely domestic practices rarely achieve. I genuinely believe that our Indian practice became better because of what we learned building our international ones. The causality runs both ways.

Firm that Travel Well The Human Side of Going Global

THE UAE: WHAT WE LEARNED BY GOING EARLY

In April 2017, we opened our office in the UAE. At the time, this was considered, by most people we spoke to, premature at best and inadvisable at worst; particularly by a firm which was doing very well in India.

VAT was being discussed, yes. But there was genuine uncertainty about whether it would actually happen. The region had positioned itself as a tax haven. VAT was thought to be counterproductive. Implementation on the announced timeline seemed, to many observers, ambitious. The advice we received, from people who knew the market well, was to wait and see.

We decided not to wait.

There was a prospective client—a well-established business in the Emirates—who told me, with some amusement, that he would call us on 1 January if the VAT actually came in. It was a polite way of saying he thought we were getting ahead of ourselves.

On 1 January 2018, VAT was introduced. He called, as promised. And because we had been on the ground for the better part of a year, we were ready in a way that firms arriving in January simply could not be. We had already built relationships, understood the local regulatory machinery, hired and trained people. When corporate tax followed some years later, the compounding effect of that early presence was substantial.

Today our UAE practice has around 150 professionals and is, by most assessments, one of the largest dedicated tax advisory practices in the country. From there, we expanded into Saudi Arabia as that market’s tax and regulatory environment developed its own complexity, and also into Singapore, where the nature of the work is somewhat different—more international structuring, more cross-border transactions, a different category of client conversation.

Each of these moves followed the same logic. Not going where the opportunity already exists, but going where the client need is forming, before it has fully formed. This requires a particular kind of institutional confidence—the belief that you can deliver something genuinely valuable in a new market, even before that market has validated you.

Getting that confidence right is the difference between conviction and recklessness. It has to rest on honest self-assessment. If you know what you can actually deliver, and why sophisticated clients will value it, then timing an entry into a developing market is a calculated bet. If you don’t know—if you’re entering because the opportunity looks large and you want a piece of it—then you are gambling with the firm’s reputation in a market that will find you out quickly.

BEING CLEAR ABOUT WHAT YOU ARE OFFERING

Every new market has the same initial dynamic: you arrive as an unknown. The clients who will eventually become your best relationships don’t know you. The referral sources are working with other firms. The market’s trust is elsewhere.

The question is what you have to offer that is distinctive enough for a client to take the initial risk of engaging you.

In tax advisory specifically—which is Dhruva’s core practice—the answer is not difficult to articulate, but it is not always honestly examined. Much of what passes for tax advice in most markets is actually tax compliance: competent, necessary, but ultimately commoditised. Any established firm can file a return, prepare a transfer pricing report, or manage standard corporate tax obligations. Clients know this, and they price it accordingly.

What is genuinely scarce—and what sophisticated clients will pay significant fees for—is judgment. The ability to read a regulatory framework and identify the position that is both legally sound and commercially intelligent. The ability to tell a client something they don’t want to hear before it becomes expensive. The experience of having seen how similar questions have been resolved across multiple jurisdictions, and applying that comparative perspective to a specific problem. That is not a commodity. It cannot be manufactured at scale. It requires partner-level involvement in every substantive engagement. We distinguished ourselves as a partner-led firm which stood apart from the competition and gave us a competitive advantage.

This is the positioning we chose, and I think it was right. But I want to be honest about something: it is also a constraint. A partner-led, judgment-intensive practice does not scale in the same way that a process-oriented compliance business does. Growth requires finding, developing, and retaining partners who are genuinely capable of that level of advisory work—not just technically competent administrators. That talent pool is smaller than it looks from the outside.

Too many Indian firms go international to look large. They end up with offices that produce neither the revenue nor the reputation that justified the investment. The firms that build something durable are those that go global to become better—and that have a clear, honest answer to the question of what they are distinctively good at. To compete effectively it is.

THE TALENT QUESTION: HARDER THAN IT LOOKS

When I think about what has actually determined the quality of our international practices, the honest answer is: the people we hired in the first eighteen months of each office.

Not the strategy. Not the brand. Not even the client relationships we brought with us. The people.

This is counterintuitive to firm leaders who are used to thinking about talent as an operational matter—important, obviously, but downstream of the strategic decisions about markets and positioning. In a global expansion, it’s the opposite. The early hires determine almost everything: the quality of the work, the relationships that develop with clients, the culture that the subsequent hires join, and ultimately whether the office becomes a real practice or an expensive holding position.

We made some decisions early that were, in retrospect, correct, though they weren’t obvious at the time. One of them was to resist the temptation to staff our international offices primarily with Indian professionals who were available. The available-people instinct is understandable—they know the firm, they’ve been trained in the firm’s methods, they’re low-risk in a certain sense. But if you staff a Dubai office with ten Indians and present yourself as an international firm, sophisticated local clients will see through it immediately. You’re not an international firm. You’re an Indian firm with a UAE phone number.

Real international credibility requires teams that genuinely reflect the market. In our UAE practice, we have professionals from India, from the Arab world, from South and Southeast Asia, and from other markets. This is not a diversity initiative. It is a practical necessity. When we are advising an Emirati family business on the implications of corporate tax for their holding structure, having team members who understand the cultural context of that conversation—not just the technical framework—is not a nice-to-have. It changes the quality of the advice.

On retention: the standard assumption is that compensation is the answer. Pay people well and they stay. In my experience, this is true up to a point—probably the point at which the person is no longer worried about the basics—and largely false beyond it. What actually retains talented professionals in a growing practice is participation. Meaningful work. Some sense that their own trajectory is connected to the firm’s trajectory, and that their input matters. Professionals who join a new office and are treated as instruments of delivery rather than co-builders of something tend to leave when they have developed enough to have options. And the ones who leave are, by definition, the best ones.

Building the talent pipeline for international markets also requires patience that many firm leaders struggle with. The best local talent will not join you in the first few months. They observe. They ask around about how the firm treats its people. They wait to see whether the promises in the recruitment conversation correspond to the reality. The reputation you build as an employer in the first year of a new office is as important as the reputation you build as an advisor—often more so, because the advisor reputation is built on a handful of client engagements, while the employer reputation propagates through the professional community at large.

LEADERSHIP AS ARCHITECTURE, NOT PERSONALITY

The professional services model in India has historically been personality-driven. There is a senior partner who has relationships, who brings in clients, who is the face of the practice. This works remarkably well at a certain scale. I have seen domestic practices built on the strength of one or two extraordinary individuals that generate revenues and client loyalty that most firms would envy.

But it does not travel. And this is one of the places where Indian firms going global most consistently underestimate the challenge.

The founding partner of an Indian firm entering a new market is unknown in that market. The relationships cannot be transferred because they are personal. The client’s trust in the senior partner’s judgment is a function of years of interaction and delivered value—you cannot replicate that by arriving in a new city with a well-designed pitch deck.

What you can do—what you must do—is build a leadership architecture that is systemic rather than personal. This means developing partners who have genuine authority within the practice and genuine accountability for outcomes. It means ensuring that client relationships are owned by the practice and not by any single individual, so that a partner’s departure does not take the relationship with it. It means creating quality frameworks that are embedded in how the work is done, not dependent on the senior partner reviewing everything personally.

I want to be direct about this because it has been one of the more difficult cultural shifts within Dhruva as we have grown. We were, in our early years, a partner-intensive practice in the sense that the senior partners were involved in almost everything. That model produced excellent work. It was also not scalable. Building the next generation of leadership—identifying individuals who have both the technical capability and the firm-building instinct, developing them, giving them real authority before they have been fully tested—requires accepting a degree of uncertainty that is uncomfortable.

The partners who succeed in global practices are a specific type. Technically strong, obviously. But also genuinely interested in building—in developing junior professionals, in creating institutional capability rather than personal leverage. And culturally resilient—able to maintain the firm’s standards and instincts in their market without constant reinforcement from the centre. If culture in your firm depends on the physical proximity of the founders, then you do not yet have a culture. You have supervision.
Succession in global practices is harder than in domestic ones, and it needs to be planned earlier. Domestic practices can sometimes sustain themselves through generational transitions on the basis of inherited client relationships—a long-standing client stays with the firm when the senior partner retires because the relationship has become institutional over time. In international offices, where relationships are newer and less deeply embedded, the systems and quality frameworks must carry more of the weight. That means they need to be built properly long before they are needed.

WHAT CULTURE ACTUALLY MEANS

Culture gets talked about constantly in professional services firms, and it is almost always described in terms of values statements or firm histories. Neither of those is culture. Culture is what happens when no one senior is in the room. What happens when no one is watching over your shoulder.

I mean that very specifically. When a junior associate is drafting an advice note at eleven at night and realises there is a complication that would require a difficult conversation with the client—does she raise it or find a way to work around it? When a partner is being pressured by a commercially important client to take a technical position that the partner privately believes is wrong—does he push back or find a way to frame the answer that gives the client what they want? When an office is having a bad quarter and a piece of work comes in that is at the margins of the firm’s standards—does the team take it or decline it?

The aggregate of those decisions, made hundreds of times a year across all the firm’s offices, is the firm’s actual culture. And the only way to build a culture that is consistent across geographies is to have those decisions be instinctive—not the result of checking whether someone senior is watching, but a reflection of genuinely internalised values.

This is why the single P&L across our practices has been important in ways that go beyond accounting. When every office is part of the same financial structure, the incentive for one office to cut corners—to take on work that the rest of the firm would decline, because the work is in that office’s market and its revenue impact is invisible to the centre—is significantly reduced. Shared economics create shared accountability. Fragmented economics, almost inevitably, create fragmented cultures.

The other mechanism is reputation indivisibility. I make this point to our partners regularly: if something goes wrong in our Singapore office, the firm’s reputation in Mumbai is affected. Not because clients will necessarily hear about it, but because we will know. And because the professionals in Mumbai will behave differently—more carefully, more rigorously—if they understand that the firm’s name is a single, undivided asset. Firms that treat international offices as separate ventures, to be assessed independently, produce exactly the quality inconsistency that clients notice and talk about.

ADAPTATION IS NOT THE SAME AS COMPROMISE

One of the practical questions that comes up in every market is how much to adapt. Local clients have preferences. Local professional norms differ. The pace of relationship-building, the formality of client communication, the acceptable scope of social interaction before business conversation begins—these vary meaningfully across cultures, and firms that ignore those differences come across as tone-deaf.

So adaptation is necessary. The question is what you are adapting and what you are not.

The things you adapt are operational: how you communicate, how you price engagements, how you structure the client relationship, how much flexibility you allow in payment terms, how you present technical advice in a way that is accessible to a client whose regulatory literacy is different from your home market. These are adjustments in method. They are entirely appropriate.

The things you do not adapt are standards: the rigour of the technical work, the honesty of the advice, the willingness to tell a client something inconvenient, the care taken in understanding a problem before proposing a solution. Firms that adapt on standards—that become more willing to cut corners, to give clients the answer they want rather than the answer that is correct, because local practice seems to permit it—are not adapting. They are diluting. And a diluted practice in one market will eventually infect the rest.

I have seen this happen with firms that entered markets with strong short-term commercial results and found, a few years later, that the quality of their work had degraded in ways they could not easily trace back to a single decision. The degradation was cumulative. Each small compromise seemed justifiable in context. Together, they had changed what kind of firm it was.

Preventing this requires a particular kind of clarity from firm leadership about what is non-negotiable. Not as an aspiration—everyone can articulate good values when asked—but as a practical behavioural commitment, demonstrated in specific decisions, especially costly ones.

WHAT GOING GLOBAL EXPOSES

Here is something that does not get said enough: globalisation is not just an expansion strategy. It is a diagnostic. And the diagnosis is often uncomfortable.

Domestic success in professional services is, to a significant extent, a function of structural advantages that have little to do with technical excellence. Incumbent relationships with clients who don’t change advisors often. Regulatory barriers that limit foreign competition in certain practice areas. Market sophistication that doesn’t always permit clients to distinguish between good advice and mediocre advice delivered confidently. These advantages are real and they are valuable—but they also create professional firms that believe themselves to be better than they are.

When you go international, those advantages disappear. The client owes you nothing. There is no switching inertia. The competition includes firms that have been building international practices for decades. And the sophisticated international client—the CFO of a multinational, the family office managing cross-border assets, the private equity fund navigating a multi-jurisdiction transaction—has typically worked with several firms and knows very well what good work looks like.

The firms that struggle internationally are usually not the ones that face an inhospitable market. They are the ones that, when they arrive in a new market, discover that the capabilities they thought they had are less developed than they believed. The talent they sent abroad is not quite ready for the environment. The quality frameworks they assumed were embedded turn out to have been enforced by proximity and supervision rather than internalised as habits. The partner-level judgment they trade on is available in only two or three individuals, rather than distributed across the practice.

Globalisation reveals all of that. And the right response is not to paper over the gaps—to make the international office look successful on the surface while the underlying problems remain—but to use the exposure as a genuine improvement mechanism. The firms that have built durable international practices are, almost without exception, firms that were honest with themselves about what they found when they looked.

THE LARGER OPPORTUNITY

I want to end with something that is more a matter of perspective than strategy.

The Indian professional services industry is at an unusual moment. The opportunities in India are significant and going global is not out of necessity but out of choice. The quality of the talent we produce is, as I said at the outset, genuinely exceptional. The client base we serve is becoming genuinely global. The regulatory environment is converging with international frameworks in ways that make cross-border expertise more valuable than it has ever been. And the competitive landscape—the question of which firms will define what a leading Indian-origin global practice looks like—is genuinely open. It has not been decided. The firms that will own that position in fifteen years are making the decisions that matter right now.

What I hope younger professionals and firm leaders take from this article is not a formula—there isn’t one—but a sense of what the work actually consists of. Building a firm that travels well is not primarily about geography or strategy. It is about people: finding them, developing them, retaining them by giving them something worth staying for. It is about leadership that is systematic and durable rather than personal and fragile. And it is about culture that is honest enough to be preserved in places where no one from the home office can see it.

A firm that gets those three things right will find that the markets are, in the end, receptive. Sophisticated clients everywhere are looking for the same thing: advisors who are genuinely excellent, genuinely honest, and genuinely invested in the client’s outcome. That is not a local proposition. It travels.

The question is not whether Indian firms will be present globally. They will be. The question is whether they will be there as leaders—firms that have built something of genuine institutional stature—or as participants. That choice is being made now, in the decisions that firm leaders are taking about talent, leadership, and culture. I hope more of them choose to build.

BCAJ Admin

Regulatory, Ethical And Policy Dimensions Of Global Accounting Practices

India missed the chance to build a global accounting firm in 2002, but converging forces of technology, client fatigue, and regulatory shifts have reopened the window for a “Fifth Firm.” To succeed, Indian firms must evolve from fragmented, partner-led practices into unified institutions. This requires mastering complex regulatory dimensions across jurisdictions, maintaining strict audit independence, and managing cross-border conflicts. Firms must strategically separate regulated audit from non-regulated advisory services, embracing multidisciplinary structures and external capital to fund growth. Ultimately, Indian firms must view regulation not as a barrier, but as the foundational architecture of trust required for global scale.

1. INTRODUCTION – THE NEED FOR AN INDIAN FIRM WITH A GLOBAL PRESENCE

Some opportunities come once in a generation. They arrive quietly, without hype or hoopla, and leave just as quietly. You recognise them much later, when the world has moved on.

‘Professional Services’ had such a moment when a multinational firm collapsed. The crash opened the doors wide for a new entrant. For someone in India or the Global South. We didn’t seize the moment. We let it go uncashed.

In 2002, Arthur Andersen, the world’s top audit and accounting firm, went Kaput, courtesy of Enron, shredded documents, and broken trust. A once storied entity with over 80,000 professionals across more than 80 countries vanished overnight. The tsunami left many things under the debris, including hope, innocence, and trust.

The four remaining firms—Deloitte, PwC, EY, and KPMG—moved double fast. Within months, they absorbed Andersen’s people, practices, and clients. The Big Five became the Big Four. That moment was the crack through which an Indian firm could have emerged. A firm with different soil, different story, and different DNA. But it didn’t happen.

We lost the opportunity. Andersen disappeared, and the Big Four continued to party. The Fifth never showed up.

Now, in 2025, India has over 400,000 CAs. She is the headquarters for global back offices. She audits global subsidiaries. Her professionals speak the language of IFRS, ESG, and PE exits. Yet, India has not built a single professional services firm to match the Four.

This is the time to build The Fifth firm, in other words a large Indian firm with a global presence which could equal the Big Four at some point in time in the future. Thank fully the Government of India has embarked on the initiative of building more Indian firms to increase the options available in the market place.

AT ITS CORE, WHAT DOES THE FIFTH FIRM REPRESENT?

It represents a choice for clients seeking a longer shortlist. It represents the ability to interpret things through a dual lens, viz., global in structure, but local in insight. It represents the possibility of a world-class institution born not in Europe or America, but in Asia.

‘Professional Services’ remains perhaps the only trillion-dollar industry where four firms hold a vice-like grip. Here, market concentration is mistaken for competence. When clients select a Big Four, they believe they are managing risk. When ambitious talent joins them, they assume it is a shortcut to success.

Unfortunately, the brand has become a proxy for legitimacy. When clients choose a ‘Big Four’ firm they believe their actions would be justified as they have picked one of the best in the business in the belief that the world considers size as equivalent to capability and quality.

This has created a paradox: a high-trust industry with low innovation and zero institutional mobility. And India stays in the second tier. Not because it lacks capability, but because capability alone doesn’t build institutions. To scale globally, you need belief, which today is represented by brand, capital, governance, and an internal culture that can weather storms.

The globalisation of Indian accounting firms cannot be viewed merely as an exercise in opening offices abroad, joining international networks, or serving Indian clients in overseas markets. At its core, it requires the ability to operate within multiple regulatory systems, each with its own rules on licensing, audit eligibility, independence, confidentiality, data protection, quality review, disciplinary jurisdiction and ownership structures. A firm seeking to grow globally must therefore develop not only commercial ambition, but also regulatory awareness and an institutional ability to take considered positions on difficult questions before they arise in client situations.

The Rise of the Fifth Firm Indian Global

That’s why dozens of mid-sized firms, some of which are technically excellent and trusted locally, have never crossed the line to achieve global relevance. Because the leap from regional to global isn’t about scale; it’s about design. It requires governance that clients can trust. It needs talent models that retain stars. It should have brand equity that signals both competence and confidence.

This is particularly important because accounting firms occupy a distinctive position in the economy. In advisory services, they compete like professional businesses. In audit and assurance, however, they perform a public-interest function. The audit opinion is relied upon not only by the client that pays the fee, but also by shareholders, lenders, regulators, employees and capital markets. Consequently, global accounting practices must reconcile two sometimes competing impulses: the commercial need to scale and the professional duty to remain independent, credible and ethically consistent.

For Indian firms, this balance will be central to global expansion. The firm of the future may combine audit, tax, transaction advisory, forensic, sustainability, technology and risk consulting services. It may work through Indian partnerships, LLPs, network arrangements, foreign affiliates, corporate entities for non-regulated services, or multi-disciplinary models. Each model creates opportunities, but also raises regulatory and ethical questions.

FOR DECADES, THE FIFTH FIRM FELT OUT OF REACH. BUT TODAY, THE GROUND IS MOVING.

First, there’s technology. AI and automation are transforming the face of delivery. Routine work, such as reporting, reconciliations, and document preparation, is getting commoditised. The traditional advantage of large firms, namely, their scale of delivery, is slipping. The differentiator is shifting from execution to interpretation, from templates to trust. And trust can’t be outsourced.

Second, regulators worldwide (from the UK’s Financial Reporting Council to India’s NFRA) are raising concerns about audit concentration and advisory conflicts. They’re looking for alternatives. The question now is “Why hasn’t someone else done it yet?”

Third, there’s client fatigue. After two decades of transformation programs, PowerPoint decks, and playbooks, clients are becoming less tolerant of generic value. They’re willing to work with smaller, smarter, and more contextually sharp partners—if they can trust them.

Fourth, talent is shifting. Young professionals today are not looking for ten-year ladders and corner-office titles. They want purpose and autonomy.

For the first time in decades, all four forces—technology, regulation, client sentiment, and talent mobility—are moving in the same direction. The forces reshaping this industry are already here. It depends on who steps forward and what they choose to build.

And the timing is not just right. It may be now or never.

2. THE INDIAN REGULATORY BASE: WHAT CAN TRAVEL AND WHAT CANNOT

Indian accounting firms begin their global journey from a regulatory base that is significantly shaped by the Chartered Accountants Act, 1949, the Chartered Accountants Regulations, 1988, the Code of Ethics issued by the ICAI, the Companies Act, 2013, and, for certain audit engagements, oversight by bodies such as the National Financial Reporting Authority. This base is not merely procedural. It determines who may practice, in what form, under what ethical obligations, and with what limitations on services.

A useful distinction must be drawn between regulated services and non-regulated services. Statutory audit, tax audit, certification and certain assurance functions are regulated professional services. They are typically required to be performed by members holding a certificate of practice, and the ability to sign reports is tied to professional registration and disciplinary control. In contrast, many non-assurance services—such as consulting, technology implementation, process transformation, transaction support, business advisory, risk management and outsourcing—may be capable of being delivered through other legal vehicles, subject of course to applicable laws and restrictions arising from independence or professional conduct rules.

This distinction is important for globalisation. If an Indian firm treats all services as though they must be delivered only through the traditional audit partnership model, it may constrain its ability to raise capital, hire non-CA professionals, build technology platforms and compete with integrated global firms. Conversely, if a firm treats all services as commercial services without recognising the regulated character of audit and assurance, it may compromise independence and invite regulatory action.

The corporate entity therefore has a legitimate role in the globalisation debate, particularly for non-regulated services. A limited liability company or other corporate structure may be appropriate for technology consulting, business process services, research support, data analytics, ESG advisory support, training, outsourcing or global capability services, provided it does not hold itself out as performing reserved professional functions and provided conflict, branding and independence issues are properly managed. The challenge is not whether corporate entities should exist around professional firms; they already do in many forms. The more important question is how the relationship between the regulated practice and the non-regulated entity should be governed.

Section 144 of the Companies Act, 2013 illustrates the issue sharply. It prohibits an auditor from rendering specified non-audit services to the audit client, its holding company or subsidiary company, including accounting and book-keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, outsourced financial services and management services. The provision also expands “directly or indirectly” to include services through related entities or entities using the auditor’s name, trade mark or brand. This shows that merely shifting a prohibited service to a separate entity may not solve the problem if, in substance, the service remains connected with the auditor or its brand.

At the same time, the regulatory framework is slowly recognising the need for scale. It began with the setting up of LLP and now leading to allowing Multi Disciplinary Entities to be created. Additionally networks are being encouraged and the regulations around them are evolving despite the reluctance to open it up fully and jettison the past ‘controlled’ culture. Just as India opened up in the early 1990s the recent regulatory are welcome ‘green shoots’. These developments are important not because they immediately create global firms, but because they recognise that the traditional fragmented practice model needs institutional pathways for scale.

The Indian regulatory base, therefore, should not be seen as a barrier to globalisation. It is the starting architecture. But Indian firms must understand what part of that architecture is portable across borders and what part is jurisdiction-specific. The right to audit in India does not automatically create the right to audit in another country. Likewise, a network name may create market recognition, but it may also create independence, liability and quality-control expectations. For global practice, structure must follow regulation; it cannot be designed purely by reference to tax efficiency or branding convenience.

What the Big Four got right was that they built firms, not confederations of partners. In many professions, partnerships evolve into loose alliances of celebrities. There, clients belong to individuals, revenues are jealously guarded, and the firm exists as a shared letterhead. The Big Four resisted this movement, even at the cost of internal friction. They centralised brand ownership, partner admissions, and client acceptance norms. The logo did not belong to any one partner. The firm’s credibility no longer depended on a single individual.

The Key, therefore, is creating a model where no single firm, geography, individual or practice controls the firm. The model should facilitate regulatory compliance, balance risks, reward fairly and democratise decision making. One way of doing this is to form a non-practising entity which owns the brand, where leadership resides, where intangible assets are owned and licensed to individual entities in the network, cost are incurred for research and development, IT initiatives in each service line to develop new products and processes, manage the network through central policies, provide funding support to entities in need, etc.

In India, initially, this model feels unnatural. After all, Indian firms had been shaped by towering founders whose personal credibility carried client relationships. The Big Four model, by contrast, appeared impersonal. Partners rotate off marquee clients. Personal brands are deliberately submerged beneath a global identity.

This suppression of individual prominence allows for the emergence of continuity. Over time, clients will not leave when partners do. Relationships will outlive personalities. The firm, not the individual, will become the unit of trust. Single hero led firms will give way to numerous leaders with democratisation of ownership, decision making and choosing leaders with fixed terms through and unbiased merit based selection process.

All of this is possible within one network comprising of regulated and non-regulated entities with checks and balances to ensure that the regulated entities continue to comply with regulatory requirements.

3. INDEPENDENCE: THE NON-NEGOTIABLE CORE OF GLOBAL PRACTICE

Independence is the most sensitive regulatory issue in the globalisation of accounting firms. It is also the issue most likely to be misunderstood. Independence is not only a state of mind; it is also a matter of appearance. A firm may believe that its professional judgment is unaffected, but if the surrounding circumstances create a reasonable perception that the firm is financially dependent, commercially conflicted, or reviewing its own work, the independence concern remains.

The IESBA Code of Ethics has become an important global reference point. The 2024 IESBA Handbook includes revisions relating to the definition of public interest entity, including replacing the earlier “listed entity” category with the broader “publicly traded entity” concept for relevant provisions effective for audits of financial statements for periods beginning on or after 15 December 2024. (Ethics Board) The IESBA framework is based on identifying threats to compliance with fundamental principles and applying safeguards where available. However, for public interest entity audits, many non-assurance services are not merely subject to safeguards but are prohibited or tightly restricted.

Different jurisdictions apply independence requirements through different mechanisms. Some rely substantially on professional ethical codes; others combine professional codes with securities law, audit regulator rules, audit committee pre-approval and statutory prohibitions. A global Indian firm cannot rely only on Indian rules when servicing clients with overseas reporting, listing or audit requirements.

Jurisdiction / Framework	Main Source of Independence Regulation	Key Features Relevant to Global Firms	Practical Implication for Indian Firms
India	Companies Act, 2013; ICAI Code of Ethics; NFRA/ICAI oversight	Section 144 prohibits specified non-audit services by auditors directly or indirectly to audit clients, holding companies and subsidiaries.	Indian firms must map services across the audit client group and across entities using the same brand or network.
United States	SEC independence rules; PCAOB standards and inspections	Audit committees are expected to pre-approve audit and permissible non-audit services; SEC guidance identifies prohibited services such as bookkeeping, financial information systems design and implementation, management functions and advocacy roles.	If an Indian firm audits or supports audit work for an SEC registrant, US independence standards may become relevant even where Indian rules appear less restrictive.
European Union	Regulation (EU) No. 537/2014 for statutory audits of public-interest entities	Article 5 prohibits statutory auditors and audit firms auditing PIEs from providing specified non-audit services to the audited entity, its parent and controlled undertakings within the prescribed framework.	Network-level service mapping is critical, especially where advisory services are provided in one country and audit services in another.
United Kingdom	FRC Ethical Standard for Auditors	The FRC Ethical Standard applies to audits and other public interest assurance engagements; the 2024 update is effective from 15 December 2024.	UK-related audit work requires attention to fee caps, non-audit services, long association and public-interest restrictions.
Singapore	ACRA Code and Practice Monitoring Programme	ACRA regulates public accountants and accounting entities, including registration, ethics and practice monitoring. The PMP assesses whether audits are performed according to prescribed professional standards.	Singapore-facing work requires readiness for regulator-led practice monitoring and quality-control expectations.

There are a number of case studies of actions against professional firms by regulators for breach of independence. The lesson is clear: independence is not managed only by engagement partners. It requires firm-wide systems, consultation protocols, technology-enabled tracking, training and accountability.

For Indian firms aspiring to operate globally, independence should be treated as a design principle. Before accepting a client or service, the firm must ask: Who is the audit client? Who are its affiliates? Which network firms serve the group? Are there financial interests, employment relationships, family relationships, fee dependence issues, self-review threats or advocacy threats? Is the service prohibited absolutely, permissible with safeguards, or permissible only after audit committee approval? These questions must be asked before commercial discussions have matured, not after the engagement letter is ready.

Large global networks manage independence by classifying their global client base into attest and non-attest clients. They monitor compliance through continuous monitoring through using technology besides cross border conflict checks and have a rigorous oversight over individual partner and professionals’ independence through compliance tools requiring disclosure of holdings and other interests of themselves and their family members.

4. NETWORKS, ALLIANCES AND THE PROBLEM OF SHARED IDENTITY

Networks and alliances are attractive pathways for Indian firms because they allow access to global referrals, methodologies, training, branding and cross-border execution without immediate merger into a single global partnership. However, networks create their own regulatory complexity. The larger the network, the greater the risk that one-member firm’s services may affect another member firm’s independence.

In audit regulation, the concept of a “network firm” is significant because independence concerns may extend beyond the signing firm. Under international independence standards, non-assurance services provided by a network firm to an audit client or its related entities may affect the independence of the audit firm. The IESBA Handbook specifically addresses communication with those charged with governance before a firm or network firm provides non-assurance services to entities within the corporate structure of a public interest entity audit client.

This is where many mid-sized firms underestimate the challenge. A network may be marketed as “independent member firms,” but from the client’s or regulator’s perspective, common branding, shared methodologies, referral arrangements, common quality standards and global pitches may create expectations of coordinated conduct. The phrase “independent member firm” cannot become a shield against poor coordination. If a network markets itself globally, it must also govern itself globally.

Indian firms joining networks must therefore examine the network agreement carefully. Questions of exclusivity, brand use, referral obligations, quality control, inspection rights, client acceptance procedures, independence databases, confidentiality obligations, dispute resolution and exit consequences are not merely legal drafting points. They determine whether the network is a real institutional platform or only a loose referral club. Globalisation through networks is viable, but only if the firm understands that shared identity brings shared risk.

5. CONFLICTS OF INTEREST: BEYOND INDEPENDENCE

Conflicts of interest are related to independence, but they are not identical. Independence is primarily associated with audit and assurance objectivity. Conflict of interest is broader. It can arise in advisory, tax, valuation, insolvency, transaction support, forensic, litigation support and consulting assignments, even where no audit relationship exists.

For example, a firm advising a buyer on due diligence may previously have advised the seller on tax structuring. A firm assisting a company in a regulatory investigation may also be advising a whistle-blower or a competing bidder in another jurisdiction. A firm providing transfer pricing advice to two companies in the same supply chain may be asked to support positions that are commercially adverse. A firm providing forensic support to a board committee may have earlier designed internal controls that are now under review. In each case, the question is not merely whether the firm can technically perform the work. The question is whether its objectivity, loyalty, confidentiality obligations or professional credibility are compromised.

Sometimes firms claim to have “Chinese Wall” between teams providing services to get around conflict of interest situations. This is a mere fig leaf and firms have to realise that even the legendary Great Wall of China was breached. In today’s highly connected world where physical locations don’t matter and the spread of communication in the digital world and social media are lightning swift “Chinese Wall” is illusory.

A global firm faces a higher conflict risk because client relationships are dispersed across offices, legal entities and practice lines. The tax team in one country may not know that the transaction team in another country is advising an adverse party. A consulting entity may not know that the audit practice has a relationship with the same group. Without a centralised conflict check process, the firm may discover the conflict only after it has received confidential information from both sides.

A practical conflict-check framework for global Indian firms should include the following:

Conflict Area	Practical Question	Required Control
Client identity	Who is the real client: parent, subsidiary, promoter, board committee, lender, investor or management?	Client and beneficial ownership mapping
Adverse party	Is the firm or any affiliate advising a counterparty or competitor in the same matter?	Matter-level conflict search
Prior work	Has the firm earlier advised on the structure, valuation, control, tax position or system now being reviewed?	Prior engagement review
Confidential information	Has the firm received non-public information from another party that may be relevant?	Information barrier assessment
Scope creep	Can a permitted advisory assignment become advocacy or management decision-making?	Scope approval and periodic review
Network impact	Does any network firm have a relationship that affects acceptance?	Network-wide conflict confirmation
Resolution	Can the conflict be cured by disclosure and consent, or is refusal/resignation required?	Ethics partner approval

The most important discipline is to define the “matter” correctly. A conflict check limited to client name may fail where the conflict is transaction-specific. Global firms therefore need databases that identify clients, related parties, beneficial owners, engagement types, industry restrictions, independence status, confidentiality restrictions and adverse parties. More importantly, they need a culture where partners accept that a lucrative engagement may have to be declined.

6. CONFIDENTIALITY AND INFORMATION BARRIERS

Confidentiality deserves separate treatment because it is not merely a subset of conflict of interest. Professional accountants receive sensitive information: financial statements before publication, tax positions, merger plans, pricing models, payroll data, board papers, litigation strategies, regulatory exposures, whistle-blower complaints and personal data. In cross-border practice, confidentiality risk increases because information may move across countries, cloud platforms, shared service centres, network firms and subcontractors.

The ethical duty of confidentiality requires firms not to disclose information acquired through professional relationships without proper authority, unless there is a legal or professional duty to disclose. But in a global firm, the practical question is: who within the firm should have access? The answer cannot be “everyone under the same brand.” Access must be need-based.

Information barriers should therefore be formal, not informal. Engagement teams should be ring-fenced where necessary. Data rooms should have role-based access. Internal emails should avoid unnecessary circulation. Shared drives should be controlled. Consultants and external experts should sign confidentiality undertakings. Cross-border transfer of data should be checked against applicable data protection law. Where the firm operates through a network, confidentiality obligations must be contractually imposed across member firms and subcontractors.

The growing use of artificial intelligence and analytics tools adds a further dimension. Firms must ensure that client data is not uploaded into tools in a manner that breaches contractual confidentiality, data protection obligations or regulatory expectations. A global Indian firm should have a clear AI-use policy covering approved tools, client consent, anonymisation, retention, access control and prohibition on training public models using confidential client data.

7. DATA PROTECTION: FROM BACK-OFFICE ISSUE TO BOARD-LEVEL RISK

Data protection is now a core regulatory issue for global accounting firms. Accounting firms process large volumes of personal data relating to employees, customers, vendors, investors and directors. They also handle sensitive financial and commercial data. When services are delivered across borders, personal data may be transferred between jurisdictions with different privacy standards.

Indian firms must consider India’s Digital Personal Data Protection Act, 2023, but global work may also trigger the EU GDPR, UK GDPR, Singapore PDPA, UAE data protection laws or sectoral confidentiality rules depending on the client, data subject, place of processing and contractual terms. A single global engagement may involve data collected in Europe, processed in India, reviewed by a team in Singapore and stored on servers of a cloud provider located elsewhere. The regulatory analysis cannot be left to the IT department alone.

From a governance perspective, every cross-border engagement should answer certain basic questions: What data will be accessed? Does it include personal data? Who is the controller or processor? Is there a data processing agreement? Is cross-border transfer permitted? What security standards apply? What is the retention period? What is the incident reporting protocol? Are subcontractors involved? Has the client consented to offshore processing?

Data protection also intersects with professional secrecy. A firm may be contractually permitted to process data but ethically required to restrict access. Conversely, a regulatory demand in one jurisdiction may conflict with confidentiality expectations in another. Global firms must therefore establish escalation mechanisms for regulatory notices, data breach incidents and client information requests.

8. AUDIT OVERSIGHT, INSPECTION AND PEER REVIEW

Global accounting practices operate in a world where audit quality is no longer left only to self-regulation. Public oversight bodies, audit regulators, peer review mechanisms and inspection programmes increasingly shape the credibility of firms.

Internationally, audit oversight is perceived to be more intrusive than in India though NFRA in its recent inspections and investigations has changed this perception. The PCAOB oversees audits of public companies and SEC-registered brokers and dealers, and its responsibilities include registration, inspection, standard-setting and enforcement. Singapore’s ACRA Practice Monitoring Programme assesses whether audits are performed in accordance with prescribed professional standards and other requirements. These regimes demonstrate that global audit practice requires readiness for external inspection, not merely internal confidence.

Indian firms that aspire to global work must therefore invest in quality management systems, methodology, engagement documentation, consultation processes, EQCR/EQR mechanisms, independence tracking, training records and archival discipline. The firm’s quality file must be capable of being reviewed by an external inspector who was not part of the engagement and may not share the firm’s informal understanding of the client.

Indian firms must adopt quality practices which compare with the best in the world. Quality has to be consistent across clients and geographies and not different for listed companies and private limited companies. Global practices must be embraced including acting swiftly and firmly on non-compliances.

9. DISCIPLINARY JURISDICTION AND CROSS-BORDER ACCOUNTABILITY

Globalisation complicates disciplinary jurisdiction. A partner may be registered in India, the client may be incorporated in Singapore, the parent may be listed in the United States, the work papers may be stored in India, and a network firm may have contributed specialist input from the United Kingdom. If something goes wrong, which regulator has jurisdiction?

The answer may be: more than one. Professional bodies may discipline their members. Audit regulators may sanction registered firms. Securities regulators may act where listed-company filings are affected. Courts may entertain civil claims. Data protection authorities may investigate breaches. Insolvency, anti-money laundering, sanctions and anti-corruption regulators may also become relevant depending on the assignment.

This creates a major governance issue for Indian firms. Engagement letters and network agreements must address governing law, liability, confidentiality, cooperation with regulators, ownership of work papers, document retention, subcontracting and responsibility for specialist work. However, contractual provisions cannot override statutory jurisdiction. A firm cannot contract out of disciplinary obligations.

For global practice, the safest approach is to assume that work may be reviewed by regulators beyond India if it feeds into an overseas audit, listing, transaction, tax filing, investigation or assurance report. Firms must therefore avoid the attitude that “the signing happens elsewhere, so our risk is limited.” Component work, offshore support and specialist memoranda can all become part of a regulatory record.

10. MULTI-DISCIPLINARY PRACTICE: OPPORTUNITY WITH ETHICAL BOUNDARIES

Multi-disciplinary practice is a natural response to modern client needs. Clients do not experience problems in professional silos. A cross-border acquisition may require financial due diligence, tax structuring, regulatory review, valuation, accounting advice, integration support, technology assessment, ESG review and internal control design. A firm that can bring multiple disciplines together has a commercial advantage.

The key regulatory question in MDP is control of professional judgment. Can non-audit professionals influence audit decisions? Are revenue targets creating pressure on assurance teams? Are consulting partners rewarded for selling services to audit clients? Is confidential audit information being used for advisory opportunities? Are clients being offered bundled services that impair independence? These are not theoretical issues; they are structural risks.

A well-designed MDP must therefore have ring-fenced audit governance, independent ethics oversight, service-line restrictions, clear profit-sharing rules, conflict checks, independence systems and disciplinary accountability. The firm must be able to demonstrate that multi-disciplinary capability enhances service quality without diluting professional independence.

11. EXTERNAL CAPITAL

The interest of private equity and other investors in accounting firms has increased globally, driven by the need for technology investment, succession planning, consolidation, growth capital and professionalisation of management. Accountancy Europe has noted that private equity and third-party ownership are reshaping the European accountancy and audit sector and has highlighted both opportunities and risks relating to quality, independence and governance. (Accountancy Europe)

For Indian firms, external capital raises difficult questions. Audit is a public-interest function. If investors seek short-term returns, cost rationalisation or aggressive cross-selling, there may be pressure on audit quality and independence. On the other hand, without capital, Indian firms may struggle to invest in technology, training, global infrastructure, cyber security, quality systems and international expansion. The policy issue is not whether capital is good or bad. The issue is what type of capital, in what entity, with what governance rights, and with what restrictions.

One possible approach is to distinguish between the regulated audit practice and non-regulated service platforms. External investment may be more feasible in technology, consulting, outsourcing, analytics or training entities, subject to safeguards that prevent interference with audit judgment, misuse of brand and independence violations. If external capital is ever permitted in regulated audit entities, it would require stringent restrictions on voting rights, profit rights, governance influence, exit arrangements, confidentiality, independence and regulator access.

This debate should not be postponed. Global competitors are already investing heavily in technology and multidisciplinary capability. Indian firms cannot become global institutions solely through partner capital if the scale of investment required is far beyond traditional practice economics. But capital must serve the profession; the profession cannot become captive to capital.

There are many who argue against private capital in regulated firms. In my view if in the medical profession doctors can continue to save lives and yet be accountable despite the ownership of their institutions by non-doctors there is not reason why professional firms cannot have private capital. The day is not far off when professional firms would be also listed in stock exchanges!

12. RECOGNITION, MOBILITY AND QUALIFICATION BARRIERS

Professional mobility is another critical dimension of globalisation. A chartered accountant qualified in India may be highly competent, but the right to sign audit reports, appear before regulators, undertake insolvency work or provide reserved services in another jurisdiction depends on local law. Mutual recognition arrangements, qualification pathways, local licensing and residency requirements can determine how far an Indian firm can globalise through its own professionals.

For Indian firms, mobility should be viewed at three levels. The first is people mobility: the ability of Indian professionals to work abroad, obtain local qualifications where needed, and participate in global engagements. The second is firm mobility: the ability of Indian firms to register, affiliate, merge or practise in foreign jurisdictions. The third is service mobility: the ability to provide cross-border services remotely without violating licensing rules in the destination jurisdiction.

Technology may make cross-border delivery easier, but it does not eliminate licensing restrictions. A team sitting in India may support a foreign audit, but the signing rights, review obligations and regulatory responsibility may remain with a locally registered auditor. Similarly, tax advice may cross into unauthorised practice of law in some jurisdictions if not structured properly. Global firms therefore need jurisdiction-wise service maps: what can be delivered from India, what requires local registration, what requires collaboration, and what cannot be done.

13. ETHICAL CONSISTENCY ACROSS JURISDICTIONS

A global Indian firm cannot operate with variable ethics—strict in one country, flexible in another. Regulatory requirements may differ, but the firm’s ethical floor must be consistent. Where local law is less stringent, the firm should still follow its internal global standard. Where local law is more stringent, the firm must comply with the higher standard.

Ethical consistency requires written policies, but it also requires leadership behaviour. Partners must see that independence breaches, confidentiality lapses, poor documentation and aggressive client acceptance are taken seriously. Staff must be trained to escalate concerns. Ethics partners must have authority. Commercial success must not become the only measure of performance.

The reputation of a global accounting firm is cumulative. A failure in one office can affect credibility elsewhere. This is especially true in the age of public enforcement orders, inspection reports, social media and cross-border regulatory cooperation. Indian firms aspiring to global stature must therefore build reputational resilience by investing in ethics before scale, not after scale.

14. CONCLUSION: REGULATION AS THE ARCHITECTURE OF TRUST

The globalisation of Indian accounting firms is both necessary and possible. Indian businesses are global, Indian professionals are capable, and Indian firms have the opportunity to build institutions that combine technical depth, cost competitiveness, cultural adaptability and entrepreneurial energy. But globalisation cannot be built on ambition alone.

The successful global Indian accounting firm will not be the one that merely has the most offices or the widest network. It will be the firm that understands regulated and non-regulated services clearly, manages independence before conflicts arise, separates confidentiality from convenience, treats data as a fiduciary responsibility, welcomes peer review and external inspection, builds systems for multi-jurisdictional compliance, and balances capital with professional control.

Policy support will be useful—particularly in areas such as regulatory harmonisation, recognition of qualifications, facilitation of firm aggregation, and clarity on permissible structures. But the primary responsibility will remain with firms themselves. They must build governance before growth, quality before branding, and trust before scale.

If Indian accounting firms are to move from domestic practices to global institutions, they must recognise a simple truth: regulation is not the enemy of globalisation. Properly understood, it is the architecture that makes global trust possible.

The decisive difference between the past and the present is this: hero partners are no longer enough. Cross-border reporting, ESG assurance, forensic analytics, and technology-enabled audit require systems, platforms, and capital investment in methodology and risk governance. These are baseline expectations.

In earlier decades, caution preserved stability. Today, excessive caution may lead to irrelevance.

The emergence of a Fifth Firm would not be to fight the Big Four. It would be a response to conditions that now make institutional scale feasible within India.

History reminds us that windows do not remain open indefinitely. Competitors respond. Markets consolidate. So, the question is no longer whether India has the conditions for scale. It is whether its professional institutions recognise that the ground beneath them has shifted.

BCAJ Admin

How To Go Global (India’s Big Four Moment)

That the next big accounting firm should emerge from India is a laudable vision. The Global Networking Guidelines is a step in that direction but much more needs to be done in terms of reducing regulatory constraints and aligning Indian regulations with global norms. The Indian firms need to abandon their legacy mindset and work at building a recognizable brand. The landscape is strewn with firms that are small and fragmented and there is a crying need for consolidation, particularly amongst mid-sized firms to build scale. The vision cannot be achieved in one big leap but will be a long and arduous journey. It needs all stakeholders to work in sync and to have a radical shift of thinking both on part of the regulator and the Indian firms.

Truth can walk naked, but a lie always needs to be dressed. Khalil Gibran.

THE REALITY

The naked truth is that the Indian CA firms are nowhere close to challenging the dominance of the multi-national accounting firms (MNF) (also popularly known as the Big 4). Their combined revenues exceeded a staggering INR 45,000 crore in FY25¹, driven largely by growth in consulting and technology-led services. 67% of the Nifty 500² companies are audited by the Big 4, being the default preference due to their brand value.

So why are Indian firms not able to create their own brand and provide a strong and viable alternative to MNFs at least within India? After all the MNFs were established by recruiting Indian CAs who were then running their own professional practices. Even today these firms are managed and assignments are executed, predominantly by home grown CAs.

Statistics also show that more than 90% of India firms are “pop & mom shops” with 3 or less partners³. It seems Indian firms are unwilling to scale up as they are averse to sharing authority and are trappedin the illusion that being small ensures independence. They are also wedded to their name which prevents meaningful collaboration with other firms.

¹ Big four's Indian arms outpace global counterparts in FY24 revenue growth | Company News - Business Standard

² https://thefinancestory.com/audit-rotations-in-india-dominated-by-big-6

³ https://thefinancestory.com/mid-sized-indian-ca-firms-employing-20-percent-audit workforce

THE BIG (FOUR) MOMENT

But now there is a thrust from the Government and from ICAI encouraging the next large accounting firm to emerge from India. Many mid-sized Indian firms have also come of age and are looking at scaling up in India and globally.

It is indeed a great vision set for the Indian firms, but has the right framework been put in place where Indian firms can unleash their ambitions and capabilities and break the shackles that limits them to playing second fiddle.

The answer lies in reducing regulations and constraints and creating a level playing field where Indian firms can operate with greater freedom.

Often ICAI regulations are aimed at reigning in the MNFs, particularly those working through surrogate entities. But these very regulations also restrict Indian firms, perhaps more than they restrict the MNFs. We must accept that the MNFs are here to stay and have become an integral part of the Indian ecosystem. They have helped enhance service standards and professionalism, which in turn has benefited Indian firms. Today, advisory services are recognised, valued and are monetized, which was rare earlier.

History has shown that competition helps improve quality, which benefits both the clients and the CA firms. There can be no question that all firms including MNFs must function within the constraints of the ICAI regulations. But the solution is not to put in place stifling regulations but to look at international practices and ensure that regulations apply equally to all.

In most countries the regulations are much more liberal in terms of firm name, advertising, sponsorship, payment of referral fees, charging success fees in certain situations and so on. A more liberal approach with focus on creating a level playing field will benefit everyone. Indian firms are unable to flourish and expand globally as the ecosystem currently is holding them back. Rather than tinkering with current regulations with cosmetic changes, ICAI should consider completely overhauling its ICAI regulations and Code of Ethics even if it requires approval from the Parliament. With the Government supporting this initiative, now is the right time to push for big changes.

India Big Four Moment

THE LONG ROAD AHEAD

It is important to remember that Indian firms cannot become global players overnight. The MNFs emerged through mergers and consolidation, and this process started in 1980s or even earlier. So, the vision of an India incubated MNF to fructify will be a long and arduous journey. The CA community, Government and ICAI will need to stay the course and act consistently with complete synchronization. Any contradictory messaging or constant change in policy will likely derail the process. Only if Indian firms are sure that the policy framework will be consistent would they be willing to invest funds and resources in major strategic decisions and initiatives.

MNFs grew through merger and consolidation and Indian firms aspiring to create a globally recognizable brand will have to follow that route and change their obsession of wanting to maintain their name or the illusory independence.

Indian firms cannot reach scale in one big leap and would have to take many small steps towards their goal. The first obvious step is to gain international exposure and imbibe the best practices followed around the world. ICAI must remove roadblocks to allow Indian firms to get that exposure.

GLOBAL NETWORKING GUIDELINES

ICAI has recently formulated the ICAI (Global Networking) Guidelines, 2025 where the preamble lays down the laudable objectives of exposing Indian firms to global best practices and to enhance their capacities and capabilities. The guidelines require the global Network to be registered with ICAI if any Indian firm or Indian Network is a constituent of such global Network.

The guidelines also encourage Indian firms to take the initiative and establish their own global network. However, this can be the ultimate goal and not the starting point. The obvious first step would be to become member of an existing international association/network and thereby build international experience and connections. This can be the steppingstone to finally going global.

The guidelines define Network as an arrangement, alliance, or association, drawn in writing, (irrespective of its nomenclature) formed with the objective aimed at any one or more of the following:

√ cost sharing amongst member firms;

√ Sharing common quality control / procedures

√ Sharing a common operational strategy;

√ Common brand name. initials, name or logo amongst the constituents;

√ Common website / domain name / email;

√ Common systems, partners and staff, technical resources, audit methodology, training courses, facilities

√ Any other circumstances wherein the actions of the constituents convey that they are associated in a way that constitutes a network.

The first 6 qualifying parameters for a Network have been adapted from the Handbook of the International Code of Ethics for Professional Accountants published by International Federation of Accountants (IFAC). The IFAC guidelines recognise the distinction between a Network (where there is much greater cohesion and at least one of the above six criteria are satisfied) and other Associations where firms come together on a common platform but maintain their own distinct and independent identity. Each member firm is free to develop its own brand and is totally independent of the Association or its other members. In fact, member firms may also compete amongst themselves and may have completely divergent growth and operational strategies. An Association is typically a membership model where none of the above-mentioned criteria are satisfied, and the purpose is to imbibe best practices and establish international connections.

So, Networks and Associations are fundamentally different, and it appears that ICAI wants only those alliances to be registered that satisfy the criteria of a network. This makes logical sense; however, it would be good if ICAI clarifies this explicitly to avoid any confusion. Appropriate safeguards can be put in place (if considered necessary by ICAI) to avoid misuse.

These guidelines are a welcome initiative as besides giving a framework to the Indian firms, it seeks to bring the MNFs within the regulatory framework. Unsurprisingly, due to the disclosure requirements, these guidelines have not been welcomed by the MNFs that function through multiple entities that are structured to stay outside the oversight of ICAI.

ALL MEMBERSHIPS ARE NOT NETWORKS

The guidelines clarify that when an Association is aimed at cooperation, by any means whatsoever, and there is cost sharing amongst the constituent entities, it is deemed to be a Network. However, the guidelines accept the proposition that all alliances or memberships are not networks required to be registered with ICAI. They specifically state that “the determination as to whether an Association is a Network shall be made as a person of ordinary prudence is likely to conclude under the given facts and circumstances…….”. It also clarifies that a larger structure aimed only at facilitating referral of work by itself would not constitute a network.

Take an example of a mid-size firm that already operates a domestic network registered with ICAI and has presence in various cities in India. Also, consider that such a firm also has presence outside India through entities under its direct control. Therefore, under the guidelines, the Indian firm would have to register this international presence as a global Network with ICAI. Let’s call this Network G1. Typically, the domestic network (registered with ICAI) would become part of G1, which in turn would also be registered with ICAI.

Further, assume that in consonance with the vision of the Indian Government and avowed objectives of ICAI, the Indian firm wants to further expand its footprints globally. With that in mind, it wants to stay connected with like-minded foreign firms and stay abreast of international practice. To achieve this long-term growth strategy, it would also like to be a member of an international association with member firms from more than 50 countries. The Indian firm is totally independent of this international association and its members and is pursuing its own global expansion strategy. There is no cooperation between the member firms with regards to strategy or operations or branding. Indeed, the membership of the global association is a steppingstone in the direction of ultimately establishing its direct presence outside India in many countries. Let’s call this membership to the International Association G2.

Surely, the Indian firm is not be expected to register G2 with ICAI. The Indian firm is just a member of this association and has no commonality with the other member firms as each of them function independently. Justifiably, G1 would be registered with ICAI as all the constituents cooperate and are working under a common brand with a unified operational strategy. G2 is a mere membership model and would not be required to be registered with ICAI as a network. The guidelines also support this view as the intention is to monitor Networks where there is commonality of objectives between member firms and at least one of the specified criteria is met.

ESTABLISHING PRESENCE IN A FOREIGN COUNTRY

The guidelines issued by ICAI would help and clearly come in play when an Indian firm wants to establish its global imprints.

An Indian firm could enter an existing network where all member firms closely cooperate and work with a common objective or may create its own separate network. In both cases, this would be a Network model (as envisaged in the guidelines issued by ICAI) that would have to be registered with ICAI. It could also consider establishing a branch or entering in partnership with an existing firm in a foreign country.

An Indian firm that wants to establish presence outside India directly under its control has its task cut out for it. It cannot enter in partnership with a local firm in that country unless all the partners of that firm are also qualified Indian CAs. The problem is that cross-nation partnership is not permitted by ICAI and by most jurisdictions. Therefore, partnership with locally qualified professionals who understand the terrain is not possible. ICAI (and most other countries) does not permit partnership with anyone who is not a member of ICAI.

Even if one finds a firm in another country where all partners hold the Indian COP the problem is not solved. Besides Indian qualification, the partners will also need to hold qualifications of that country so that it is eligible to sign audits and do attest functions under the regulations of that country. In most jurisdictions this would mean not just passing the relevant exam of that country but also serving the internship period there. This effectively means the person needs dual qualification and should have done dual internship in India and in that foreign country. Such an animal may not exist and hence it becomes mission impossible.

The Indian firm may consider setting a branch abroad and this under the ICAI regulations will require appointing an Indian CA to be in charge of that branch. Again, audit and attest functions may not be possible unless the gridlock mentioned above is broken. So most Indian firms that establish presence abroad render services other than attest functions.

The Global Networking guidelines enacted by ICAI are therefore a real and viable way forward. An Indian firm can enter into an arrangement with firms in a foreign country with partners holding qualification in that country. It would be a network arrangement with all firms under a common brand. This network would have to be registered with ICAI. So, this is a good starting point. However, taking a direct partnership interest in an entity abroad would not be possible as that entity may have persons qualified in that country but not holding an Indian COP. International co-operation and reciprocity is required between countries and their regulators for cross-border partnerships to become practically possible.

The other option would be to establish an entity that does not do any attest functions. This can even be a corporate entity, and the Indian firm or the partners of the Indian firm may invest in the share capital of that entity. Such arrangement would also have to be registered with ICAI as a global network.

So, it is not easy and the firms have to navigate a myriad of problems to establish presence outside India. The global networking guidelines provide some direction, but a lot more needs to be done. ICAI is well aware of the problems and will hopefully come out with more options and clarity by not just changing the Indian regulations but also working internationally for greater cooperation and reciprocity.

We are still at a stage where we are struggling to establish international presence. All stakeholders need to recognise that building an internationally recognizable brand is a long way off.

LEVEL PLAYING FIELD

Besides audits and attest functions, MNFs have grown in size and recognition due to their large consulting practice. They have managed conflict by creating multiple entities, some of which operate as surrogate entities outside the oversight of ICAI. It is essential to bring MNFs within the regulatory framework and the global networking guidelines are a step in that direction. This will, to an extent, provide level playing field within India.

All of us agree that the independence of the auditor cannot be compromised and conflict of interest must be avoided. However, the definition of a related party for determining conflict of interest is not consistent across regulations. It is imperative that there should not be any divergence between Company Law, SEBI, NAFRA and ICAI. There is need to lay down clear ground rules that apply and are enforced consistently for all CA firms, including MNFs.

MANAGING CONFLICT

ICAI has framed regulations which prohibit CA firms from taking up non-attest functions for certain Audit clients. There are stringent restrictions, but due to conflicting versions across different regulations there is confusion and lack of clarity. Surely, there should be one set of uniform guidelines. Secondly, such restrictions should not apply to unlisted SMES and other privately owned companies and the “one size fits all” approach needs a rethink. The smaller enterprises prefer getting all their services from a single service provider as this is a value proposition for them. Arguably, the advantage of relaxing these restrictions for small entities would far outweigh any risk of professional independence being compromised. In many jurisdictions smaller entities are exempted from Audit. In India also such exemption to small entities is under consideration through amendment to the Companies Act.

MULTI-DISCIPLINARY FIRMS

Multi-disciplinary firms are another initiative that needs to be fast tracked. Time is ripe for CAs to partner with other professionals, including technology experts, to enhance their service offerings. The idea has widespread acceptance, and it is time that it is operationalized so that CA firms leverage expertise of other domain experts.

Despite the clear advantages, conflict of regulatory jurisdiction (e.g. ICAI vs Bar Council) is a major roadblock. Who regulates whom if an MDF is charged with misconduct or professional violation could trigger jurisdictional nightmare. Strict restrictions on advertising and branding as well on raising capital through innovative funding methods is another damper.

CA firms doing audit functions are restricted from doing several non-attest functions and this is pushing firms from being either an all-audit firm or all consulting and non-attest firm. This means audit firm may not opt to partner with other professionals as each will restrict and may even cannibalize the other. On the other hand, CA firms not engaged in audit and attest functions are increasingly preferring to stay altogether outside the ambit of ICAI regulations.

So, there are legal amendments that would have to be formalized and harmonized across different disciplines if MDF is to become a reality. But even more important, the inherent contradiction will have to be acknowledged and bridged.

CONCLUSION

Indian CA firms have the quality and the capabilities to compete with MNFs, if they are unshackled from the constraints imposed on them and are provided a level playing field. In recent times, several mid-sized firms have emerged as a viable alternative to the MNFs. But the gap between them and the MNFs is huge in terms of size, scale and access to resources. These Indian firms must now go through a second renaissance of scaling up not incrementally but exponentially. Both organic and inorganic growth options need to be considered. In particular, they should consider further consolidation amongst themselves. After all the Big eight consolidated into the Big four.

Indian firms have an opportunity to realise their tryst with destiny. The atmosphere is conducive and time is ripe with the momentum set by the Government. However, I am sure even ICAI recognises that what has been done is just a beginning and the road is long and arduous with many hurdles to be crossed.

ICAI needs to look at the regulatory framework with a clean slate without carrying the legacy of the past. If Indian firms are to emerge as global players, then the Indian regulations must model itself based on global norms. If our regulations are more restrictive then we lose our competitive advantage. Indian firms cannot compete with their hands and feet tied up.

Similarly, partners of Indian firms have to get out of their narrow thinking of clinging to their name, which has no real brand value or unwillingness to let go of control.

If all stakeholders work in sync, the vision of the next big firm emerging from India need not be just the proverbial castle in the air. It can indeed be a dream that can be actualised.

BCAJ Admin

Why Globalisation Matters The Strategic Imperative For Indian Accounting Firms

As Indian businesses expand internationally, globalisation is no longer merely an option for Indian accounting firms, but a strategic necessity. Currently, many firms remain focused on domestic compliance or act as mere back-office executioners for foreign networks. If they fail to adapt, they risk losing high-value clients, top talent, and market relevance. To survive, Indian firms must transition from individual, partner-led practices into unified, capability-led global institutions. This requires building strategic international alliances, investing in enterprise-grade technology, creating dedicated cross-border teams, and developing deep sector-specific expertise. Ultimately, firms must become trusted, globally connected advisors to accompany their clients’ international growth.

INTRODUCTION

क्षणे क्षणे यन्नवतामुपैति तदेव रूपं रमणीयतायाः।

That which attains newness every single moment, that alone is the form of true excellence.

Nothing could be more relevant than this from Shishupal Vadha in the context of Raivatak Mountain.

In this everchanging world, evolution and adaptation to change is the only constant. The globalisation of Indian accounting firms is no longer an aspirational conversation to be conducted at conferences; it is becoming a strategic necessity arising from the changing character of Indian business itself. For decades, a large part of the Indian accountancy profession grew around domestic compliance—statutory audit, tax audit, income-tax representation, company law compliance, indirect tax, exchange control filings and allied advisory. This domestic orientation served the profession well when Indian clients were largely domestic, capital was substantially local, regulatory exposure was mostly Indian and international work was either exceptional or routed through large multinational networks. That world has changed. Indian enterprises are acquiring companies abroad, raising foreign capital, setting up overseas subsidiaries, entering global supply chains, dealing with transfer pricing and Pillar Two-type tax developments, building global capability centres, and facing investors, lenders and regulators who expect advice that is integrated across jurisdictions. Therefore, the relevant question before mid-size Indian accounting firms is not whether they should become global in some abstract sense, but whether they can remain strategically relevant without building global capability.

EVER INCREASING PACE OF GLOBALISATION

India’s macroeconomic position provides the first and perhaps most compelling reason. India is projected to remain among the fastest-growing large economies, and several assessments place it on the path to becoming the third-largest economy around 2030, with S&P Global projecting annual growth of about 6.7% and India becoming the third-largest economy by fiscal 2030-31. With this scale comes a change in the nature of professional services demand. A larger economy does not merely produce larger domestic companies; it produces companies with global ambitions, international supply chains, cross-border financing requirements and multi-country regulatory exposure. India has also become a major destination for global capital.

ever increasing

Growth Trends FDI ODI

The Chart below gives some idea about how cross border investments have grown in last 2 decades and where it is likely to go in next 5 – 7 years.

[Table created from data from DPIIT, RBI, UNCTAD and World Bank]

These numbers are not merely economic data; they are indicators of professional services opportunity. Every dollar of FDI / ODI creates advisory requirements around entry strategy, valuation, due diligence, tax structuring, FEMA compliance, transfer pricing, accounting, audit, reporting, governance and eventual exit. This does not only require knowledge of the domestic laws but also laws of other jurisdictions of either the investor / investee as the case may be.

This outward expansion changes the advisory landscape. A client that acquires a subsidiary in Europe, establishes a manufacturing operation in Vietnam, invests in a UAE holding company, sells SaaS products in the United States, or raises capital from Singapore does not need isolated Indian compliance advice. It needs a firm that can understand the commercial intent in India, coordinate local law, tax and accounting advice abroad, maintain consistency of positions, and take responsibility for the integrated outcome. If mid-size Indian firms cannot provide or organise such capability, the client relationship will naturally migrate to firms that can.

CHANGING CLIENT EXPECTATIONS

The profession of accountancy and related advisory services is very closely connected with the businesses and commercial entities. The profession has evolved with the changes occurring in business entities. In last few decades, the scope of services of an accounting firm has extended significantly. Due to offering of diverse services by the Indian Accounting Firms (IAFs), the expectation of the society from a CA Firm has also been ever expanding and they would consider an accounting firm which provides an entire catena of services to be more “evolved” as compared to a firm which restricts to certain areas of services.

Similarly, the international businesses have been eying fondly active investments in India. If India is not the most preferred investment destination, it is certainly one of the most preferred destinations. The sheer size of the domestic demand is attracting global companies for having more firm Indian presence.

A mid-market Indian company today may have export revenues, overseas warehouses, foreign subsidiaries, ESOPs for international employees, global investors, inter-company services, royalty payments, cloud-based digital operations, and permanent establishment risks in multiple countries. Even when the company is not large, the complexity of its footprint may be global. Further, even if an entity does not have such global reach, aspirational targets for all growing entities include the above. Such clients increasingly expect their trusted advisor to provide a single conversation across audit, tax, regulatory, valuation, transaction, ESG, technology risk and business advisory. They may not insist that every service be rendered by the same legal entity, but they do expect the Indian advisor to organise the solution, manage the interfaces and remain accountable. A single-location, single-speciality, single-jurisdiction practice therefore appears increasingly inadequate for growth-oriented clients. The relevant capability is not merely technical knowledge in one area, but the ability to assemble and govern a multi-disciplinary, multi-jurisdictional response.

With introduction of Transfer Pricing in India under the income tax laws, the IAFs could no longer provide complete tax service to a multi-national enterprise unless the IAFs had capability of transfer pricing advisory, document preparations (which was multi-disciplinary) and also knowledge about the transfer pricing regulations of the jurisdiction of the counter related party, as the policy and the transaction has to meet the regulations of both the countries. Those IAFs which could not cope with these requirements ultimately lost this work to the firms which could provide such services and in long term also impacted retention of such clients for the tax services.

Similarly, with introduction of IFRS, initially and then Ind AS, which were primarily adopted from the International Accounting Standards, several firms which could not cope with the complex requirements of these standards, lost out to the firms which could do so.

The Globalisation Mandate

STATUS TODAY

There is almost negligible presence of IAFs in any major economies, save and except in some specialised jurisdiction like UAE, Singapore, etc. IAFs have somehow chosen to remain subservient as a service provider to international accounting firms without creating their own brand presence in any of the major jurisdictions. These outsourced service outfits are marketed on the principles of cost arbitrage, whereas the real arbitrage is exceptional intelligence that we IAFs possess in accounting, finance and tax related matters irrespective of the country and complexities. The question that arises is whether we are able to leverage the said capabilities in true sense or allow these capabilities to be leveraged by other firms.

What we have observed is that even attempts of the larger and mid-size IAFs have been to persuade ICAI to enable them to become members of some foreign networks / associations. Our aspirations are also not centred around creating a global branded capability of ourselves that is India centric, India focussed and India controlled. This would only make us subservient to the global players including networks / associations.

Due to our almost negligible presence in countries outside India, whenever a person needs services outside India, IAFs have to either rely on their associates outside India or let the client source services independently from their own sources. In this process, we may lose a client to multi-national accounting firms (MNFs), who are vying for such opportunities. Similarly, due to our absence outside India, when an entity outside India enters India for the first time, it has no background of the IAFs and therefore they by default fall in the hands of MNFs.

EMERGENCE OF GLOBAL CAPABILITY CENTRES (GCC)

One of the drivers for the need for changes in the service areas, is the transformation of India into a hub for global enterprise operations. The rise of global capability centres in India demonstrates both India’s professional talent advantage and the risk to Indian accounting firms if they remain positioned only as manpower providers. NASSCOM-Zinnov’s India GCC landscape report notes that India had over 1,700 GCCs in FY 2024, with more than 2,975 centres, estimated revenue of USD 64.6 billion and employment of over 1.9 million people; it further projects GCC revenue of around USD 100 billion by 2030 and headcount crossing 2.5 million. The significance of GCCs for accounting firms is twofold. On the positive side, they confirm the world’s trust in Indian talent, process discipline and cost-effective delivery. On the cautionary side, they show how Indian professionals may become embedded in global service delivery without Indian firms necessarily owning the brand, the client relationship or the intellectual property. If Indian accounting firms remain content with back-office execution for foreign networks, they may grow in headcount but not in institutional stature. The strategic challenge is to move from “delivery capacity” to “market-facing capability”. The move has been from Global Delivery Centre (GDC) to GCC.
Now we have to be the client facing capability created in India.

INCREASING COMPETITION FOR GLOBAL WORK IN INDIA

The competitive landscape reinforces the urgency. Multinational networks and global advisory firms have become more aggressive in India because India is both a high-growth market and a global delivery base. At the same time, global networks outside the Big Four and large consulting brands are strengthening their India presence through member firms, affiliates, alliances and specialist practices. The Indian deals market also reflects the increasing sophistication of business activity where each transaction generates work in diligence, tax, valuation, financial reporting, integration, controls and post-acquisition compliance. If Indian firms do not scale their capabilities, much of this work will be captured by larger networks, even when the client relationship originated locally.

Increasing competitions

RISKS FOR IAFs

There is, therefore, a serious strategic risk for domestically focused firms. The first risk is client leakage: the firm may retain routine compliance but lose strategic work. The second risk is talent leakage: ambitious professionals prefer platforms offering cross-border exposure, sector specialisation and technology-enabled work. The third risk is margin compression: domestic compliance work is increasingly standardised, automated and price-sensitive, whereas integrated advisory commands better economics. The fourth risk is brand stagnation: firms that do not invest in visible capability may become known for execution, not judgement. The fifth risk is dependency: Indian firms may become sub-contractors or resource pools for global networks rather than independent institutions with their own market identity. These risks do not arise suddenly; they accumulate gradually as clients outgrow the firm’s capability.

STRATEGIC GLOBAL CAPACITY CREATION

The answer, however, is not that every Indian mid-size firm must immediately open offices across continents or join a global network. Globalisation should not be confused with foreign addresses. The real strategic requirement is controlled access to global capability. A firm may build this through a combination of its own specialist teams, carefully chosen correspondent firms, bilateral alliances, referral arrangements, sector-focused collaborations and technology platforms. The essential point is that the Indian firm must remain the relationship owner and solution architect. It should not merely “refer” the client abroad and disappear. It should frame the issue, select the overseas advisor, coordinate advice, challenge assumptions, ensure Indian implications are considered, manage timelines, and present an integrated conclusion. This is the difference between being a local practitioner with contacts and being a globalising professional institution.

For practical implementation, mid-size firms should begin with a deliberate international strategy rather than opportunistic networking. Recommended steps could be as under:

STRATEGIC GLOBAL CAPACITY CREATION

1. The first step is to map the existing client base and identify global touchpoints: exports, imports, overseas subsidiaries, foreign investors, ECBs, ODI, transfer pricing, digital services, expatriate employees, cross-border M&A, and international tax exposures. This mapping will reveal which jurisdictions matter most—often the UAE, Singapore, the United States, the United Kingdom, the Netherlands, Mauritius, Japan, Germany and selected African or Southeast Asian markets.

2. The second step is to create internal service lines around recurring global needs: international tax, transfer pricing, FEMA and ODI advisory, cross-border transaction support, IFRS / Ind AS reporting, global mobility, ESG reporting and technology risk.

3. The third step is to identify reliable overseas firms in priority jurisdictions and convert informal relationships into documented working protocols covering response time, confidentiality, conflict checks, fee sharing, quality standards and client communication.

4. The fourth step is to invest in knowledge infrastructure. A globalising firm cannot depend entirely on individual memory or partner-level improvisation. It requires jurisdiction notes, checklists, standard engagement models, tax treaty summaries, transfer pricing documentation protocols, foreign subsidiary reporting calendars, and templates for cross-border diligence. These tools need not be elaborate at the beginning, but they must be systematic.

5. The fifth step is to create a cross-border desk within the firm, even if initially small, which acts as the coordinating point for international matters. Such a desk should not be a decorative label; it should maintain the alliance database, track assignments, update regulatory developments, coordinate webinars with foreign firms, and support partners in client conversations.

6. The sixth step is to develop talent differently. Global capability cannot be built only through senior partner relationships. Younger professionals must be trained in international tax concepts, IFRS, global audit methodologies, data analytics, business communication and project management. They should participate in joint assignments with overseas firms and, where feasible, undertake short secondments. The firm should encourage writing, speaking and thought leadership on cross-border issues because brand is built not only by doing work but by being seen as capable of doing it.

7. The seventh step is to choose sectors in which the firm can build differentiated credibility. For example, Indian firms can develop strong cross-border practices around pharmaceuticals, engineering goods, chemicals, IT/SaaS, renewable energy, financial services, family-owned multinational groups, start-ups expanding overseas, and inbound manufacturing. A sector lens allows a mid-size firm to compete on insight rather than size.

FINER ASPECTS FOR GLOBAL ACCEPTABILITY – TECHNOLOGY – CONFIDENTIALITY – BRANDING

Technology must be treated as infrastructure, not as an accessory. A firm that seeks to manage multi-jurisdictional work requires secure document management, workflow tools, knowledge repositories, data analytics, collaboration platforms and cyber controls. Global clients will increasingly ask how data is protected, how work is reviewed, how continuity is ensured, and how quality is monitored. The internationalisation of services also brings challenges of data privacy, confidentiality, sanctions screening, anti-money laundering sensitivity, independence conflicts and professional liability. Globalisation expands opportunity, but it also expands risk. Mid-size firms must therefore strengthen governance, risk acceptance procedures, engagement documentation, quality review and insurance arrangements before aggressively pursuing cross-border work.

A further strategic shift is required in branding. Indian accounting firms have historically underinvested in institutional brand building, partly because professional work was relationship-led and partly because regulatory culture discouraged overt marketing. However, brand building need not mean aggressive advertising. It means clarity of positioning, quality of publications, consistency of client experience, visible expertise, professional website content, participation in international forums, collaboration with chambers of commerce, and the ability to present credentials confidently. If Indian firms wish to become alternatives to multinational service providers, they must project themselves not as low-cost substitutes but as high-quality, India-rooted, globally connected advisors.

COLLABORATIONS AND NETWORKING

The profession must also recognise that independence and collaboration can coexist. Joining or setting up your own global network may be suitable for some firms. In fact, an Indian firm or group of firms, may consciously decide to either become member of (though not the best option) or set up a global network, which has scope for preserving strategic autonomy, avoid restrictive branding obligations, and work with best-fit firms across jurisdictions. What matters is not membership for its own sake, but capability, quality and control. A carefully curated independent alliance model may sometimes serve clients better than a passive network membership, provided the Indian firm invests in governance and relationship depth.

CONCLUSION

In conclusion, globalisation matters because Indian clients have globalised, capital has globalised, regulation has globalised, competition has globalised and talent aspirations have globalised. The accounting firm that remains purely domestic may continue to survive, but its ability to remain central to high-value client decisions will diminish. For mid-size Indian firms, the strategic imperative is to move from compliance-centric practices to capability-led institutions; from manpower supply to brand ownership; from referral dependence to coordinated global delivery; and from individual partner networks to firm-level international strategy. The opportunity is considerable. India has the talent, credibility, entrepreneurial energy and client base to create globally respected accounting and advisory institutions. The next phase will belong to firms that do not merely follow their clients abroad, but build the confidence, systems and alliances to accompany them as trusted global advisors.

Conclusion

BCAJ Admin

From The President

My Dear BCAS Family,

The month of July signifies not only the beginning of the busy compliance and assurance season but also heralds the onset of a new academic year at BCAS, coupled with the new leadership team taking over.

I would like to welcome CA Kinjal Shah as the President and CA Mandar Telang as the Vice President of the Society for the academic year 2026-27. Kinjalbhai is an experienced professional who has been associated with BCAS for several years in various capacities and is also a techno-savvy administrator with an eye for detail. Mandar is a solid professional in his chosen field of Indirect Taxation, methodical in his work, and tech-savvy. Alongside them, CA Kinjal Bhuta, CA Mrinal Mehta, and CA Samit Saraf complete the team of youthful office bearers who will bring vibrancy and push the Society to greater heights in the coming years.

As part of our ongoing self-reflection, the Managing Committee formulated a comprehensive five-year strategic plan for the Society in 2023–24, structured around six key pillars (reach, professional development, networking, advocacy, Yuva Shakti and chartered for change), which is midway through its implementation. During the year, to implement these themes into meaningful outcomes, we identified several focused projects and strategic verticals, each of which was reviewed through periodic monitoring and key actionable plans. The overarching theme binding the implementation of various projects and initiatives was Logistical and Administrative Excellence, reflecting our continuing ISO accreditation, which was further renewed until 28th February, 2029. Accordingly, we have continued to focus on strengthening operational efficiency and ensuring the smooth execution of programmes, events, and internal processes. Continuous efforts were made to streamline events and administrative functions, improve coordination mechanisms, and enhance the overall effectiveness of programme delivery and backend support systems.

SEVEN STRATEGIC INITIATIVES:

Considering that we are in the seventh month of the year and as the seventy-seventh President, I would like to focus on seven strategic initiatives that I believe will go a long way toward building and strengthening the Society’s professional development and visibility in the coming years.

BCAS A New Chapter of Excellence

Appointment of Sherpas – The formal appointment of Sherpas in 13 cities during the year played a key role in connecting with members, facilitating local engagement, and supporting the Society’s outreach efforts across the country.
Town Hall and Sherpa-Led Events – These were conducted at Jaipur, Kolkata, Thane, Indore, Coimbatore and Vadodara with help and support from local associations in certain cases, covering diverse topics, depending on the needs of local members. These events fulfil a key finding from last year’s membership survey, in which outstation participants longed for more in-person programmes on contemporary topics.
AARAMBH and FALCON Initiatives – Through the AARAMBH – MAKING ARTICLESHIP COUNT initiative, we engaged directly with students by sharing practical insights, real-life experiences, and guidance from young Chartered Accountants who have recently walked the same path, with the aim of getting students and youngsters familiarised with the Society. Under the FALCON (FROM ARTICLESHIP TO LEADERHIP CARVING ONES NICHE) initiative, BCAS offers aspiring graduates an opportunity to interact and learn from young Core Group members who have walked the path before them. The initial sessions under these initiatives were conducted at H.R. College of Commerce & Economics and N M College of Commerce & Economics, respectively.
Sakhi Circle and Women’s RefresHER Courses (Nari Shakti Initiative) – The formation of the Sakhi Circle, a women-only study circle, provided a dedicated platform for women CAs to converse, connect and collaborate on professional and technical developments in a supportive environment. During the year, 3 meetings were held by senior women core group members on topics aimed at encouraging women’s uniqueness and on soft skills. During the year, the Society also launched Specialised RefresHER Course under the BCAS Academy Platform exclusively for women CAs, covering relevant technical, regulatory, and professional subjects to help members stay updated in an evolving professional landscape. A total of 14 sessions were conducted during the year by experienced women subject-matter experts.
SAMVAD with BCAS – This was launched as a PODCAST SERIES, wherein recorded conversations with renowned speakers on certain topics that inspire insights and shape the future, moderated by the President and Past Presidents, were released. These were all recorded at our own in-house studio.
Collaboration and Outreach Initiatives – The Society continues to deepen its existing collaborations with IMC, CTC, WIRC – ICAI, amongst others. Further, during the year, an MOU was signed with SIMSREE to focus on relevant professional opportunities and research and a campus visit and lecture meeting was organised during the RRC at IIM-BANGALORE. During the year, the Society continued to collaborate with NITI Aayog, the premier think tank on policy and planning initiatives, and with the Bharti Institute of Public Policy – Research Division of the Indian School of Business (BIPP), by participating in a multi-stakeholder workshop on reforming tax policy consultation in India. BCAS also hosted an outreach programme in association with the Office of the Chief Commissioner of Income Tax – 4, Mumbai, to raise awareness of the provisions of the Income Tax Act, 2025, and the Income Tax Rules, 2026, which came into effect from April 1, 2026. The session was conducted under ‘Prarambh 2026’ initiative of the Income Tax Department.
Reading Club – BCAS recently launched the ‘BCAS Reading Forum’ with the objective of reviving the BCAS library and creating a community around the idea of reading through discussions, curated conversations, and reading-led engagements.

To conclude, I would like to reflect on BCAS’s journey and its commitment to collective progress over the past 77 years with the following quote from Henry Ford, which aptly sums up our ethos.

“Coming together is a beginning, staying together is progress, and working together is success.”

As we end another year, I would like to place on record my deep appreciation to all the members, office bearers, Past Presidents and other stakeholders for their co-operation and allowing me an opportunity to serve. May God bless you all, and may God bless our beloved BCAS!

A big thank you to one and all!

Warm Regards,

CA. Zubin F. Billimoria

President

BCAJ Admin

Globalisation Of Indian Firms | A Timed Opportunity

Some opportunities arrive quietly and leave just as quietly. In 2002, the collapse of a global accounting giant left a vacuum in the professional services market, instantly consolidating the Big Five into the Big Four. It was a moment when a new, formidable institution could have emerged from the Global South. India missed that window. Over two decades later, despite producing hundreds of thousands of the most rigorously trained professionals in the world, India has yet to build a single accounting firm of true global scale. We have mastered the art of exporting exceptional talent, but we have fundamentally struggled to export the institution.

The market will no longer wait for us to catch up. Indian corporations are no longer purely domestic entities; they are acquiring assets overseas, operating complex cross-border supply chains, and navigating multi-jurisdictional tax and regulatory regimes. They require advisors who can follow them, providing integrated, multi-jurisdictional competence with a single point of accountability. Simultaneously, technology has dismantled the traditional advantages of geographic proximity. Cloud infrastructure and artificial intelligence are rapidly commoditizing routine compliance work. The premium has shifted entirely to high-level professional judgment and trust.

So, what holds Indian firms back? The barrier is rarely technical capability; it is our structural DNA. The Indian accounting sector remains deeply fragmented, with the vast majority of practices operating as small proprietorships. Many firms remain trapped in the illusion that staying small preserves professional independence. We are often wedded to founder names, reluctant to share authority, and deeply reliant on individual hero-partners who control marquee client relationships. A practice built entirely around the personal credibility of one or two individuals cannot cross a state line, let alone an international border. More importantly, the regulatory architecture has historically constrained the form, branding, ownership, fee-sharing and multidisciplinary models through which Indian CA firms could participate in international platforms.

The rise of the Fifth Firm

To build a firm that travels well, leadership must pivot from personality to systemic architecture. Globalisation demands transitioning from a loose confederation of partners sharing a letterhead to a unified institution. This requires uncomfortable shifts. Client relationships must belong to the firm, not the individual. Technology must be treated not as a discretionary overhead, but as the core infrastructure that enables scale and enforces quality. Most critically, it requires massive capital. Expanding internationally, attracting top-tier local talent in foreign markets, and deploying enterprise-grade technology necessitates funding models that challenge traditional partnership economics. It requires patient capital and investment discipline: whether generated internally, pooled across partners, or enabled through structures that remain consistent with professional independence.

Furthermore, true global expansion exposes the cracks in a firm’s foundation. Domestic success is frequently insulated by long-standing relationships and regulatory barriers. In a new market, incumbency vanishes, and the firm must survive purely on its distinctive value. To survive this exposure, firms must view regulation and independence not as constraints, but as the very architecture of trust. A global practice cannot operate with variable ethics—strict in one jurisdiction and flexible in another. Institutional culture is not a values statement; it is what happens when a junior associate spots an error at midnight and raises it, even when no senior partner is watching.

The forces of technology, client fatigue with market concentration, and shifting regulatory frameworks are finally aligning to create an opening for the “Fifth Firm”. However, going global must never be a vanity project pursued simply to print a foreign address on a business card. It is the ultimate diagnostic test of a firm’s resilience and maturity.

History reminds us that windows of opportunity do not stay open indefinitely. The question facing the Indian accounting profession is no longer whether we have the talent to operate on a global stage; our professionals already run the engine rooms of the world’s largest corporations. The real question is whether we have the institutional courage to build our own. We can choose the comfort of our fragmented domestic ecosystem, remaining highly competent participants in a game governed by others. Or, we can undertake the heavy work of forging an enduring global institution—one where the firm outlives its founders, where economics are shared, and where the name on the door stands for uncompromising trust. Two decades ago, we watched an opportunity pass us by. The ground has shifted once again. This time, we must be the ones to build.

Best Regards,

CA. Sunil Gabhawalla

Editor

BCAJ Admin

द्रव्येण सर्वे वशा !!

This is an age old truth in life. This is a common experience over hundreds of years. An irrefutable reality! The Subhashit reads as follows: –

माता निन्दति नाभिनन्दति पिता भ्राता न संभाषते

भृत्य : कुप्यति नानुगच्छति सुत: कान्ता च नालिङगते !

अर्थप्रार्थनशङ्कया न कुरुते संभाषणं वै सुहृद

तस्मात् द्रव्यमुपार्जयस्व सुमते ! द्रव्येण सर्वे वशा : !!

This is the plight of a poor man! Literal meaning –

माता निन्दति Mother keeps on cursing

नाभिनन्दति पिता Father does not hold such son in high esteem. Father criticises him.

भ्राता न संभाषते Brother does not talk or converse with him.

भृत्य : कुप्यति The servant disrespects him or gets irritated.

नानूगच्छति सुत: The son does not follow him nor does he obey him.

कान्ता च नालिङगते Wife does not love (embrace) him. She keeps a distance!

अर्थप्रार्थनशङ्कया न कुरुते संभाषणं वै सुहृद F riends avoid him thinking that he will demand money from him. She is always displeased.

तस्मात द्रव्यमुपार्जयस्व सुमते Hence, Oh wise man, earn money, make money.

द्रव्येण सर्वे वशा: Since, money makes the mare go.

The weight of wealth

If one has not earned money nor if one possesses money, one is nowhere! One is not counted at all. The family members do not love him, nor respect him. They may even disown such person. They may have sympathy but no affection or respect.

In the society, people will avoid him. Even in his friend circle, he has no say. He is not welcome. No one listens to him nor cares for him.

If a man is poor, his whole family also may suffer from all these difficulties among their relatives or in the society. Poor man/family may not be even invited for social functions or events.

Extending this logic, a poor community or even a poor nation may be ignored or looked down upon. Unfortunately, even good qualities of poor people will not be recognised or appreciated.

On the other hand, if one has money one is regarded as a talented and respectable person! सर्वे गुणा: कांचनमाश्रयन्ते We have earlier studied this Subhashit – meaning all good qualities and virtues automatically get attributed to a wealthy person.

Hence, friends, always try to be a moneyed person!

BCAJ Admin

Learning Events At BCAS

1. BCAS Jointly with TAASI Presents: A 2-Day Knowledge Symposium & Summit held on Friday, 15th May 2026 to Saturday, 16th May 2026 @ Residency Towers, Avinashi Road, Coimbatore.

As part of its outreach initiative, the Bombay Chartered Accountants’ Society, in collaboration with The Auditors’ Association of Southern India (TAASI), organized a two-day conference in Coimbatore, attended by over 100 participants. The program was thoughtfully designed to meet the specific needs of industry professionals and practicing members in the region.

The conference opened with a welcome address by CA Zubin Billimoria and CA S. Venkatesh, Presidents of the two organisations, followed by a keynote address by CA G. Ramaswamy, former President of the Institute of Chartered Accountants of India. In his address, he underscored the importance of continuous professional learning, ethical governance, and financial discipline in today’s rapidly evolving business environment.

The first technical session, titled “Preparation for an IPO,” was delivered by Adv. Manan Lahoty along with Ms. Janhavi Manohar and covered the key preparatory steps involved in an IPO, including timelines, promoter identification, estate planning, corporate restructuring, board constitution, due diligence, and financial readiness. The session also explained the distinction between public and confidential filing frameworks and discussed how companies can assess and strengthen their IPO preparedness.

This was followed by a presentation by Mr. Jinesh Doshi on IPO valuation, viewed as a strategic exercise in sustainable wealth creation rather than a mere fundraising event. He highlighted the role of valuation, pricing discipline, governance quality, and investor confidence in ensuring long-term IPO success, while cautioning against aggressive pricing and weak post-listing performance.
The session on succession planning through private trusts was presented by CA Paresh P. Shah, who outlined the objectives, structures, and advantages of private family trusts as compared with wills, gifts, HUFs, and family arrangements. He also covered key legal and tax considerations under the Indian Trusts Act, the Income-tax Acts of 1961 and 2025, FEMA, and relevant international aspects, including the taxation of determinate and discretionary trusts, stamp duty, anti-avoidance rules, and an offshore trust case study.

On the second day, a Tax Summit was held, during which five speakers addressed the delegates on various topics relating to direct and indirect taxation. CA Raghavender Kuncharapu spoke on the practical issues surrounding e-way bills and the movement of goods under GST, including detention, interception, documentation checks, route and vehicle changes, and the response strategy under Sections 68, 129, and 130.

This was followed by Taxation Bytes, where CA Abhinav Venkatesh presented a detailed overview of the minimum alternate tax framework under the Income Tax Act, 2025, covering applicability, tax rates, book profit computation, MAT credit, filing requirements, and key amendments and judicial precedents. CA V. Venkatram then examined the GST treatment of OIDAR services, intermediary services, and electronic commerce, with emphasis on place of supply, time of supply, registration, recipient-side compliance, and the evolving jurisprudence in cross-border digital transactions.

The summit also featured a session on the tax and FEMA implications of cross-border remittances, presented by Dr. CA Mayur B. Nayak, who discussed TDS on payments to non-residents, Form 15CA/15CB and Form 145/146 compliance, LRS limits, overseas direct investment, and the treatment of foreign assets and business remittances under FEMA. The conference concluded with an interactive session by CA Sunil Gabhawalla on input tax credit under GST, including eligibility conditions, matching and reversal rules, blocked credits, fake invoicing concerns, ISD and cross-charge issues, and important judicial precedents.

2. Special Session for under privileged students by BCAS Foundation. 28th April 2026

BCAS Foundation has taken up a number of activities to contribute to the society in many different ways. One such activity was undertaken by the BCAS Foundation at the request of Rangoonwala Foundation (India) Trust, to empower youths in Mumbai’s slum areas. Rangoonwala Foundation (India) Trust is running a number of centres in different parts of Mumbai bastis to empower women, children and you ths belonging to the marginalised sections of the society through various activities. The sessions were held at the training centre of the Rangoonwala Foundation (India) Trust at Jogeshwari (East) on Tuesday, 28th April, 2026.

Dr CA Mayur Nayak, conducted a special session on “Goal Setting and Overcoming Failure“. He motivated youths to set goals in life, think big, be positive and develop a strong mindset to overcome failures and challenges of life. Youths were inspired and engaged actively through practical examples, motivational stories and attractive PowerPoint presentation.

The session on “Grooming & Personality Development” was conducted by CA Mihir Sheth. The idea was to give the students orientation on importance of grooming and how it can help them transform into a well- rounded personality to succeed in real world. The workshop was conducted with practical life examples which helped students to learn about grooming externally and internally too, through practical exercises, activities, videos to make them future ready. Topics covered were personal hygiene, dressing, communication skill, confidence building, time management, social etiquette, digital etiquette, goal setting etc.

Mr. Namit Vanmali, Key Person in the Leadership Role at the Rangoonwala Foundation (India) Trust facilitated the session.

35 students from 10th to 12th standards enthusiastically participated and interacted with the faculty in this Life Skill session which was a part of the 3 day Yuva Saarathi Workshop.

3. Webinar on IBC Amendment Act, 2026 and Corporate Laws Amendment Bill, 2026 – Key Changes and Practical Implications held on Tuesday, 28th April 2026 @ Virtual.

The Finance, Corporate and Allied Laws Committee of the Bombay Chartered Accountants’ Society organised a webinar on “IBC (Amendment) Act, 2026 and Corporate Laws (Amendment) Bill, 2026 – Key Changes and Practical Implications” in view of the notification of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 on 6th April 2026 and the proposed Corporate Laws (Amendment) Bill, 2026, which are expected to significantly influence the regulatory and compliance landscape. The objective was to familiarise members with the legislative intent and the key practical implications for businesses and stakeholders.

The programme was conducted in two segments. CA Sunil Kumar Bansal discussed the key amendments under the IBC framework, covering critical changes and implications of the same. CS Amita Desai covered the proposed changes under the Corporate Laws (Amendment) Bill, 2026, highlighting emerging issues and implications for corporates and professionals.

The webinar received an encouraging response from members across practice and industry. 26 participants enrolled for this webinar from 13+ cities participated in the webinar. Participants appreciated the clarity of explanations and the practical insights shared by the speakers.

Scan to watch online at BCAS Academy

Webinar on IBC Amendment Act, 2026 and Corporate Laws Amendment Bill, 2026

4. BCAS Reading Forum | Inaugural Session held on 21st April 2026 @ BCAS – Hybrid.

BCAS inaugurated the ‘BCAS Reading Forum’ with an interactive session featuring Mr. Shantanu Naidu, author, entrepreneur and founder of ‘Bookies’. The Forum has been initiated with the objective of reviving the BCAS library and creating a community around the idea of reading through discussions, curated conversations and reading-led engagements, centered around the thought – “Read, Discuss, Reflect, Rise!”

The session focused on the role of reading in an increasingly fast-paced and AI-driven world. Shantanu shared his thoughts on how reading helps build empathy, attention, reflection and independent thinking, and why books continue to remain relevant even in an age dominated by digital content and short-form media.
A key takeaway from the discussion was his “50:50 theory”- if one carries a book, there is always a possibility of reading it, whereas not carrying one almost certainly results in replacing reading time with scrolling. He also spoke about the importance of nurturing hobbies, engaging in offline activities and consciously protecting one’s attention span.

Participants were introduced to the idea behind Bookies, a reading movement that encourages silent community reading and meaningful conversations around books. The session also explored how stories, biographies and narrative non-fiction can shape perspectives and influence personal and professional growth.

The launch of the BCAS Reading Forum also marks a renewed focus on the BCAS LIBRARY and its lending facilities. Members and student members are encouraged to explore the Society’s library collection, enroll for the lending facility, borrow books, and become part of a growing reading community at BCAS. In an age of constant scrolling and shrinking attention spans, the Forum seeks to create space for deeper reading, reflection and meaningful conversations.

The event concluded with an engaging interaction with participants, including a rapid-fire segment and audience questions. Several book recommendations were also shared during the session, including Tuesdays with Morrie, A Man Called Otto, The Book Thief, The Old Man and the Sea and A Gentleman in Moscow.

The inaugural session set the tone for the BCAS Reading Forum’s future initiatives aimed at building a sustained culture of reading, discussion and reflective learning within the BCAS community. Watch this space for more reading-led conversations and community engagements.

Scan to watch online at YouTube

BCAS Reading Forum

5. Webinar on New Income Tax Rules, 2026 – Decoding the New Tax Framework held on Monday, 6th April 2026 @ Virtual.

The Direct Tax committee of BCAS had organised a webinar on the new Income Tax Rules, 2026 in virtual mode to address the new Income Tax Rules 2026 and the allied new forms.

CA Ashok Mehta opened with a structured comparison of the TDS provisions under the Income Tax Act, 1961 vis-à-vis the new Income Tax Act, 2025, covering the revised threshold amounts and applicable rates of deduction. He then walked participants through the changes in applicable forms and due dates, with a focused discussion on the new Forms 145 and 146 governing foreign remittances and international tax provisions. Form 141 and the mandatory TIN requirement for foreign payments were explained in particular depth.

The changes in the salary perquisites valuation like the motor vehicle, education allowance, free meals, gift vouchers, amendments in house rent allowance were discussed as per the new tax provisions. Some practical aspects such as taxation of salary arrears, Form 130 (erstwhile Form 16), and transactions requiring mandatory PAN quoting were also covered.

Lastly, the session concluded with a detailed discussion on the revised Tax Audit form and key changes in the Transfer Pricing report, equipping participants with the clarity needed to maintain requisite records for audit purposes.

The webinar offered a comprehensive and practice-oriented walkthrough of the significant amendments brought in by the new Income Tax Rules, 2026

Scan to watch online at BCAS Academy

Webinar on New Income Tax Rules, 2026

II. BCAS IN NEWS & MEDIA

BCAS has been featured in several news and media platforms, showing our active involvement, professional contributions, and commitment to the field. This reflects the growing recognition of BCAS in the public and professional space.

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

QR Code:

BCAS News and Media

SN Photos june 2026

BCAJ Admin

30th International Tax and Finance (ITF) Conference

The International Tax Committee of BCAS organized ITF which was attended by nearly 200 delegates, including senior professionals and experts from across the country.

The 4-day Conference commenced with intense group discussion on Paper I – ‘Global Mobility – 360° Perspective on Tax & Regulatory issues’ authored by CA Vishal Gada on Day 1. This was followed by an insightful address by CA Amish Thakkar on ‘AI in International Tax and Finance’ where practical AI tools prepared by him were demonstrated and their application in professional practice was explained. The tax tools were based on topics of the Conference and were shared by the speaker. The first paper writer, CA Vishal Gada, then presented on his paper considering the issues raised in the Group Discussion. The session dealt on several key issues surrounding global mobility with case studies designed to provoke thought and real-life application. Participants appreciated the gamut of issues covered by the faculty with aplomb.

The second day of the conference started with an involved discussion by the groups on Paper II – ‘Taxation of Intellectual Property Rights (incl. Software)’. Considering the milestone event of the 30th edition of this Conference a felicitation ceremony honouring past contributors to the International Tax Conference was held over the past 30 years with personal and video tributes from the pioneers of the ITF Group as well as past Presidents, Chairmen, Coordinators and Faculty. Post the Felicitation Ceremony, under the Chairmanship of Sr. Adv. V. Sridharan Sir, CA Ganesh Rajagopalan dealt with his presentation on the second Group Discussion Paper covering the nuanced issues in his case studies in detail. Blending legal depth with technical precision, the session unpacked the evolving landscape of IP taxation, addressing interpretational challenges. The Chairman provided his succinct comments bringing out the importance of the issues laid out by the Paper-writer. Participants acknowledged the fresh take and deep analysis of the topic which was understood to not have any major controversies now. Post lunch, most of the participants headed for Mahakaleshwar Jyotirlinga, Ujjain, and all the participants enjoyed the VIP Darshan and seamless arrangements made.

The third day of the conference opened with a highly engaging group discussion on Paper III – ‘Cross-Border Business Model Structuring (including PE issues)’. The discussion was followed by an excellent presentation on ‘Fiscally Transparent Entities’ where CA Geeta Jani. With exceptional clarity, the session demystified complex concepts around fiscally transparent entities, providing the participants with foundational understanding of the various issues surrounding such entities. Post her session, we had a presentation on ‘Transfer Pricing aspects on Intangibles’ by CA Akshay Kenkre. Drawing from his vast experience, he examined the complexities of intangible assets, their valuation, and their treatment under transfer pricing principles. The session, together with the detailed paper on the international tax principles on the same subject, offered the delegates a complete package as far as cross-border tax issues of Intangibles are concerned. The manner in which the presentation was handled made it a pleasure for the participants to glean the technical insights offered. Post lunch we had CA Rashmin Sanghvi, one of the pioneers of the ITF Group, who shared his vision and extensive study on the topic of ‘India @ 2047 : Geopolitics, Changing World Order and India’s place in a De-dollarised Globe.’ It enabled a thought-provoking discussion session that traced the evolution of global economic power structures, offering a compelling perspective on India’s emerging role and the US Dollar’s uncertain future as a global currency.

The concluding day of the conference featured a comprehensive panel discussion on “Cross-Border Business Model Structuring (including PE issues)”, after the Group Discussion held previous day. The session was ably moderated by CA Pranav Sayta with panellists CA Padamchand Khincha and Former CBDT Member Shri Akhilesh Ranjan providing their insights. The panel examined the issues thrown up from the case studies including the practical challenges and interpretational issues that arise in the application of treaty entitlement, the principal purpose test, and GAAR, drawing on judicial perspectives. The discussion brought out the complexities of balancing anti-avoidance principles with legitimate tax planning, while also offering practical insights for professionals advising in cross-border matters. The engaging exchange of views and depth of analysis provided a fitting conclusion to the conference, leaving participants with key takeaways for navigating an evolving international tax landscape.

Overall participants were pleased with the 4-day intellectual fest, in no small part due to the dedicated efforts of Conference Director CA Chintan Shah and Convenors CA Jagat Mehta, CA Mahesh Nayak, under the leadership of Chairman CA Chetan Shah and Co-Chairman CA Rutvik Sanghvi. Notably, this year saw nearly 50% participation from professionals outside Mumbai—an encouraging sign of growing national interest in the conference and its relevance across the country.

The smooth execution of the event was supported by —CA Rajesh Shah, CA Kartik Badiani, CA Mayur Nayak, CA Divya Jokhakar, CA Chaitanya Maheshwari among many other members and the BCAS Events and Admin Team—whose attention to detail and behind-the-scenes commitment ensured a seamless experience for all delegates.

30th ITF Conference

BCAJ Admin

AQPAAS

Government announced a policy to promote Start Ups to encourage businesses based on innovative ideas. In response to this policy, a few intelligent individuals came together to do ‘something’ in the interest of common man.

They felt that there are no good educational institutions. Teaching quality is not up to the mark. There are no facilities for teachers and students. Parents have to bear the hefty fees of coaching classes and external tuitions. The overall performance of the students in various high level examinations is not satisfactory.

They thought of an innovative idea to solve this problem of national importance. They came out with a system called AQPAAS meaning Advance Question Papers And Answer Sheets.

They formed a public limited company with an intention to come out with an IPO as quickly as possible.

They created a network with centres in all taluka places. The procedure for students was simple. A student will have to register at least 4 months prior to any examination in the country. All KYC documents are taken and an absolute confidentiality is maintained. The entire fee is payable at the time of registration.

The promoter directors of the company contacted all Universities, Schools, Colleges, Autonomous bodies and other Institutions all over the country. The professors/teachers who are paper-setters and examiners can also register in confidence. For different levels of exams, different standards of compensation are fixed.

When any question paper for any exam is set, the paper-setter has to hand it over to the corporate
office of the company personally. 50% of his honorarium is paid up front. The balance is paid after the exam. Similarly, the model answer sheets are also created. Students have an option either to get only question papers or both – questions as well as answers. Fee structure differs accordingly.

There are also settings at the concerned printing presses. Police protection is also arranged. For various subjects, there are schemes of Combos packages.

There are a few advanced versions of the scheme. If a student registers his hand writing, then with the help of AI, the answer paper written in his handwriting also can be created in advance. A student has to simply attend at the examination hall and at appropriate time, can hand over the readymade answer sheets to the Supervisor.

There is a further version on which the company is working at present – that is, once you register with them, even your mark sheets and passing certificates also can be created right upto Ph.D.

Like a Tour and Travel Agent, the company arranges for all your admissions, registrations. Even your AI generated clone can attend the school/college or appear for the examinations

The company is in the process of expanding its activities in foreign countries as well.

No wonder that the IPO was oversubscribed 100 times!

Now, the competitors are entering this field. It has a huge potential of employment generation. Everybody is now happy!

However, now all corporates and other employers are evolving a separate and independent system of examination and assessment for the candidates who seek employment with them!

Mera Bharat Mahan!

BCAJ Admin

Statistically Speaking

1. COUNTRIES WITH THE NUMBER OF AI PATENTS

Number of AI patents

2. 49 OF THE WORLD’S 50 HOTTEST CITIES ARE IN INDIA

49 OF THE WORLD'S 50 HOTTEST CITIES ARE IN INDIA

3. REAL GDP GROWTH PROJECTIONS

REAL GDP GROWTH PROJECTIONS

4. COMPARISON OF INDIA AND GLOBAL DIGITAL METRICS

COMPARISON OF INDIA AND GLOBAL DIGITAL METRICS

5. DATA CENTER CAPACITY DISTRIBUTION – % SHARE OF CAPACITY

BCAJ Admin

Regulatory Referencer

I. FEMA

1. RBI withdraws earlier relaxation and restricts ADs from undertaking INR Forex derivative contracts with related parties

RBI has withdrawn the relaxation provided on 1st April 2026 for authorised dealers regarding undertaking INR Forex derivative contracts with related parties. Now Authorised Dealers shall not undertake any foreign exchange derivative contract involving INR with their related parties except for the following:

i. cancellation and rollover of existing contracts; and

ii. transactions undertaken with non-related non-resident users on a back-to-back basis in terms of the Master Direction – Risk Management and Inter-Bank Dealings, dated July 05, 2016, as amended from time to time.

[A.P. (DIR Series ) Circular No. 7, dated 20th April 2026]

2. RBI issues final reporting directions for AD Category-I banks on forex derivatives involving INR by related parties

The Reserve Bank of India had issued the draft directions on ‘Reporting Instructions for Authorised Dealer Category-I Banks’ on February 16, 2026, seeking feedback from market participants, stakeholders and other interested parties. The feedback received has been examined and suitably incorporated in the final directions issued by RBI now. RBI has mandated the AD Category-I banks to report all INR-based Over-the-counter (OTC) derivative deals, including those done abroad by their group entities, to Clearing Corporation of India Limited (CCIL) to improve transparency. This includes both types of contracts (deliverable and non-deliverable), but transactions under USD 1 million and certain back-to-back hedging transactions are exempt. Banks must submit key details within 2 working days from the date of the transaction, and reporting must be completed in phases by 2028.

[Press Release dated 27th April 2026 2026-2027/152 and A.P. (DIR Series) Circular No. 08 dated 27th April 2026]

3. Govt. amends FEM (NDI) Rules, 2019; mandates prior govt. approval for change in beneficial ownership & prescribes reporting norms

Government had earlier amended the Press Note 2 of 2020 which laid down prior permission for FDI received from India’s land-bordering countries (LBCs). These amendments brought in vide Press Note 2 of 2026 and included a definition for ‘beneficial ownership’ as per that prescribed under the Prevention of Money-laundering Act, 2002 and the Prevention of Money-laundering (Maintenance of Records) Rules.

However, the amendment in the Foreign Exchange Management (Non-debt Instruments) Rules was awaited. The Government has now notified these amendment rules. The amendments are in line with Press Note 2 of 2026. Please refer to April 2026 issue of the BCAJ for coverage on the same.

[Notification No. S.O. 2174(E) (F. NO. 1/4/2026-EM) Dated 1st May 2026]

4. Govt. amends FEM (Non-debt Instruments) Rules; hikes FDI limit in insurance sector to 100% under automatic route

Government has amended the Foreign Exchange Management (Non-debt Instruments) Rules to allow 100% Foreign Direct Investment (FDI) in the insurance sector via the automatic route, replacing the previous 74% limit. While this facilitates full foreign ownership for insurers, brokers, and intermediaries, investment in the Life Insurance Corporation of India (LIC) remains subject to a 20% cap. Key safeguards require a majority of board directors and key management personnel to be resident Indian citizens. Certain conditions have also been made applicable to foreign investment in LIC.

[Notification No. S.O. 2186(E) (F. NO. 1/5/EM/2019) Dated 2nd May 2026]

5. RBI notifies FEMA (Authorised Persons) Regulations, 2026; discontinues fresh franchisee arrangements for FFMCs

The Reserve Bank of India has issued the Foreign Exchange Management (Authorised Persons) Regulations, 2026, introducing revised norms for entities dealing in foreign exchange and discontinuing fresh licences for Full-Fledged Money Changers (FFMCs). Under the new framework, authorised persons are prohibited from entering any fresh franchisee arrangements, and all existing franchisee arrangements are required to be phased out and discontinued within two years from May 06, 2026. Further, FFMCs/non-bank AD Category II entities are required to submit to the concerned Regional Office of the Reserve Bank a copy of the annual audited balance sheet along with a statutory auditor’s certificate confirming net worth by 31 October each year, and a separate statutory auditor’s certificate certifying annual forex turnover for the relevant financial year by 30 April each year.

[Circular No. A.P. (DIR Series) Circular No. 09 and Notification No. FEMA 401/2026-RB dated April 30, 2026]

II. IFSCA

1. IFSCA issues 2026 rules for IFSC-Listed Companies on process, disclosures & timelines of rights issue

The International Financial Services Centres Authority (IFSCA) has introduced a detailed framework for rights issues under its Listing Regulations, 2024 bringing much-needed clarity and structure to capital raising in IFSCs. The rules are applicable only to entities listed exclusively in IFSC. The circular provides for key aspects such as eligibility, disclosures, pricing, and timelines. Notably, it mandates dematerialized allotment, enables on-market and off-market renunciation of rights entitlements, and prescribes a minimum subscription period of 7 days. The framework also emphasizes governance requiring prior in-principle approval, detailed disclosures in the letter of offer, and strict post-issue timelines for allotment and refunds.

(Circular F. NO. IFSCA -PLNP/16/2024-Capital Markets dated 22nd April 2026)

2. IFSCA mandates appointment of CISOs, reporting of breach within 6 hour & 24×7 Security Operations w.e.f. 1st April 2026

IFSCA Issues Comprehensive Cybersecurity Guidelines for Market Infrastructure Institutions (MII) comprising Stock Exchanges, Clearing Corporations, Depository and the Bullion Exchange in GIFT IFSC. The key objective of these Guidelines is to establish a comprehensive cyber security and cyber resilience framework for the MIIs operating in IFSC. The Guidelines are structured around seven core cybersecurity functions that Govern, Identify, Protect, Detect, Respond, Recover, and Resilience, mirroring globally recognised frameworks while embedding the operational and jurisdictional realities of GIFT IFSC. The Guidelines have come into effect from 1st Apri 2026. The MIIs need to ensure that full compliance is achieved within the timelines specified in the respective provisions of these Guidelines.

(Circular No. IFSCA-CSD/MSC/2/2026 DCS, dated 20th April 2026)

3. IFSCA aligns ship leasing rules with 2025 regulations by dropping physical asset management clarification

The International Financial Services Centres Authority (IFSCA) has amended its 2022 Ship Leasing Framework to align with the IFSCA (TechFin and Ancillary Services) Regulations, 2025. The amendment removes the explanation under clause 3.D.(ii), consequent to the inclusion of “management of physical assets” in the Third Schedule under the IFSCA (TechFin and Ancillary Services) Regulations, 2025, which specifies the services not permitted to be provided by TechFin and Ancillary Service Providers.

(Circular F. No. IFSCA-FCR0SL/25/2025-Banking/2026-27/01, dated 22nd April 2026)

4. IFSCA issues 2026 framework for preferential issues & QIPs for listed IFSC entities

IFSCA, has introduced a comprehensive framework for preferential issues and Qualified Institutions Placement (“QIP”) under the IFSCA (Listing) Regulations, 2024, enabling listed entities in IFSCs to raise capital through these routes (“Framework”).

The Framework applies to listed entities whose specified securities are listed solely on recognised stock exchanges in the IFSC. It lays down the eligibility criteria and tenure of convertible securities apart from specific disclosure and lock-up conditions for Preferential Issues as well as requirements for QIP.

(Circular F. No. IFSCA-PLNP/16/2024-Capital Market, dated 22nd April 2026)

5. IFSCA approves rules for fund-raising for listed entities along with an SPV based leasing structure

IFSCA approved amendments to enable the creation of Special Purpose Vehicles (SPVs) within GIFT IFSC. The changes, spanning the IFSCA (TechFin and Ancillary Services) Regulations, 2025 and the IFSCA (Finance Company) Regulations, 2021, will allow end-to-end structuring of leasing transactions within India. The new framework facilitates the registration of Trust and Company Service Providers (TCSPs), which manage SPV structures widely used by global financiers for aircraft leasing.

The new framework is designed to attract global lenders, lessors, and investors while reducing reliance on offshore jurisdictions for aircraft financing. The revised regulations, shaped by stakeholder consultations, also incorporate strong governance standards, including AML/KYC compliance and alignment with global norms. International Financial Services Centres Authority (Finance Company) Regulations, 2021 have been amended to introduce new definitions for SPV and TCSP. The minimum owned fund, or paid-up share capital of the SPV undertaking leasing or financing activity, shall be equivalent to the amount prescribed under the Companies Act, 2013, or such other amount as may be specified by the Authority.

IFSCA has further notified IFSCA (TechFin and Ancillary Services) (Amendment) Regulations, 2026. A new chapter relating to ‘Trust and Company Services Provider’ has been inserted. The chapter covers norms relating to the obligation to seek registration, permissible services, governance and control, and appointment of principal officer & compliance officer. Further, a new schedule specifying the permissible services that a ‘Trust and Company Services Provider’ may undertake, has been inserted.

(Press release dated 24th April 2026 and Notifications No. F. NO. IFSCA/GN/2026/ 009 and No. F. NO. IFSCA/GN/2026/ 008 dated 5th May 2026)

6. IFSCA notifies draft IFSCA (Managing General Agents) Regulations, 2026 for IFSC insurance ecosystem growth

The IFSC Authority has notified the draft IFSCA (Managing General Agents) Regulations, 2026 to provide a comprehensive regulatory framework for registration, regulation and operations of Managing General Agents in IFSCs. The Regulations prescribe eligibility conditions, business scope, capital and net worth requirements, governance standards and operational safeguards to promote transparency, accountability and orderly growth of the insurance ecosystem in IFSCs. The notification will be released in due course.

(Press Release dated 12th May 2026)

BCAJ Admin

Miscellanea

ARTIFICIAL INTELLIGENCE

# Sony AI’s “Project Ace” Robot Defeats Elite Table Tennis Professionals in Landmark Real-World AI Breakthrough

In a milestone moment for artificial intelligence and robotics, Sony AI on 23rd April 2026 unveiled “Project Ace” — the first known autonomous robotic system capable of consistently outplaying elite and professional-level human table tennis players. The research, published as the cover story of the journal Nature under the title “Outplaying Elite Table Tennis Players with an Autonomous Robot”, describes a system that combines high-speed cameras, motion sensors and reinforcement-learning algorithms to perceive, plan and execute return shots in milliseconds. In a series of evaluation matches conducted between December 2025 and March 2026 against new professional players, Ace defeated each opponent at least once, exhibiting faster shot speeds, more aggressive ball placement near the table edge and a rapidly accelerating rally pace.

The implications of Ace’s victory extend far beyond the sport. While AI systems have long demonstrated “superhuman” performance in digital domains such as chess, Go and complex video games, applying such intelligence to the physical world — where perception, planning and motor control must unfold in milliseconds — has remained one of the field’s most stubborn challenges. According to Peter Stone, Chief Scientist at Sony AI, the breakthrough “represents a landmark moment in AI research, showing for the first time that an AI system can perceive, reason and act effectively in complex, rapidly changing real-world environments that demand precision and speed.” Researchers believe the underlying perception-and-control architecture lays the groundwork for robots that can safely operate in dynamic environments ranging from industrial automation and elder care to surgical assistance and disaster response.

(Source: ai.sony / Nature – dated 23rd April 2026)

# Anthropic Crosses USD 900 Billion Valuation as Q1 2026 Revenue Grows 80x Year-on-Year

In one of the most striking developments of the current artificial intelligence funding cycle, Anthropic — the maker of the Claude family of large language models — closed a fresh funding round in May 2026 at a valuation of approximately USD 900 billion, placing it among the most highly valued private companies in history. The fundraise coincided with the disclosure that Anthropic’s first-quarter 2026 revenue had grown roughly 80 times year-on-year, as enterprise demand for Claude-based agents in coding, financial analysis, legal review and compliance accelerated sharply through the early part of the year. The fresh capital is earmarked principally for compute infrastructure, including a multi-year strategic partnership with Elon Musk’s SpaceX that will give Anthropic access to an estimated 220,000 GPUs through SpaceX’s Colossus data-centre architecture, alongside continued scaling on Amazon Web Services and Google Cloud.

The pace and scale of the round throws into sharp relief the structural rewiring of the global AI industry: market leadership is now determined as much by access to compute and electrical power as by model intelligence itself. Combined 2026 AI capital expenditure by Alphabet, Amazon, Meta and Microsoft is projected to exceed

USD 700 billion, with Microsoft alone raising its 2026 guidance to USD 190 billion. For Indian professional-services firms, the takeaway is two-fold: first, frontier AI capability — already significantly cheaper than 2024 levels — will continue to compound in both capability and cost-efficiency through the second half of 2026; and second, the centre of gravity of the global technology economy is shifting decisively toward a small group of compute-and-capital concentrators, with material implications for cross-border tax structuring, royalty flows and transfer-pricing benchmarking of AI-enabled services.

(Source: bloomberg.com / AIToolsRecap – dated 9th–11th May 2026)

WORLD NEWS

# IMF Warns of a “Global Economy in the Shadow of War” as Strait of Hormuz Disruption Sends Oil Prices Soaring

The International Monetary Fund’s April 2026 World Economic Outlook, sub-titled “Global Economy in the Shadow of War”, has lowered the global growth forecast to 3.1% for 2026 and 3.2% for 2027, citing the outbreak of conflict in the Middle East and the resulting disruption to global energy supplies as the dominant downside risk. The closure of the Strait of Hormuz — through which approximately 20 million barrels of oil per day, or nearly 27% of global maritime petroleum trade, transit — pushed Brent crude above USD 100 per barrel in March 2026 for the first time since August 2022. The IMF has cautioned that global headline inflation will rise modestly in 2026 before resuming its decline in 2027, with the slowdown and inflationary pressures particularly pronounced in emerging market and developing economies.

For India, the World Bank’s India Development Update released on 9th April 2026 projects growth moderating to 6.6% in FY27, with higher energy prices and supply-chain disruptions weighing on activity. Nevertheless, India remains among the fastest-growing major economies in the world, with the World Bank attributing resilience to substantial foreign reserves, moderating inflation, predominantly rupee-denominated public debt, a healthy financial sector and ongoing trade diversification. The IMF’s broader caution — that downside risks now dominate the outlook, including geopolitical fragmentation, a possible reassessment of expectations around AI-driven productivity and renewed trade tensions — underscores the urgent need for businesses to stress-test working capital, hedging policies and contingency plans.

(Source: imf.org / worldbank.org – April 2026)

ENVIRONMENT

# “How the World Lost the Goal of 1.5°C”: New Report Declares the Paris Target Out of Reach as 2026 Tracks for Record Heat

In a sobering assessment released on 7th April 2026, the Washington-based think-tank Resources for the Future published its Global Energy Outlook 2026 under the stark sub-title “How the World Lost the Goal of 1.5°C”, concluding that the cornerstone target of the 2015 Paris Agreement — limiting global temperature rise to 1.5°C above pre-industrial levels — is no longer achievable on any plausible policy pathway. The findings coincide with World Weather Attribution scientists warning that 2026 is on track to become the second-warmest, if not the warmest, year on record, with sea surface temperatures approaching all-time highs and Arctic sea ice at its lowest level for the second consecutive year.

Amid the gloom, Ember’s Global Electricity Review released on 21st April 2026 offered one bright signal: in calendar 2025, clean-power growth finally exceeded the rise in overall global electricity demand, marking a small but meaningful inflection point. The combined message for policymakers and businesses is unambiguous — the climate-transition agenda is shifting from ambition to adaptation, with material implications for capital allocation, ESG disclosures and physical-risk management under frameworks such as SEBI’s Business Responsibility and Sustainability Reporting (BRSR) regime.

(Source: Resources for the Future & earth.org – dated 7th & 21st April 2026)

# WMO Warns of Imminent “Super El Niño” as Global Wildfires Burn a Record 150 Million Hectares in First Four Months of 2026

The World Meteorological Organisation, in a coordinated warning issued on 12th May 2026, alerted governments and businesses to the imminent onset of an unusually strong El Niño event in the tropical Pacific, with sea surface temperatures near all-time highs and Arctic sea ice at its lowest May reading for the second consecutive year. Scientists at the World Weather Attribution group reported on the same day that wildfires from January to April 2026 had already burned more than 150 million hectares globally — roughly 20% above the previous record for the same period and double the area burned in 2024. Africa accounted for the largest share at approximately 85 million hectares (23% above the previous high), while Asian countries including India, Myanmar, Thailand, Laos and China collectively recorded 44 million hectares burned, exceeding the previous 2014 record by approximately 40%.

The WMO has cautioned that the combination of a developing El Niño with already record-warm baseline conditions creates a “serious risk of unprecedented weather extremes” through the remainder of 2026 and into 2027, with heat, drought, flood and wildfire impacts likely to compound one another. Parts of northern India have already recorded daytime temperatures touching 46°C ahead of the southwest monsoon, and the Copernicus Climate Change Service has flagged May 2026 sea-surface temperatures as being among the highest on record. For Indian businesses, the warning has direct bearing on agricultural supply chains, monsoon-dependent working-capital cycles, insurance and reinsurance pricing, and the increasingly material physical-risk disclosures expected under SEBI’s BRSR framework and emerging climate-disclosure standards.

(Source: World Meteorological Organisation / Reuters / Euronews – dated 12th May 2026)

BCAJ Admin

ICAI and Its Members

I. ICAI ANNOUNCEMENTS

ICAI INVITES APPLICATIONS FOR EIFR TECHNICAL REVIEWERS

The Institute of Chartered Accountants of India has invited applications for empanelment as Technical Reviewer (TR) and Head Technical Reviewer (HTR) for the ICAI Awards for Excellence in Financial Reporting (EIFR).

The role involves reviewing financial statements for compliance with accounting standards, statutory disclosure requirements, and auditors’ reporting obligations.

ELIGIBILITY

TRs: 4–5 years’ audit experience; HTRs: 5–8 years’ audit experience.
currently active in the practice of accounting and auditing or employed in the industry with comparable experience in financial reporting and auditing.
Experience in Ind AS financial statements is desirable
Exposure in the preparation, finalization, or audit of Ind AS- based financial statements

Empaneled members will receive honorarium and CPE hours.

LAST DATE

Applications can be submitted online up to 30 May 2026 (4:00 PM) through: https://forms.gle/LorzV58eCFVHmqdq9

Last date application

For more details visit: https://resource.cdn.icai.org/91948rc-aps4940-empanelment-tr-htr.pdf

resource icai

ICAI DOCTORAL SCHOLARSHIP SCHEME 2026

The Institute of Chartered Accountants of India has invited applications for the ICAI Doctoral Scholarship Scheme 2026 for members pursuing full-time Ph.D. in areas such as Auditing, Taxation, Commerce, Management, Accounting, and allied subjects.

KEY HIGHLIGHTS

Scholarship of ₹75,000 per month for up to 36 months
Yearly contingency grant up to ₹50,000.
Applicant should:

• Be an ICAI member,

• Be below 40 years of age,

• Have confirmed Ph.D. registration,

• Be a full-time Ph.D. scholar,

• Not be availing any other scholarship for the same research

SELECTION PROCESS

Applications will undergo preliminary scrutiny, followed by virtual presentation/interview for shortlisted candidates. Final approval will be by the Research Committee.

LAST DATE

15 June 2026.

For more details visit: https://resource.cdn.icai.org/92083research-aps5015-flyer.pdf

Last date resource icai

II. ICAI GIST OF OPINION

1. Accounting Treatment under Ind AS 37 for EPR Obligations under ELV Rules

A. Facts of the Case

The company is an automotive manufacturer preparing financial statements under Ind AS.
Under the Environment Protection (End-of-Life Vehicles) Rules, 2025, OEMs are required to fulfil Extended Producer Responsibility (EPR) obligations through purchase of EPR certificates.
The obligations relate to vehicles introduced in the market in earlier years and continue even if the producer ceases operations.
The querist stated that the Rules created a present legal obligation and sought guidance on provisioning under Ind AS 37.

B. Query

What is the obligating event under Ind AS 37 for ELV Rules?
Whether ELV Rules require provisioning for past vehicle sales.
Whether such provision should be recognised in profit and loss or adjusted against retained earnings.

C. Points considered by the Committee

The Committee noted that under Ind AS 37, recognition of a provision requires a present obligation arising from a past obligating event.
Mere enactment of law is not sufficient; the event to which the law applies must have occurred.
Introduction/sale of vehicles in earlier years constitutes the obligating event once ELV Rules became effective.
The obligation continues irrespective of future operations of the company.
Settlement of the obligation requires probable outflow of economic resources through purchase of EPR certificates/scrapping.
Although measurement uncertainty exists, Ind AS 37 requires recognition if a reliable estimate can be made, which generally can be determined using best estimates and probability-weighted outcomes.
The Committee noted that the provision arises when ELV Rules became effective in respect of already introduced vehicles.

D. Opinion

Introduction/sale of vehicles in earlier years is the obligating event once ELV Rules became effective.
The company should recognise a provision under Ind AS 37 for obligations relating to already introduced vehicles.
The provision should be recognised in the Statement of Profit and Loss.
Adjustment against retained earnings is not appropriate since it is neither a prior-period error nor a change in accounting policy.

2. Accounting for Change in Measurement Technique of ECL

A. Facts of the Case

The company was recognising Expected Credit Losses (ECL) on trade receivables using an internal grid matrix approach after transition to Ind AS.
The company proposed to adopt an actuarial valuation approach using probability-weighted techniques and statistical modelling.
The querist contended that the shift represented a change in accounting policy requiring retrospective application.

B. Query

Whether transition from internal grid matrix to actuarial valuation for ECL should be treated as a change in accounting policy with retrospective application.

C. Points considered by the Committee

The Committee examined the issue only from the perspective of change in ECL measurement technique.
Ind AS 8 distinguishes accounting policies from accounting estimates.
Accounting estimates are values derived using measurement techniques based on latest available reliable information.
Paragraph 32 of Ind AS 8 specifically identifies ECL allowance as an accounting estimate.
Paragraph 32A states that techniques used to measure ECL are estimation techniques forming part of measurement techniques.
Changes in measurement techniques are changes in accounting estimates unless arising from correction of prior-period errors.
If the earlier grid matrix approach was not compliant with Ind AS 109, the change would amount to correction of prior-period error.

D. Opinion

Change from internal grid matrix to actuarial valuation method for ECL is not a change in accounting policy.
It is a change in accounting estimate unless it represents correction of prior-period error.
Changes in estimates are accounted for prospectively.
If the earlier method was not compliant with Ind AS 109, correction should be made retrospectively as a prior-period error with appropriate disclosures.

3. Appropriateness of Considering EFBS under Ind AS 19

A. Facts of the Case

The company operates an Employees’ Family Benefit Scheme (EFBS) providing benefits in case of death in service or permanent total disability.
Benefits are payable upon deposit of employee’s provident fund and gratuity balances and are based on last drawn salary till notional superannuation.
Management contended that EFBS is not a defined benefit plan and resembles other long-term employee benefits.

B. Query

Whether EFBS is a defined benefit scheme or not.

C. Points considered by the Committee

The Committee noted that employee benefits under Ind AS 19 include benefits provided to employees’ family members.
The benefits under EFBS arise only on death or permanent disability while the employee is in service and are provided under a separate scheme.
Paragraph 5(c)(iii) and paragraph 153(c) of Ind AS 19 include long-term disability benefits within other long-term employee benefits.
BC253 of IAS 19 clarifies that death-in-service benefits under a separate scheme are treated as other long-term employee benefits.
The level of benefit does not depend on years of service and is based on last drawn salary.
Therefore, expected cost should be recognised when the event causing disability or death-in-service occurs.

D. Opinion

Benefits under EFBS are covered within employee benefits under Ind AS 19.
EFBS should be treated as “other long-term employee benefits”.
Since benefits do not depend on years of service, expected cost should be recognised when the event causing long-term disability or death-in-service occurs.

Visit to read in detail: https://resource.cdn.icai.org/92002cajournal-may2026-33.pdf

Opinion

III. ICAI Board of Discipline cases

1. Case: Ms. HKS, IRS vs. CA. SK

File No.: PR/G/45/2019/DD/272/2019/BOD/751/2024

Date of Order: 30.12.2025

Particulars Details

Complainant Ms. HKS, IRS, Assistant Director of Income Tax (Investigation), Mohali

Nature of Case Entering into business partnerships with non-CAs while holding COP

Background The matter arose from investigation into the Punjab Sand Mining Auction Scam, where alleged benami entities were used for securing mining contracts. The Respondent, while holding a full-time Certificate of Practice, became partner in multiple firms formed for mining-related activities, namely M/s Rajbir Enterprises, M/s Rajbir Enterprises Mohali, and M/s New Rajbir Enterprises.

Key Allegations – Entering into partnership with non-members.

– Engaging in business other than profession while holding COP.

– Alleged involvement in arrangements connected with mining business entities.

Respondent’s Defence – Mining business never commenced;no bank accounts or licences obtained.

– Intended to surrender COP only upon commencement of operations.

– Partnership deeds alone do not amount to carrying on business.

– Raised procedural objections regarding authorization of complaint.

Findings – Partnership deeds clearly showed objects relating to mining and related activities and Respondent held 3% profit share.

– Respondent entered into partnerships while continuing professional practice and attestation work.

– No prior permission obtained under Regulation 190A.

– Board held that even if business had not commenced, joining business partnerships itself constituted misconduct.

– Procedural objections rejected; complaint held duly authorized

Charges Established Guilty under:

• Item (4), Part I, First Schedule – partnership with non-members

• Item (11), Part I, First Schedule – engaging in other business/occupation

Punishment Removal of name from Register of Members for 1 month

2. Case: Ms. PS vs. CA. NJK

File No.: PR/G/498/2022/DD/490/2022/BOD/752/2024

Date of Order: 30.12.2025

Particulars Details

Complainant Ms. PS, Deputy Director of Income Tax (Investigation)

Nature of Case Involvement in bogus political donation / tax evasion scheme.

Background Income Tax Department conducted search and seizure operations on certain political parties and charitable institutions in Ahmedabad, including Kisan Party of India (KPI), Manvadhikar National Party (MNP), Kisan Adhikar Party (KAP), AISECT and Aadhar Foundation. It was alleged that the Respondent acted as a mediator in a bogus donation racket where clients routed donations to political parties and received equivalent cash back after deduction of commission,
thereby facilitating wrongful tax deductions.

Key Allegations – Soliciting clients for bogus political donations.

– Facilitating tax evasion through accommodation donation entries.

– Earning commission for arranging donation-and-cash-back transactions.

Respondent’s Defence – Statement recorded by Income Tax authorities was incorrectly recorded and obtained through misrepresentation.

– Retraction affidavit filed disputing alleged admission.

– Relied upon WhatsApp chats had no evidentiary value.

– No reassessment or tax action initiated against him by Income Tax Department.

Findings – Respondent had expressly admitted involvement in bogus donation modus operandi in statement recorded u/s 131(1A)/132(4) of Income Tax Act (page 5).

– Retraction after nearly two years was held to be belated and lacking credibility

– Board held that admission on oath remained valid unless rebutted within reasonable time.

– Corroborative evidence from investigation supported allegations.

– Failure to produce cogent evidence in defence led Board to sustain charge.

Charges Established – Guilty under Item (2), Part IV, First Schedule – Other Misconduct

Punishment Reprimand

3. Case: Mr. PM vs. CA. NKSP

File No.: PR/G/381/2019/DD/150/2021/BOD/804/2025

Date of Order: 30.12.2025

Particulars Details

Complainant – Mr. PM, Deputy Commissioner of Police, Economic Offences Wing

Respondent CA. NKSR

Nature of Case Auditor independence breach and involvement in financial transactions linked to real estate fraud

Background The matter arose from investigation into the “CANVAS” redevelopment project, where investors allegedly paid over ₹5 crore for flats sold by M/s J.V. Developers, despite the developer allegedly lacking authority to sell them. Investigation and forensic audit revealed diversion and routing of investor funds through Kamla Landmarc Group entities. Approximately ₹2.5 crore was traced to the Respondent’s personal account, and transactions involving flats purchased in the names of the Respondent’s wife and relatives were also identified.

Key Allegations – Facilitating financial transactions connected with alleged investor fraud.

– Receipt and routing of ₹2.5 crore linked to auditee/group entities

– Compromising auditor independence through personal financial dealings with clients.

– Use of relatives’ names in connected property transactions.

Respondent’s Defence – Denied involvement in J.V.

Developers or the CANVAS project.

– Claimed he ceased association with Kamla Group in 2013.

– Asserted funds represented legitimate business loans/investments duly repaid.

– Contended that property dealings of family members were genuine and unrelated to fraud allegations.

Findings – Respondent admitted receipt of funds from entities under his audit.

– Board held that personal financial transactions with auditee/group entities compromised independence and violated professional ethics

– Forensic audit indicated round-tripping transactions involving Respondent’s accounts.

– Explanation of “genuine investment/loan” was found unconvincing in view of financial trail and auditor relationship.

– Even though criminal conspiracy allegations were pending before court, Board independently examined ethical and professional misconduct aspects.

Charges Established Guilty under Item (2), Part IV, First Schedule – Other Misconduct

Punishment Removal of name from Register of Members for 3 months

BCAJ Admin

Recent Decisions in GST

HIGH COURT

21. (2026) 41 Centax 440 (Bom.)

Navin Vishwanathan vs. State of Maharashtra

dated 15.04.2026

GST dues of a deceased proprietor cannot be recovered from his son directly without examining the statutory provisions of legal representative liability.

FACTS

Petitioner was independently carrying on business as a sole proprietor under a separate GST registration. Petitioner’s deceased father was running another proprietorship concern under a similar trade name. Respondent confirmed GST demand against the deceased father’s proprietorship. Thereafter, respondent issued DRC-13 to the petitioner’s banker for recovery of such dues attaching the petitioner’s bank account without issuance of any prior SCN or grant of opportunity of hearing. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that recovery presupposes an established liability against the specific person. Separate GSTINs and premises indicated that petitioner and his father were distinct taxable persons. It further observed that similar trade name alone could not prove business succession or continuation as section 93 of CGST Act, 2017 required prior determination through notice, material consideration, and hearing. In Radha Krishan Industries vs. State of Himachal Pradesh, 2021 (48) G.S.T.L. 113 (SC), the Hon’ble Supreme Court held that attachment requires tangible material and strict statutory compliance. Freezing the petitioner’s bank account without due process violated Article 300A Thus, DRC-13 Order attaching bank account was quashed.

22. (2026) 42 Centax 106 (Bom.)

Tata Sons Pvt. Ltd. vs. Union of India

dated 30.04.2026.

Compensation arising from international arbitral adjudication of contractual breach does not constitute consideration for supply under GST merely because enforcement proceedings are mutually settled.

FACTS

Petitioner entered into a shareholders’ agreement with a Japanese company investing in an Indian telecom venture. The agreement required the petitioner to secure a buyer upon failure to achieve certain agreed financial targets. After such failure, disputes arose regarding exit obligations and payment commitments. The disputes were referred to international arbitration, resulting in an award directing payment of damages, interest, and costs. Enforcement proceedings were thereafter initiated before foreign Courts and Indian Courts. The parties subsequently entered consent terms before the Hon’ble High Court for satisfaction of the arbitral award. Respondent later alleged that the settlement constituted taxable import of services under GST. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that arbitral damages constitute compensation for contractual breach and not consideration for any supply. Liability arose only upon adjudication by the arbitral tribunal. Settlement of the arbitral award did not create any independent contractual obligation amounting to supply. Entry 5(e) of Schedule II required an independent agreement for tolerating an act against consideration. The Court further relied upon the decision of UOI vs. Raman Iron Foundry, (1974) 2 SCC 231, where the Hon’ble Supreme Court held that damages are not debt payable before adjudication. Accordingly, IGST liability was held unsustainable.

23. (2026) 42 Centax 170 (Bom.)

Gunjan Surgical and Scientific Co. vs. State of Maharashtra

dated 23.04.2026.

Transitional provisions under section 140 of CGST Act cannot be expanded to verifying eligibility of credit claimed under MVAT Laws and denial based on mismatch goes beyond the statutory scope.

FACTS

Petitioner claimed transitional ITC through TRAN-1 under the GST regime. Respondent examined the claim and considered the credit prima facie admissible. Subsequently, at the time of processing the claim, the respondent denied the claim to the extent of mismatch of J1/J2 (difference between purchase and sales under VAT Laws) under MVAT. Petitioner filed an appeal, where the appellate authority partly allowed the appeal and recomputed the liability based on mismatch of J1 and J2 determined earlier. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that appellate authority could not import MVAT assessment issues into TRAN-1 adjudication. The Court further observed that demand based on J1/J2 mismatch was vague and lacked statutory clarity. Transitional credit determination required strict application of Section 140 parameters without assessing the validity of credit claimed in the erstwhile Law. Relying upon the judgement of Usha Martin Ltd. v. Additional Commissioner, CGST & C.Ex., 2023 (68) G.S.T.L. 338 (Jhar.), the Hon’ble High Court held that transitional credit proceedings must remain confined to statutory transitional provisions. Accordingly, the appellate order was quashed and proceedings were restored for fresh consideration.

24. 2026 (4) TMI 1571

Andhra Pradesh High Court Jwala Energy Resources Pvt. Ltd. vs. State of Andhra Pradesh

dated 08.04.2026.

Interest on refund arising from amount paid as tax earlier, which was subsequently declared as an unconstitutional levy, starts from payment date independent of statutory refund limitation provisions under GST law.

FACTS

Petitioner imported coal on CIF basis for operating its power generation unit. Respondent required payment of GST on ocean freight under reverse charge mechanism. Subsequently, the levy under Notification No. 10/2017 dated 28.06.2017 was declared unconstitutional by judicial pronouncements. Petitioner applied for refund of GST paid on ocean freight along with interest. The refund application was initially rejected on limitation grounds under section 54. Petitioner filed a writ petition challenging such rejection before the Hon’ble High Court. During the pendency of the said writ petition, the respondent sanctioned the refund of the tax amount, whereas the issue relating to interest remained pending consideration before the Hon’ble High Court.

HELD

The Hon’ble High Court held that refund arising from an unconstitutional levy is not governed by ordinary statutory refund limitations. Amount collected under an invalid levy constituted money wrongfully retained by the State as per Article 265 of Constitution of India. In Union of India vs. Mohit Minerals Pvt. Ltd., (2022) 10 SCC 700, the Hon’ble Supreme Court struck down levy of GST on ocean freight under reverse charge. Thus, Court held that interest being compensatory in nature for deprivation of use of money shall be computed from date of payment till grant of refund. Petitioner was therefore held entitled to interest at 6% per annum from deposit date till refund date.

25. 2026 (5) TMI 163

Andhra Pradesh High Court Tata Power Renewable Energies Limited vs. Joint Commissioner & Ors

dated 29.04.2026.

Separate invoicing cannot override statutory deeming provisions prescribing composite valuation mechanisms under GST notifications for integrated solar power generating system supplies.

FACTS

Petitioner supplied solar power generating systems along with installation and commissioning services during 2020–2021. Petitioner paid GST using the statutory 70:30 valuation mechanism under relevant GST notifications. Respondent accepted the returns initially without objection. Subsequently, respondent issued a SCN under section 74 of the CGST Act alleging short payment of tax and proposed GST at 18% on the entire value of supply. Petitioner filed replies contending that the supplies constituted composite contracts covered under the notifications. Respondent rejected the objections and confirmed the demand along with interest, and penalty. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that the statutory 70:30 valuation mechanism applies to solar power generating system supplies. The Court observed that the notifications created a legal fiction deeming goods value at 70% and the remaining 30% was deemed to represent taxable service value. The Court held that separate invoices could not defeat the statutory valuation mechanism. The Court further held that taxing the entire turnover at 18% lacked legal justification. Moreover, Hon’ble Court also relied on the decision of Sterling and Wilson Pvt. Ltd. vs. Joint Commissioner & Ors. W.P.No.20096 of 2020, where solar power contracts involving supply of goods as well as services were recognized as composite supplies. Consequently, the impugned assessment order was set aside to the extent of differential tax levy.

26. 2026 (5) TMI 500

Bombay High Court DP Jain & Co Infrastructure Pvt. Ltd. vs. Union of India

dated 06.05.2026.

Corporate guarantees issued expressly without any consideration do not constitute taxable supply merely through valuation machinery prescribed in rules or circulars providing taxability prospectively.

FACTS

Petitioner executed corporate guarantees in favour of banks for loans sanctioned to its subsidiary companies. The guarantee deeds specifically recorded that no security, fee, commission, or consideration was received by the petitioner. Meanwhile, giving corporate guarantee was regarded as supply of service after introduction of Rule 28(2) and related circulars issued concerning valuation of corporate guarantees. Respondent firstly issued summons and later SCN proposing GST liability on the guarantees issued by the petitioner. Being aggrieved, the petitioner approached the Hon’ble High Court.

HELD

The Hon’ble High Court held that the foundational requirement for a taxable supply under GST is the existence of consideration. Corporate guarantees issued as in-house financial support to subsidiaries were not regular commercial guarantee services. The guarantee deeds expressly recorded absence of fee, commission or consideration. In Commissioner of CGST & Central Excise vs. Edelweiss Financial Services Ltd., 2023 (4) TMI 170 (SC), the Hon’ble Supreme Court recognized that absence of consideration negates taxability of service. Consequently, summons and SCN were quashed.

27. [2026] 186 taxmann.com 380 (Madras)

Transafe Services Ltd. vs. Superintendent of Central GST and Central Excise

dated 10.04.-2026.

Statutory GST dues pertaining to Pre-CIRP (Corporate Insolvency Resolution Process)are extinguished once the CIRP process is commenced and the resolution plan is approved with a moratorium period. However, the tax dues pertaining to the period after the initiation of the Corporate insolvency Resolution proceedings are payable.

FACTS

A CIRP had been initiated against the petitioner before the NCLT Kolkata, and a moratorium was in force from the date of such initiation, i.e. from 21.11.2019. Eventually, the resolution plan filed by the resolution applicant was sanctioned, and the petitioner company was taken over by the Management of the Resolution Applicant (M/S Om Logistics Ltd). However, the show cause notice and order-in-original were passed for the period April 2018 to March 2020 on 02.12.2022 and 26.12.2025, respectively.

HELD

The Hon’ble Court, relying upon the decision in the case of Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta [2019] 111 taxmann.com 234 (SC)/(2020) 8 SCC 531 and in view of the decision of Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and Others, held that the petitioner cannot be imposed with the tax liability for the period prior to initiation of CIRP before the NCLT i.e. prior to order of the NCLT dated 21.11.2019. The matter was thus remanded back to consider the impact of these decisions. However, the Hon’ble Court held that the petitioner company will be liable to pay tax dues pertaining to the period confirmed vide the impugned order for the period after the initiation of CIRP against the petitioner’s company under the provisions of Insolvency and Bankruptcy Code, 2016 within a period of 30 days from the date of receipt of a copy of this order.

28. [2026] 186 taxmann.com 558 (Chhattisgarh)

Vandana Global Ltd vs. Principal Commissioner Central GST Central Excise

dated 08.05.2026.

Interest on delayed payment of GST to be levied only on net tax liability paid through the Electronic Cash Ledger based on the retrospective amendment under Section 50(1). Any Interest amount on the gross liability is liable to be set aside.

FACTS

The petitioner challenged demand notices issued seeking interest on the delayed payment of GST calculated on the entire gross output tax liability without adjusting the available Input Tax Credit (ITC). The petitioner contended that pursuant to the retrospective amendment to the proviso to section 50(1) of the CGST Act, 2017, effective from 1st July 2017, interest could be levied only on the net cash liability, i.e. the portion of tax paid through the electronic cash ledger. The petitioner also sought directions for the reconfiguration of the GSTN portal and the re-computation of interest liability after considering admissible ITC.

HELD

The Hon’ble Court observed that by virtue of the amendment introduced through notification dated 1st June 2021, the proviso to section 50(1) was retrospectively substituted to clarify that interest on delayed filing of returns is payable only on the tax paid through the electronic cash ledger.

It held that since the retrospective proviso mandated the levy of interest only on net cash liability from 1st July 2017, interest was chargeable only on tax paid by debiting the electronic cash ledger. Interest demand thus held, requiring reconsideration on the said basis after granting the opportunity of hearing.

29. [2026] 186 taxmann.com 767 (TRIPURA)

Nikhil Debnath vs. Union of India

dated 06.05.2026

Mere presenting dispatch register showing dispatch by speed post is not sufficient, as the acknowledgement card with the signature of the petitioner thereon is a must for compliance with service requirements under section 169(1)(b) of the CGST Act.

FACTS AND HELD

The Hon’ble Court relying upon the decision in the case of Sharp Tanks and Structurals Pvt. Ltd. vs. Deputy Commissioner (GST) (Appeals), Tirunelveli [2025] 178 taxmann.com 519/102 GSTL 199 (Madras) held that mere uploading of the order in the GST Portal would not suffice. The department ought to choose other modes of service also, which would be a proper exercise of the power of the department when there are other choices also made available under section 169 of the Act. Further, it held that section 169(1)(b) of the Act requires that the order-in-original should be sent by Speed Post with “Acknowledgement due”. Hon’ble Court held that though the respondents have produced the dispatch register and a photocopy of the receipt issued by the Postal Department showing dispatch by Speed Post, they have not produced the ‘Acknowledgement’ card, which would have been returned to the respondent after the article sent by speed post is received by the petitioner with the signature of the petitioner’s representative. Therefore, prima facie it cannot be said that there is compliance of sub-clause (b) of sub-section (1) of section 169 of the CGST Act.

BCAJ Admin

Recent Developments in GST

A. NOTIFICATIONS

i) Notification No.1/2026-Central Tax dated 21.4.2026

By above notification, the due date for furnishing the return in FORM GSTR-3B for the month of March, 2026 is extended to twenty-first day of April, 2026.

B. NOTIFICATION RELATING TO RATE OF TAX

i) Notification No.1/2026-Central Tax (Rate) dated 30.4.2026

The above notification seeks to amend Notification No 9/2025 – Central tax (Rate) to align it with changes made vide Finance Act, 2026 (as updated vide Corrigendum dated 06.05.2026).

C. ADVISORY

i) GSTN has issued Advisory dated 16.4.2026 in relation to Re-Computation of Interest under Table 5.1 of GSTR-3B.

ii) GSTN has issued Advisory dated 21.4.2026 regarding Introduction of IMS Offline Tool.

D. ADVANCE RULINGS

11. Cremeux Bakeries Pvt. Ltd. (AAR Order No. GOA/GAAR/02 of 2025-26/6810 dt.30.3.2026)(Goa)

Classification – Bakery Products

The Applicant is engaged in the business of manufacturing food products like cakes, pastries, sandwiches, savouries, biscuits and bread etc. The applicant sought clarifications on the following questions.

“1. Whether the sale of bakery products such as cakes, pastries, sandwiches, savouries, biscuits, slice cakes, bread, rusk and other ready-made items, which are fully manufactured at the Corlim factory and sold through bakery outlets without any cooking, preparation or processing, constitutes a supply of goods under GST?

2. Whether preparation and sale of semi-finished goods such as pizzas at the outlets, wherein pizza base and toppings are supplied from the factory and are blended/prepared at the outlet upon customer order, constitutes restaurant service?”

The ld. AAR observed about facts like, applicant has factory located at Corlim, Tiswadi, Goa where various bakery products are manufactured and are supplied as goods to its own outlets as well as other franchises outlets.

The ruling is sought in respect of supply to own outlets.

The further facts are that at bigger size outlets restaurant service is predominant and at other smaller sized outlets, there is no adequate place for seating and are pre-dominantly take away outlets.

At all outlets, the system/procedure is that upon entering the premises the customer looks at price list displayed on wall at the counter, place order and make a payment. Thereafter, if ordered food is pre-manufactured ready goods,

it is delivered immediately and it is for the customer who can either seat and eat or carry it home. There is no separate price for in-dine and takeaway but there is a single menu.

Taking clue from Circular No. 164/20/2021-GST dated 06/10/2021, in which clarification is given about ice cream parlour, the ld. AAR observed that all types of bakery products or for that matter any other goods which are pre-manufactured at some other premises, other than the restaurant premises, and are supplied without involving any service attached to it are to be treated as supply of goods and GST rate to apply as per the HSN classification of such goods.

The ld. AAR also observed that in respect of certain supplies like that of Pizza, pasta, salads, shakes, etc., which are cooked/prepared/made/blended at restaurant premises, same are to be treated as supply of ‘restaurant service’ irrespective of whether customer consumes them on restaurant premises or takes away.

The ld. AAR also clarified that there is no legal impediment under GST Law prohibiting from carrying on the business of restaurant service and supply of goods as a Trader from the same place of business and to apply separate rates as per nature of supply. Hence the taxpayer can adopt such differential systems but should maintain separate records for identification.

The ld. AAR disposed of application of AR holding the sale of pre-manufactured bakery products at outlets as supply of ‘goods’ and answered relevant questions accordingly.

12. Frutta Services Pvt. Ltd. (AAAR Order No.AAAR/06/202(AR) A. R. App. No. 02/2026 dt. 8.5.2026) (TN)

Classification – Supply of food on Contract basis

The Appellant has filed appeal against the Advance Ruling No.60/ARA/2025 dated 16.12.2025 – 2026-VIL-25-passed by AAR.

The case of appellant before the AAR was that they are engaged in supply of food and beverages to Corporates for distributing to staff; that the applicant neither manufactures nor prepares the food and beverages; that they have various kitchens and vendors registered with them from whom goods are picked either in individual packing or bulk packages and delivered to the corporate client’s location; that the serving of food in the staff canteen is managed by the client; that there is no element of manufacturing or preparing or processing of foods by the applicant and the whole transaction is like an aggregator. Based upon above facts the applicant had applied for Advance Ruling, seeking a ruling on whether the applicant can claim input tax credit (ITC) and charge the client according to the category of supply of goods.

The AAR vide above Ruling held that the appellant is required to pay tax on the composite supply of services involving supply of food, at the rate of 18% as per Sl. No. 7(vi) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, as amended and the appellant is eligible to ITC.

In appeal, the appellant reiterated its contentions about dominant intention which is supply of goods and not composite supply of services.

The appellant made a preposition to ld. AAAR that supply of food by the appellant is liable to GST @ 5% as restaurant/food service and further that logistics, delivery and facilitation services are taxable separately @ 18%. The prayer was that the impugned Advance Ruling to the extent it levies 18% GST on the entire transaction be set aside.

From the agreements entered by the appellant, both with the vendors and their clients, the ld. AAR observed that the applicant is not a mere aggregator of food but appellant has an extensive involvement in supplying the food to their clients, right from finalising the menu to ensuring the quality of the food, ensuring maintenance of hygiene at the kitchen up to ensuring that the food reaches the premises of the client in a time bound manner.

Looking to the nature of activity, the ld. AAAR held that the activity of appellant cannot fall in the category of Restaurant service.

The ld. AAAR observed that supply of food in any manner whatsoever shall be treated as a supply of service and the principal supply will be supply of food. The ld. AAAR observed that Supply of food based on a contractual arrangement with the customers at commercial or industrial locations specified by the customers on an ongoing basis is covered under other contract food service of the tariff heading 996337.

The ld. AAAR confirmed view of AAR that the activity of supply of food undertaken by the applicant under a contract falls under entry No.7(vii) of Notification no.11/2017, being the residual entry, thereby attracting GST at 18%.

13. KSB Limited (AAR Order No. GST-ARA-48/2021-22/B-627 dt.28.11.2025)(Mah)

Canteen – Extent Of Exemption As Perquisite

The Appellant is engaged in the business of manufacturing and selling of liquid handling pumps for various applications.

The Applicant provides canteen facility to its employees in terms of section 46 of Factories Act,1948. The applicant has appointed a canteen service provider referred to as ‘vendor’ for managing the canteen facility. Vendor is inter alia responsible for arranging and Providing services like breakfast, lunch, dinner etc.

For providing these catering and related services, vendor charges at fixed rate per meal per employee.

With the above background, the following questions were raised before AAR.

“ Whether GST would be applicable on canteen facility provided by a KSB Limited to its employees using a third-party canteen services provider?
In case GST is applicable on Canteen services provided by KSB to its employees, whether GST would be applicable if KSB Limited does not recover any amount from employee for providing canteen facility?
In case GST is applicable on Canteen services provided by KSB to its employees, whether GST would be applicable if KSB Limited recovers from employee’s part or whole of the cost charged by the canteen service provider to KSB?

The applicant contended that the canteen facility is not in its course of business. Further that, since the Company recovers nominal or full amount from employees on account of canteen facility and pays the same to vendor after adding its contribution, GST should not be levied on the same.

Referring to provisions of Factories Act, the ld. AAR observed that the said Act do not mandate supply of free food by the factory to the employee, but the said law mandates provision of canteen facility and a restriction on the amount that can be recovered from the employees i.e. the food should be sold on non-profit basis.

Ld. AAR also observed that the said service is provided to applicant by the third-party service provider, the said service provider raise their invoices with applicable GST to the applicant and applicant prays the consideration to the said third-party service providers for the said canteen facilities.

The ld. AAR examined the argument of applicant that such activity is not in course of its ‘business’. After referring to relevant provisions and meaning of ‘incidental’, ld. AAR held that applicant is not carrying out supply of canteen services as his principal activity, but it is covered in any activity or transaction incidental or ancillary to principal activity and hence the activity is in course of ‘business’.

Regarding to ‘Supply’ the ld. AAR observed that there are two distinct and totally different transactions like,

i) Supply of canteen services by the canteen service provider to the Applicant and

ii) Supply of canteen services by the applicant to its employees.

The ld. AAR held that it is the applicant which is providing the canteen service to the employees.

The ld. AAR referred to circular no.172/04/2022-GST dt.6.7.2022 of CBIC.

The ld. AAR observed that as per Entry 1 of Schedule III “service by an employee to employer in the course of or in relation to his employment” is excluded from scope of GST, but not the service by employer to employee. The ld. AAR further observed that only as a corollary, the ‘services by the employer to the employee’, especially when provided in the form of perquisites, has been discussed in the CBIC Circular No. 172/04/2022 – GST dated 06.07.2022 and it could be inferred that perquisites in terms of a contractual agreement between the employer and employee are not to be subjected to GST.

In view of above, the ld. AAR held that the activity is in course of ‘business’ as well as taxable to the extent of money collected from employees.

The ld. AAR also held that if the applicant does not recover any amount from the employees, then, the entire value of the services for which no amount is charged is perquisite.

However, if the applicant recovers any amount from the employees, then the perquisite in this case is only to the extent of concession given to the employees and any amount recovered would be liable to GST.

The ld. AAR disposed of the AR application accordingly.

14. Link Up Textiles Pvt. Ltd. (AAAR Order No. AAAR/03/2026 (AR) A. R. App.No.09/2025 AAAR dt.9.3.2026)(TN)

Classification – Effect of packing

The appeal was filed against the order No.42/AAR/2025 dated 08.10.2025 – 2025-VIL-162-AAR passed by the Tamil Nadu AAR.

The AR was about rate on men’s Pyjama sets which are packed in 2 sets as per buyer’s instruction and such packed Pyjama sets cost more than Rs.1000”. The AAR ruled that GST rate of tax on above items will be 5% as per S.No.223 of Schedule I of Notification No.1/2017- Central Tax (Rate) dated 28.06.2017. The appeal was filed against the above decision.

The ld. AAAR noted that the appellant was seeking rate to be declared at 12% under Sr. no.170 of Schedule II to Notification no.1/2017-Central Tax (Rate) considering the sale value per set exceeding Rs.1,000/-.

After referring to factual and normal practice, the ld. AAAR observed that though some of the retailers in India sell both kurta & pyjama on a standalone basis at independent piece, the product supplied by the applicant is for export and consists of ‘kurta-pyjama’ as pyjama set and therefore, the combination of top and bottom or a ‘pyjama set’ shall be treated as a ‘piece’ and should be classified accordingly.

The ld. AAAR concluded its findings as under:

“7.7 We are of the view that One Pyjama Set consists of 1 Shirt (top) and 1 Pant (bottom) sold together. One pack consists of two sets of Pyjamas i.e. 2 pieces.

Hence, one pack consisting of two pyjama sets cannot be considered as one piece. The price of Rs.1,371/- shown in appellant’s pack is for two Pyjama sets/pieces. The Appellant’s claim that the effective rate per set value exceeds Rs.1,000/- is not correct. The Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 prescribes the ‘Apparels with Sale Value not exceeding Rs.1,000/- per piece’.”

Accordingly, the ld. AAAR confirmed the AR and rejected the appeal.

15. Ramandeep Upkarsingh Bindra (Black Rock Crusher) (AAR Order No. GST-ARA-06/2020-21/B-626 dt.28.11.2025)(Mah)

Classification – Rate of tax on Mining Royalty

The facts are that the applicant is engaged in the business activity of mining and quarrying, like extracting minerals, crushing and then selling.

The applicant enters into lease transfer agreement for obtaining mining lease from the State Government for exploration of minerals like Black rock, stones and other minerals against consideration in the form of royalty/dead rent to the state government.

The mining lease is governed by Maharashtra Minor Mineral Extraction (Development and Regulation) Rules, 2013 and in accordance with rule 46 of above rules for the lease rights awarded to applicant, they are required to pay royalty or dead rent as specified therein.

The applicant has raised following issues in its advance ruling application:

“1. Whether the services of leasing of mines of which royalty is charged by government merits classification under the heading No. 9973 specifically under sub heading no 997337 (licensing services for the right to use minerals including its exploration and evaluation)?

2. Whether the said service can be classified under SL No. 17(iii) of notification no 11/2017 central tax (rate) dated 28/06/2017 attracting rate of 5 percent (same rate of central Tax as on supply of like goods involving transfer of title goods)?

It is clarified that the above supply comes under the purview of RCM mechanism vide Entry No. (5) of the Notification No 13/2017 – Central Tax (Rate) dated 28.06.2017 which states that the services supplied by the Central Government/ State Government to a business entity will come under RCM.

Reference is also made to Notification no.1/2017-CT (Rate) dt.28.6.2017 about rate of GST on stone boulders extracted by the applicant which is 5%, being covered at sr. no.124 of the notification no.11/2017-CT (R) dt.28.6.2017.

The applicant was contending that the RCM should be payable at 5% being covered at sr. no. (iii) of the entry no.17 of Notification no.11/2017-Central Tax (Rate) dated 28.6.2017.

The ld. AAR observed as under:

“5.8. The license to extract mineral ore and also the right to use such minerals extracted is a leasing or rental service and what is supplied by the Government is the right to extract and use mineral ores which is not covered by any specific sub-entries under the serial no. 17 of the Notification and hence falls under the residual entry 17(viii), as the entry 17 covers services with SAC 9973.”

The ld. AAR rejected the contention of attracting tax @ 5%.

BCAJ Admin

Validity Of Composite SCN For Multiple Financial Years

GST litigation is currently divided over whether authorities can issue single, consolidated Show Cause Notices (SCNs) for multiple financial years. High Courts in Madras, Kerala, and Bombay have quashed such notices, arguing the CGST Act treats each financial year as a separate unit with independent limitation periods. Conversely, the Delhi and Allahabad High Courts permit “bunching,” interpreting the phrase “any period” in Sections 73 and 74 as allowing flexible, issue-based adjudication. Due to these conflicting rulings and practical portal challenges, the Bombay High Court has referred the dispute to a Larger Bench.

INTRODUCTION

The question of whether the revenue authorities can issue a single, consolidated Show Cause Notice (SCN) covering multiple financial years or tax periods has emerged as a significant point of contention in Goods and Services Tax (GST) litigation. This issue has created a sharp “difference of opinion” among various High Courts across India. Recently, the Bombay High Court, in the case of M/s. Rollmet LLP vs. The Union of India¹, took note of these conflicting precedents—specifically the discrepancy between its own earlier decision in Milroc Good Earth Developers² and the views of the Delhi and Allahabad High Courts³ in Mathur Polymers, Ambika Traders and SA Aromatics Pvt. Ltd’s case respectively — and referred the matter to a Larger Bench for authoritative determination. This article examines the dispute in detail.

At the heart of the dispute is whether the adjudication machinery provided under Sections 73 and 74 of the Central Goods and Services Tax (CGST) Act, 2017, is restricted by the concept of a “financial year” as a unit of assessment, or whether the phrase “any period” employed in the statute allows for the bunching of multiple years into a single proceeding.

1 [2026] 185 taxmann.com 599 (Bombay)

2 [2025] 179 taxmann.com 465 (Bombay)

3 [2025] 177 taxmann.com 860 (Delhi) ; [2025] 177 taxmann.com 134/101 GSTL 64 (Delhi) & [2026] 183 taxmann.com 437 (Allahabad)

HISTORICAL CONTEXT

To comprehend the depth of this conflict, one must recognize that the CGST Act is a legislative synthesis of two fundamentally distinct historical tax philosophies. Under the erstwhile Central Excise and Service Tax laws, adjudication was driven by an “issue-based” adjudication process (i.e. started with identified issues rather than tax periods). Multiple year tax demands were routinely clubbed into a single notice, and at the same time, it was not uncommon to have multiple show cause notices for the same period dealing with distinct issues. The law lacked a concept of a comprehensive annualised assessment of records.

Conversely, State Value Added Tax (VAT) and Sales Tax laws operated on a “period-based” cycle. Assessment was inextricably tied to a specific financial year, providing a terminal point for the Revenue’s power to assess the taxpayer’s liability. The assessment process started from year-wise self-assessed records and tax demands raised for each year separately. More importantly, all the issues for a particular period were comprehensively dealt with in a single order.

The CGST Act attempts to imbibe both “return-based compliance” mechanisms of VAT and the “issue-based adjudication machinery” of Excise. This structural duality is the root cause of the current interpretational friction. The dispute gets amplified on two counts: firstly, the divergent administrative practice in the State and Central tax GST formations while performing assessments/ adjudications and secondly, the portal architecture for uploading of notices and orders and tracking demands and payments.

STATUTORY FRAMEWORK

Sections 73 and 74 are placed in Chapter XV, captioned “Demands and Recovery.” The relevant provisions are reproduced below for ready reference:

Section 73(1): Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or ITC has been wrongly availed or utilised ……,” he shall serve notice… requiring the person to show cause.

Section 73(3): “Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement… for such periods other than those covered under sub-section (1).”

Section 73(4): “The service of such statement shall be deemed to be service of notice… subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as mentioned in the earlier notice.”

Section 73(10): “The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to…”

Section 74 mirrors this structure with a five-year limitation in fraud cases. Sub-section (4) of Section 74 additionally provides that a statement under Section 74(3) for periods other than those in the notice shall be deemed a notice under Section 73(1) — i.e., a non-fraud notice — unless the ground of fraud is separately established for those additional periods. The meaning attributable to the phrase “any period” and “such periods” in the above provisions is at the core of the dispute.

Interestingly, sub-section (12) was inserted in both the above referred sections to specify that the provisions shall be applicable for determination of tax pertaining to the period up to Financial Year 2023-24. Thereafter, a new consolidated Section 74A was introduced to deal with demands pertaining to Financial Year 2024-25 onwards.

The Great GST Bunching Battle

Judicial Interpretation requiring different SCNs for different financial years:

The Madras High Court in Titan Company Ltd. v. Joint Commissioner of GST & Central Excise⁴ examined the bunching of show cause notices for five assessment years from 2017-18 to 2021-22. The Court held that Section 73(10) of the Act specifically provides a time limit of three years from the due date for furnishing the annual return for the financial year to which the tax due relates. The limitation period is separately applicable for every assessment year, and it varies from one year to another. Relying on the Supreme Court’s decision in State of Jammu and Kashmir v. Caltex (India) Ltd⁵, the Court concluded that issuing bundled notices is an indirect attempt to circumvent the independent limitation periods, rendering the practice impermissible and liable to be quashed.

This reasoning was expanded by the Madras High Court in Ms RA And Co v. The Additional Commissioner of Central Taxes⁶. The Court undertook a conjoint reading of the definitions of “tax period” and “return”. It concluded that the GST Act treats each and every financial year as a separate unit. The Court held that “any period” in Section 73(3)/74(3) means a “tax period” (either monthly or yearly) and cannot extend beyond one financial year. The Court observed that bunching forces taxpayers into hardship, preventing them from availing amnesty schemes or compounding offenses for individual years without paying the aggregate demand for all years.

The Kerala High Court adopted a similar stance in M/s. Tharayil Medicals v. The Deputy Commissioner and Joint Commissioner v. M/s. Lakshmi Mobile Accessories⁷. The Division Bench in Tharayil Medicals emphasized that sub-sections (9) and (10) of Section 74 presuppose independent notices. The Court observed that an assessee is entitled to raise distinct and independent defences for different assessment years. Furthermore, the Court highlighted a critical prejudice: an assessing authority might club a period where the three-year limitation under Section 73 has expired into a consolidated notice under Section 74, bypassing mandatory limitations under the guise of a composite notice.

Following this trajectory, a Division Bench of the Bombay High Court in M/s. Milroc Good Earth Developers (supra) quashed consolidated show cause notices. The Court held that the GST scheme involves a definite tax period based on the filing of the return, and there is no scope for consolidating various financial years. This decision was subsequently applied by the Bombay High Court to quash several notices in cases like Rite Water Solutions and Bhawana Steel⁸. The Courts explicitly rejected the revenue’s defence that allegations of fraud permit consolidation, noting that fraud extends limitation to five years but does not authorize the clubbing of tax periods. The Andhra Pradesh High Court in S.J. Constructions⁹ concurred, holding that a single composite assessment order cannot be passed in relation to more than one financial year.

4. [2024] 159 taxmann.com 162 (Madras)

5 AIR 1966 SC 1350

6 [2025] 176 taxmann.com 731 (Madras)

7 [2025] 173 taxmann.com 867 (Kerala) & [2025] 170 taxmann.com 874/108 GST 762 respectively

8 [2026] 183 taxmann.com 627 (Bombay), [2026] 185 taxmann.com 22 (Bombay)

9 [2025] 178 taxmann.com 570 (AP)

CONFLICTING VIEWS PERMITTING CONSOLIDATED SCN FOR MULTIPLE YEARS

Conversely, an equally robust line of decisions has upheld the validity of consolidated notices, characterizing GST adjudication as a dispute-centric process rather than a periodic assessment.

The Delhi High Court addressed the issue in M/s. Mathur Polymers and Ambika Traders (supra). In Ambika Traders, dealing with an alleged fraudulent availment of Input Tax Credit (ITC) exceeding Rs. 83 crores between 2017 and 2021, the Court observed that the nature of ITC fraud requires analysing transactions spread across several years to establish the illegal modality. A solitary availment in one year may not establish the pattern. The Court focused on the legislative use of the phrases “for any period” and “for such periods” in Sections 73 and 74, distinguishing them from the term “financial year” used in the limitation clauses. It concluded that the statute does not prevent the issuance of a consolidated notice. Significantly, the Supreme Court dismissed the Special Leave Petition against the Mathur Polymers¹⁰ decision via a speaking order, observing that there was “no good ground and reason to interfere with the impugned judgment/order”.

10 [2026] 182 taxmann.com 215 (SC)

The Allahabad High Court provided a detailed analysis in M/s. S.A. Aromatics Pvt. Ltd’s case. The Court drew a sharp distinction between the return-based “assessment” procedures (found in Chapter XII) and the dispute-based “adjudication” procedures (found in Chapter XV). While assessments test the correctness of returns for a specific tax period, adjudication under Sections 73 and 74 focuses on specific disputes regarding tax short-paid or ITC wrongly availed. The Court noted that the legislature deliberately avoided conditioning Sections 73 and 74 within the limits of a “tax period”. Consequently, introducing the concept of a “unit of assessment” into adjudication proceedings would result in an artificial restriction not grounded in legislative language. The Court clarified that Section 73(10) and 74(10) refer only to time limitation; they do not govern the subject matter or scope of the notice itself.

The Karnataka High Court Division Bench in Chimney Hills Education Society¹¹ recently overruled several Single Judge decisions of its own court that had previously prohibited consolidation. The Division Bench held that when the legislature consciously used the expression “any period” in Sections 73 and 74, it would be impermissible to read it restrictively as a single financial year. The Court addressed the argument regarding Form GST DRC-01, noting that while the form contains columns for “tax period”, the appended notes explicitly state that these columns are not mandatory, thereby negating the claim that the format confines the notice to a financial year.

Addressing the issue of prejudice and limitation, the Karnataka High Court ruled that a consolidated notice does not dilute the protection of limitation available under sub-section (10). Each financial year covered within the composite notice must independently satisfy the test of limitation. If the period for an earlier year is time-barred, that portion of the demand is liable to be dropped, but the consolidation itself does not enlarge the limitation or invalidate the entire notice. The High Court of Jammu & Kashmir in New Gee Enn & Sons¹² also affirmed that bunching is permissible provided there is year-wise quantification, the allegations are not vague, and each period is within limitation.

11 2026 (5) TMI 125- KARNATAKA HIGH COURT

12 [2025] 181 taxmann.com 1

REFERENCE TO THE LARGER BENCH

Faced with these irreconcilable interpretations, the Division Bench of the Bombay High Court in M/s. Rollmet LLP’s case (supra) recognized the necessity of an authoritative resolution. While acknowledging that it would ordinarily be bound by the coordinate bench decision in Milroc Good Earth Developers, the Court expressed grave doubts regarding the legal correctness of that decision.

The Court in Rollmet LLP’s case observed that the legislative intent in providing sub-section (1) of Sections 73 and 74 was not to confine the proper officer’s authority to a single financial year. On a plain reading, sub-section (3) explicitly permits the issuance of a statement for a period other than the period covered under sub-section (1), indicating flexibility. The Court stated that interpreting sub-section (10)—which merely prescribes limitation for passing an order—as an embargo on the issuance of a consolidated show cause notice would amount to rewriting the provision. A limitation to pass an order is conceptually distinct from a limitation on the issuance of a notice.

Furthermore, the Court noted that the Central Board of Indirect Taxes and Customs (CBIC) issued a policy document on September 16, 2025, clarifying that the issuance of a consolidated notice is a procedural mechanism that does not extend the statutory timeline. Each year stands on its own footing for the purpose of calculating limitations. Recognizing the magnitude of the conflict, the Bombay High Court referred specific questions of law to a Larger Bench, including whether Section 73(10)/74(10) per se prohibits consolidation, and what legal position is brought about by the Supreme Court’s speaking order in Mathur Polymers.

ANALYSIS

“Tax Period” v/s “Any Period” – The first and primary concept which is undisputed is that the self-assessment scheme under the GST regime is for a “tax period”. Section 2(106) of the CGST Act defines “tax period” as “the period for which the return is required to be furnished.” Under Chapter IX, returns are furnished for each “calendar month” under Section 39(1), and for each financial year under Section 44 (Annual Return). Section 59 mandates self-assessment and return filing “for each tax period as specified under Section 39”. Limitation provisions in the assessment chapter — such as Section 62 for non-filers — are pegged to “the financial year to which the tax not paid relates.” Section 36 requires retention of books for 72 months from the due date of the annual return for that year. Section 16(4) also ties ITC entitlement to a specific financial year.

It is based on this concept the taxpayer argues that the provisions of S. 73/74 should be aligned with. Use of the phrase “any period” in the said section is statutorily tied to the monthly/ annual return which is self-assessed by the taxpayer. The scrutiny assessment and audit provisions which are a precursor to demand provisions are also performed on the tax period/ financial year wises basis.

In R A and Co’s case, Court viewed the return-based assessment scheme to be determinative of the demand provisions and held that show cause notice could be issued for “monthly” or “annual” return for the entire financial year or part thereof. If any return were to be filed for more than one financial year, then, based on the said returns, single show cause notice could be issued. However, under the GST Law, there is no requirement for filing any returns other than monthly and yearly returns. Hence, no show cause notice could be issued for more than one financial year. In addition, the phrase “such tax periods” mentioned in 73(4) would have an overbearing effect on the phrase “any periods” in the preceding provisions and hence to be interpreted as a financial year or part thereof. This view was also followed in Milroc’s case where court additionally noted that this synchronisation has been maintained during the insertion of S.74A which was applicable from financial year 2024-25 onwards rather than a specific date. Had the intention been otherwise, the provisions of section 74A would have been made effective for all show cause notices / orders passed after 01-11-2024 (being the effective date). This definitive action to demarcate operation of two demand provisions (73/74 v/s 74A) on a financial year basis establishes that the phrase “period” should be considered as a financial year or part thereof. In S J Constructions, taking cognizance of the dissenting opinion of Delhi Court (infra), the Court stated that any other view would adversely impact the right of the taxpayer to file appeals on a financial year basis or even claim amnesty u/s 128A for specific financial years.

The revenue countered this view and stated that the “period” referred in the said sections should be construed literally without additional words. The statute at multiple instances uses the phrase “tax periods” and “periods” distinctively. Where the intent of the law was to view the issue based on returns the phrase “tax period” has been used but where a general time frame was being fixed the phrase “period” has been used. Accordingly, “any period” under section 73/74 should not be narrowly understood to be limited to a financial year. Further, the said demand provisions bear their parentage from the central excise/ service tax law which spanned across financial years despite the returns being filed on a periodic basis. Assessment provisions which involve scrutiny of returns are to be viewed distinctly from adjudication provisions. Further, Audit provisions preceding adjudication provisions permit audit reports over multiple periods and hence corresponding demand notices should be aligned with such audit reports. In so far as the argument of separate provisions for amnesty are concerned, revenue argued that such schemes do not deter the taxpayer from claiming amnesty for the financial years covered under the scheme and hence their periodicity has no bearing in interpreting the adjudication provisions.

In S A Aromatics’s case, after taking into consideration all the earlier decisions, the Court affirmed revenue’s contention that the GST enactment is not direct extension of the assessment scheme envisaged under the Sales Tax era. While the self-assessment or re-assessment scheme may be assessment unit driven, adjudication provisions stand on different footing. Akin to the central excise system, sections 73 and 74 appear after Chapter XIII (pertaining to Audits) and Chapter XIV (pertaining to Inspection, Search, Seizure and Arrest). They are part of Chapter XV pertaining to Demand of Recovery. Yet, they deliberately do not begin with any word, phrase or sentence indicating that they are subject to assessment of tax liability for any specific tax period. The demand provisions refer to a dispute of a “specific tax amount” and NOT of a “specific tax period”. By very nature, the legislature has avoided conditioning adjudication proceedings within the limits of a ‘period’ or ‘tax period’ or to one Financial Year. Therefore, restricting the application to a singular financial based on annual return filing periods was unwarranted. It would be incorrect to apply assessment procedures and its concepts, to adjudication proceedings and distinction of issue-based procedures from return-based procedures permits the latter to span across financial years. Recently, the Karnataka High Court in Chimney Education society (supra) examined the entire audit/ special audit scheme which enabled multi-financial year frequency as a precursor to adjudication proceedings. The section 74A argument was negated by this Court that use of the financial year 2024-25 as a reference point does not change the statutory impact of section 74A(1) which continues to be issue-specific and also 74A(3) which is driven by the phrase “any period”.

TIME LIMITATION CONTROVERSY

Intricately tied to the controversy of clubbing of notices is the issue of determination of limitation period, since the said period is tied to a financial year. The time limitation to pass orders is the centre point for determination of issuance of a show cause notice. That being the case, the phrase “period” should be understood with reference to the limitation to pass orders for tax demands. This point was the primary reason for the Madras High Court in Titan Company to hold that bunching of show cause notices conflicted with the adjudication provisions. Reliance was placed on a Constitution Bench decision in Caltex (India) Ltd.’s case which held that sales tax being a transaction-based levy could be assessed even for a split period for which tax is leviable. Applying this principle the High Court stated that each and every assessment period would have a separate and independent period of limitation and could be split-up for assessment. Assuming a single limitation period for the entire block of 5 years would do injustice to the taxpayer. The taxpayer would be forced to be made answerable to an adjudication which would otherwise have independently been subjected to a longer time frame. For example, in view of an expiring time frame for 2017-18, a consolidated show cause notice would force the taxpayer to participate in an adjudication of 2021-22 which would otherwise expire much later. Thus, the taxpayer would be denied the opportunity to be adjudicated on year-by-year basis leading to compounded tax demands and pre-deposits (especially on recurring issues). Advancing this point further, in RA and Co case, the Court specifically noted section 128/ 138 provide for dispute resolution on a year-wise basis. Bunching show cause notice would prohibit a taxpayer to choose the years for dispute resolution and compel it to pay the taxes even for years where the demand is clearly unsustainable.

In Lakshmi Mobile Accessories, the Court claimed that consolidated show cause notices covering multiple financial/assessment years can be issued only in circumstances where the statutory provision provides for a “common period for initiation” and completion of the adjudication. Unlike the erstwhile Customs/Central Excise Act, the end termini for adjudication is pegged to annual return. The proximate expiry of the limitation period of one of the six financial/assessment years forces upon the taxpayer to argue all the financial years, and shortened time frame to adduce evidence. The statutory period available for an assessee to put forth its contentions against the show cause notice in an effective manner cannot be curtailed on premise of administrative efficiency.

The Kerala High Court in Tharayil Medicals’s case stated that in case of consolidated adjudication proceedings the taxpayer could be prejudiced w.r.t. application of provisions w.r.t fraud, suppression. The taxpayer may not be entitled to claim exclusion of those years/ issues were the elements of section 74 are admittedly absent. For example, suppression of sales turnover in Year-1 would be clubbed with simple GSTR-2A/3B difference in ITC in Year-1. Revenue would have the advantage of a larger time limitation u/s 74 for even the latter issue. Consequently, issuance of composite show cause notice covering multiple financial years making composite demand for multiple years without separate adjudication per year frustrate the limitation scheme

The revenue provided an equally emphatic counter to the above perspective. It was argued that consolidation of show cause notices does not amount to breaching the outer time limits under the said section. The earliest of the tax periods would be tested for determination of time limits. The protection available to taxpayers in terms of 75(2) r/w 73(10) would continue to be available for non-fraud cases even if the proceedings are initiated against it under section 74. Consolidation of financial years does not imply similar treatment to each financial year for assessment of fraud, etc. Though the limitation provisions are financial year driven, the notice issuing provisions are specifically delinked from the limits of a financial year. The Court in SA Aromatics’ case also examined taxpayer’s argument that if adjudication orders are guided by financial years, the notice provisions should necessarily be co-terminus or a smaller unit of assessment. Yet it affirmed revenue’s arguments and disregarded the strong argument that one show cause notice cannot result in two adjudication orders. With equally balanced substantive arguments, the machinery provision could provide some guidance in resolving such procedural controversy.

INTERPRETING “ANY PERIOD” THROUGH FORMS

Courts also had the occasion to examine the tax recovery forms (in DRC-01/03/07, etc) for understanding the scope of adjudication with reference to the “tax periods”. Proper officers record the tax period wise liability in DRC-01 and in DRC-07. These forms are designed to report the liability on a month-on-month which aggregate into a financial year total. Tax-payers are also reporting the tax payments in DRC-03 on a month-wise basis within a particular financial year. On linking Rule 142 with its parentage, it seems that the phrase “period” or “tax period” should be interpreted in a manner which aggregates into each financial year.

THE PORTAL DIMENSION: –

A dimension that the case law has not adequately engaged with — but which practitioners face daily — is the GST portal architecture and its treatment of demands, recoveries, and appeals. Form GST DRC-01 — the summary of show cause notice — contains a “Tax Period” field with a “From–To” date range alongside a “Financial Year” identifier, technically designed on a financial year basis. The portal uploads a DRC-01 for one financial year at a time, even where the underlying proceeding purports to cover multiple years. The DRC-03 framed under recovery provisions require tax period year-wise reporting which are aggregated to each financial year.

The Electronic Liability Register (in PMT) on the GST portal tracks demands period-wise, generating distinct annual return references, limitation markers, and demand tracking entries for each financial year. Taxpayers faced the challenge of filing separate appeals for even consolidated Order-in-Original. The administrative practice of a single OIO created the hurdle of uploading multiple DRC-07 for each financial year on the portal. The taxpayers were faced with a dilemma over whether a single appeal should be filed (basis the OIO) or separate appeals in APL-01 should be filed (basis year-wise DRC-07). Technical design prohibited the proper officer from issuing a consolidated DRC-07. This probably is indicative of the legal scheme of a financial year. It is only now that the GST portal has been redesigned permitting DRC-01/07 or APLs on a multi-year basis with year-wise breakup within each of the forms. The past proceedings continue to face the dichotomy of tax periods vis-à-vis any period controversy.

WAY FORWARD

The stake holders currently await the Larger Bench’s decision, which will likely serve as a springboard for definitive Supreme Court resolution. Even if the High Court rules against the consolidation of multiple financial years in single show cause notice, on a long-term basis, it may be difficult to prevent the revenue from pursuing a legitimate tax dispute and allow the taxpayer to sneak out through a technical argument. The GST council would certainly step in and regularise the earlier notices through a legislative amendment.

In the meantime, the GST council’s current position is that consolidated notices are legally permissible. Nevertheless, the genuine practical grievances raised by the tax-payers cannot be ignored. To harmonize administrative efficiency with natural justice, the executive must ensure that composite SCNs are meticulously bifurcated and quantify the demand on a strict “tax period basis”. The adjudicating authorities must rigorously sever time-barred components during the final hearing, and the GSTN portal’s architecture needs to be aligned for a year-wise severance of aggregated demands for the purposes of appeals and amnesties.

BCAJ Admin

V Sundar v. Registrar of Companies: Striking off a company’s name for non-compliance is unjustifi ed if material evidence establishes its active operational status.

6. V Sundar vs. Registrar of Companies, Chennai

185 taxmann.com 222, NCLAT, Chennai

Where company’s name was struck off by Registrar of Companies (RoC) for non-compliance, but NCLT misinterpreted material on record regarding its operational status at the time of strike-off, such striking off could not be justified and matter was to be remitted for reconsideration of restoration application.

FACTS

The appellant, a shareholder of a Private Limited company, sought restoration of the company’s name under section 252 after it was struck off by RoC. It was stated that notice for strike-off was issued in 2011 and the company’s name was removed in 2012. The company had availed bank credit of about ₹45 lakhs against hypothecation. However, it later defaulted, and since it owned immovable assets; a settlement proposal was offered by the financial creditor to be met through sale of such assets. The appellant contended that restoration would enable discharge of liabilities in the interest of creditors and stakeholders.
The Registrar submitted that the company had failed to comply with statutory requirements under sections 159 and 220 of the Companies Act, 1956, that no statutory records were available on the MCA portal, and therefore it was presumed to be non-operational. Proceedings were initiated under section 560(1), notice under section 560(3) was issued in 2012, and the company’s name was struck off thereafter. It was also contended that material to establish continued operations was not properly substantiated.
The NCLT rejected the application under section 252(3), holding that the appellant failed to establish that the company was carrying on business or in operation at the time of strike-off and that restoration was justified; it also noted delay and lack of sufficient cause.

Observations and Reasoning by NCLAT

The appeal engages consideration of a very short question – the parameters which are required to be followed for the purposes of conducting the proceedings under Section 252 of the Companies Act, 2013 ( CA 2013) and the purposes of the modalities, which are required to be adopted for de-listing the company and its consequential restoration?
Another question which required consideration is the implications over the controversy in questions pertaining to Section 252(3) when the Appellate Tribunal exercises its powers under Section 252 of CA 2013. Particularly in the context of powers contained under Section 248 of CA2013, vested with RoC, to remove the name of the company from the Register of Companies.
Appellant contended that the company was facing an acute financial crunch due to the downward trend of the business and they did not have enough funds available to meet day-to-day expenses and business operation. The financial creditor offered a proposal for the purpose of the settlement of the dues qua the advance payments, which was offered to be made for by the sale of assets. The bank’s proposal for the settlement of the dues for full and final settlement was filed by the Appellant before NCLT. The contention was that in the event of the company getting restored in the records of the ROC, the company would be able to meet all its allied contractual obligations by entering into the sale of immovable assets, which would be in the interest of the creditors and the other stakeholders of the company. However, the Respondents initiated the proceedings under Section 560 of CA 1956, against which an objection was preferred on 10th January, 2023. The position was that as per the balance sheet of the Appellant for the financial year 2010-11 to 2019-20, the fact that the company was functional during the said period, was not brought on record, or proved otherwise.
While on the other hand, the Respondent was seeking the dismissal of the company’s petition praying for the revival of the company into ROC records. The same was not considered, and NCLT, while considering the implications contained under Section 252(3) of CA 2013, had proceeded to pass an order whereby the application for the revival / restoration of the company was rejected. The ground taken for the purposes of rejecting the application by NCLT was that the conditions given under Section 252(3) of CA 2013 were not satisfied. It was observed that the Appellant had not been able to satisfy the twin ingredients to be satisfied i.e. the company at the time of its name being struck off, was actually carrying on the business, and was in operation.
The NCLT took a view that since the Appellant has not been able to satisfy the conditions and coupled with the fact that the application was preferred with the delay and did not give any justifiable reason, the same was required to be rejected.
The RoC filed a response that the company failed to follow the statutory compliance of section 159 and section 220 of the Companies Act, 1956, and also that there were no statutory details pertaining to the subject company available on the MCA portal. Therefore, it was presumed that the appellant company was not carrying out the business operations. As per the directions issued by the Ministry vide its correspondence of 15th September, 2011 under Section 560 (1) of the Companies Act, 1956, the name was struck off of the company by the notice issued on 10th January 2012.
The key issue is whether restoration of the company’s name can be denied solely due to delay, especially when the Respondent’s objection was limited to alleging lack of proof of the company’s active status.
The Appellant argued that the balance sheets showed the company was operational and possessed assets at the time of strike-off, but the NCLT rejected these documents only because they were not certified by a Chartered Accountant.
The Tribunal observed that the NCLT misinterpreted the company’s operational status and gave vague, contradictory reasons for refusing restoration, despite the Respondent’s objections and the documents supporting the company’s active business operations.

HELD:

Thus, the striking of the company from the register maintained by RoC by its order cannot be aptly said to be justified, in view of a catena of judgments where it has been held that it should be the Hon’ble Court’s endeavour to support the revival of the Company rather than otherwise. Thus, the ‘Impugned Order’ would hereby stand ‘quashed’, and the matter is ‘remitted back’ to NCLT, to reconsider the application for restoring the company, the name of which was struck off from the register, and it would pass an appropriate order in accordance with law:

after considering the application for revival of its registration in Register of Companies

and

further considering the documents which have been placed on record, in support of its contention that the company was still in operation as on the date when the company was directed to be struck off from the register of the RoC.

BCAJ Admin

Satinder Singh Bhasin v. Government of NCT of Delhi: Utilizing company funds for a director’s personal bail deposit violates Section 185, leading to forfeiture and bail cancellation

Satinder Singh Bhasin vs. Government of NCT of Delhi & Ors.

Before Supreme Court of India

Criminal Original Jurisdiction Writ Petition (Crl.) No. 242 Of 2019.

Date of Order: 2nd April,2026

The Utilization of Company Funds by a Director for personal purposes (deposit for bail) is in violation of Section 185 of the Companies Act, 2013.

FACTS

Insolvency proceedings were invoked against M/s BIIPL under the Insolvency and Bankruptcy Code, 2016 and Mr. MG was appointed as the IRP. Thereafter, the IRP contended that Mr. SB, director of M/s BIIPL, acted in violation of the law as he had not handed over the affairs of M/s BIIPL. Further, Mr. SB had siphoned and mismanaged funds of the Company and for which FIRs were registered.

Thereafter, against the FIRs, Mr. SB had filed Writ Petition under Article 32 before Supreme Court, where the Court granted interim bail on the condition that he shall deposit Rs.50 crore before the Registry of the Court as a precondition for grant of bail. Mr. SB deposited Rs.50 crore. However, upon investigation, it was discovered that the source of funds was the funds of Private Limited Companies i.e. M/s BIIPL and other related corporate entities instead of his individual capacity.

Therefore, it was observed by Court that on plain reading of the Section 185(1) of the Companies Act, 2013, a company is prohibited from directly or indirectly advancing loans to its directors. While Section 185(2) permits such transactions subject to the passing of a special resolution and utilisation of funds for the company’s business purposes, no such resolution had been passed in the present case. Further, the funds were utilised for a purely personal purpose, namely, securing bail.

The Court noted that the petitioner had effectively utilised interest-free corporate funds for personal benefit without providing any security and in complete non-compliance with statutory requirements.

ORDER

The Court held that the conduct of Mr. SB was in direct contravention of Section 185 of the Companies Act, 2013, which expressly stipulates that a loan to a director of a company could be advanced only after approval by way of a Special Resolution.

It further described the unauthorized disbursal of funds as an “alarming aspect”.

Accordingly, the Court:

forfeited the entire deposit of ₹50 crore along with accrued interest; and
cancelled the interim bail granted to the director.

The judgment reiterates that directors cannot use company funds for personal liabilities or obligations, directly or indirectly, in contravention of Section 185 of the Companies Act, 2013.

BCAJ Admin

Tax Relief On Income From Foreign Retirement Funds

INTRODUCTION

Many NRIs and non-residents returning to India maintain retirement savings in various retirement benefit accounts. A large number of such retirement accounts are tax deferred in nature i.e. tax becomes payable in the jurisdiction in which the account is maintained only upon withdrawal from the account.

Retirement benefit accounts in the United States of America (USA), such as Section 401(k) accounts and traditional Individual Retirement Accounts (IRAs) are common examples of tax-deferred retirement benefit accounts.

Similarly, Canada has the Registered Retirement Savings Plan (“RRSP”), which is a government-registered retirement savings arrangement, while the UK has the Self Invested Personal Pension (“SIP”).

This article focuses primarily on the most prevalent retirement benefit accounts relating to the USA.

Retirement Benefit Accounts should not be confused with the social security benefits. Social security in the USA is primarily governed by the Social Security Act, 1935 and administered through Social Security Administration, which provides federal old-age, survivors, and disability insurance, together with unemployment compensation benefits.

In the case of income received by a resident from a US social security account, Article 20(2) of the India-US DTAA provides that social security benefits paid by the USA to a resident of India or to a citizen of the USA shall be taxable only in the USA.

Taxability of the Retirement Benefit Accounts

There are two principal approaches to income taxation i.e. accrual and receipt basis. Under the accrual basis, income is taxed in the year in which it is earned, irrespective of when it is actually received. Under receipt basis of taxation, income is taxed in the year in which it is actually received.

In case of a Resident and Ordinarily resident (ROR), global income is taxable in India in respect of any previous year, including income which accrues or arises outside India during such year.

Accordingly, once a Non-resident returning to India becomes an ROR in India, his global income including income accruing by way of notional growth in the retirement benefit accounts, becomes taxable in India. However, the same income may also be taxed in the USA at the time of withdrawal, thereby resulting in economic double taxation.

Further, while the DTAA does not restrict either India or the United States from taxing such pension income, practical difficulties arise because:

tax may become payable in India prior to actual receipt of the income; and
foreign tax credit issues may arise since India taxes the income in an earlier year whereas tax in the United States becomes payable only in a subsequent year upon withdrawal.

Section 158 of the Income-tax Act, 2025 (ITA 2025) [Earlier Section 89A of the ITA]

To mitigate such double taxation and to provide tax relief for Indian residents in respect of income accruing in foreign retirement Accounts, section 89A of the Income-tax Act, 1961 (ITA) was inserted by the Finance Act, 2021 w.e.f. 1-4-2022. Correspondingly, Rule 21AAA was inserted by the IT (Sixth Amdt.) Rules, 2022 w.e.f. 4-4-2022.

Section 158 of the Income-tax Act, 2025 continues this framework and provides the benefit of tax deferral to a person who:

is resident in India;
had opened a specified account in a notified country while being a non-resident in India and resident in that foreign country; and
satisfies the prescribed conditions

NOTIFIED COUNTRIES

The Central Government vide Notification No. S.O. 1568(E) dated 4-4-2022 notified (a) Canada; (b) United Kingdom of Great Britain and Northern Ireland; and (c) United States of America, as the notified countries for the purposes of Section 89A of the ITA 1961.

The Income-tax Rules, 2026 and New prescribed Forms were notified on 20th March, 2026. The Income-tax Department, on its official website (incometaxindia.gov.in), has also published FAQs and Guidance Notes under Income-tax Rules, 2026. These materials are intended solely as educational resources to assist taxpayers in navigating the new Forms and do not constitute legal advice.

FAQ No. 1 relating to Form 40 states that

‘The countries notified for this purpose of this relief are USA, UK, Canada and Australia, at present.’

Similarly, the Guidance Note relating to Form 40, in the introductory paragraph under the heading ‘Purpose’ states that

“… income accrued in a foreign retirement account maintained in a notified country (e.g. USA, UK, Canada, Australia).”

However, it may be noted that, as of date no notification has been issued by the central government notifying ‘Australia’ for the purposes of Section 158/earlier Section 89A. Accordingly, the inclusion of Australia in the FAQs and the Guidance Note to Form 40 appears to be inadvertent or erroneous.

SPECIFIED ACCOUNTS – EXAMPLES USA:

401(k) Accounts: A 401(k) is an employer-sponsored retirement account in which: employee contribute a portion of their salary, generally on a pre-tax basis;
employers may provide matching contributions; and
the investments grow on a tax-deferred basis until withdrawal.

There are two principal categories of 401(k) accounts:

Traditional 401(k): Contributions are generally made on a pre-tax basis and the accumulated funds grow tax-deferred. Tax in the United States becomes payable upon withdrawal. Early withdrawals prior to the age of 59½ generally attract a 10% penalty in addition to applicable income-tax.

Roth 401(k): Contributions are made from post-tax income, and qualified withdrawals are tax-free in the United States. However, India may nevertheless seek to tax such withdrawals since Indian tax may never previously have been paid on the underlying income.

IRA (Individual Retirement Account): An Individual Retirement Account (“IRA”) is a personal retirement savings arrangement available in the USA.

It is important to note that Section 158 (earlier section 89A) does not apply to 529 Education Plans.

Rule 74 of the Income-tax Rules, 2026 and Form 40

Rule 74 of the IT Rules 2026 (corresponding to Rule 21AAA of the Income-tax Rules, 1962), contains the rules governing taxation of income from retirement benefit accounts maintained in a notified country.

Rule 21AAA(1) inserted from AY 2022-23, provided that income accrued in a specified account may, at the option of the specified person, exercised through the prescribed form earlierForm 10EE and now Form 40 under IT Rules, 2026 be included in the total income of the previous year relevant to the assessment year in which such income is taxed in the notified country upon withdrawal or redemption from the specified account.

In other words, the annual accumulation of income in the specified accounts may either:

be taxed in India every year on an accrual basis; or
at the option of the taxpayer, be taxed on a receipt basis at the time of withdrawal, subject to fulfilment of the prescribed conditions.

The option is required to be exercised by the specified person in respect of all specified accounts maintained by such person.

EXCLUSION FROM THE TAXABLE INCOME

The income to be taxed shall not include income which –

(a) has already been included in the total income in any of the earlier previous year during which such income accrued and tax thereon has been paid in accordance with the ITA; or

(b) was not taxable in India during the year of accrual because the taxpayer was either a non-resident or a resident but not ordinarily resident during that relevant previous year, or by virtue of the applicability of a DTAA, if any.

Where an income is not included in the total income of the specified person, the foreign tax paid on such income, shall be ignored for the purposes of computation of foreign tax credit under Rule 128 (corresponding to Rule 76 of the IT Rules, 2026).

SALIENT FEATURES OF OPTION U/S 158

a) The option is required to be exercised by the specified person in Form 40 under IT Rules, 2026 (earlier Form 10EE). The form must be furnished electronically on or before the due date prescribed for furnishing the return of income u/s 263(1)(c).

b) Once exercised, shall apply to all subsequent previous years and cannot thereafter be withdrawn.

In Jignesh Naresh Jariwala v. DDIT [2025] 178 taxmann.com 223 (Mumbai-Trib), the ITAT Mumbai held, while deciding in favour of the assessee, that once the option had been exercised in Form 10EE, it would continue to apply to all subsequent years. Consequently, it was not mandatory for assessee to file the form afresh every assessment year in order to claim relief under section 89A, held as follows:

“6. We have heard the rival submissions and perused the documents available on record. The assessee is a resident individual who filed his return of income for the impugned assessment year without furnishing Form No. 10EE. It is an admitted position that the said form had already been filed for A.Y. 2022-23. On a careful reading of Rule 21AAA, particularly sub-rules (1), (4) and (6), we find that once Form No. 10EE has been filed in respect of a previous year, the option exercised therein continues to apply to all subsequent previous years. Consequently, it is not mandatory for the assessee to file the form afresh for every assessment year. Where relief under section 89A of the Act has been granted on the basis of Form No. 10EE already furnished, the same relief cannot be denied merely for the reason that the form has not been filed again in subsequent years. The filing of Form No. 10EE is a procedural requirement and, by virtue of Rule 21AAA(6) of the Rules, once exercised in any previous year, it continues to hold good for all subsequent years. Therefore, the assessee is not obliged to furnish the form afresh every year, and denial of relief under section 89A of the Act on such procedural grounds is not sustainable in law. In our considered view, the finding of the Ld. CIT(A) is contrary to the clear mandate of Rule 21AAA of the Rules. Accordingly, we set aside the impugned appellate order and direct that the relief claimed under section 89A amounting to ₹4,34,661/- be allowed to the assessee.” (Emphasis Supplied)

c) If a specified person becomes a non-resident during any relevant previous year after exercising the option, then:

(i) the option shall be deemed never to have been exercised w.e.f. the relevant previous year; and

(ii) the income accrued in the specified account(s) shall become taxable beginning from the previous year in which option was first exercised and ending with previous year immediately preceding the relevant previous year in which the specified person becomes non-resident. The corresponding tax is required to be paid on or before the due date for furnishing the return of income for the relevant previous year.

d) Form 40

Form 40 is the prescribed form for exercise the option to claim tax relief under section 158 of the ITA 2025 by a person resident in India, in respect of income from a retirement benefit account, maintained in a notified country.

This Form is required to be filed in the first year in which the taxpayer becomes a ROR in India. Although the language of the section 158 and Rule 74 does not expressly provide so, one possible view is that failure to file Form 40 in the first year of becoming an ROR may result in permanent loss of the tax deferral benefit. However, this issue has not yet been judicially tested.

Upon exercise of the option, the Indian resident obtains relief from taxation in India on an accrual basis in respect of income from retirement benefit account, where such income is taxed in the notified country only at the time of withdrawal or redemption. In other words, filing Form 40 permits deferral of taxation in India until the income is withdrawn or redeemed in the foreign country.

e) Documents and details required for Form 40

Mandatory to be attached

Annexure A1- A copy of statement of the specified account having the details of account number, the notified country, and the account balance as on last date of the financial year prior to the tax year for which the option is exercised;

Annexure A2- Documentary evidence to show how the income from specified account has been taxed or is taxable in the notified country. Relevant statutory provision of the notified country or any other relevant document may be attached.

Annexure A3- The computation of income for all the tax years in which the income from specified account has already been included in the total income. The computation has to be reconciled with the return of income for the said tax years. A reconciliation statement of the computation of income, is to be attached.

f) Editing of Form 40: Once Form 40 is validly submitted, after self-declaration by the specified person, and an acknowledgment has been generated, it cannot be edited. It is therefore imperative to ensure that all the details and documents attached are correct before the same are finally submitted.

ITR FORMS AND REPORTING

The Income-tax Return Forms ITR-2, ITR-3 etc. applicable from AY 2022-23, contain updated disclosures in Schedule-S (Details of Income from Salaries), Schedule OS (Income from Other Sources) and the following row items have been added in both the schedules:

– Income from retirement benefit account maintained in a notified country u/s 89A (choose country from dropdown menu)

– Income from retirement benefit account maintained in a country “other than notified county u/s 89A”

– Income taxable during the previous year on which relief u/s 89A was claimed in any earlier previous year.

– Less: Income claimed for relief from taxation u/s 89A

These disclosures taxpayers to claim relief u/s 89A in the prescribed manner. Accordingly, in all applicable cases, while filing ITR, one will need to report the gross accrued income in retirement benefit account(s) like Salary, capital gains, interest, dividend income and claim relief under section 158, to defer tax on the income until withdrawal of the same.

OTHER REPORTING IN THE ITR FORMS

Schedule FA: Where a person qualifies as a Resident and Ordinarily Resident (“ROR”) in India, disclosure of foreign assets and income from sources outside India is mandatory in Schedule FA, even where no withdrawal has been made from the retirement benefit account(s).

Disclosure in the relevant table(s) would generally include:

account details;
value of the account;
contributions;
earnings; and
other relevant particulars.

Failure to report, or incorrect reporting, may attract penalties of up to ₹10 lakh under Sections 42 and 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

It is important to note that filing Form 40 (earlier Form 10-EE) merely defers taxation; it does not dispense with the obligation to disclose such assets in Schedule FA.

Schedule AL – Disclosure in Schedule AL (Assets and Liabilities at the end of the year) is required where the total income exceeds ₹1 crore.

Reporting in the year of withdrawals / tax payment outside India

In the year in which withdrawals are made from the retirement benefit account, or foreign tax becomes payable, additional reporting would be required in:

Schedule FSI – Details of Income from outside India; and
Schedule TR – Summary of tax relief claimed for taxes paid outside India

Further, in order to claim credit for taxes paid in the United States, the following forms may also be required to be filed, wherever applicable:

Form 44 (earlier Form 67 under the Act) – Statement of income from a country or specified territory outside India and claim of Foreign Tax Credit; and
Form 45 – Intimation of settlement of dispute regarding foreign tax for which credit has not been claimed.

CONCLUSION

Section 89A of the Income-tax Act, 1961 together with and Form 10EE of the Act (Section 158 and Form 40 under the ITA 2025) introduced by the Finance Act 2021 w.e.f. AY 22-23, have been a significant relief measure for NRIs returning from USA, Canada and UK.

These provisions permit deferral of Indian taxation until actual withdrawal from Retirement Benefit Accounts such as 401(k) accounts in USA thereby aligning Indian taxation more closely with the foreign tax treatment and facilitating smoother availability of foreign tax credit in respect of taxes paid abroad.

It appears that, owing to lack of awareness and limited dissemination, only 977 instances of Form 40 (earlier Form 10EE) have reportedly been filed during the past 5 years.

It is hoped that a larger number of eligible taxpayers will, going forward, be able to avail themselves of these beneficial provisions.

BCAJ Admin

Corporate Governance: Overview and Challenges

Corporate governance in India has evolved from promoter-driven roots to a robust framework under the Companies Act 2013 and SEBI LODR 2015. This system mandates diverse board committees to oversee financial integrity and risks. However, a core challenge remains achieving “governance in substance” over mere procedural compliance. Boards currently grapple with information asymmetry, complex related party transactions, and emerging technological risks like AI. Ultimately, effective governance transcends checklists; it requires a culture of integrity, ethical accountability, and a reflective mindset to protect all stakeholders.

Introduction

Way back in the 17th century, with the emergence of joint-stock companies such as the Dutch East India Company, the foundations of modern corporate governance began to take shape. The concept of separating ownership from management introduced a need for accountability in business operations. Corporations grew in size and influence over the centuries, particularly after the industrial and economic expansion of the 20th century. This raised concerns regarding misuse of managerial powers, shareholder protection and ethical conduct, which led to the evolution of structured governance mechanisms across jurisdictions. Corporate scandals involving Enron, Lehman Brothers and Satyam Computer Services further highlighted the importance of strong governance practices and became major triggers for regulatory reforms.

The concept of corporate governance covers a set of rules, procedures and operational structures that guide the short-term and long-term action of companies. While safeguarding the interests of shareholders as well as all other stakeholders connected with the organization. Effective corporate governance not only strengthens investor confidence but also promotes sustainable growth and responsible corporate conduct.

This article gives an insight into various dynamics and challenges faced during the process of effective integration and implementation of corporate governance in an organization

The-Spirit-of-the-law

Evolution of Corporate Governance in India

The evolution of corporate governance in India has been shaped by economic reforms, regulatory developments and corporate frauds. Traditionally, Indian businesses were promoter-driven and family-controlled, except few large group’s others were not fully equipped to focus on minority shareholder protection, transparency and accountability. However, economic liberalization in 1991 and integration with global markets increased the need for stronger standards of governance.

Corporate governance reforms in India began with the introduction of the Desirable Code of Corporate Governance by the Confederation of Indian Industry (CII) in 1998. Thereafter, corporate scandals highlighted serious governance failures and led to major regulatory reforms. The Kumar Mangalam Birla Committee (1999), The Naresh Chandra Committee (2002) and Narayana Murthy Committee (2003) strengthened governance standards relating to auditor independence, financial disclosures, audit committees and shareholder rights.

A significant shift took place with the enactment of the Companies Act, 2013 coupled with changes in listing requirements. The introduction of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”), further strengthened governance standards for listed entities.

Legal Framework of Corporate Governance in India

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 prescribe corporate governance requirements for listed entities relating to shareholder rights, protection of minority shareholders, timely disclosures, dissemination of material information and grievance redressal mechanisms. The Regulations further prescribe requirements relating to board composition, including appointment of independent directors and woman directors, maximum limits on number of directorship’s, board meetings and performance evaluation of directors.

The Regulations also mandate constitution of various board committees and prescribe their functions and responsibilities. The Audit Committee is required to oversee financial statements, internal financial controls, statutory and internal audits, related party transactions, vigil mechanism and utilization of funds. The Nomination and Remuneration Committee is responsible for appointment and evaluation of directors and senior management, remuneration policy and board diversity. The Stakeholders Relationship Committee is responsible for resolution of shareholder and investor grievances. The Risk Management Committee is required to establish the risk management framework, identify, monitor and mitigate various risks including operational, financial, cybersecurity, business, regulatory, compliance etc. The role of risk management committee is becoming more onerous in today’s times where business environment is becoming more dynamic and getting complex.

The SEBI LODR Regulations further prescribe approval and disclosure requirements relating to related party transactions, oversight obligations relating to material subsidiaries and duties and obligations of independent directors, including separate meetings and familiarization programmes. Listed entities are also required to submit periodic corporate governance compliance reports to stock exchanges and make disclosures relating to Business Responsibility and Sustainability Reporting (BRSR), ESG risks and sustainability-related matters in annual reports.

Related party transactions remain as one of the most closely scrutinized areas under the corporate governance framework. This framework prescribes approval, disclosure and oversight requirements for related party transactions and has significantly expanded the scope of “related party” and “related party transaction” to include direct and indirect benefit arrangements involving listed entities and their subsidiaries. The framework also requires approval mechanisms through the Audit Committee and shareholders, enhanced disclosure obligations and monitoring of material related party transactions.

The regulatory framework further requires Audit Committees and Boards to monitor conflicts of interest, misuse of corporate assets and approval of related party transaction. However, practical challenges continue to arise in identifying beneficial interests, tracing indirect relationships and determining whether transactions are undertaken for the benefit of related parties through layered structures, subsidiaries or connected entities. Operational challenges also arise in determining arm’s length pricing, assessing ordinary course of business criteria, maintaining adequate documentation and ensuring timely disclosures across large corporate groups with complex structures and multiple subsidiaries. The committee members and the Board of Directors have to play a very critical role in identifying related parties, justification of transactions, deciding arm’s length pricing, approval and review process and relevant disclosures.

Corporate Governance – Not mere Compliances

“Governance is an act, which should be voluntary adopted, once codified takes the character of Compliances”

A) Governance beyond checklist-based approach

Corporate governance has gradually evolved beyond a disclosure and compliance-driven framework towards a broader system focused on accountability, ethical conduct and stakeholder protection. Merely constituting committees or complying with procedural requirements does not necessarily ensure effective governance. Recent governance discourse has increasingly distinguished between “compliance in form” and “governance in substance”, emphasizing that governance must operate in spirit and not merely through technical adherence to regulations. Governance must actually be done in addition to merely appearing to have been done. Concerns have also been raised that excessive procedural compliance may at times lead to a tick box approach rather than meaningful oversight and responsible decision-making. The purpose of these regulations gets defeated when rules are followed and principles are compromised.

B) Effectiveness and Oversight Challenges

Board effectiveness and quality of oversight have emerged as central governance concerns in recent years. Governance studies and boardroom discussions have highlighted issues such as passive boards, information asymmetry between management and directors and overdependence on promoter-driven decision-making. The role of the board is moving from the oversight function to the executory functions and line of demarcation is getting blurred. The increasing expansion of board responsibilities relating to ESG, cybersecurity, risk management, related party transactions and technology oversight has significantly increased governance and oversight expectations from directors.

C) Independent Directors and Board Challenges

Recent institutional governance surveys and boardroom discussions have reflected increasing challenges relating to the role of Directors in India. The “Survey on Corporate Governance – 6th Edition” (by excellence enablers) observed concerns relating to concentration of committee memberships, long tenures of directors and increasing governance responsibilities placed upon boards and audit committees. The Survey further noted that the average age of independent directors in India remained above 63 years during FY 2025, while boards are increasingly expected to oversee evolving areas such as artificial intelligence, cybersecurity, ESG, data governance and technology-driven risks. Recent reports have also indicated that resignations of independent directors from listed companies rose significantly during FY 2026, reflecting increasing governance pressures and board-level accountability concerns.

The effectiveness of independent directors is often impacted by limited access to complete information, insufficient time for detailed review of board agendas and increasing complexity of business operations. The key is whether the right question was being asked in the meeting, whether everyone participated in the discussion or not, whether accurate and complete data were available for taking decision and whether they were recorded properly.

Governance discussions have also highlighted concerns regarding concentration of board positions within limited professional and promoter networks and limited availability of directors possessing specialized expertise in areas such as finance, technology, law, sustainability and risk management. These challenges have increasingly raised concerns regarding board diversity, technological understanding and timely identification of governance red flags in complex and technology-driven corporate environments.

Emerging Governance Risks – Technology

Companies are increasingly dependent on technology-driven operations, data analytics and AI-based systems for business decisions, customer interaction, financial processes and compliance functions. Governance discussions have also highlighted concerns regarding inadequate board-level oversight of technology risks. In several instances globally, governance failures have arisen due to weak cybersecurity controls, inaccurate technology disclosures, overreliance on automated systems and lack of understanding of digital and AI-related risks at the board level. The increasing use of fintech platforms, digital payment systems, cross-border data transfers and third-party technology vendors has further expanded operational and regulatory risks for companies. These risks are further aggravated where members of the board lack adequate technological understanding and are unable to effectively keep pace with rapidly evolving digital and AI-driven business environments.

Conclusion

The true foundation of corporate governance lies in the integrity, ethical conduct and accountability on the part of management. Integrity, though a personal attribute, is a foremost quality that one has to possess, qualification, commitment, skill and capabilities come later. Honest disclosures, transparent decision-making, protection of shareholder interests and compliance with legal and regulatory obligations require a governance culture that operates not merely in form, but in spirit. Corporate governance also carries a broader responsibility towards investors, regulators, employees and society, as a whole, as companies operate not only for profitability but also as responsible contributors to economic growth and public trust. Corporate governance, therefore, cannot be measured merely through compliance frameworks and disclosures, but through the value systems and culture that drives each individual working for the organization. Good Governance comes from reflective mindset rather than reactive skill set.

BCAJ Admin

Applicability Of Presumptive Taxation To Partners Of A Partnership Firm

Sections 44AD and 44ADA provide presumptive taxation of business or professional income. A Controversy exists as to whether partner remuneration and interest constitute “gross receipts” for the purpose of these schemes. The Madras and Bombay High Courts have held that these receipts are distributions of firm profits rather than independent turnover, thereby making partners ineligible. Conversely, the Delhi ITAT allowed a professional partner to avail the benefit of section 44ADA, holding that there is no legal requirement for independent activity. While the restrictive view currently carries judicial weight, the Supreme Court must ultimately resolve this conflict.

ISSUE FOR CONSIDERATION

Section 44AD and 44ADA deal with the presumptive scheme of taxation for computing the profits and gains from business or profession respectively, subject to fulfillment of the prescribed conditions. Quite often, the issue arises as to whether these provisions, dealing with computation of profits and gains on a presumptive basis, can be applied in respect of the interest and remuneration received by a partner from a partnership firm.

The Chennai bench of the tribunal had earlier taken a view that the provisions of section 44AD are not applicable for computing the income arising from remuneration received by the partner from a partnership firm. In contrast, the Delhi bench of the tribunal recently held that an individual assessee, who was a partner in a firm of chartered accountants, was entitled to compute his income arising from the remuneration received from the said firm on a presumptive basis under section 44ADA.

A. ANANDKUMAR’S CASE

The issue first came up for consideration before the Chennai bench of the tribunal in the case of A. Anandkumar v. ACIT (ITA No. 573/Chny/2018).

In this case, for assessment year 2012-13, the assessee, who was a partner in a few firms, had received remuneration and interest from partnership firms aggregating to Rs.58,53,000. The income of the firms were computed under the regular provisions of the Act without applying the presumptive taxation provisions. While filing return for the relevant assessment year, the assessee had applied the presumptive rate of 8% under section 44AD of the Act and returned Rs.4,68,240 as income from the such remuneration and interest. The Assessing Officer was of the opinion that section 44AD could be availed only by an eligible assessee engaged in an eligible business. According to him, the assessee was not carrying on any independent business but was merely a partner in the firms. Further, according to the Assessing Officer, the assessee had no turnover, and the receipts on account of remuneration and interest from the firms could not be construed as “gross receipts” mentioned under section 44AD of the Act. He, therefore, denied the benefit of section 44AD and brought to tax the entire amount of remuneration and interest received from the firms. The appeal filed by the assessee before the CIT (A) was also dismissed.

Before the tribunal, the assessee submitted that section 28(v) of the Act clearly specified that interest, salary, bonus, commission or remuneration received by, or due to, a partner of a firm from such firm had to be assessed under the head “Profits & gains of business or profession”. Section 44AD enabled an assessee having turnover or gross receipts from an eligible business to apply the presumptive rate of 8% in computing his income from business or profession. By virtue of the Explanation to Section 44AD, “eligible business” included any business other than the business of plying, hiring or leasing goods carriages referred to therein. The assessee contended that since remuneration and interest were considered as profits and gains of business or profession by virtue of section 28(v) of the Act, such receipts became receipts from an eligible business. Since the gross receipts of the assessee from interest and remuneration was below ₹1 crore for the relevant assessment year, the assessee argued that he was eligible to apply the presumptive rate of 8% on such receipts for estimating the income. The assessee placed reliance on the judgement of Hon’ble Apex Court in Munjal Sales Corporation v. CIT (289 ITR 298) (SC) and an order of Kolkata bench of the tribunal in Sagar Dutta v. DCIT in ITA No.692/Kol/2012 dated 03.05.2013.

The Partner Presumptive Tax Puzzle

After examining the scheme of taxation applicable to partnership firm and partners, the Tribunal held that if remuneration and interest paid to partners had not been charged in the accounts of the firm, the taxable profits of the firm would have been higher, resulting in a higher tax liability for the firm. The payments of interest and remuneration, therefore, had to be construed indirectly as a form of distribution of profits of a firm, on which the firm would otherwise have been taxed. Though the legislature, in its wisdom, chose to tax such remuneration and interest as profits and gains from business or profession in the hands of the partners, that by itself, would not convert such remuneration and interest into gross receipts or turnover arising from the business of being partners in firms. In other words, such receipts in the hands of a partner could not be construed as gross receipts or turnover of a business independently carried on by the partner.

By referring to the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2009 vide Circular No. 5/2010 dated 3-6-2010, the Tribunal observed that the intention behind the provision was to help small businesses to comply with the taxation provisions, and it was never intended to treat a partner’s remuneration or interest as business turnover. The decisions relied upon by the assessee were held to be not applicable on the ground that they did not relate to the provisions of section 44AD. On this basis, the tribunal dismissed the appeal of the assessee and affirmed the view which was taken by the lower authorities.

RANU GUPTA’S CASE

The issue recently came up for consideration before the Delhi bench of the tribunal in Ranu Gupta v. ACIT (ITA No. 2224/Del/2025).

In this case, for the assessment year 2018-19, the assessee had received the remuneration of Rs.27,00,000 as a partner of a firm of Chartered Accountants. The assessee had offered 50% of the same as his income under the provisions of section 44ADA of the Act. Before the Assessing Officer, the assessee contended that he was eligible to compute the income under section 44ADA since he had fulfilled all the conditions provided prescribed therein. The remuneration was received by him in his capacity as a Chartered Accountant holding a certificate of practice issued by the Institute of Chartered Accountants of India. The assessee relied upon the decisions in Sagar Dutta (ITA No. 692/Kol/2012), the decision of the Hon’ble Supreme Court in Ramnik Lal Kothari (1969) 74 ITR 57 (SC,) and the decision of the Hon’ble ITAT Delhi in Aman Tandon (ITA No. 3469/Del/2015).

The Assessing Officer did not accept the claim of the assessee stating that the remuneration was received by him as a working partner of the firm and not as an individual independently carrying on the profession specified u/s. 44AA(1). The Assessing Officer also relied upon the Circular No. 3 of 2017 dated 20-10-2017, wherein it was stated that section 44ADA was introduced to reduce compliance burden of small taxpayers earning professional and to facilitate ease of doing business. The Assessing Officer further noted that the assessee himself had declared the entire remuneration received from the firm as business income in AY 2016-17 and 2017-18. Distinguishing the decisions relied upon by the assessee, the Assessing Officer placed reliance on the decision of the Chennai bench of the tribunal in A. Anandkumar (supra). Finally, the Assessing Officer held that a partner’s remuneration from the firm could not be treated as gross receipts for the purposes of section 44ADA in view of section 28(v) and 40(b) of the Act.

The CIT (A) concurred with the view of the Assessing Officer and held that the remuneration was not received for carrying on or practicing the profession, but was received in the capacity of a working partner of the firm. The remuneration received by the partner was distinct and separate from income from profession. The CIT (A) relied upon the decision in A. Anandkumar (supra), which had been affirmed by the Hon’ble Madras High Court. In so far as reliance was placed by the assessee on the decision in Ramnik Lal Kothari (1969) 74 ITR 57 (SC), the CIT (A) observed that the Assessing Officer had not allowed any expenditure against the remuneration, since no details were furnished by the assessee in spite of the specific show cause issued in that regard.

Before the tribunal, nobody appeared on behalf of the assessee. The revenue contended that the assessee had neither claimed any expenditure, as noted by the Assessing Officer during the assessment proceedings, nor was he entitled to claim benefit of the presumptive scheme under section 44ADA in respect of the remuneration received from the partnership firm.

The tribunal held that there was no merit in the revenue’s twin arguments, as there was no such pre-condition in section 44ADA either to claim the corresponding expenditure (in light of sub-section (2) thereto) nor was he supposed to carry out his independent professional activities otherwise than as a partner in any establishment. On this basis, the tribunal invoked rule of strict interpretation by relying upon the decision in the case of Commissioner of Income-tax v. Dilip Kumar (2018) 9 SSC 1 (SC) to reject the Revenue’s foregoing arguments and directed the Assessing Officer to assessee the income of the assessee under section 44ADA of the Act.

OBSERVATIONS

Section 44AD and 44ADA provide for determination of profits and gains arising from the business or profession carried on by the assessee on presumptive basis, subject to fulfillment of certain conditions. Under these provisions, the income of an eligible assessee is computed on a presumptive basis, and a specified percentage of the turnover or the gross receipts is deemed to be the profits and gains of the business or profession carried on by the assessee.

Primarily, two conditions are required to be satisfied for the application sections 44AD or 44ADA. First, the assessee should be engaged in business or profession i.e. the business or profession in respect of which the income is sought to be computed on a presumptive basis should belong to the assessee. Secondly, there must be the turnover or gross receipts from such business or profession on basis of which the income can be computed at the prescribed percentage.

In so far as the first condition is concerned, it is the partnership firm that carries on the business or profession, albeit through its partners. It is true that the business carried on by the partnership firm has been regarded as nothing but the business carried on by the partners collectively. In this regard, the reference can be made to the decision of Gujarat High Court in the case of CIT v. Rasiklal Balabhai (1979) 119 ITR 303, wherein it was held that the assessee must be considered to be carrying on business when such business is that of a partnership firm since a partnership firm has no legal entity and is merely a compendious expression for all the partners.

In the context of section 44AD or 44ADA, the requirement is to compute the income on a presumptive basis at the specified percentage of the turnover or gross receipts of the concerned business or profession. A difficulty may arise, in the context of the Income Tax Act and particularly under the presumptive taxation, in contending that the firm and the partner are carrying on the same business and that the turnover of the business or profession is the same for both assessees, it may then become difficult to contend that the same business has resulted in different amount of turnover or gross receipts in the hands of the partnership firm and in the hands of the partners.

The view taken by the Chennai bench of the tribunal in the case of A. Anandkumar (supra) has been affirmed by the Madras High Court [Anandkumar vs. Assistant Commissioner of Income Tax, Circle-2, Salem [2020] 122 taxmann.com 252 (Madras)]. The Madras High Court held that, in order to avail the benefits of section 44AD, the assessee must establish that he is an eligible assessee engaged in an eligible business and that such business has total turnover or a gross receipt. Admittedly, the assessee, being a partner was not carrying on any business resulting in such turnover. Therefore, the remuneration and interest received by the assessee from the partnership firm could not be termed as the turnover of the assessee, who was merely a partner in the firm. Similarly, a partner could not contend that such receipts constituted his gross receipts. The High Court referred to the definition of the term ‘turnover’ as provided in the statement issued by the ICAI on the Companies (Auditors report) Order 2003, wherein it was defined to mean the aggregate amount for which sales are effected or services rendered by an enterprise. Admittedly, the assessee, being a partner in the firm, had neither effected any sales nor rendered any services independently, but had merely received remuneration and interest from the partnership firms, which amounts had already been debited in the profit and loss account of the firms. Therefore, the High Court agreed with the revenue’s contention that remuneration and interest could not be treated as turnover or gross receipts.

Further, the High Court observed that the payment of interest and remuneration had to be construed indirectly as a type of distribution of profits of a firm, on which the firm would otherwise have been taxed. Therefore, though the legislature, in its wisdom, chose to treat such remuneration and interest as part of profits and gains from business or profession, that could never translate into gross receipts or turnover arising from the business of being partner in a firm.

The Delhi bench of the tribunal, however, did not follow the decision of the Madras High Court in the case of A. Anandkumar (supra) although the same had been relied upon by the CIT (A).

In Perizad Zorabian Irani vs. Principal Commissioner of Income-tax [2022] 139 taxmann.com 164 (Bombay), the Bombay High Court also agreed with the view expressed by the Hon’ble Madras High Court in the case of A. Anandkumar v. Asstt. CIT (supra) and held that a partner’s remuneration cannot be treated as gross receipts from profession.

There is one more aspect which is equally important for deciding the issue under consideration. The amount treated as deemed profits under section 44AD or 44ADA is either the sum computed in the manner prescribed therein or a higher sum claimed to have been earned by the assessee. Indirectly, this implies that, for the purpose of explaining investments in assets, or otherwise, the assessee may not be able to claim that he had earned the income higher than the amount of profits computed on a deemed basis under section 44AD or 44ADA, if he opts for these provisions. In other words, for purpose such as explaining the source of investment made out of the income etc., the assessee may not be able to contend that the actual income from business or profession was higher than the deemed profits offered to tax on a presumptive basis. Therefore, one should be cautious of this limitation while taking a view that income in respect of interest or remuneration received from a partnership firm can be computed on a presumptive basis.

In our respectful submission, the view taken by the Chennai bench of the tribunal appears to be the correct view, particularly since the same has also been upheld by the High Courts of Madras and Bombay. However, the contrary view is also possible, and therefore one will ultimately have to await the decision of the Supreme Court on the issue.

BCAJ Admin

Glimpses Of Supreme Court Rulings

4. Aspinwall and Co. Ltd. Vs. Inspecting Assistant Commissioner

Civil Appeal No. 7796 of 2012 and Ors. decided on 13.04.2026

Kerala Agricultural Income Tax Act, 1991 – Accumulated losses – Set off in hands of amalgamated company – The accumulated losses in the balance sheet of amalgamating company could not be set-off against the income of the amalgamated company – Even otherwise the losses pertained to a period beyond 8 years the same could not be set off

A company named “Pullangode Rubber & Produce Co. Ltd.” was amalgamated with the Appellant company. The scheme of amalgamation was sanctioned in November 2006. The appointed date was fixed as 01.01.2006. As there were accumulated losses in the balance sheet of amalgamating company, the issue is, as to whether the same could be claimed as a set-off against the income of the amalgamated company.

According to the Appellant, in terms of the provisions of Section 54 of the Kerala Agricultural Income Tax Act, 1991, the amalgamated company as successor of the amalgamating company shall be entitled to set-off of the losses suffered. In terms of Section 12 of the Kerala Act, the losses suffered by an Assessee can be carried forward for a period of 8 years for set-off against the income of subsequent years. Relying upon the judgment of the Supreme Court in Dalmia Power Ltd. and Anr. v. Assistant Commissioner of Income-Tax (2020) 420 ITR 339, it was submitted that once the scheme of amalgamation is approved, all the clauses contained therein stand approved. The rights of the parties flow therefrom. In the aforesaid judgment, no objection was raised by the Income Tax Department to various clauses of the scheme. Hence, the same were held to be binding. In the case in hand as well, no objection was raised to the scheme of amalgamation. Clause 14(2) thereof clearly provides for set-off of losses incurred by amalgamating company against the profits of the amalgamated company. The findings recorded by the High Court in the impugned order were erroneous and are totally contrary to the law laid down in Dalmia Power Ltd.’s case (supra). In fact, the judgment of the High Court was delivered prior to the judgment of the Supreme Court in the aforesaid case. The Appellant prayed for setting aside the judgment of the High Court and allowing the Appellant’s claim for setting off accumulated losses of the amalgamating company with the profits of the amalgamated company.

In response, the Respondent submitted that reliance on the judgment of this Court in Dalmia Power Ltd.’s case (supra) was totally misplaced. The core argument raised by the Appellant, is that once the scheme of amalgamation has been approved with no objection raised by the Respondents therein, the terms and conditions contained therein have to be given full effect thereto. It was submitted that in the aforesaid case, the Supreme Court has specifically noticed that despite notice, the Income Tax Department had not raised any objection to any of the terms contained in the scheme of amalgamation whereas in the case in hand, State of Kerala was never issued noticed during the process of amalgamation.

It was further submitted that in terms of provisions of the Section 12 of Kerala Act, set-off of accumulated losses can be claimed only by the Assessee who suffered the losses. As the Appellant/amalgamated company had not suffered those losses, no set-off can be claimed. In any case, in Dalmia Power Ltd.’s case (supra), the only issue was regarding filing of returns which was allowed. The issue on merit regarding entitlement of the relief was not gone into. Even as per the conditions laid down in the scheme of amalgamation, especially Clause 17.1, the amalgamating company stands dissolved without winding up. Meaning thereby, the Assessee under the Kerala Act, who had suffered the losses, is no longer in existence to claim any set-off.

The Respondent further submitted that the language of Section 72A of the Income Tax Act, 1961 was altogether different when compared with the provisions of the Kerala Act. Section 2(7) of the Kerala Act defines an Assessee. Section 2(20) defines a person whereas Section 3 thereof is the charging section. Section 12 thereof deals with carry forward of losses, whereas Section 48 deals with legal representatives of a person who dies. Section 54, which talks about succession of a business, also does not come to the rescue of the Appellant as nothing contained therein provides that amalgamated company/Appellant can claim set-off of the losses suffered by amalgamating company. Proviso to the aforesaid section provides that if there is any existing tax demand against the amalgamating company, the same can always be recovered from successor, namely, the amalgamated company, but no other benefit accrues. Sections 57 to 59 of the Kerala Act deal with the assessment of a person transferring property, assessment in case of discontinued business of a company, firm or association and assessment of the firm/association which has been dissolved or has discontinued its business. Section 60 of the Kerala Act deals with a case where a company is in liquidation.

As the amalgamating company has ceased to exist, the Appellant cannot claim any set-off of the losses suffered by it. In support of the arguments, reliance was placed upon the judgment of the Supreme Court in General Radio & Appliances Co. Ltd. v. M.A. Khader (1986) 2 SCC 656, Saraswati Industrial Syndicate Ltd. v. CIT 1990 Supp SCC 675, Singer India Limited v. Chander Mohan Chadha and Ors. (2004) 7 SCC 1, CIT v. Maruti Suzuki (India) Ltd. (2020) 18 SCC 331 and Religare Finvest Ltd. v. State (NCT of Delhi) (2024) 1 SCC 797.

He further referred to the impugned order dated 23.09.2011 passed by the High Court where a specific finding has been recorded that the losses for which the set-off is sought to be claimed by the Appellant/amalgamated company pertains to a period beyond 8 years, which otherwise also is not permissible in terms of Section 12 of the Kerala Act.

The Supreme Court considered the provisions of the Kerala Act which were relevant for consideration of the arguments raised by the parties.

According to the Supreme Court, from a perusal of the relevant provisions it was evident that Section 2(7) defines an Assessee to mean a person liable to pay tax under the Kerala Act. Section 2(20) defines a person to mean an individual etc. owning, possessing or holding property which includes a corporate as well. Section 3 of the Kerala Act, which is the charging section, provides for charging of tax as per the rates prescribed in the aforesaid Act on the agricultural income. Section 12 of the Kerala Act enables any person to carry forward any loss sustained in any year for set-off against the income of subsequent years. Such loss can be carried forward for a maximum period of 8 years. Section 48 of the Kerala Act provides that in case, a person dies, his legal representatives shall be liable to pay tax, which the deceased would have been liable to pay under the aforesaid Act, if he had not died. Any proceedings for the purpose can be against the legal heirs of such deceased person, who shall be deemed to be an Assessee under the aforesaid Act.

Further, Section 54 of the Kerala Act deals with succession to business. It provides that where a person carrying on any business has been succeeded in such capacity by another person, such person and such other person shall each be assessed in respect of their actual share of agricultural income in the previous year. Proviso to the aforesaid section provides that in case a person who succeeded cannot be found, action can be taken against a person who is succeeding such person. The succeeding person is liable to pay tax, if any, due from the succeeded person.

Section 60 of the Kerala Act deals with the status of a company in liquidation. In terms thereof, a liquidator of a company, being wound up under Order of the court or otherwise, has to issue notice to the Agricultural Income Tax Officer, who in turn has to specify to him, the amount of tax due under the aforesaid Act.

Section 72A of the 1961 Act deals with carry forward and set off of accumulated losses and unabsorbed depreciation allowance in the cases of amalgamation or demerger. The provision, starting with a non-obstante clause, clearly provides that accumulated losses and unabsorbed depreciation of the amalgamating company shall be deemed to be loss or as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which amalgamation was effected.

The Supreme Court noted following Clause 14.2 of the scheme of amalgamation, which was relied upon by the Appellant.
“Clause 14.2. With effect from the Appointed Date, all the profits or Income accruing or arising to PRPL or expenditure or losses arising or incurred by PRPL shall, for all purposes, be treated as and shall deemed to accrue as the profits or income or expenditure or losses, as the case may be, of Aspinwall & Co.”

The Supreme Court also noted that the Appellant had not disputed that no notice of amalgamation proceedings was issued to the State of Kerala to raise objection with reference to any terms referred to with the amalgamation scheme.

According to the Supreme Court, Section 394-A of the Companies Act, 1956 makes it mandatory on the Tribunal to issue notice in every application filed under Sections 391 or 394 to the Central Government and any objections raised are to be considered. Section 394 of the aforesaid Act talks about amalgamation of the companies. The Ministry of Corporate Affairs, Government of India, had issued a Circular dated 15.01.2014 bearing F. No. 2/1/2014 providing that while responding to the notices issued to the Government Under Section 394-A, the Regional Director shall invite specific comments from the Income Tax Department within 15 days. If no response is received from the Income Tax Department during the aforesaid period, it may be presumed that the Income Tax Department has no objection to the action proposed under Section 391 or 394, as the case may be. It is in the light of the aforesaid provision and the circular that the comments of the Income Tax Department are mandatory.

The Supreme Court observed that in Dalmia Power Ltd.’s case (supra) the Court was dealing with a case under the Companies Act, 2013 where similar provision is contained in Section 230(5) specifically and in Rule 8(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. There is a specific finding recorded in the aforesaid judgment that despite notice, Income Tax Department did not raise any objection, within the stipulated time, to the scheme, as proposed. The same was approved. As the scheme was approved, all terms and conditions contained therein stood approved and could be acted upon.

According to the Supreme Court, the facts in the present case were distinguishable. Neither there was any statutory requirement for issuing notice to the State Government before any scheme of amalgamation is approved by the Court under the 1956 Act nor such notice was issued. Hence, to state that the judgment in Dalmia Power Ltd.’s case (supra) covers the case of the Appellant, was misconceived and deserves to be rejected.

According to the Supreme Court, the Appellant had not been able to refer to any provision under the Kerala Act in terms of which the losses suffered by amalgamating company could be set-off against the income of the amalgamated company. Its main reliance was only on the Clause 14.2 in the scheme of amalgamation. In view of what has been stated hereinbefore, the argument addressed with reference thereto stands rejected.

According to the Supreme Court, there was another finding on facts recorded by the High Court in the impugned order dated 23.09.2011 dealing with the Assessment Year 2006-07, i.e. that the loss of the amalgamating company / Pullangode Rubber & Produce Co. Ltd. pertained to a period beyond 8 years. Assessment years in all other appeals are subsequent to that. Hence, in terms of Section 12 of the Kerala Act the Appellant/Aspinwall and Co. Ltd. would not be entitled to any set-off. It was a case wherein the Appellant had lost in all fora. To challenge the aforesaid findings of fact recorded by the High Court in the impugned order, no specific ground had been raised in the petitions filed before the Court.

For the reasons mentioned above, the Supreme Court did not find any merit in the present appeals. The same were accordingly dismissed.

BCAJ Admin

Section 170A- modified return of income- Assessment – Limitation – restricted to the modified return of income or to give effect to the Order of amalgamation and not seek to re-open the entire assessment:

6. Technoforce Solutions (I) Pvt. Ltd vs. Deputy Commissioner of Income Tax, Circle-1 Nashik & Ors,

[Writ Petition no. 2041 of 2026, dated 1st April 2026 (Bombay HC)] Assessment Year : 2023-24.

Section 170A- modified return of income- Assessment – Limitation – restricted to the modified return of income or to give effect to the Order of amalgamation and not seek to re-open the entire assessment:

The Petitioner filed its return of income for A.Y. 2023-24 on 27.11.2023 declaring a total income of Rs.5,32,85,870/-. An intimation under Section 143(1) was issued on 05.12.2023 without making any adjustment to the income declared. The Petitioner had filed an application before the NCLT on 28.12.2021 for amalgamating its wholly owned subsidiary company, M/s. Promatics Solutions (I) Pvt. Ltd., for which the Appointed Date was fixed as 01.04.2021. The NCLT, by order dated 05.07.2024, approved the amalgamation of M/s. Promatics Solutions (I) Pvt. Ltd. with the Petitioner w.e.f. 01.04.2021.Thereafter, the Petitioner filed a modified return of income under Section 170A of the Act for A.Y. 2023-24, on 23.01.2025 on the Income-tax Portal, declaring total income of Rs.5,26,82,860/. The assessment for A.Y. 2023-24 became time barred on 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act. Subsequently, in response to the modified return Respondent No.3 issued a Notice under Section 143(2) for A.Y. 2023-24 on 23.06.2025. The Petitioner filed a reply to the aforesaid Notice on 07.07.2025 and stated that the reply was without prejudice to the contention that the Notice was barred by limitation. In this reply it was explained that the effect of Amalgamation is reduction of income of the Petitioner by a sum of Rs. 6,01,077/-, being the interest charged by the Petitioner to M/s. Promatics Solutions (I) Pvt. Ltd. on its loan amount. The Petitioner received a Notice u/s. 142(1) on 21.01.2026 for A.Y. 2023-24.

The Petitioner filed the present Petition seeking quashing of the Notice under Section 143(2) dated 23.06.2025 and Notice under Section 142(1) dated 21.01.2026 on the ground that both the Notices are issued after the assessment of the Petitioner’s income for A.Y. 2023-24 has become time barred on 31.03.2025 and therefore, both Notices are bad in law and without jurisdiction. Secondly, the notice under Section 143(2) of the Act cannot be issued after a period of three months from the end of the assessment year, , after 30.06.2024.

According to the Petitioner, with effect from 01.04.2022, Section 170A has been introduced in the Act by the Finance Act 2022. The said Section, as amended by the Finance Act 2023 with effect from 01.04. 2023, deals with the effect of business reorganisation. Sub-Section (1) of Section 170A of the Act mandates that where prior to the date of the order in respect of business reorganisation, if an assessee has furnished its return of income for any assessment year relevant to the previous year to which such order applies, the successor shall furnish within a period of six months from the end of the month in which the order was issued, a modified return in such form and manner as may be prescribed. As per sub-Section (2) of Section 170A of the Act, in so far as it is relevant for the present purpose, where the assessment proceedings for an assessment year, relevant to a previous year to which the order in respect of reorganisation applies, are completed on the date of furnishing of the modified return, the assessing officer is required to pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation, and taking into account the modified return so furnished.

The Hon’ble Court observed that, in the present case, the original return of income filed under Section 139(1) on 27.11.2023 for A.Y. 2023-24, had been accepted under Section 143(1) of the Act by issuance of the intimation dated 05.12.2023. Thereafter, no notice under Section 143(2) of the Act had been issued on or before 30.06.2024, as prescribed under the proviso to Section 143(2) of the Act. Therefore, the assessment proceedings stood completed and were not pending at the time of filing of the modified return of income on 23.01.2025. Accordingly, as per Section 170A(2)(a) of the Act, Respondent No.3 was under an obligation to pass an order modifying the total income of A.Y. 2023-24, as determined under the intimation issued under Section 143(1), in accordance with the order of amalgamation passed by the NCLT on 05.07.2024 and after taking into account the modified return furnished by the petitioner.

The Petitioner contended that the impugned notice dated 23.06.2025 issued under Section 143(2) of the Act and thereafter the notice dated 21.01.2026 issued under Section 142(1), called for accounts, documents, and information unrelated to the order of reorganization. According to the petitioner, no inquiry was being conducted regarding giving effect to the amalgamation order of the NCLT, which was the sole reason for filing the modified return of income under Section 170A(1) of the Act. It was further contended that, since the assessment for the assessment for A.Y. 2023-24 stood completed on the date of filing the modified return, clause (a) of sub-Section (2) of Section 170A specifically required the Assessing Officer to pass an order modifying the total income determined under Section 143(1) in accordance with the amalgamation order dated 05.07.2024 and after taking into account the modified return of income furnished on 23.01.2025. The petitioner further submitted that both the aforesaid notices lacked jurisdiction. The notice under Section 143(2) could not have been issued after 30.06.2024 in view of the proviso to Section 143(2), and since the assessment for A.Y. 2023-24 could not be completed after 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act, there was no pending assessment proceeding in relation to which any inquiry could be conducted. Consequently, the notice issued under section 142(1) of the Act also could not survive.

The Respondents contended that the present writ petition was liable to be dismissed since it challenged notices issued for completing the assessment in respect of the modified return of income filed by the Petitioner on 23.01.2025 and, therefore, the challenge was premature. It was submitted that the Petitioner had proceeded on an erroneous assumption that filing of a modified return under Section 170A of the Act does not permit fresh assessment proceedings. According to the respondents, section 170A had been introduced to enable the Assessing Officer to correctly assess the total income in cases of business reorganisation approved by a Court or Tribunal after the return of income for the relevant assessment year had already been filed. The learned Counsel for the Respondents further submitted that a return of income filed under Section 170A was also required to be verified by using the machinery provisions under the Act, and therefore, the interpretation suggested by the Petitioner would render Section 170A unworkable. It was further contended that the notice under Section 142(1) of the Act could not be faulted merely because it sought information beyond the amalgamation order passed by the NCLT. The respondents also submitted that issuance of notices under Sections 143(2) and 142(1) did not amount to a “back door reassessment”. According to them, the respondents had acted strictly within the framework of the Act and had not exceeded their jurisdiction.

In rejoinder, the learned Counsel appearing for the Petitioner submitted that the modified return of income filed under Section 170A was required to be dealt with strictly in accordance with sub-section (2) thereof.. It was further submitted that the notices had been challenged on the ground of limitation and lack of jurisdiction According to the petitioner, the notice under Section 143(2) for A.Y. 2023-24 could not have been issued after 30th June 2024 in view of the proviso to Section 143(2) of the Act. Further, since the assessment for A.Y. 2023-24 was required to be completed on or before 31.03.2025, no notice under Section 142(1) could thereafter be issued to scrutinise the modified return filed under Section 170A. Consequently, both notices are without jurisdiction and liable to be quashed. The petitioner further submitted that clause (a) of sub-Section (2) of Section 170A specifically provides that where the assessment stands completed on the date of filing the modified return, the Assessing Officer is only required to pass an order modifying the total income already determined so as to give effect to the order of business reorganisation passed by the Tribunal or the Court. On the other hand, where the assessment is pending on the date of filing the modified return, in such circumstances the Assessing Officer shall pass an order assessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Accordingly, it was argued that section 170A constitutes a complete code in itself. In the present case, since the assessment stood completed on the date of filing of the modified return, the Assessing Officer could not seek information beyond the scope of the amalgamation order as contemplated under clause (a) of sub-Section (2) of Section 170A. In support of the aforesaid submissions, reliance was placed upon the decision of this Court in the case of Bajaj Electricals Limited v. Assistant Commissioner of Income-tax, Circle-2(1)(1), Mumbai [Writ Petition (L) No. 40696 of 2025 decided on 9th February 2026]. It was further submitted that the Assessing Officer were permitted to scrutinise the modified return in the same manner as an original assessment, even in cases where the assessment had already stood completed on the date of filing the modified return, then no distinction would survive between cases falling under clause (a) and those covered under clause (b) of sub-Section (2) of Section 170A of the Act.

Section 170A comes into operation, where, prior to the date of the order in respect of business reorganisation, the assessee has furnished a return of income for any assessment year relevant to the previous year to which such order applies. The consequence of the application of Section 170A is that, under sub-Section (1) thereof, the successor is obligated to furnish a modified return of income, in the prescribed manner and limited to the order of business reorganisation, within six months from the end of the month in which such order was passed.

In the present case, the Petitioner had filed its original return of income for the A.Y.2023-24 on 23.11.2023. The scheme of amalgamation of M/s. Promatics Solutions (I) Private Limited with the Petitioner was approved by the NCLT on 05.07.2024.. Therefore, the Section 170A(1) of the Act squarely applied to the petitioner’s case, pursuant to which the Petitioner filed the modified return of income on 23.01.2025.

Section 170A(2) of the Act makes a clear distinction between two scenarios, clause (a) applies where the assessment stood completed on the date of furnishing of the modified return of income, whereas clause (b) applies where the assessment was pending on the date of furnishing of the modified return of income. In cases falling under clause (a), the assessing officer is required to pass an order modifying the total income already determined in the completed assessment, in accordance with the order of reorganization and considering the modified return. In contrast, clause (b), which deals with pending assessment, contemplates passing of an order assessing or reassessing the total income in accordance with the order of reorganization and after taking into account the modified return. According to the Hon’ble Court, the distinction between clauses (a) and (b) of sub-Section (2) of Section 170A of the Act is clear and deliberate. Clause (a) only provides for modification of the assessed income to give effect to the order of reorganisation while considering the modified return of income. There is no scope under clause(a) for issuance of notices under Sections 143(2) and 142(1) for making a de novo assessment.

An assessment which is already stands completed can only be modified under Section 170A(2)(a) by taking into consideration the modified return and giving effect to the order of amalgamation. For this limited purpose, information can be called for by the Assessing Officer by invoking the relevant provisions of the Act.

On the other hand, Section 170A(2)(b) contemplates passing of an Order of assessment or re-assessment, which necessarily requires issuance of notices under the Act for determination of the total income of the assessee.

In the present case, since the Petitioner’s fell under Clause (a) of sub-Section (2) of Section 170A, the impugned notice dated 23rd June, 2025 and 21st January, 2026 issued under Sections 143(2) and 142(1) were held to be unsustainable. The Court observed that the notices were not confined to the modified return of income or to giving effect to the amalgamation order, but instead sought to re-open the entire assessment of the Petitioner for Assessment Year 2023-2024. In these circumstances, the impugned notices, as well as the consequential assessment order passed under Section 143(3), read with Section 144B, were held to be unsustainable and were accordingly quashed and set aside.

Respondent No.3 was directed to pass a fresh order modifying the total income determined pursuant to the intimation issued under Section 143(1) dated 5th December, 2023 and to give effect to the modified return filed on 23rd January, 2025.

BCAJ Admin

Transmission of Flats: Post-Probate Scenario

The Repealing and Amending Act, 2025, removed mandatory probate requirements for property transmission in Mumbai with effect from January 2026. In the case of Co-operative Housing Societies, the Maharashtra Co-operative Societies Act, 1960 (“MCS Act”) mandates the immediate admission of nominees as provisional members until legal heirs are identified through a Will, succession certificates, or other appropriate legal process Conversely, condominiums governed by the Maharashtra Apartment Ownership Act, 1970 (“MAOA”) treat apartments as heritable immovable property and do not provide for a comparable statutory nomination mechanism. While probate is no longer legally compulsory for most communities, it nevertheless continues to remain a valuable mechanism for authenticating Wills and resolving disputes during the transmission process.

INTRODUCTION

The Repealing and Amending Act, 2025 effected a significant modification to the framework of testamentary succession in India. By omitting Section 213 of the Indian Succession Act, 1925, Parliament dismantled a colonial-era procedural requirement which, for nearly a century, had distinguished testamentary succession in the three erstwhile Presidency Towns of Bombay, Calcutta and Madras (now Mumbai, Kolkata and Chennai) from the rest of the country. This Feature in the February 2026 issue of the BCAJ examined this amendment.

Probate is now no longer mandatory even for Hindus and Parsis residing in Mumbai, Chennai, or Kolkata, or for persons holding immovable properties in these locations. The amendment seeks to bring about uniformity in the provisions of the Act for across communities. However, the amendment does not alter the position in respect of Wills for which probate petitions are pending before any Court. The repeal does not affect existing rights, acts, obligations, liabilities or pending proceedings. According, the amendment operates prospectively from 1st January 2026 and not retrospectively. Existing probates remain valid, and pending probate proceedings do not automatically abate or terminate.

It is in this altered legal landscape that the questions forming the subject matter of this article assume significance: how should a co-operative housing society in Mumbai deal with the demise of a member, both where a valid nomination exists and where no nomination has been made? Further, how should a condominium formed under the Maharashtra Apartment Ownership Act, 1970, deal with an analogous situation?

TRANSMISSION IN A CO-OPERATIVE HOUSING SOCIETY

In the State of Maharashtra, the transmission of the share, right, title and interest of a deceased member of a co-operative housing society is governed primarily by the Maharashtra Co-operative Societies Act, 1960 (the “MCS Act”), the Maharashtra Co-operative Societies Rules, 1961 (the “MCS Rules”), and the bye-laws of the concerned society. The MCS Act specifically contains Section 154B-13, which deals with the transfer of interest upon the death of a member.

In addition, Section 30 of the MCS Act, which generally governs the transfer of interest upon the death of a member in co-operative societies, Sections 22 to 25A relating to membership, eligibility and disqualification, and Section 154B-9 concerning removal of a member by the Registrar in cases of admission contrary to the Act, the Rules, or the bye-laws, continue to apply except to the extent modified by Chapter XIII-B in respect of co-operative housing societies.

Section 154B-13 of the MCS Act provides for the transfer of interest upon the death of a Member. Upon the death of a Member of a society, the society is required to transfer the share, right, title and interest in the property of the deceased member to a person or persons on the basis of testamentary documents, a succession certificate, a legal heirship certificate, or a family arrangement executed by the persons entitled to inherit the property of the deceased member, or to a person duly nominated in accordance with the Rules.

The provision further stipulates that the society shall admit the nominee as a provisional Member upon the death of the Member until the legal heir or heirs, or the person entitled to the flat and shares in accordance with the applicable law of succession or under a Will or other testamentary document, is admitted as a Member in place of the deceased Member.

Lastly, the provision states that where no nomination has been made, the society shall admit as a provisional Member such member as may appear to the Committee to be the heir or legal representative of the deceased Member in the prescribed manner.

WHERE THE DECEASED MEMBER HAS MADE A VALID NOMINATION

The MCS Act permits a member of a co-operative society to nominate, in writing, any person to whom his share or interest in the society shall be transferred upon his death. A nomination is not a mode of testamentary disposition. It does not confer beneficial ownership upon the nominee. Upon the death of the member, the nominee is merely a person designated to receive the share or interest of the deceased member from the society and holds the same in trust until the legal heirs or legatees, as the case may be, are ascertained.

This proposition has been repeatedly affirmed by the Hon’ble Supreme Court of India over several decades, most recently and emphatically in Shakti Yezdani v. Jayanand Jayant Salgaonkar, (2024) 1 SCC 706. In that case, the Supreme Court, while considering nominations under the Companies Act, 1956, held that the legislative object of nomination is not to provide a third mode of succession, but merely to provide a discharge mechanism for the company in respect of the shares held by the deceased shareholder. The Court further held that a nominee does not acquire absolute beneficial ownership in derogation of the rights of the legal heirs or legatees of the deceased.

The same principle had earlier been expounded by the Supreme Court in Smt. Sarbati Devi v. Smt. Usha Devi, (1984) 1 SCC 424, in the context of nominations under Section 39 of the Insurance Act, 1938. Both these decisions constitute important pillars of the law of relating to nomination in India and form the necessary backdrop against which the decision of the Supreme Court in Indrani Wahi v. Registrar of Co-operative Societies & Ors., (2016) 6 SCC 440, must be understood.

THE DECISION OF THE SUPREME COURT IN INDRANI WAHI

The decision in Indrani Wahi was rendered by a Division Bench of the Supreme Court in a case arising under the West Bengal Co-operative Societies Act, 1983, and the West Bengal Co-operative Societies Rules, 1987. However, the principles laid down therein have pan-Indian relevance to nominations under co-operative societies legislation.

The principal issue before the Supreme Court was whether, upon the death of a member of a co-operative society who had made a valid nomination, the society was bound to transfer the share or interest of the deceased member in favour of the nominee — and, conversely, whether such transfer determined the question of title as between the nominee and the other heirs of the deceased member.

The Court held that the transfer of shares or interest in favour of the nominee is binding upon the concerned Cooperative Society. The Cooperative Society has no option whatsoever except to transfer the membership in the name of the nominee. However, such transfer has no bearing upon the issue of title between the heirs, inheritors or successors to the deceased member. Accordingly, where a deceased member who has made a valid nomination, the co-operative society has “no option whatsoever” but to transfer the share and interest of the deceased member in favour of the nominee. The society neither adjudicates competing claims of succession, nor is it entitled to delay or refuse such transfer on the ground that another heir may possess a superior claim under the applicable law of succession.

The transfer of shares and interest in favour of the nominee, insofar as the society is concerned, does not amount to an adjudication of title. The legal heirs and representatives of the deceased member continue to retain the right to pursue their claims of succession or inheritance before a competent civil forum in accordance with the applicable personal law. The nominee, qua the property held in the society, occupies the position of a trustee for the true owners as may ultimately be determined inter se among the heirs.

The principles laid down in Indrani Wahi apply with equal force to a co-operative housing societies in Maharashtra. This position has been authoritatively reinforced and amplified by the Hon’ble Bombay High Court in Foreshore Co-operative Housing Society Limited v. Divisional Joint Registrar of Co-operative Societies & Ors., WP No. 7834 of 2025, decided on 9 December 2025 (“the Foreshore decision”), which presently constitutes the most recent judicial pronouncement on the interpretation and operation of Section 154B-13 of the MCS Act.

In the Foreshore decision, after undertaking a careful textual analysis of Section 154B-12 and Section 154B-13 of the MCS Act, the Bombay High Court laid down certain principles of general application to all co-operative housing societies in Maharashtra.

The Court emphasised that a clear distinction must be drawn between a transfer of interest by a living member under Section 154B-12 and a transfer upon the death of a member under Section 154B-13. Section 154B-12 employs the expression “may transfer” and preserves the discretion of the society to scrutinise the eligibility of the proposed transferee. In contrast, under Section 154B-13, the role of the society is confined to giving effect to the statutory scheme of succession.

Upon the death of a member, “the society’s discretion is significantly reduced. The society cannot choose among claimants or impose additional eligibility norms not found in the statute.” The role of the society is limited to verifying the legal status of the nominee or heir.

The Court further observed that Section 154B-13 operates with reference to two distinct sources of entitlement, namely:

testamentary or succession-based documents, such as a Will, succession certificate, legal heirship certificate, or family arrangement executed by or in favour of the persons entitled to inherit the property of the deceased member; and
a nomination duly made in accordance with the Rules.

The provisos to Section 154B-13 contemplate the admission of:

the nominee; or
in the absence of a nomination, the apparent heir or legal representative,

as a provisional member pending ascertainment of the legal heir or legatee in accordance with succession law or under a Will. The proviso to Section 154B-13 introduces, in the context of housing societies, a relatively novel concept which merits careful attention. Upon the death of a member who has made a valid nomination, the nominee is to be admitted as a provisional member — and not as a regular member — “till legal heir or heirs or a person who is entitled to the flat and shares in accordance with succession law or under Will or testamentary document are admitted as Member in place of such deceased Member”.

Thus, immediately upon the death of the member, the nominee is admitted as a provisional member. Such provisional membership continues until the heirs or legatees, as the case may be, are identified and admitted in accordance with the applicable testamentary document, succession certificate, legal heirship certificate, or family arrangement. Upon such admission, the provisional membership comes to an end and is replaced by regular membership in favour of the rightful heir or legatee. The Bombay High Court in Pravinkumar Jethalal Dave, vs The State of Maharashtra, WP No. 2317/2011 Order Dated 9th February 2026, adopted a similar approach. The Court held that nomination merely enables the Society to deal with an identified person after the death of a member.

WHERE THE DECEASED MEMBER HAS MADE NO NOMINATION

Where the deceased member has not made any nomination, where the nominee has predeceased the member, or where the existence or address of the nominee cannot be ascertained, recourse must be had to the second proviso to Section 154B-13, which reads:

“Provided further that, if no person has been so nominated, society shall admit such person as provisional Member as may appear to the Committee to be the heir or legal representative of the deceased Member in the manner as may be prescribed.”

The principal provision of Section 154B-13 itself contemplates transmission to a person entitled on the basis of “testamentary documents or succession certificate or legal heirship certificate or document of family arrangement executed by the persons, who are entitled to inherit the property of the deceased Member”.

THE EFFECT OF THE 2025 AMENDMENT ON THIS PROCEDURE

The 2025 Amendment has a direct and significant impact upon the foregoing procedure. Following the omission of Section 213 of the Indian Succession Act, 1925, a society in Mumbai is no longer entitled, as a matter of law, to insist upon the production of probate or letters of administration as a precondition to admitting a legatee under a Hindu, Buddhist, Sikh, Jain or Parsi Will as a regular member.

That said, the change introduced by the 2025 Amendment requires careful navigation in practice. It remains open to a society — through its bye-laws or by resolution — to require appropriate authentication of the Will, including:

an affidavit of execution from one or more of the attesting witnesses;
an affidavit-cum-indemnity bond from the legatee;
and a No-Objection Certificate from the heirs who would have inherited in the absence of a Will.

Certain societies may even continue to insist upon a probated Will.

While the Repealing and Amending Act 2025, removes the mandatory requirement of probate, probate may nevertheless continue to assume practical significance in many situations. In the absence of probate, the executor may proceed to distribute the estate immediately amongst the beneficiaries under the Will. However, questions may subsequently arise if the Will is challenged at a later stage, including after several years. Further, in cases involving disputes among family members, probate may still be insisted upon by the sub-registrar / company. As noted earlier, even in jurisdictions where probate has historically not been mandatory under the Indian Succession Act, many institutions have continued, in practice, to insist upon probate as a matter of procedural certainty and risk mitigation.

TRANSMISSION IN A CONDOMINIUM

A condominium formed under the Maharashtra Apartment Ownership Act, 1970 (the “MAOA”) does not fall within the regulatory framework of the Maharashtra Co-operative Societies Act, 1960. Consequently, the provisions of the MCS Act, including Chapter XIII-B and Section 154B-13 thereof, have no application to a condominium.

The decisions in Indrani Wahi and Foreshore — both rendered in the context of co-operative societies legislation — are therefore not directly applicable to condominiums. Nevertheless, they continue to possess persuasive value, particularly in relation to the broader principles governing nomination.

The principal provision governing transmission under the MAOA is Section 4. The provision states that every apartment, together with the percentage of undivided interest in the common areas and facilities appurtenant thereto, shall constitute a heritable and transferable immovable property for all purposes under the law for the time being in force.

Accordingly, the owner of an apartment is entitled to transfer the apartment, together with the corresponding undivided interest in the common areas and facilities, by way of sale, mortgage, lease, gift, exchange or in any other manner whatsoever, including by bequest.

The statutory architecture of the MAOA is therefore fundamentally different from that of the MCS Act:

Whereas, in a co-operative housing society, the immediate subject-matter of transfer is the share of the member in the society with the right to occupy the flat being merely incidental to membership, in a condominium, the immediate subject-matter of transfer is the apartment itself as heritable and transferable immovable property.
Consequently, the elaborate statutory concept of nomination contained in Section 30 and Section 154B-13 of the MCS Act has no counterpart under the MAOA. The MAOA contains no provision permitting nomination in respect of an apartment in a condominium.
Accordingly, upon the death of an apartment owner, the apartment devolves in accordance with the ordinary law of testamentary or intestate succession applicable to the deceased owner.

The Maharashtra Apartment Ownership Rules, 1972, framed under the MAOA, prescribe Model Bye-Laws in Exhibit B, which are commonly adopted by condominiums in Maharashtra, subject to such modifications as the apartment owners may approve.

Clause 3 of Model Bye-Law 5 specifically addresses the situation arising upon the death of an apartment owner. The clause recognises only two modes of devolution:

devolution by testamentary succession under a Will; and
devolution upon the legal representatives of the deceased owner in cases of intestate succession.

There is no concept of nomination under the MAOA, and an apartment in a condominium cannot be “nominated” in favour of any person in a manner analogous to the position prevailing under co-operative housing society legislation.

The legislative scheme of the MAOA, read together with Model Bye-Law 5, may therefore be summarised in the following propositions:

i) an apartment constitutes heritable and transferable property in the same manner as any other immovable property;

ii) the apartment owner may dispose of the apartment by way of a Will, or the apartment may devolve through intestate succession;

iii) the role of the Association of Apartment Owners upon the death of an apartment owner is essentially administrative — namely, to give effect to the testamentary or successional documents and to update the register of apartment owners — and is not adjudicatory; and

iv) the Association does not derive, from the MAOA, any independent power to admit or refuse “membership” analogous to the powers exercised by a co-operative housing society.

However, the Association may, where it considers it appropriate, require the legatee to obtain probate of the Will on a voluntary basis. Probate, where granted, continues under Section 273 of the Indian Succession Act, 1925, to constitute conclusive proof of the representative title of the executor, and obviates many of the practical concerns associated with an unprobated Will.

CONCLUSION

The legal framework governing the transmission of flats upon the demise of a member or apartment owner in Mumbai presently stands at a moment of significant change. The Repealing and Amending Act, 2025, by removing the requirement of mandatory probate, has eliminated one of the most enduring procedural distinctions between Mumbai, Kolkata and Chennai on the one hand and the rest of the country on the other.

The omission of Section 213 of the Indian Succession Act, 1925 means that probate is no longer a mandatory precondition for transmission in respect of Wills executed by Hindus, Buddhists, Sikhs, Jains and Parsis with a Mumbai nexus.

Probate nevertheless continues to remain a valuable and significant legal instrument, particularly in cases involving high value estates, contested family situations, complex testamentary arrangements, or anticipated future dealings with the apartment.

The institutional response of co-operative housing societies and condominiums in Mumbai must therefore, in the post-2025 legal landscape, strike a careful balance between:

the legal imperative of giving expeditious effect to transmission; and
the prudential necessity of satisfying themselves regarding the genuineness of the Will and the entitlement of the legatee.

BCAJ Admin

Sec 148 – Reassessment – beyond a period of three years – Approval – the specified authority was the authority contemplated by Section 151(ii), and not in Section 151(i) – Defect not a mere procedural irregularity – Approval by a wrong authority – Proviso to Section 151 cannot be read retrospectively

5. Skypak Travels Private Limited vs. Income-Tax Officer Ward- 2(3)(1) and Ors.

[Writ Petition no. 5456 of 2024, Order dated 24th April 2026 (Bombay HC)] Assessment Year 2018-19.

Sec 148 – Reassessment – beyond a period of three years – Approval – the specified authority was the authority contemplated by Section 151(ii), and not in Section 151(i) – Defect not a mere procedural irregularity – Approval by a wrong authority – Proviso to Section 151 cannot be read retrospectively

The Petitioner is a company incorporated in India. The Petitioner had not been engaged in any active business for several years and had not filed its Return of Income for the relevant period. It was the specifically contended by the Petitioner that, at the relevant time, it did not even have an account on the income-tax e-filing portal, and such account came to be opened only on 16 October, 2024 after the Petitioner became aware of the reassessment and penalty proceedings.

For Assessment Year 2018-19, a notice dated 23 March 2022 was issued under Section 148A(b) of the Act alleging that information had been flagged on the portal in accordance with the risk management strategy and that the Petitioner had sold immovable property valued at Rs.2,29,23,500/- without filing any return of income. The Petitioner contended that the said notice was never served either physically or electronically. Thereafter, an order dated 06 April 2022 was passed under Section 148A(d) of the Act, followed by issuance of notice dated 07 April 2022 under Section 148 of the Act. According to the petitioner, these were also never served. The Petitioner further contended that both the said notice and the order themselves recorded that approval had been obtained from the Principal Commissioner of Income Tax. Subsequently, the reassessment proceedings were carried forward by issuance of notices under Section 142(1) and Show cause notices alleging that the Petitioner had sold immovable property and proposing to add Rs.2,29,23,500/- under Section 50C of the Act.

The Petitioner contended that none of the aforesaid notices had ever been served upon it. In fact, the reassessment order itself records that the notice sent by speed post had been returned with the remark “Left”, and that the Inspector deputed for service had reported that the address of the Assessee was inaccurate and that no company in the name of the Petitioner existed at the stated address in Raja Bahadur Compound. The Petitioner contended that, despite this, the Department continued to proceed on the basis of incorrect address. On 26 March 2024, Respondent No.1 passed an order under section 147 read with Section 144 of the Act, treating Rs.2,29,23,500/- as short-term capital gains under Section 50C and raising a tax demand of Rs.1,79,72,560/-. Thereafter, by orders dated 23 September 2024, penalty under Section 270A amounting of Rs.1,51,58,394/- and penalty under Section 272A(1)(d) amounting of Rs.50,000/- were levied.

According to the Petitioner, it became aware of these proceedings only when the assessment order and penalty orders were received by its director on 10 October 2024. Thereafter, an e-filing account was created on 16 October 2024, upon which the Petitioner downloaded various notices and orders.

The Petitioner submitted that the impugned notice under Section 148 and the order under Section 148A(d) are wholly without jurisdiction since they had been issued after expiry of three years from the end of Assessment Year 2018-19, whereas the approval admittedly been granted by the Principal Commissioner of Income Tax. According to the petitioner, in such a case, the competent specified authority under Section 151(ii), as it then stood, ought to have been the Principal Chief Commissioner / Principal Director General or, in their absence, the Chief Commissioner / Director General, and not the Principal Commissioner. Reliance was placed upon the decision in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax in Writ Petition No. 2768 of 2022 decided on 06 February 2024, wherein the Court, in an identical case, held that where the notice under Section 148 and order under Section 148A(d) had been issued beyond three years from the end of the relevant assessment year, sanction granted by the Principal Commissioner was invalid and the sanctioning authority ought to have been the authority specified under Section 151(ii). The petitioner also relied upon Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors., Writ Petition (ST) No. 5390 of 2024 decided on 21 February 2024, wherein, following Vodafone Idea Limited (supra), the Court quashed the order under Section 148A(d) and notice under Section 148 on the ground that the sanction was accorded by the Principal Commissioner even though the matter pertained to Assessment Year 2018-19 and the impugned action had been taken beyond three years. It was further pointed out that the Special Leave Petition preferred against the said decision in KPMG (supra) had also been dismissed by the Hon’ble Supreme Court.

The importance of prior approval under Section 151 was emphasized by the Supreme Court in Union of India & Ors. vs. Rajeev Bansal [(2024) 469 ITR 46 (SC)], wherein it was held that Section 151 imposes an important check on the power of the Revenue to reopen assessments and that grant of sanction by the appropriate authority is a pre-condition for assumption of jurisdiction under Section 148. Non-compliance with the statutory requirement as to sanction goes to the root of the matter and renders the entire proceedings void.

The Hon’ble Court observed that, as Section 151 stood at the relevant point of time, where more than three years had elapsed from the end of the relevant assessment year, the specified authority was the authority contemplated under Section 151(ii), and not the authority mentioned in Section 151(i). The period of three years was required to be computed from the end of the relevant assessment year. In the present case, the impugned order and notice themselves indicated that approval had been granted by the Principal Commissioner of Income Tax. This fact was also admitted in the Reply Affidavit. He was not the competent authority in law for a case falling beyond the three-year period from the end of the relevant assessment year.

The Hon’ble Court observed that the issue was squarely covered by the decision of this Court in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax decided on 06 February 2024. In that case also, for Assessment Year 2018-19, the notice under Section 148 and the order under Section 148A(d) had been issued beyond three years, and sanction had been accorded by the Principal Commissioner. Incidentally, the notice in the said case was also dated 07 April 2022. The Court held that the sanctioning authority ought to have been the Principal Chief Commissioner as contemplated under Section 151(ii) and that the proviso to Section 151, inserted only with effect from 01 April 2023, would not apply.

The same view was reiterated by the High Court in Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors. decided on 21 February 2024. In that case as well,, the Court held that since the impugned notice and order for Assessment Year 2018-19 were issued beyond three years, sanction granted by the Principal Commissioner was invalid and the matter was governed by Section 151(ii). The Court specifically observed that the proviso to Section 151 had been inserted only with effect from 01 April 2023 and, therefore, had no application to the facts of that case. The Special Leave Petition against the said decision was also dismissed in SLP(C) Diary No. 23377/2025.

The Hon’ble Court further noted that Hon’ble Supreme Court in case of Rajeev Bansal had clearly explained the importance of sanction under Section 151 and held that grant of sanction by the appropriate authority is a pre-condition for the Assessing Officer to assume jurisdiction under Section 148. Section 151 is not an empty formality; rather it is statutory safeguard and check against arbitrary reopening. Non-compliance with the said requirement goes to the root of jurisdiction itself.

According to the Hon’ble Court, the defect in the present case was not a mere procedural irregularity. It was a case where approval had been granted by an incompetent authority. Consequently, the assumption of jurisdiction itself was invalid.

The Hon’ble Court further observed that the fifth and sixth proviso (erstwhile third and fourth provisos) to Section 149(1) were not applicable for the purposes of Section 151 of the Act. The provisos themselves make it clear that they are only for the purposes of computation of period of limitation under Section 149 of the Act. It was this reason that a special proviso had subsequently been inserted in Section 151 of the Act.

Further, the proviso inserted to Section 151 cannot be treated as retrospective. The Legislature had specifically inserted the proviso with effect from 01 April 2023. Had the Legislature intended
retrospective operation, it could have said so expressly. In the absence of such indication, and particularly since the provision relates to jurisdiction, it cannot be construed so as to retrospectively validate an action which was without jurisdiction when originally taken.

The Court also noted that the proviso to Section 151 refers to four provisos to Section 149(1). Two of those provisos i.e., third and fourth proviso to Section 149(1) were inserted with effect from 01 April 2023. The original third and fourth provisos were made fifth and sixth provisos. There is no case made out or even argued that even third and fourth proviso to Section 149(1) are retrospective in nature. Once, the third and fourth proviso to Section 149(1) are undisputedly prospective and effective from 01.04.2023, then the proviso to Section 151 which was inserted at the same time, and which makes a reference to such provisos cannot be held to be retrospective. Thus, it was observed that the proviso to Section 151 cannot be read retrospectively so as to govern notices and orders issued in April 2022.

The objection raised by the Revenue regarding availability of an alternate remedy was rejected. Consequently, the impugned order passed under Section 148A(d) dated 06 April 2022, the impugned notice issued under Section 148 dated 07 April 2022, the assessment order dated 26 March 2024 passed under section 147 read with Section 144, the notice of demand issued pursuant thereto, and the penalty orders dated 23 September 2024 under Sections 270A and 272A(1)(d), being consequential to proceedings initiated without jurisdiction, were quashed and set aside.

BCAJ Admin

Section 143(3), rws 144B – Faceless Assessment – Show Cause notice not granting sufficient time to reply – Violation of principles of natural justice – Standard Operating Procedure dated 03.08.2022 :

4. Wrode and Wire Pvt Ltd vs. National Faceless Assessment Centre (formerly known as National E-Assessment Centre) & Ors

[Writ petition no. 3533 of 2022, dated April 24, 2026 (Bombay HC)] Assessment Year 2018-19

Section 143(3), rws 144B – Faceless Assessment – Show Cause notice not granting sufficient time to reply – Violation of principles of natural justice – Standard Operating Procedure dated 03.08.2022 :

The Petitioner had filed its return of income declaring a total income of Rs.6,19,860/- for the relevant Assessment Year 2018-19. The case of the Petitioner was selected for scrutiny through issuance of notice under Section 143(2) of the Act. The Respondents issued several notices, and the Petitioner duly filed various submissions/explanations along with the relevant documentary evidence. A direction was also issued for conducting special audit under Section 142(2A) of the Act, and the special audit report was submitted to Respondent No. 1.

Thereafter, the Petitioner received a Show Cause Notice cum Draft Assessment Order dated 06.01.2022 (Thursday), calling upon the Petitioner to show cause as to why the assessment should not be completed in terms of the Draft Assessment Order, where the Assessing Officer proposed an addition of Rs. 116,38,23,790/. The said notice was digitally issued and signed at around 07:06 p.m., and the Petitioner was required to comply with the same by 23:59 hours of 09.01.2022 (which was a Sunday). On 08.01.2022, the Petitioner sought an adjournment and requested extension of time upto 23.01.2022. However, Respondent No.1 directly passed the impugned assessment order under Section 143(3), read with Section 144B, on 12.01.2022, whereby an addition of Rs. 65,68,23,520/- was made and a Demand of Rs. 70,85,60,500/- was raised.

The Petitioner, challenged the said Assessment Order by the way of the Writ Petition and contended that, under the Show Cause Notice dated 06.01.2022, proposing an addition of Rs. 116,38,23,790/-, the time granted to the Petitioner was merely 2.5 days, which included Saturday and Sunday. It was submitted that the Assessment proceedings were conducted in a high pitched and hurried manner. According to the petitioner, the period of merely 2.5 days was wholly insufficient and resulted in violation of the principles of natural justice, which require sufficient, adequate, and reasonable opportunity of being heard to the assessee. The petitioner further contended that paragraph 1.3 of the Standard Operating Procedure dated 03.08.2022 issued by the National Faceless Assessment Centre itself directed the assessment units to grant at least seven days’ time to assessees for responding to show-cause notices.

It was also contended that, despite the Petitioner having filed an adjournment request on 08.01.2022, no communication regarding acceptance or rejection of such request was ever made to the Petitioner, and the impugned assessment order was directly passed on 12.01.2022. Further, no opportunity for personal hearing was granted to the petitioner. It was submitted that the draft Assessment Order violated the provisions of Section 144B(7)(vii), as they stood at that relevant point of time.

The petitioner additionally contended that, in the final Assessment Order dated 12.01.2022, a separate disallowance of Rs. 7,46,488/- in respect of travelling expenses had been made; although no such disallowance had ever been proposed in the Draft Assessment Order. Thus, an addition had been made directly in the final Assessment Order without issuance of any Show Cause Notice in respect thereof. According to the petitioner, the assessment proceedings had been completed in a high-pitched manner and in undue haste.

The learned counsel appearing on behalf of the Respondents supported the contentions of Respondent No.1 as set out in the impugned Final Assessment Order and relied upon the Affidavit in Reply dated 04.05.2022 as well as an Additional Affidavit in Reply dated July, 2022. It was also contended that the Petitioner ought to be directed to avail the alternate remedy available under the statute.

The Hon’ble Court held that it would not be appropriate to relegate the Petitioner to avail to the alternate remedy of appeal under the statute when there had been a breach of the principles of natural justice on the part of Respondent No.1. According to the Hon’ble Court, the matter was a fit case to interfere in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India.

Accordingly, the Hon’ble Court held quashed and set aside the final Assessment Order dated 12.01.2022 passed under Section 143(3), read with Section 144B of the Act, along with all consequential notices. The matter was remanded to the Jurisdictional Assessing Officer for fresh consideration from the stage of issuance of the Draft Assessment Order dated 06.01.2022 and for passing such order as may deemed fit in accordance with law, after affording the Petitioner an opportunity to respond to the Draft Assessment Order and also granting a personal hearing.

BCAJ Admin

Mediclaim reimbursements are independent contractual entitlements and cannot be deducted from compensation awarded under the Motor Vehicles Act.

14. New India Assurance Company Ltd. v. Dolly Satish Gandhi & Anr.

2026 INSC 498

Mediclaim reimbursements are independent contractual entitlements and cannot be deducted from compensation awarded under the Motor Vehicles Act.

FACTS

Conflicting views existed amongst various High Courts regarding whether amounts received by a claimant under a Mediclaim insurance policy were liable to be deducted while computing compensation payable under the Motor Vehicles Act.

One line of decisions held that Mediclaim reimbursement is independent of compensation under the Motor Vehicles Act and therefore not deductible. Another line of authorities held that permitting both would amount to double recovery and that Mediclaim amounts ought to be deducted.

A Full Bench of the Bombay High Court resolved the conflict by holding that Mediclaim reimbursement is not deductible from compensation awarded by the Motor Accidents Claims Tribunal.

The correctness of the Full Bench decision was challenged before the Supreme Court.

HELD

The Supreme Court held that compensation under the Motor Vehicles Act and reimbursement under a Mediclaim policy operate in distinct fields. A Mediclaim policy is founded on a contractual relationship supported by payment of premiums by the insured, whereas compensation under the Motor Vehicles Act arises from statutory liability flowing from a wrongful act.

Amounts received under Mediclaim policies cannot, therefore, be deducted from compensation payable by the tortfeasor or insurer under the Motor Vehicles Act. Deduction of such amounts would unjustly benefit the wrongdoer and defeat the beneficial object of the legislation. The Court approved the view that Mediclaim reimbursement is not liable to deduction from motor accident compensation.

The Court noted that certain High Courts had treated Mediclaim benefits as independent contractual entitlements not liable for deduction, whereas other courts had viewed such reimbursement as overlapping compensation leading to duplication of benefits. The Court pointed out that it is the duty of the lawyers to point out conflicting decisions to the Court. The Court analysed the conflicting authorities and proceeded to settle the legal position governing the issue.

The Appeal was dismissed.

BCAJ Admin

TDS — Credit for tax deducted — S. 199 — Assessee bank received sale proceeds from auction of borrower’s property under SARFAESI Act — Tax was deducted at source u/s. 194-IA — Property ownership remained with borrower — Sale consideration was not bank’s income — Assessee bank was entitled to credit/refund of TDS from sale proceeds.

16. Pr.CIT v. Punjab National Bank:

(2026) 185 taxmann.com 1003 (Del.)

A. Y. 2020-21: Date of order 21/04/2026

S. 199 of ITA 1961/S. 390 of ITA 2025

TDS — Credit for tax deducted — S. 199 — Assessee bank received sale proceeds from auction of borrower’s property under SARFAESI Act — Tax was deducted at source u/s. 194-IA — Property ownership remained with borrower — Sale consideration was not bank’s income — Assessee bank was entitled to credit/refund of TDS from sale proceeds.

The Assessee is a Bank. The Assessee sold an immovable property by way of an auction under the SARFAESI Act on account of default by the borrower. The sale proceeds were credited to the Assessee after deduction of tax at source u/s. 194-IA of the Income-tax Act, 1961.

In the assessment proceedings, it was the contention of the Assessee that the Assessee was entitled to refund of the amount deducted from the sale proceeds. It was submitted that the Assessee was merely a custodian of the sale proceeds and did not receive the same in the capacity of the owner and that the Assessee was liable to return the excess consideration over the liability to the borrower. However, the Department contended that the Assessee can neither claim credit of TDS nor claim refund unless the Assessee Bank offered the corresponding income in respect of the sale of immovable property.

The CIT(A) decided the appeal in favour of the Assessee and the Tribunal affirmed the decision of the CIT(A).

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

“i) When the tax is deducted in relation to the amount paid/received qua purchase/sale of the property, then one has to bear in mind the nature of transaction.

ii) In case of auction/sale of a property under the provisions of the SARFAESI Act, the Bank cannot be treated to be the owner, as it only has possession of the property for having security interest in the property and corresponding rights to sell the same for recovery of its dues. The property neither factually nor by any legal fiction belongs to the Bank. It is actually the borrower who is the owner of the property having created a security interest in relation to the property in favour of the Bank or secured creditor.

iii) The Bank during the course of assessment proceedings, had clearly explained before the Assessing Officer that it had charged interest on the loan amount and has adjusted all expenses from the sale proceeds it received consequent to the auction. When the secured assets are sold by the Bank, it is only a trustee or custodian of the sale proceeds and any excess amount received in relation to the property over and above its outstanding dues and expenses incidental to the auction, has to be returned to the borrower. Similarly, in case there is any deficit, the Bank can recover the same from the borrower in accordance with law.

iv) The property does not belong to the Bank and therefore, irrespective of the fact that the amount has been deducted u/s. 194IA of the Act, from the sale proceeds, the Bank is entitled to get refund of that amount because, Bank’s asset was not sold by the Bank. The respondent Bank is entitled to get refund of the amount deducted from the sale proceeds, as has been rightly held by the CIT(A). We therefore, do not find any error in the orders of the CIT(A) so also of the Tribunal. They are hereby affirmed.”

BCAJ Admin

Insolvency – Real estate projects – Project-wise resolution – Homebuyers’ interests – CIRP can proceed project-wise. [Insolvency and Bankruptcy Code, 2016]

13. Alpha Corp Development Pvt. Ltd. v. Greater Noida Industrial Development Authority & Ors.

2026 INSC 449

Insolvency – Real estate projects – Project-wise resolution – Homebuyers’ interests – CIRP can proceed project-wise. [Insolvency and Bankruptcy Code, 2016]

FACTS

Corporate insolvency resolution proceedings were initiated against a real estate developer engaged in the development of multiple housing and commercial projects. Certain projects were developed on lands leased from the Greater Noida Industrial Development Authority (GNIDA), while one project was situated on freehold land unconnected with GNIDA.

Separate resolution plans were approved by the NCLT in respect of different projects. GNIDA challenged the approvals before the NCLAT which set aside the orders passed by the NCLT.

Various stakeholders, including developers, homebuyers’ associations and project entities, approached the Supreme Court.

HELD

The Supreme Court recognised the principle that insolvency resolution in real estate matters may proceed on a project-wise basis rather than necessarily against the corporate debtor as a whole.

The Court observed that project-specific resolution protects viable projects and safeguards the interests of homebuyers in projects unaffected by default.

Reference was made to earlier decisions affirming that project-wise CIRP is permissible in appropriate cases.

The Court also observed that projects unconnected with GNIDA could not be subjected to objections raised by GNIDA in relation to separate properties.

The impugned judgment of the NCLAT was interfered with to the extent warranted in law.

The Appeals were partly allowed.

BCAJ Admin

Revision — S. 263 — Lack of enquiry and inadequate enquiry — Explanation 2 to section 263 of the Act invoked for verification of documentary evidence regarding the claim of utilization out of accumulations made u/s. 11(2) of the Act — No prior show cause notice issued for invocation of Explanation to section 263 —Assessee furnished details during the assessment proceedings — Enquiry was made and possible view taken — Commissioner cannot re-open the matter u/s. 263 because there was another view or because the Commissioner desires further enquiry.

15. CIT(E) v. Impact Foundation (India)

2026 (5) TMI 331 (Bom.)

A. Y. 2016-17: Date of order 04/05/2026

S. 263 of ITA 1961

Revision — S. 263 — Lack of enquiry and inadequate enquiry — Explanation 2 to section 263 of the Act invoked for verification of documentary evidence regarding the claim of utilization out of accumulations made u/s. 11(2) of the Act — No prior show cause notice issued for invocation of Explanation to section 263 —Assessee furnished details during the assessment proceedings — Enquiry was made and possible view taken — Commissioner cannot re-open the matter u/s. 263 because there was another view or because the Commissioner desires further enquiry.

The Assessee is a non-profit company registered u/s. 25 of the Companies Act, 1956 and registered u/s. 12AA of the Income-tax Act, 1961 and is formed for helping organisations to improve implementation of programs which help women and children in education, health and livelihoods. The Assessee filed its return of income declaring total income at Rs. NIL. The Assessee, being registered u/s. 12AA, also claimed benefit u/s. 80G and claimed exemption u/s. 11 of the Act. The Assessee’s case was selected for scrutiny assessment and the income returned by the Assessee was accepted without any additions.

Thereafter, a notice u/s. 263 of the Act was issued for revision of assessment on the ground that as per the schedule of return of income, the Assessee claimed that it had utilised `6 crores from accumulations u/s. 11(2) and since the Assessee had not furnished any documentary evidence for the utilisation of Rs.6 crores and the Assessing Officer had not verified the issue and therefore, the assessment order was erroneous and prejudicial to the interest of the revenue. The CIT(E) without considering the contentions of the Assessee invoked the Explanation 2 to section 263 of the Act and held that the Assessing Officer had not verified the documentary evidences, he had also not verified whether the utilisation was as per the Memorandum of Association, third party verifications and therefore the order was erroneous and prejudicial to the interests of the revenue.

The Tribunal allowed the appeal filed by the assessee and held that the CIT(E) could not invoke his power of revision u/s. 263 where the Assessing Officer had conducted enquiries and applied his mind. The Tribunal observed that prior to the passing of assessment order, the Assessing Officer had, after making enquiry, taken the view that the utilisation of funds done by the Assessee was appropriate and completed the assessment without making any addition. Therefore, the assessment was not erroneous and prejudicial to the interest of revenue and the invocation of section 263 was bad in law.

The Bombay High Court dismissed the appeal filed by the Department and held as under:

“i) We are of the view that the ITAT has correctly reached the conclusion that the order passed by the Assessing Officer dated 12th December 2019 was not erroneous and prejudicial to the interest of the Revenue, inasmuch as, the said order was passed on a verification of all the materials submitted by the Assessee before the Assessing Officer. We are also of the view that the Assessee, as recorded in the order of the ITAT, had submitted before the Assessing Officer all the details as called for, in respect of the accumulation of funds in the earlier years, and also submitted details of the amounts utilized out of those funds. The Respondent-Assessee had furnished all the relevant details of Rs. 6 crores spent by it during the year under consideration, out of the amounts accumulated in the preceding year, and therefore the CIT (Exemption), erroneously held that the Respondent-Assessee had furnished utilization of accumulated amounts under broad heads. The CIT (Exemptions), was therefore of the view that the Assessing Officer could have asked for breakup details, and examined with supporting evidences that the said utilization is as per the objects of the Respondent-Assessee.

ii) Such view and approach to our mind, did not warrant invoking the provisions of Section 263 of the Act, inasmuch as it is not the case that the Assessing Officer had not verified any details. In fact, it is very clear that the Respondent-Assessee had, by letters dated 30th January 2019 and 3rd December 2019, along with the required board resolutions, Form No. 10, and details of utilization of funds, along with details of the accumulation of funds made u/s. 11(2) of the Act, given complete details to the Assessing Officer, and on the basis of the verification thereof, the Assessing Officer had passed the assessment order dated 12th December 2019. Thus, the order of the Assessing Officer could not be revised by the CIT (Exemptions), merely on the ground that further details were required to be called for.

ii) It is settled law that the consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue must be based on materials on record of the proceedings called for by him, and if there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such conclusion, the very initiation of proceedings by him would be illegal and without jurisdiction. The ITAT has therefore rightly come to the conclusion that the CIT (Exemptions), could not have initiated proceedings with a view to start de novo or a fishing inquiry in matters or orders which are already concluded, unless he was able to hold that the Assessing Officer’s view on the issue was unsustainable in law.

iii) The ITAT has rightly considered the provisions of section 11(2) and (3) of the Act so as to reach to a conclusion that the Respondent-Assessee had shown that the accumulation and utilization of funds has been rightly made, and therefore, if at all, the taxability of the same was to be decided, then it had to be decided in the year in which the expiry of the accumulated amount takes place, i.e., AY 2022-2023, inasmuch as the funds were accumulated in AY 2016-2017. The ITAT has rightly come to the conclusion that as far as the relevant facts of the present case are concerned, a perusal of Form-10 revealed that the accumulated amount in AY 2016-17 was to the tune of `14.51 crores up to 31st March 2021, i.e. AY 2021-22, and therefore the non-utilization of the accumulated amount as per Section 11(3) (c) would attract taxation in the previous year immediately following the expiry of the period, i.e. AY 2022-23.

iv) It is also not the case that the CIT (Exemptions) had come to the conclusion that there had been non-utilization of the amount accumulated in AY 2016-17. The only issue which the CIT (Exemptions), had flagged was regarding the non-examination by the Assessing Officer of Rs.6 crores expended by the Respondent-Assessee in the relevant AY out of the accumulated amount of Rs.14.51 crores, which is a situation which attracted clause (a) or clause (d) of Section 11(3) of the Act. As rightly held by the ITAT, such situation of invoking the provisions of clause (a) or (d) would only arise in the year after the expiry of the accumulated period, that is AY 2022-23, and not in the relevant AY.’

v) Prior to the invocation of the provisions of Explanation 2 to Section 263 of the Act, the show-cause notice was required to specify that the aforesaid Explanation is to be invoked against the Assessee, and if the show-cause notice does not mention that the Explanation is to be invoked, then the provisions of Section 263 of the Act cannot apply. As the Respondent-Assessee was not confronted with the aforesaid Explanation, hence, such an order, without confronting the Respondent-Assessee with the invocation of Explanation 2 to Section 263 was not appropriate and sustainable in law. We are therefore in agreement with learned Counsel on behalf of the Respondent-Assessee on this issue.

vi) The reliance placed by the learned Counsel for the Appellant-Revenue on the decision of the Sesa Starlite Ltd (supra) is not well founded in to the facts of the present case, as in such case, this Court upheld the proceedings u/s. 263 of the Act on the ground that on the issue of deduction u/s. 10B claimed by the Assessee, there was absolutely no consideration by the Assessing Officer, and hence the assessment order was passed on a non-application of mind to the material on record, it was hence held that, revisionary powers exercised by the Commissioner of Income-Tax u/s. 263 of the Act were correct and not bad in law. However in the facts of the present case, the decision of Sesa Starlight Ltd (supra) would not be applicable, as prior to the passing the assessment order dated 12th December 2019, the Assessing Officer had raised specific queries regarding the utilization of accumulated funds by the Respondent Assessee, and hence it was not a case of non-application of mind on the part of the Assessing Officer which warranted the CIT (Exemptions), Mumbai to exercise his powers u/s. 263 of the Act. The Respondent Assessee has demonstrated the utilisation of the accumulated funds u/s. 11(2) of the Act, and hence it is not a case of ‘no consideration’ by the Assessing Officer. The Respondent-Assessee has in fact by letters dated 30th January 2019 and 3rd December 2019 replied to all the queries as raised by the Assessing Officer prior to passing the assessment order dated 12th December 2019.

vii) The ITAT has rightly set aside the order of CIT (Exemptions), seeking to revise the assessment order by holding that the CIT (Exemptions) had erred in exercising the jurisdiction u/s. 263 of the Act, and to reach to a conclusion that the Assessing Officer had conducted necessary enquires regarding utilisation of the accumulated income of `6 Crores for the purpose for which it was accumulated, and had accepted the same as a possible view. Resultantly, the impugned order passed by the ITAT does not give rise to any substantial questions of law requiring interference or consideration in the present Appeal.”

BCAJ Admin

Forgery of Will – Purchaser under registered sale deed – Absence of material showing conspiracy – Criminal proceedings quashed against bona fide purchaser. [Indian Penal Code, 1860, S.420, 467, 468, 471, 120B; Code of Criminal Procedure, 1973, S.482]

12. S. Anand v. State of Tamil Nadu & Anr.

2026 INSC 418

Forgery of Will – Purchaser under registered sale deed – Absence of material showing conspiracy – Criminal proceedings quashed against bona fide purchaser. [Indian Penal Code, 1860, S.420, 467, 468, 471, 120B; Code of Criminal Procedure, 1973, S.482]

FACTS

The complainant alleged that a forged will had been fabricated by the accused persons after the death of his father and that properties were sold based on such forged document.

An FIR was registered for offences relating to forgery, cheating and conspiracy. The investigating agency filed a charge sheet alleging that several accused persons had conspired to fabricate the will and utilise the same for the execution of sale deeds.

The appellant was one of the purchasers under the sale deed. He contended that he was a bona fide purchaser for value, had no role in the alleged fabrication of the will and had merely purchased the property after verifying title and possession.

The High Court refused to quash the proceedings under section 482 Cr.P.C. The appellant approached the Supreme Court.

HELD

The Supreme Court held that criminal prosecution cannot be permitted to continue in the absence of specific material establishing participation in the alleged conspiracy.

The materials on record did not disclose any role played by the appellant in the fabrication of the disputed will or in the creation of forged documents.

The appellant was merely a purchaser under a registered sale deed, and there was no evidence to demonstrate knowledge of the alleged forgery. The Court observed that continuation of criminal proceedings against a bona fide purchaser in such circumstances would amount to abuse of the process of law.

The criminal proceedings against the appellant were quashed. The Appeal was allowed.

BCAJ Admin

Financial establishments – Deposit – loan transaction – Applicability of MPID Act – Investment carrying assured return held to constitute “deposit”. [Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S.2(c), 2(d), 3]

11. Alka Agrawal & Ors. v. State of Maharashtra & Ors.

2026 INSC 489

Financial establishments – Deposit – loan transaction – Applicability of MPID Act – Investment carrying assured return held to constitute “deposit”. [Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S.2(c), 2(d), 3]

FACTS

The appellants invested an aggregate amount of Rs.2.51 crore with the respondents for the development of a resort project at Tadoba, Maharashtra. The respondents allegedly assured repayment with interest at the rate of 24% per annum, payable quarterly.

The amounts were paid through banking channels between 2016 and 2019. The respondents failed to repay either the principal amount or the assured returns.

The appellants initiated various civil and criminal proceedings, including summary suits, proceedings under section 138 of the Negotiable Instruments Act and applications under section 156(3) of the Cr.P.C. The High Court held that the transaction was merely a loan transaction of a civil nature.

Thereafter, proceedings were initiated under the Maharashtra Protection of Interest of Depositors Act, alleging fraudulent default by a financial establishment. The Sessions Court rejected the application seeking registration of FIR under the MPID Act. The High Court affirmed the order.

The appellants approached the Supreme Court.

HELD

The Supreme Court held that the definition of “deposit” under section 2(c) of the MPID Act is wide and comprehensive and includes amounts received pursuant to promises of financial returns.

Merely because the transaction carried a stipulation regarding payment of interest would not by itself exclude the transaction from the ambit of “deposit”.

The Court observed that the object of the MPID Act is to protect investors from fraudulent financial schemes and therefore the provisions require purposive interpretation.

The earlier proceedings under IPC and the finding that the dispute was civil in nature could not preclude examination of the applicability of the MPID Act. The impugned judgment of the High Court was set aside, and the matter was remanded for reconsideration in accordance with the law.

The Appeal was allowed.

BCAJ Admin

Reassessment — New procedure — Time limit for issue of notice u/s. 148 — Exclusion of period for computation of period of limitation — Effect of decision of Supreme Court in case of Ashish Agarwal and Rajeev Bansal — “Surviving period” referred to by Court — Exclusion of time allowed to assessee to respond to initial notice — Held by High Court that Number of days remaining for passing order of issuance of notice would be two days — Period of two days expiring on 10/06/2022 or 27/06/2022 — Notice issued on 27/07/2022 issued much after surviving period — Notice barred by limitation.

14. Hitesh Ramniklal Shah v. ACIT: (2026) 486 ITR 281 (Bom): 2025 SCC OnLine Bom 5960

A. Y. 2014-15: Date of order 11/11/2025

Ss. 147, 148, 148A and 149 of ITA 1961

Reassessment — New procedure — Time limit for issue of notice u/s. 148 — Exclusion of period for computation of period of limitation — Effect of decision of Supreme Court in case of Ashish Agarwal and Rajeev Bansal — “Surviving period” referred to by Court — Exclusion of time allowed to assessee to respond to initial notice — Held by High Court that Number of days remaining for passing order of issuance of notice would be two days — Period of two days expiring on 10/06/2022 or 27/06/2022 — Notice issued on 27/07/2022 issued much after surviving period — Notice barred by limitation.

For the A. Y. 2014-15, the petitioner filed his return of income on September 29, 2014, declaring a total income of ₹64,86,660 in respect of which no scrutiny assessment was made. Respondent No. 1 issued a notice dated June 29, 2021 under the unamended provisions of section 148 of the Income-tax Act, 1961 after obtaining the approval of the Principal Commissioner of Income-tax, Mumbai-19. The petitioner filed his return of income on November 18, 2021 in response to the notice issued u/s. 148 of the Act declaring the same income that was declared in the original return of income.

After the judgment of the hon’ble Supreme Court in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC); (2023) 1 SCC 617; 2022 SCC OnLine SC 543.] delivered on May 4, 2022, respondent No. 1 issued a notice dated May 25, 2022 u/s. 148A(b) of the Act and called upon the petitioner to furnish his reply within two weeks to show cause as to why a notice u/s. 148 of the Act should not be issued to the petitioner. In reply thereto, the petitioner filed a letter dated June 3, 2022 requesting respondent No. 1 to drop the reopening proceedings. A further reply was filed on June 17, 2022, inter alia, pointing out that the notice is time barred as per section 149 of the Act; that there was no information with respondent No. 1 which suggested that income chargeable to tax has escaped assessment; and submissions were made on the merits to demonstrate that no income has escaped assessment. The petitioner filed another reply on June 25, 2022 pointing out that the same information was already considered while seeking to reassess the income for the A. Y. 2015-16 and, hence, the reopening for the A. Y. 2014-15 should be dropped. However, respondent No. 1 passed an order u/s. 148A(d) dated July 26, 2022 rejecting the submissions of the petitioner and issued a notice dated July 27, 2022 u/s. 148 of the Act.

The assessee filed a writ petition challenging the order and the notice on the ground of limitation. The Bombay High Court allowed the petition and held as under:

“i) After considering the above exclusion period, we observe that the remaining days for conclusion of the procedure for passing of an order in terms of section 148A(d) and issuance of the notice u/s. 148 of the Act would be two days. In the present case, whichever way we see it, the period of two days would expire on June 10, 2022 or June 27, 2022 respectively and, therefore, the notice u/s. 148 of the Act issued on July 27, 2022 is time barred, inasmuch as it is issued much after the surviving period.

ii) We concur with the judgments of the co-ordinate Bench in Dhanraj Govindram Kella v. ITO [(2025) 480 ITR 612 (Guj); 2025 SCC OnLine Guj 4831.] and of the Delhi High Court in Ram Balram Buildhome Pvt. Ltd. v. ITO [(2025) 477 ITR 133 (Delhi); 2025 SCC OnLine Del 481.] which have dealt with the surviving period and quashed the notices issued u/s. 148 of the Act passed beyond the surviving period.

iii) In view of the above, it is apparent that respondent No. 1 has acted beyond jurisdiction and we accordingly set aside the impugned notice issued u/s. 148 of the Act as well as all the subsequent notices issued u/s. 142(1) and the show-cause notice on the above ground.”

BCAJ Admin

Penalty — Limitation u/s. 275(1)(c) — Penalty u/s. 271E — Acceptance and repayment of deposits in cash in excess of prescribed limit — Assessment order passed on 31/12/2010 with initiation of penalty proceedings — Reference to Additional Commissioner made on 07/06/2011 and penalty order passed on 30/12/2011 — Held by High Court that penalty order barred by limitation — Six months’ limitation period u/s. 275(1)(c) has to be reckoned from date of initiation of penalty proceedings.

13. Principal CIT v. Thapar Homes (P) Ltd.: (2026) 486 ITR 149 (Del): 2025 SCC OnLine Del 11073 (2025) 347 CTR 184 (Del)

A. Y. 2009-10: Date of order 01/08/2025

Ss. 269T, 271E and 275(1)(c) of ITA 1961

Penalty — Limitation u/s. 275(1)(c) — Penalty u/s. 271E — Acceptance and repayment of deposits in cash in excess of prescribed limit — Assessment order passed on 31/12/2010 with initiation of penalty proceedings — Reference to Additional Commissioner made on 07/06/2011 and penalty order passed on 30/12/2011 — Held by High Court that penalty order barred by limitation — Six months’ limitation period u/s. 275(1)(c) has to be reckoned from date of initiation of penalty proceedings.

For the A. Y. 2009-10, the Assessing Officer passed the assessment order on 31/12/2010 u/s. 143(3) of the Income-tax Act, 1961, with initiation of penalty proceedings u/s. 271E for contravention of section 269T. The reference was made by the Assessing Officer to the concerned Additional Commissioner of Income-tax (ACIT) on 07/06/2011 and pursuant to the notice issued by the Additional Commissioner of Income-tax, the penalty order dated 30/12/2011 u/s. 271E of the Act was passed. The penalty imposed was for ₹3,44,15,000, which is equivalent to the amount paid contrary to section 269T of the Act.

The CIT(A) set aside the penalty order holding that the order was passed beyond the period of limitation u/s. 275(1)(c). The Tribunal affirmed the order and held that the imposition of the penalty u/s. 271E was to have been made before 30/06/2011 and not 31/12/2011.

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

“i) The facts in the Pr. CIT v. Thapar Homes Ltd. [(2025) 483 ITR 248 (Delhi); 2023 SCC OnLine Del 7020; 2023 : DHC : 7808-DB.] are identical to the case in hand. The conclusion drawn by this court is that the limitation u/s. 275(1)(c) of the Act had expired on June 30, 2011. The observation of this court that the appellant-Revenue cannot extend the period of limitation by deciding at his whims and fancies when the notice has to be issued. In the case at hand, the reference having been only on June 7, 2011, surely a notice pursuant to the said reference would have been issued after June 7, 2011, which resulted in the penalty order dated December 30, 2011, hence in that regard, the issue is covered by the decision as referred to by Mr. Bhatia, fairly which is, in favour of the respondent-assessee and against the Revenue.

ii) We are of the view as the issue in hand is covered by the judgment in the case of Pr. CIT v. Thapar Homes Ltd. [(2025) 483 ITR 248 (Delhi); 2023 SCC OnLine Del 7020; 2023 : DHC : 7808-DB.], no substantial question of law arises to be decided in the present appeal. The appeal is dismissed against the Revenue and in favour of the assessee.”

BCAJ Admin

Income from Other Sources — S. 56 — Buy-back of shares at a price lower than the fair market value — Buy-back of shares as per section 68 of the Companies Act, 1956 — Extinguishment of shares — Cannot be held as purchase of property or acquisition of capital asset — S. 56 (2) (x) not applicable.

12. Pr.CIT v. Globe Capital Market Ltd.

(2026) 185 taxmann.com 513 (Del.)

A.Y. 2018-19: Date of order 07/04/2026

S. 56 of ITA 1961 and Rule 11UA of the ITR 1962

Income from Other Sources — S. 56 — Buy-back of shares at a price lower than the fair market value — Buy-back of shares as per section 68 of the Companies Act, 1956 — Extinguishment of shares — Cannot be held as purchase of property or acquisition of capital asset — S. 56 (2) (x) not applicable.

The Assessee was engaged in the business of share broking and clearing of trades. In the course of assessment proceedings being conducted u/s. 153A of the Act, the Assessing Officer made an addition of Rs.16.33 crores on account of buy back of shares u/s. 56(2)(x) of the Act. The Assessing Officer held that the Assessee had bought back the shares at the rate of Rs.313.40 per share whereas the fair market value of each shares as per Rule 11UA was Rs.370.46 per share, therefore the difference was taxable u/s. 56(2)(x) of the Act. It was held that though the shares purchased by the Assessee were its own shares, however, shares constitute capital asset and since the shares were purchased by the Assessee at a lower rate than the fair market value, the difference was liable to be taxed as Assessee’s income.

The CIT(A) allowed the appeal and held that the nature of transaction was not that of a mere purchase of shares but was a purchase of own shares under buy-back which resulted in reduction of share capital. The Tribunal also decided the issue in favour of the Assessee and the appeal filed by the Department was dismissed.

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

“i) But for Section 68 of Companies Act and the procedure provided thereunder, there is no way can a company buy its own shares. Because buying of own shares is otherwise alien to concept of corporate entity and the provisions of the Companies Act. Securities or shares of a Company can, in a given case be a property in the hands of a Corporate entity but for the issuing company, it is a certificate issued to its members in lieu of the contribution they have made towards the capital or for subscribing to the shares. Buy-back of shares essentially means reduction of capital of the company, which otherwise is impermissible, if recourse to Section 68 of the Companies Act is not taken.

ii) One has to bear in mind that sub-section (vii) of section 68 of the Companies Act mandates that after the completion of the buy-back under this Section, the company shall extinguish and physically destroy the shares or security so bought back.

iii) Section 68 of the Companies Act in so many words expresses that the buy-back of share is reduction of the share capital. There can be no doubt that as per sub-section (vii), the respondent-company must have mutilated or destroyed the shares or so-called property which the Assessing Officer has sought to tax.

iv) A person cannot be taxed for so-called deemed profit from the property (shares) which accrues to it consequent to destruction of the very same property. Because, once the shares are bought back, the purported property extinguishes or vanishes. Hence, the very hypothesis that the respondent company had acquired an asset at lesser rate than the fair market value has no legs to stand on. Buy back of its own shares is antitheses to buying an asset.

v) We are of the considered opinion that the CIT(A) was perfectly justified in allowing the appeal. The view which the Assessing Officer had taken in treating the buyback of shares of the company to be a transaction leading to generation of profit/deemed profit is clearly flawed and untenable in the eye of law. The appeal therefore, fails.”

BCAJ Admin

Exemption u/s. 11 — Educational trust — Denial of exemption — Form 10B filed manually within prescribed period — Electronic filing made after delay of 2,732 days — Application for condonation of delay rejected — Held by High Court that assessee’s conduct neither informed with lethargy nor indolence — Rejection of application for condonation of delay in electronically filing unsustainable and orders set aside.

11. The Borivli Education Society v. CIT: (2026) 486 ITR 652 (Bom): 2025 SCC OnLine Bom 1871

A. Y. 2014-15: Date of order 17/02/2025

S. 11 of ITA 1961

Exemption u/s. 11 — Educational trust — Denial of exemption — Form 10B filed manually within prescribed period — Electronic filing made after delay of 2,732 days — Application for condonation of delay rejected — Held by High Court that assessee’s conduct neither informed with lethargy nor indolence — Rejection of application for condonation of delay in electronically filing unsustainable and orders set aside.

The assessee is an educational trust. For the A. Y. 2014-15 the assessee filed the audit report in Form 10B manually within the prescribed period. But failed to upload it electronically due to the belief of its Chartered Accountant that electronic filing was not mandatory. The Assessing Officer denied the exemption u/s. 11 of the Income-tax Act, 1961 without assigning reasons and without issuing the mandatorily required show-cause notice. Subsequent applications for rectification and for condonation of delay were rejected without affording any opportunity of hearing to the assessee.

The assessee filed writ petition challenging the orders. The Bombay High Court allowed the writ petition and held as under:

“i) Based on the aforesaid facts and circumstances, we are satisfied that the petitioner filed form 10B manually or physically within the prescribed period. True, form 10B was not uploaded electronically. At the same time, the petitioner was not intimated for a long time that this was the requirement for which the exemption was being denied. Belatedly, the petitioner was informed that this was one of the reasons. Therefore, the petitioner took expedient steps.

ii) The petitioner also explained that she had nothing to gain from non-compliance. The non-compliance, if any, was due to the advice of a professional chartered accountant. Even the chartered accountant filed an affidavit explaining her bona fides and the factum of the advice. After the petitioner became aware of the reasons, she took several steps and ultimately uploaded form 10B electronically. Still, the application for condonation of delay has been rejected without adequate compliance with the principles of natural justice and fair play.

iii) In all such matters, there is bound to be some lapse on the part of the assessee seeking condonation. However, the delay should be condoned as long as such lapse is not mala fide and the assessee has not derived any undue advantage out of his own lapse. Besides, in such matters, though the length of the delay is one of the considerations, it is not sole consideration. The quality of the explanation offered is crucial, and the focus must be the quality of the cause shown in the explanation.

iv) Besides, in this case, though the delay appears considerable, there is some merit in Dr. Shivaram’s contentions that the delay should be construed from the day the petitioner was informed of the real reason for the denial of exemption. After it was informed of the real reason, the petitioner’s conduct cannot be said to be either informed with lethargy or indolence. The petitioner took several steps and time and again pointed out that form 10B was already filed manually within the prescribed time.

v) For all the above reasons and upon cumulative consideration of the facts and circumstances about which there was no serious dispute, we are satisfied that discretion should have been exercised, and the delay should be condoned.

vi) Accordingly, we set aside the impugned orders dated October 10, 2024 and November 13, 2024 and condone the delay in electronically uploading form 10B.”

BCAJ Admin

Section 5(2)(a) of the Act – Receipt of salary by a non-resident in an Indian NRE Account for services rendered outside India cannot be taxed on a receipt basis

6. [2026] 183 taxmann.com 532 (Ahmedabad – Trib.)

Kaushal Ganpatbhai Patel vs. ITO (International Taxation)

IT APPEAL NO. 434 (AHD) OF 2025

A.Y.: 2019-20 Dated: 09 February 2026

Section 5(2)(a) of the Act – Receipt of salary by a non-resident in an Indian NRE Account for services rendered outside India cannot be taxed on a receipt basis

FACTS

The Assessee, a non-resident, was employed with a company in Seychelles. The salary for the services rendered was credited to his NRE account in India. Since the salary was credited to the NRE account in India, the AO was of the view that the salary was taxable on receipt basis under Section 5(2)(a) of the Act.

The DRP upheld order of the AO.

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

HELD

The Agra ITAT in Arvind Singh Chauhan [2014] 42 taxmann.com 285 (Agra – Trib.) observed that “income received in India” connotes first receipt of income, i.e. when the assessee obtains the money in his own control. Such receipt may be real or constructive. An employee would have right to receive his salary only at the place of his employment. The constructive receipt was consummated at the place of rendering employment, and receipt of salary in an NRE account can only be regarded as an application of salary.

In Arvind Singh Chauhan’s case the taxpayer was a seafarer. Vide Circular No. 13/2017, CBDT has clarified that salary received by a seafarer in an Indian bank in respect of service rendered outside India was not taxable under section 5(2)(a) of the Act. The ITAT noted that the conclusion arrived at by the Agra ITAT was based on an interpretation of provisions of law without relying on the said circular. Since the tax authority did not cite any decision of a higher judicial authority, the ITAT held that salary received by the employer for exercising employment outside India could not be taxed on receipt basis under Section 5(2)(a) of the Act.

BCAJ Admin

Article 24 of India-Denmark DTAA – Limitation of deduction under Section 94B of Income-tax Act, 1961, in respect of interest paid to non-resident AEs is discriminatory in terms of Article 24 of India-Denmark DTAA

5. [2026] 184 taxmann.com 579 (Chennai – Trib.)

Vestas Wind Technology India (P.) Ltd vs. ITO (Corporate Circle)

IT APPEAL NO. 320 (CHNY) OF 2025

A.Y.: 2018-19 Dated: 09 March 2026

Article 24 of India-Denmark DTAA – Limitation of deduction under Section 94B of Income-tax Act, 1961, in respect of interest paid to non-resident AEs is discriminatory in terms of Article 24 of India-Denmark DTAA

FACTS

The Assessee, an Indian company, was engaged in the business of manufacturing wind turbine generators. The Assessee was ultimate subsidiary of Vestas Wind Systems A/s (“Vestas Denmark”). The Assessee had obtained external commercial borrowings (“ECB”) from Vestas Denmark. The rate of interest on ECB was at arm’s length and in accordance with the bilateral advance pricing arrangement (“BAPA”). In return of its income, the assessee suo moto disallowed interest of INR 9.34 Crores under Section 94B of Act. The TPO recomputed disallowance under Section 94B of the Act as INR 18.47 Crores. The CIT(A) upheld the assessment order.

Aggrieved with the final order, the department preferred appeal before ITAT.

The Assessee further raised an additional ground that disallowance under Section 94B of the Act is discriminatory under Article 24(4) of India-Denmark DTAA and requested deletion of the entire amount of INR 18.47 Crores.

HELD

Article 24(4) of India-Denmark provides that payments made to residents of Denmark will be deductible, subject to the same conditions that are applicable if such payments were made to residents of India. Further, Article 24(4) is subject to any restrictions imposed on arm’s length conditions prescribed under Article 12(7) of India-Denmark DTAA.

Section 94B of the Act imposes restrictions on deductibility of interest paid to non-resident associated enterprises (“AE”) as compared to resident AEs. Therefore, restriction based on residential status falls under the ambit of discrimination envisaged under Article 24(4) of India-Denmark DTAA.

Article 12(7) of India-Denmark DTAA was not applicable, as the interest paid was at arm’s length, and in accordance with the BAPA entered into by the assessee.

Unlike India-Australia DTAA, India-Denmark DTAA does not contain any explicit restriction on application of non-discrimination Article against thin capitalisation rules.

Accordingly, ITAT held that the limitation on deduction of interest under section 94B of the Act was discriminatory in terms of Article 24(4) of India-Denmark DTAA and allowed deduction of interest paid to non-resident AEs.

BCAJ Admin

Article 12 of India-UK DTAA – Amended definition of royalties in Explanation 6 to section 9(1)(vi) of the Act could not be read into India-UK DTAA unless DTAA language was amended, and hence, service fee paid for uplinking and downloading satellite signals for television broadcasting was not in nature of royalties under India-UK DTAA.

4. [2026] 182 taxmann.com 365 (Mumbai – Trib.)

ITO (International Taxation) vs. Bennett Coleman & Co. Ltd.

IT APPEAL NOS. 5246 & 5257 (MUM) OF 2025 AND OTHERS

A.Y.: 2018-19 & 2019-20 Dated: 14 January 2026

Article 12 of India-UK DTAA – Amended definition of royalties in Explanation 6 to section 9(1)(vi) of the Act could not be read into India-UK DTAA unless DTAA language was amended, and hence, service fee paid for uplinking and downloading satellite signals for television broadcasting was not in nature of royalties under India-UK DTAA.

FACTS

The Assessee, an Indian Company, had been engaged in the business of media publishing services and also operated media channels. To broadcast television channels in India, Assessee entered into an agreement with Intelsat Global Sales and Marketing Limited (“Intelsat UK”) for uplinking and downlinking of signals. The Assessee paid service fee to Intelsat UK for use of transponder. Out of abundant caution, the Assessee grossed up tax on service fee and withheld it. The AO held that transponder charges were chargeable to tax in India as royalty for ‘use of’ or ‘right to use of process’ as per Explanation 6 to section 9 (1)(vi). Therefore, the Assessee preferred appeal before CIT(A).

Following the decisions of the Bombay High Court in Pr. CIT v. NEO Sports Broadcast (P.) Ltd. [2019] 264 Taxman 323 (Bombay) and Delhi High Court in DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi), the CIT(A) held that payment towards the use of transponder could not be regarded as royalty under Article 12 of India-UK DTAA. The CIT(A) held that transmission services were in the nature of standard services and, hence, could not be regarded as fees for technical services.

Aggrieved by order of CIT(A), the tax authority preferred appeal before ITAT.

HELD

As per the terms of the agreement between the Assessee and Intelsat UK, the latter transmitted signals of service recipients using its own satellite or that of third parties. The provision of service did not create any interest in assets in favour of service recipients.

The Assessee was responsible for obtaining the required licenses/authorisations for all earth station facilities used to transmit signals. The Assessee did not have any access/rights/control over the satellites owned by Intelsat UK.

The Finance Act 2012 amended Section (9)(1(vi) of the Act by inserting explanation 6 to define the term ‘process’. In New Skies Satellite BV (supra), Delhi High Court, in the context of India-Netherlands DTAA, held that unless both parties had bilaterally amended the DTAA, the definition in Section 9(1)(vi) of the Act r.w. explanation could not be read automatically into DTAA. The definition of Royalty in India-Netherlands DTAA was pari materia with India-UK DTAA.

The Chennai ITAT in the case of Intelsat UK [IT(TP)A No.49/Chny/2018 dated 16.10.2023] held that consideration received by Intelsat UK for providing transponder services cannot be regarded as process royalty.

Following the jurisprudence, the ITAT held that payments made for transmission of signals cannot constitute royalty under India-UK DTAA and hence, they were not subject to tax withholding under Section 195 of the Act.

BCAJ Admin

Sec. 145 – Method of accounting – Builder and developer consistently following project completion method – AS-7 applicable only to construction contractors – Revenue recognition under AS-9 dependent upon transfer of risks and rewards – Revenue having accepted method in earlier years – Addition by applying percentage completion method resulting in double taxation deleted Sec. 69A r.w.s. 144 – Loose diary seized during search containing receipt entries – Surrender made by director representing gross receipts – No corroborative evidence regarding actual undisclosed income or expenditure – Entire amount could not be taxed – Addition restricted on estimated basis.

26. [2025] 128 ITR(T) 270 (Jaipur – Trib.)

Kaizen Enterprises (P.) Ltd. v. ACIT

ITA NO.: 156 & 390 (JPR) OF 2024

A.Y.: 2013-14 AND 2017-18 DATE: 18.02.2025

Sec. 145 – Method of accounting – Builder and developer consistently following project completion method – AS-7 applicable only to construction contractors – Revenue recognition under AS-9 dependent upon transfer of risks and rewards – Revenue having accepted method in earlier years – Addition by applying percentage completion method resulting in double taxation deleted

Sec. 69A r.w.s. 144 – Loose diary seized during search containing receipt entries – Surrender made by director representing gross receipts – No corroborative evidence regarding actual undisclosed income or expenditure – Entire amount could not be taxed – Addition restricted on estimated basis.

FACTS

The assessee-company was engaged in the business of real estate development and was consistently following the project completion method for recognition of revenue. During scrutiny assessment for A.Y. 2017-18, the Assessing Officer held that the assessee ought to have followed percentage completion method and accordingly taxed advances received from customers amounting to Rs.3.71 crores as business income.

The Assessing Officer observed that substantial construction work had been completed and significant consideration had already been received from customers. Accordingly, relying upon percentage completion method, addition was made to the income of the assessee.

On appeal, the Commissioner (Appeals) deleted the addition holding that the assessee had consistently followed project completion method which had been accepted by the department in earlier years.

In separate proceedings relating to A.Y. 2013-14 arising out of search action, a diary containing certain monetary notings was seized from the premises of the assessee group and the director of the assessee made a statement surrendering an amount of Rs.1.35 crores. The Assessing Officer treated the entire amount as undisclosed income and made addition accordingly.

The Commissioner (Appeals) partly sustained the addition. Aggrieved, both the assessee and the revenue preferred appeals before the Tribunal.

HELD

The Tribunal observed that the assessee was a builder and developer and not a construction contractor and therefore Accounting Standard-7 relating to construction contracts was not applicable. It was held that the case of the assessee was governed by Accounting Standard-9 relating to revenue recognition.

The Tribunal noted that under the terms of agreements executed with buyers, transfer of ownership and possession was contingent upon receipt of full consideration and execution of conveyance documents. It was further observed that buyers had the right to cancel bookings and seek refund of amounts paid and therefore risks and rewards of ownership had not been fully transferred.

The Tribunal further observed that the assessee had consistently followed project completion method over the years and the same had been accepted by the department in preceding assessment years. No justifiable reason had been brought on record by the Assessing Officer for deviating from the settled method of accounting regularly followed by the assessee.

It was also noted that income from the project had already been offered to tax by the assessee in subsequent assessment years following project completion method and the same had been accepted by the revenue. Therefore, taxing the same advances again during the year under consideration would result in impermissible double taxation.

Relying upon the decision of the Supreme Court in CIT v. Excel Industries Ltd., the Tribunal upheld the order of the Commissioner (Appeals) deleting the addition made by applying percentage completion method.

With regard to the addition based on diary notings, the Tribunal observed that though the assessee had surrendered Rs.1.35 crores during search proceedings, neither the revenue had substantiated that the entire amount represented net undisclosed income nor had the assessee produced evidence regarding expenditure incurred for earning such receipts.

The Tribunal held that the surrender represented gross receipts and therefore the entire amount could not be assessed as income. Applying principles governing best judgment assessment under section 144 and relying upon the decision of the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT, the Tribunal held that only reasonable profit element could be brought to tax.

Accordingly, the Tribunal restricted the addition to Rs.10 lakhs and granted substantial relief to the assessee.

BCAJ Admin

Sec. 68 – Share capital and share premium – Preferential shares issued to holding company – Identity, genuineness and creditworthiness established through ROC records, financial statements and banking trail – Investment reflected in books of investor and compliant with FEMA/RBI regulations – Addition deleted Sec. 14A r.w. Rule 8D – Interest disallowance – Own funds substantially exceeding investments yielding exempt income – Presumption that investments made out of interest-free funds – Disallowance deleted.

25. [2025] 128 ITR(T) 128 (Mumbai – Trib.)

ACIT vs. Doshion Veolia Water Solution (P.) Ltd

A.Y.: 2009-10 AND 2012-13 DATE: 18.07.2024

Sec. 68 – Share capital and share premium – Preferential shares issued to holding company – Identity, genuineness and creditworthiness established through ROC records, financial statements and banking trail – Investment reflected in books of investor and compliant with FEMA/RBI regulations – Addition deleted

Sec. 14A r.w. Rule 8D – Interest disallowance – Own funds substantially exceeding investments yielding exempt income – Presumption that investments made out of interest-free funds – Disallowance deleted.

FACTS

During A.Y. 2012-13, the assessee-company had raised share capital and share premium aggregating to Rs.47.44 crores through issue of preferential shares to its holding company. The Assessing Officer treated the said amount as unexplained cash credit under section 68 on the ground that the assessee failed to satisfactorily establish the identity, genuineness and creditworthiness of the investor. The Assessing Officer further made disallowance under section 14A read with Rule 8D(2)(ii) in respect of interest expenditure attributable to exempt dividend income.

On appeal, the Commissioner (Appeals) deleted both additions after examining additional evidences, remand reports and financial records.

Similarly, for A.Y. 2009-10, additions made under section 68 in respect of share capital/share premium received from foreign investor and disallowance under section 14A were also deleted by the Commissioner (Appeals).

Aggrieved by the relief granted by the Commissioner (Appeals), the revenue preferred appeals before the Tribunal.

HELD

The Tribunal observed that detailed evidences including ROC records, share registers, bank statements, financial statements of the holding company and remand reports clearly established the identity and creditworthiness of the investor as well as genuineness of the transactions relating to issue of preferential shares.

It was noted that the holding company had duly reflected the investments in its financial statements and that the source of investment was also explained through secured borrowings obtained from NBFCs. The Tribunal further observed that payments were routed through proper banking channels and corresponding investments were reflected in the books of both entities.

The Tribunal held that the Commissioner (Appeals), after detailed examination of evidences and remand proceedings, had rightly concluded that the requirements of section 68 stood fully satisfied. Accordingly, deletion of addition relating to share capital and share premium was upheld.’

With regard to disallowance under section 14A, the Tribunal observed that the assessee’s own funds comprising share capital and reserves were substantially higher than the investments yielding exempt income.

Relying upon the decision of the Bombay High Court in CIT v. HDFC Bank Ltd., the Tribunal held that where sufficient interest-free funds are available, a presumption arises that investments are made from such funds and therefore no disallowance of interest expenditure under Rule 8D(2)(ii) is warranted.

Accordingly, deletion of disallowance under section 14A was also upheld and both appeals of the revenue were dismissed.

BCAJ Admin

From Published Accounts

COMPILER’S NOTE:

Effective 1st April 2025, amendments are notified to Ind AS 107 “Financial Instruments Disclosures” and Ind AS 7 “Statement of Cash Flows – Supplier Finance Arrangements (SFA)/ Supply Chain Finance (SCF)”. The above changes have resulted in additional disclosures for the financing arrangements which many large company make with their vendors / suppliers. Given below are few instances of such disclosures in the financial statements for the year ended 31st March 2026.

JINDAL SAW LIMITED STANDALONE FINANCIAL STATEMENTS

Notes to Financial Statements

Extract of Note 28: Trade Payables

Particulars	As at March 31, 2026	As at March 31, 2025
Dues of micro and small enterprises (‘MSME’)	5,557.94	5,273.72
Dues of creditors other than micro and small enterprises
– Acceptances	1,39,772.72	37,857.89
– Others	94,565.74	1,89,208.85
Total Trade payables
Classification of Trade payables into related parties and others
– Related parties	1,69,703.46	67,695.05
– Others	70,192.94	1,64,645.41
Total Trade payables	2,39,896.40	2,32,340.46

Note: Trade payables for acceptances represents the extended interest-bearing credit offered by the supplier which is secured against Usance Letter of Credit (LC). The interest for the extended credit period payable to the supplier on maturity of the LC has been presented under finance costs.

The Company has trade payables balance, which are part of supplier finance arrangements, of Rs. Nil (March 31, 2025 Rs. 1,149.64 lakhs). The key terms and conditions of the arrangement are:

a. The Company decides which invoices will be financed
b. The financier pays the supplier before the due date of the invoice
c. The Company pays the financier on the due date of the invoice
d. The financing terms are negotiated by the Company, and it bears interest in the range of 9–12% on the credit availed beyond the due date

Further, the Company has not provided comparative information in respect of the amendments to Ind AS 7 and Ind AS 107 relating to supplier finance arrangements, as it has applied the transitional relief available on initial adoption of these amendments, which allows entities not to present comparative disclosures for prior periods.

LARSEN & TOUBRO LIMITED STANDALONE FINANCIAL STATEMENTS

Notes to Financial Statements

Extract of Note 25: Current liabilities

Financial liabilities – Other trade payables

(Rs. in crore)

Particulars	As at 31-3-2026		As at 31-3-2025
Due to related parties:
– Subsidiary companies	1,909.33		1,616.19
– Associate companies	11.72		13.97
-Joint venture companies	1,657.50		740.16
		3,578.55		2,370.32
Due to others including Supplier Finance Arrangement [Note 43(d)]		44,037.21		35,255.51
		47,615.76		37,625.83

Note 43(d):

The Company has entered into certain Supplier Finance Arrangements (SFA) with finance providers during the year. The primary objective of these arrangements is to benefit the suppliers with early payments. The Company doesn’t provide any collateral or guarantees to the finance provider.

Carrying Amount of Financial Liabilities:

(Rs. in crore)

Particulars	31-3-2026	1-4-2025
(i) Financial liabilities classified under ‘Trade Payables’	3,251.67	4,788.87
(ii) Out of (i), amount received by suppliers from finance providers	3,248.66	NA

Payment Terms:

(Rs. in crore)

Particulars	31-3-2026
(i) The Financial liabilities that are part of the arrangement	30-180 days
(ii) Comparable trade payable that are not part of the arrangement	30-180 days

The Company has applied transitional relief and accordingly comparative information, wherever applicable, for the above disclosures is not presented in the first year of adoption of the amendment.

POLYCAB INDIA LIMITED STANDALONE FINANCIAL STATEMENTS

Extract of Note 19: Acceptances

Note (b) Supplier Finance Arrangements

The Company participates in supplier finance arrangements whereby certain suppliers may opt to receive early payment of their invoices from a bank or a financier. Under the arrangement, the bank or a financier settles the amounts payable to participating suppliers in respect of invoices owed by the Company and the Company subsequently repays the bank or financier in accordance with the agreed terms. The primary objective of this arrangement is to facilitate efficient payment processing and provide the willing suppliers early payment terms, related to the original invoice due date.

The Company has derecognised the original trade payables relating to these arrangements and presented the corresponding obligation under acceptances notwithstanding the original liability was not substantially modified upon entering into the arrangement.

From the Company’s perspective, the arrangement does not significantly extend the payment terms beyond the normal terms agreed with other suppliers that are not participating; however, the arrangement does provide willing suppliers with the benefit of early payment.

All payables under the arrangement are classified as current as on 31 March 2026.

Additional information is provided in the below table:

(Rs. in million)

Particulars	31 Mar 26
Carrying amount of financial liabilities part of supplier finance arrangements	42,656.19
Presented within Acceptances
Of which suppliers have received payment from the bank or financiers	37,236.77
Range of payment due dates
Of the balances disclosed above (after invoice date)	60-120 days
Of the other trade payable balances which are not part of supplier finance arrangements (after invoice date)	30-90 days

The Company has applied transitional relief available under Supplier Finance Arrangements – Amendments to Ind AS 7 and Ind AS 107 and has not provided comparative information in the first year of adoption.

The payments to the bank are included within operating cash flows because they continue to be part of normal operating cycle of the Company and their principal nature remains operating – i.e., payments for the purchase of goods and services.

For additional information about how these arrangements affect the Company’s exposure to liquidity risk, please refer note 40 (C).

Note 40(c): Financial Risk Management Objectives and Policies

Liquidity risk

The Company’s principle sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the working capital is sufficient to meet its current requirements.

Further, the Company manages its liquidity risk in a manner so as to meet its normal financial obligations without any significant delay or stress. Such risk is managed through ensuring operational cash flow while at the same time maintaining adequate cash and cash equivalents position. The management has arranged for diversified funding sources and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. Surplus funds not immediately required are invested in certain financial assets (including mutual funds) which provide flexibility to liquidate at short notice and are included in current investments and cash equivalents. Besides, it generally has certain undrawn credit facilities which can be accessed as and when required, which are reviewed periodically.

The Company’s channel financing program ensures timely availability of finance for channel partners with extended and convenient re-payment terms, thereby freeing up cash flow for business growth while strengthening company’s distribution network. Further, invoice discounting get early payments against outstanding invoices. Sales Invoice discounting is intended to save the Company’s business from the cash flow pressure.

The Company has developed appropriate internal control systems and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and availability of alternative sources for additional funding, if required.

Corporate guarantees given on behalf of group companies might affect the liquidity of the Company if they are payable. However, the Company has adequate liquidity to cover the risk.

BCAJ Admin

In the absence of any adverse finding regarding charitable nature of objects or genuineness of activities, CIT(E) cannot reject registration under section 12AB / 80G on the ground that the charity granted scholarship to Indian students for education abroad which amounted to application of income outside India in violation of section 11(1)(c).

24. (2026) 185 taxmann.com 747 (Mum Trib)

Yogayatan Jankalyan Trust v. CIT(E)

A.Y.: N.A. Date of Order: 20.04.2026

Section : 12AB

In the absence of any adverse finding regarding charitable nature of objects or genuineness of activities, CIT(E) cannot reject registration under section 12AB / 80G on the ground that the charity granted scholarship to Indian students for education abroad which amounted to application of income outside India in violation of section 11(1)(c).

FACTS

The assessee was a trust engaged in charitable activities and filed applications in Form No. 10AB on 29.05.2025 seeking registration under section 12AB as well as approval under section 80G. CIT(E) rejected the application for registration under section 12AB primarily on the ground that the assessee granted scholarship to an Indian student pursuing education abroad, which was hit by section 11(1)(c). It was further observed that the object clause permitted application of funds outside India. Consequently, in the absence of registration under section 12AB, the application for approval under section 80G was also rejected.

Aggrieved by the orders, assessee preferred appeals before Tribunal against such rejection of registration under section 12A and section 80G.

HELD

Noting the decision of the Tribunal in ITO (E) v. J N Tata Endowment for Higher Education of Indians [2024] 166 taxmann.com 126 (Mum-Trib) wherein it has been held that disbursal of loan scholarships to Indian students for pursuing higher education abroad constitutes application of income for charitable purposes in India and observing that there was adverse finding regarding the charitable nature of objects and genuineness of activities of the assessee, the Tribunal held that the reasoning of CIT(E) was not sustainable and accordingly, directed the CIT(E) to grant registration under section 12AB and approval under section 80G to the assessee.

In the result, both appeals of the assessee were allowed.

BCAJ Admin

Where the assessee earned long-term capital gains from the sale of certain shares and claimed exemption under section 54F, while also incurring long-term capital loss on the sale of other shares and carried forward such loss, such carry forward was allowable since section 54F overrides section 70(3) for the purpose of computation.

23. (2026) 185 taxmann.com 711 (Mum Trib)

Nikesh Bhagwandas Mehta v. ITO

A.Y.: 2022-23 Date of Order: 15.04.2026

Sections: 45, 54F, 70

Where the assessee earned long-term capital gains from the sale of certain shares and claimed exemption under section 54F, while also incurring long-term capital loss on the sale of other shares and carried forward such loss, such carry forward was allowable since section 54F overrides section 70(3) for the purpose of computation.

FACTS

The assessee filed his return of income for AY 2022-23 on 29.8.2022 reporting total income of Rs.49,53,740. During the year, the assessee had earned long term capital gain on sale of shares of Rs.69,84,283 which was claimed as exempt under section 54F. He had also carried forward long term capital loss of Rs.37,72,601 on sale of certain other shares incurred during the year. Return was processed by CPC under section 143(1) wherein the carry forward of said long term capital loss was disallowed.

Aggrieved, the assessee filed an appeal before CIT(A) who upheld the disallowance by holding that first inter head loss is to be adjusted and then only, exemption under section 54F can be claimed on the amount of net capital gain.

Aggrieved, the assessee filed appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) From section 45(1), it is noted that the chargeability of profit or gain arising from the transfer of capital asset is subject to what is provided in section 54 to 54H, which includes section 54F. Thus, the chargeability itself factors in the benefit available to the assessee under section 54F. Heading of the section 54F mentions that capital gain on transfer of certain capital assets is not to be charged in case of investment in residential house. Thus, when the conditions as prescribed under section 54F are complied with by the assessee, the capital gain arising out of the transfer of certain capital assets gets an exit from the charging section 45. Clause (a) of section 54F(1) prescribes that the whole of capital gain shall not be charged under section 45, when the cost of new asset is more than the net consideration in respect of the original asset which was transferred and gave rise to capital gain. Thus, the scheme of section 45 to 55A provide for computation of capital gains and the effect has to be given first as per series of exemption section of 54.

(b) Section 70(3) mentions that where there is a loss because of computation made under section 48 to 55, assessee is entitled to set off such a loss against income, if any, arrived at under similar computation for any other capital asset not being short term capital asset. Thus, section 70(3) will apply once capital gain has been computed as per the provisions of section 48 to 55 wherein exemption available under section 54F is subsumed for the purpose of computation. Accordingly, provisions of section 54F will prevail over the provisions of section 70(3).

(c) It is not necessary that one should first apply section 70(3) and thereafter only the assessee could invest the capital gain/net consideration arising from the transaction of long term capital asset as required under section 54F. Scheme of section 45 to 55A provides for computation of capital gains and the effect has to be given first to the provision of capital gains as provided under the said sections and then apply the provisions of section 70. To put it in other words, section 70 would come into the computation Aqof total income only when the capital gains has been computed in accordance with the provisions of section 45 to 55A.

Relying on CIT v. Vijay M. Mahtaney (2013) 35 taxmann.com 228 (Madras) and Naresh Jain v. Asstt. CIT [2020] 118 taxmann.com 519 (Jaipur – Trib), the Tribunal held that the assessee was eligible for exemption under section 54F towards long term capital gain of Rs. 69,84,283 earned on sale of certain long term equity shares. At the same time, assessee was also eligible to carry forward long term capital loss of Rs.37,72,601 incurred by him on sale of another set of long term equity shares, and directed that carry forward of long term capital loss claimed by the assessee in his return is to be allowed.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

Where the cancellation proceedings under section 12AB were initiated by CIT(E) on the basis of reference made by the Assessing Officer under second proviso to section 143(3), CIT(E) was required to provide a copy of such reference to the assessee. In order to cancel registration under Section 12AB, CIT(E) must clearly specify the relevant category of “specified violation” under the Explanation to Section 12AB(4) applicable to the assessee.

22. (2026) 185 taxmann.com 275 (Mum Trib)

National Payments Corporation of India v. CIT

A.Y.: 2022-23 Date of Order: 25.03.2026

Sections: 12AB, 143(3)

Where the cancellation proceedings under section 12AB were initiated by CIT(E) on the basis of reference made by the Assessing Officer under second proviso to section 143(3), CIT(E) was required to provide a copy of such reference to the assessee.

In order to cancel registration under Section 12AB, CIT(E) must clearly specify the relevant category of “specified violation” under the Explanation to Section 12AB(4) applicable to the assessee.

FACTS

The assessee was incorporated as a non-profit company under section 25 of the Companies Act, 1956 in 2008. The company’s shares were majorly held by several large banks. It was granted regular registration under section 12A(1)(ac)(i) dated 23.09.2021 for 5 years from A.Y. 2022-23 to 2026-27. It filed its return of income for AY 2022-23 declaring nil income after claiming exemption under section 11. The assessee’s case was then selected for complete scrutiny during which the AO had made a reference for cancellation of registration to CIT(E) on the ground that the assessee had committed “specified violations” as per Explanation to section 12AB(4). However, copy of such reference was not made available to the assessee.

During cancellation proceedings, CIT(E) observed that the assessee was deriving income from activities of providing payment gateway services in relation to the business of its member banks and their customers charging fee which were not of charitable purpose as per section 2(15). Further, it was contended that the assessee had provided service of National Financial Switch which connects ATMs of different banks into one shared network, which enables cash withdrawal, balance enquiry, mini statement etc. i.e. giving seamless access to ATMs across India to various major banks for the banking business, including its 10 promoter banks. Resultantly, the assessee was said to have applied its income for benefit of a “specified person” in violation of the provisions of section 13(1)(c) read with section 13(3). Accordingly, CIT(E) held that there was no charitable activity in providing such gateway platform for ATMs, IMPS, CTS, RuPay, NACH and AEPS transactions, which were carried on for member banks who in-turn provided such services to their customers which were chargeable and not free of service. Therefore, as the assessee trust solely was engaged in activities which were profitable in nature, not benefiting public at large, CIT(E) held the activities of the assessee were in violation of the provisions of section 12A and 12AB especially committing “specified violation” as per section 12AB(4). Accordingly, registration was cancelled, denying benefit of exemption under section 11 and 12 with effect from 23.09.2021.

Aggrieved, the assessee filed appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) Though second proviso to section 143(3) does not expressly mention about supplying the reference for cancellation to the assessee, it is a settled principle of law where courts have consistently held that any adverse material relied upon by the Department should be disclosed to the assessee which form the basis of action, and failure to comply with this would violate audi alteram partem, that is, the right to be heard. If it is purely an internal administrative communication which is not relied upon for decision making, then the authorities may resist such disclosure but not the reference for initiating cancellation proceeding.

b) It was evident that in order to cancel a registration of the trust, CIT(E) will have to specify which category of the “specified violation” under Explanation to section 12AB(4), the assessee would fall under. Where there are multiple reasons amounting to violation, neither the show cause notice nor the order for cancellation should suffer from vagueness. In the absence of clear particulars of the alleged violation along with facts and materials proposed to be relied upon, the assessee would be deprived of a meaningful opportunity to respond.

Accordingly, without expressing any opinion on the merits, the Tribunal directed CIT(E) to provide to the assessee copy of the reference relied upon by him. The Tribunal also remanded the issue back to the file of CIT(E) for denovo adjudication and to give sufficient opportunity of hearing to the assessee, by setting out the exact charge / specified violation for the proposed cancellation of registration. Thereafter, the CIT(E) can decide the issue on the merits as well in accordance with law by a speaking order.

BCAJ Admin

Whether A Change In The Interpretation Of An Accounting Standard Constitutes A Change In Accounting Policy/Estimate Or A Prior Period Error?

Under the Environment Protection (End-of-Life Vehicles) Rules, 2025, companies are required to recognise provisions for Extended Producer Responsibility (EPR) obligations arising from historical vehicle sales. Since these obligations exist independently of future operations, they satisfy the criteria for present obligations under Ind AS 37. The authorities discussed below clarify that failure to recognise this cumulative provision when the rules became effective constitutes a prior period error under Ind AS 8, and not a change in accounting policy or accounting estimate. Consequently, entities are required to correct such omission through retrospective restatement, unless a reliable estimate could not initially be made due to the absence of available pricing mechanisms.

INTRODUCTION

Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, prescribes the accounting treatment and disclosure requirements relating to changes in accounting policies, changes in accounting estimates and the correction of prior period errors. While these concepts are often interlinked in practice, the accounting consequences arising from each are significantly different.

A change in accounting estimate is recognised prospectively, whereas a prior period error requires retrospective restatement. Accordingly, determining the correct characterisation of an accounting adjustment assumes considerable importance.

This issue becomes particularly relevant in the context of statutory obligations, where management may initially conclude that no present obligation exists and subsequently revisit such conclusion after a more detailed technical evaluation of the applicable legal and accounting framework.

This article examines the distinction between a change in accounting policy, a change in accounting estimate and a prior period error in the context of accounting for Extended Producer Responsibility (“EPR”) obligations arising under the Environment Protection (End-of-Life Vehicles) Rules, 2025 (“ELV Rules”).

This article proceeds on the assumption that management was able to estimate the required provision when the ELV Rules became effective. However, many companies have taken the position that the provision was not capable of reliable estimation at that stage. In such cases, the conclusions may differ, and that aspect has been addressed in the concluding paragraph.

QUERY

ABC Limited is engaged in the manufacture and sale of automotive vehicles and prepares its financial statements in accordance with Indian Accounting Standards (“Ind AS”).

The Environment Protection (End-of-Life Vehicles) Rules, 2025 (“ELV Rules”) became effective from April 1, 2025. The Rules require automobile manufacturers to fulfil Extended Producer Responsibility (“EPR”) obligations in respect of vehicles introduced into the market. The annual EPR targets are linked to vehicles sold during the preceding 15 years in the case of transport vehicles and the preceding 20 years in the case of non-transport vehicles.
Further, the ELV Rules specifically provide that the obligation to fulfil EPR requirements continues in respect of vehicles already introduced into the market even if the producer ceases operations.

During the financial year 2025–26, the Company did not recognise any provision in respect of the cumulative EPR obligation relating to vehicles introduced into the market during the preceding 15 years in the case of transport vehicles, and the preceding 20 years, in the case of non-transport vehicles. Management concluded that no present obligation existed as at the reporting date in respect of such past vehicle sales, on the basis that the obligation was dependent upon future operations and future compliance activities. Accordingly, the Company recognised a provision only in respect of vehicles completing the 15th year or the 20th year, as the case may be, during financial year 2025–26, instead of recognising a provision for the entire cumulative obligation arising from vehicles introduced into the market during the preceding 15 or 20 years, as applicable.

ERP-Accounting-Dilemma

Subsequently, during the financial year 2026–27, management reassessing the accounting position, sought an opinion on the following issues:

What is the correct accounting treatment for EPR obligations under Ind AS 37 in the aforesaid fact pattern; and
If the accounting treatment adopted in financial year 2025–26 is to be changed, whether recognition of the cumulative provision in the financial year 2026–27 should be treated as:

a change in accounting estimate; or
correction of a prior period error under Ind AS 8.

RELEVANT ACCOUNTING STANDARD REFERENCES

Ind AS 37 – Recognition of Provision

Paragraph 14 of Ind AS 37 states:

“A provision shall be recognised when:

a) an entity has a present obligation (legal or constructive) as a result of a past event;

b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

c) a reliable estimate can be made of the amount of the obligation.”

Paragraph 17 of Ind AS 37 states:

“A past event that leads to a present obligation is called an obligating event.”

Paragraph 18 further provides:

“Financial statements deal with the financial position of an entity at the end of its reporting period and not its possible position in the future. Therefore, no provision is recognised for costs that need to be incurred to operate in the future.”

Paragraph 19 states:

“It is only those obligations arising from past events existing independently of an entity’s future actions (i.e. the future conduct of its business) that are recognised as provisions.”

Ind AS 8 – Prior Period Errors

Paragraph 5 of Ind AS 8 defines prior period errors as follows:

“Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

a) was available when financial statements for those periods were approved for issue; and

b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.”

Paragraph 41 states:

“Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements.”

Paragraph 42 states:

“Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or

b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.”

Ind AS 8 – Change in Accounting Estimate

Paragraph 32 of Ind AS 8 states:

“As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated.”

Paragraph 34 states:

“An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience.”

Paragraph 36 states:

“The effect of a change in an accounting estimate… shall be recognised prospectively…”

Ind AS 8 – Accounting Policies

Paragraph 5 states:

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Paragraph 7 states:

When an Ind AS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the Ind AS.

DISCUSSION

Under the ELV Rules, effective from April 1, 2025, the obligation to fulfil EPR requirements exists in respect of vehicles already introduced into the market and continues even if the producer ceases operations. Therefore, the obligation is not contingent upon future production, future sales or continuation of business operations, as contemplated in paragraphs 18 and 19 of Ind AS 37.

The obligating event in the present case is the historical introduction/sale of vehicles in the market during the preceding 15 years, in the case of transport vehicles, and the preceding 20 years, in the case of non-transport vehicles. Accordingly, the past event contemplated under paragraph 17 of Ind AS 37 has already occurred.

The obligation exists independent of the entity’s future conduct of business, including in circumstances where the company may cease operations or be wound up. This aspect assumes significance in light of paragraph 19 of Ind AS 37, which specifically states that provisions are recognised only for obligations “existing independently of an entity’s future actions”.

Accordingly, the conditions prescribed under paragraph 14 of Ind AS 37 appear to be satisfied:

a present legal obligation exists pursuant to the ELV Rules as a result of past event;
settlement of the obligation can be enforced by law and there is no realistic alternative but to comply;
an outflow of economic resources would be required for purchase of EPR certificates or equivalent compliance mechanisms; and
the obligation is capable of reliable estimation.

In financial year 2025–26, management concluded that no present obligation existed because it viewed the obligation as dependent upon future operations. However, this conclusion arose from an incorrect interpretation of the legal and accounting framework rather than from absence of information or estimation uncertainty.

The ELV Rules and the relevant facts were already available when the financial statements for financial year 2025–26 were approved. Therefore, the matter does not involve the emergence of new information in financial year 2026–27.

Similarly, the issue does not involve refinement of estimation techniques, reassessment of assumptions, or revision of measurement inputs. Accordingly, the matter cannot be characterised as a change in accounting estimate within the meaning of paragraphs 32–36 of Ind AS 8.

Further, there is no change in accounting policy. Paragraph 5 clearly describes what constitutes an accounting policy, and paragraph 7 requires the selection of accounting policy in compliance with the relevant Ind AS. The accounting framework under Ind AS 37 requiring recognition of provision for present obligations remained unchanged. The error lies in the incorrect application of that framework to the facts existing in financial year 2025–26.

Paragraph 5 of Ind AS 8 specifically states that prior period errors arise from the failure to use, or misuse of, reliable information available when the financial statements were approved. Further, paragraph 41 clarifies that errors may arise in respect of the recognition and measurement of various items in the financial statements.

Accordingly, where management incorrectly concluded that no present obligation existed despite the legal obligation arising from past events and existing independently of future operations, the non-recognition of the provision constitutes a prior period error.

Therefore, recognition of the EPR provision in the financial year 2026–27 would represent correction of a prior period error and not a change in accounting estimate.

CONCLUSION

In the aforesaid fact pattern, the ELV Rules effective from April 1, 2025 create a present legal obligation in respect of vehicles introduced into the market in earlier years. Since the obligation survives even cessation of operations, the liability exists independently of the Company’s future conduct of business.

Accordingly, the recognition criteria prescribed under paragraph 14 of Ind AS 37 stands satisfied, and a provision ought to have been recognised in the financial year 2025–26 itself.

The subsequent recognition of such provision in the financial year 2026–27 does not constitute:

a change in accounting estimate, since there is no revision arising from new information, updated assumptions, or improved estimation techniques; nor
a change in accounting policy, since there is no alteration in accounting principles or recognition basis.

Rather, the matter constitutes correction of a prior period error under Ind AS 8 because the earlier non-recognition resulted from the incorrect application of the existing accounting and legal framework despite all relevant information being available at the time of approval of the financial statements for financial year 2025–26.

Accordingly, the correction in the financial year 2026-27 should be carried out retrospectively in accordance with paragraphs 42 of Ind AS 8, including restatement of comparative information and appropriate disclosures, wherever material.

Several companies have claimed in the financial year 2025-26 results that obligations required to be settled by obtaining EPR certificates could not be provided for because the pricing mechanism had not yet been notified and, consequently, a reliable estimate could not be made. This aspect would require careful evaluation by the statutory auditors of the company in determining the appropriate audit response.

If the above assertion by management is considered reasonable, some auditors though not required to do so, may prefer to draw attention to the matter and provide a matter of emphasis in addition to disclosure under key audit matters. However, if such assertion is found to be incorrect, an audit qualification may become necessary.

If, in subsequent years, the pricing mechanism for EPR certificates is notified and the necessary systems and processes are established for the EPR market to become operational, the provision should then be recognised. In such circumstances, the recognition of the provision would not constitute a prior period error but rather a revision of an accounting estimate.

BCAJ Admin

Where AO fails to record satisfaction in the assessment order that the assessee has under-reported his income and/or fails to direct initiation of penalty proceedings, the initiation of penalty under section 270A is bad in law and the proceedings need to be quashed.

21. TS-656-ITAT-2026 (Chennai)

Shariq Javed L/R of Late Jawad Alam v. ITO

A.Y.: 2017-18 Date of Order: 29.4.2026

Section: 270A

Where AO fails to record satisfaction in the assessment order that the assessee has under-reported his income and/or fails to direct initiation of penalty proceedings, the initiation of penalty under section 270A is bad in law and the proceedings need to be quashed.

FACTS

The assessee, for AY 2017-18, filed return of income declaring total income of Rs.2,13,23,700 which included long term capital gain (LTCG) of Rs.1,99,10,377. The Assessing Officer (AO) while assessing the total income vide order dated 16.12.2019, passed under section 143(3) of the Act, disallowed indexed cost of improvement and assessed the LTCG to be Rs.3,92,77,906. Aggrieved, the assessee preferred an appeal to the CIT(A) who held the LTCG to be Rs 3,01,41,697. The assessee did not prefer any appeal against the order of CIT(A).

The Assessing Officer (AO) vide notice issued on 30.12.2019 initiated penalty proceedings. The penalty notice was neither signed manually / digitally and was issued only on 30.12.2019 whereas the assessment order was passed on 16.12.2019. During the course of penalty proceedings, the assessee passed away and the AO passed an order in the name of legal heir levying a penalty of Rs.12,20,784 being 50% of tax allegedly sought to be evaded for under-reporting of income.

Aggrieved by the order of AO levying penalty, the legal heir preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, an appeal was preferred to the Tribunal where the assessee challenged the jurisdiction of the AO to have imposed penalty under section 270A on the ground that the AO during the assessment proceedings neither directed nor recorded satisfaction that the assessee has under-reported its income and shall be liable to pay penalty on it. It was contended that in the absence of such an endorsement, the impugned penalty is bad in law.

HELD

The Tribunal, at the outset, took note of the provisions of section 270A(1) of the Act and held that the AO has not recorded his `satisfaction / direction’ that the assessee has under-reported his income and shall be liable to pay penalty on under-reported income. Omission to record satisfaction and direct penalty under section 270A in the course of assessment proceedings vitiates the initiation of proceedings for levy of penalty under section 270A of the Act.

The Tribunal also observed that it is a fact evidenced by e-filing portal website that while the notice initiating penalty is dated 16.12.2019 it was issued on 30.12.2019. Therefore, it is clear that the penalty was not initiated in the course of assessment proceedings but 14 days from the date of framing the assessment order which does not satisfy the requirement of section 270A(1) of the Act.

The Tribunal held that in the absence of AO recording his satisfaction in the assessment order that the assessee has under-reported his income and failure to direct that proceedings for levy of penalty under section 270A be initiated vitiate the initiation of penalty under section 270A against the assessee and therefore the levy of penalty is bad in law. The Tribunal quashed the order of penalty under section 270A.

BCAJ Admin

Proviso to section 68 mandates establishing source of source.

20. TS-566-ITAT-2026 (Mumbai)

DCIT v. Jumbo Electronics Corporation Pvt. Ltd.

A.Y.: 2018-19 Date of Order : 7.4.2026

Section: 68

Proviso to section 68 mandates establishing source of source.

FACTS

The assessee engaged in business of retailing in consumer electronics, IT equipment, mobiles, personal electronic items and allied accessories e-filed the return of income for AY 2018-19 declaring therein a loss of 54,15,955. During scrutiny assessment proceedings, the Assessing Officer (AO) noticed that the assessee company had taken a loan of Rs 11,00,16,395 from Aasman Management Services Private Limited (AMSPL).

The AO observed that the net worth of AMSPL was not sound enough to advance the loan of the magnitude which it had, further AMSPL had filed a return of income declaring total income of Rs 8,050; had not shown the loan advanced to the assessee in its ITR and a perusal of bank statement of AMSPL revealed that it had identical amounts in its bank account immediately before it advanced funds to the assessee company. Therefore, he concluded that the assessee company had failed to establish creditworthiness of AMSPL and made an addition of Rs. 11,00,16,395 to the total income of the assessee company.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed this ground of appeal holding that the assessee has discharged the primary burden cast on it; the AO has not made further enquiries; he has not established that it was the assessee’s own money which came back; law does not prohibit a person from lending out of borrowing, etc.

Aggrieved, the revenue preferred an appeal to the Tribunal where it was submitted that the assessee is a wholly owned subsidiary of AMSPL and that the loan was taken from holding company to repay the outstanding balance of cash credit and to pay off trade creditors. Also, from the balance sheet of AMSPL it was shown that AMSPL has written off the amount advanced to the assessee company.

HELD

At the outset, the Tribunal noticed that the CIT(A) had allowed the appeal mainly by observing the conduct of the AO and by holding that the AO has not made any independent enquiries. He has not found out the person from whom AMSPL received the money advanced to the assessee.

The Tribunal held that it was unable to subscribe and persuade itself to concur with the view of CIT(A) which was totally based on failure on the part of AO to make enquiries or not give attention to the transaction. The Tribunal remarked that the powers of the CIT(A) are co-terminus with those of the AO and the CIT(A) having observed that the AO has failed to conduct enquiries or take actions which are necessary, it was the duty of the CIT(A) to decide the issue by making enquiries himself or through the AO in case further enquiries are necessary to arrive at a logical conclusion.

The Tribunal held that certain information like source of funds advanced by AMSPL was not there before the AO. The Tribunal observed that the first proviso is applicable w.e.f. 1.4.2013 and the assessee has not furnished details of credit entries in the bank statement of AMSPL qua their nature and source which though were pointed out by CIT(A) but were not even sought during the proceedings before him so as to reach a justifiable reasoning after satisfying the mandate of law before directing to delete the addition.

The Tribunal set aside the order of CIT(A) with a direction to revisit the issue by making or getting done the necessary enquiries which he noted were required to be done and decide the issue afresh as per provisions of section 68.

The Tribunal further held that in the absence of mandatory information about source of source which is requisite in present case as per first proviso to section 68 of the Act which was not fulfilled, the case laws relied upon by the assessee regarding discharge of primary onus, addition merely on the basis of conjectures and surmises cannot help in the present case. It observed that the argument of accounting treatment in the books of the lender does not determine the genuineness of the loan may have some substance but first the mandatory conditions of section 68 must be satisfied. This contention remains consequential in nature.

BCAJ Admin

Claim for deduction under section 54 made for the first time in return of income filed in response to reassessment notice cannot be denied merely on the ground that such a claim was not made in the original return of income

19. ITA No. 7998/Mum. /2025

Mohd. Azam Hasan Sheikh v. ITO

A.Y.: 2017-18 Date of Order: 09.4.2026

Section: 10(10AA)

Claim for deduction under section 54 made for the first time in return of income filed in response to reassessment notice cannot be denied merely on the ground that such a claim was not made in the original return of income

FACTS

The assessee had not filed return of income under section 139 of the Act. The Department, based on the information that during the year under consideration the assessee has purchased an immovable property showing a value of Rs. 45,00,000 issued a notice under section 148 of the Act. The assessee filed a return of income in response to notice issued under section 148 in which he claimed exemption under section 54 of the Act to the tune of Rs.49,00,000 (sic Rs 45,00,000) against capital gains arising on sale of a residential property owned by the assessee jointly with Ms. Binu Azmi on the ground that the entire sale consideration has been invested in acquisition of a new residential property jointly purchased with Ms. Binu Azmi at Thakur Residency, Ulwe, Navi Mumbai for a total consideration of Rs. 45,00,000.

In the course of assessment proceedings u/s 147 of the Act, the AO considered the claim of the Assessee, however, by observing “that the Assessee has not filed original return of income and therefore, the exemption under section 54 is not allowable”, eventually made the addition of Rs. 31,38,256/- by disallowing the amount claimed by the Assessee under section 54 of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who affirmed the aforesaid addition more or less on the same reason as of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the only controversy involved in the instant case relates to the consideration of exemption claimed under section 54 of the Act, which has been declined to be entertained by the authorities below mainly on the reason that the Assessee failed to file original return of income and/or without filing original return of income, the claim under section 54 of the Act is not sustainable and/or the long term capital gain disclosed/claimed by way of return filed in response to the notice under section 148 of the Act is not entertainable/allowable.

The Tribunal observed that the Commissioner while affirming the aforesaid addition and/or the decision of the AO for not allowing the deduction claimed under section 54 of the Act, has interalia relied on judgment passed by the Hon’ble Apex Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [198 ITR 297 (SC)] whereas the co-ordinate Bench of the Tribunal in the case of Sanjay Gopaldas Bajaj v. ITO [ITA No. 5944/M/2025 decided on 20.01.2026] has dealt with identical issue and also considered the judgment in the case of Sun Engineering Works (P.) Ltd. (supra) and ultimately restored back the matter to the file of the AO to consider the case of the Assessee, within the parameters stipulated under section 54 of the Act.

In the above judgment, reliance was also placed on the judgment of the decision of co-ordinate Bench of the Tribunal in the case of Smt. Amina Ismail Rangari v. ITO [(2017) 86 taxmann.com 160 (Mumbai-Trib.)], wherein it has been held that the provision of section 54F do not prescribe filing of return within the time stipulated under section 139, as a condition precedent for claiming the deduction and that claim raised in the return in response to notice under section 148 of the Act cannot be rejected merely on the ground of delay in filing the return.

The Tribunal relying on the above judgments allowed the appeal of the Assessee, and remanded the case to the file of the AO for decision afresh on the claim of the Assessee under section 54 of the Act within the parameters and/or conditions set out in section 54 of the Act but not otherwise.

BCAJ Admin

Compensation received from RERA is taxable as Capital Gains and not Income from Other Sources.

18. TS-572-ITAT-2026(Delhi)

Prem Narayan Chourasia v. ACIT

A.Y.: 2020-21 Date of Order: 6.4.2026

Sections: 45, 56

Compensation received from RERA is taxable as Capital Gains and not Income from Other Sources.

FACTS:

The assessee in financial year 2005-06 booked a plot being Plot No 412, Sector -15, Sunnywood Enclave Wave City, Ghaziabad and up to FY 2015-16 paid amounts aggregating to Rs.13,13,318. During the year under consideration he received from the builder a sum of Rs 32,47,185 which included compensation of Rs 19,33,867 received under provisions of RERA. The amount received was offered for taxation under the head capital gains.

The Assessing Officer (AO) while assessing the total income under section 147 of the Act charged the amount of compensation to tax as Income from Other Sources.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that it found no merit in the Revenue’s vehement contentions supporting the impugned addition on the ground that compensation is nothing but interest in common parlance liable to be assessed u/s 56 of the Act.

The Tribunal took note of section 18(1) of the Real Estate (Regulations and Development) Act, 2016 stipulating “compensation” to be computed as per the prescribed interest rate than interest (inclusive of the payments already made) and also of section 2(47)(ii) whereby “extinguishment of any rights” in relation to a capital asset constitutes “transfer” thereof and concluded that such a compensation could not be assessed under section 56 of the Act as “income from other sources”. The Tribunal held that the assessee had rightly declared the amount of compensation as representing his long term capital gains.

BCAJ Admin

TDS credit deducted during the current year is allowable despite the fact that revenue has been offered for taxation in an earlier year i.e. TDS credit is allowable despite the timing mismatch between the year of recognition of income and year of deduction of tax.

17. TS-505-ITAT-2026 (Delhi)

BPTP Ltd. v. DDIT

A.Y.: 2020-21 Date of Order: 01.4.2026

Section: 143(1), 190

TDS credit deducted during the current year is allowable despite the fact that revenue has been offered for taxation in an earlier year i.e. TDS credit is allowable despite the timing mismatch between the year of recognition of income and year of deduction of tax.

FACTS

The assessee, engaged in the business of real estate filed its return for the relevant assessment year 2022-23 under Section 139(1) of the Act claiming TDS credit of Rs.19,93,700 as appearing in Form 26AS. However, while processing the return of income, CPC allowed credit of only Rs.18,14,094.

The assessee moved rectification application under Section 154 of the Act before the CPC, Bangalore. In an order passed under section 154 of the Act, CPC did not grant any further credit as was claimed but also reduced the amount of interest allowed under Section 244A of the Act in intimation under Section 143(1) of the Act from Rs. 1,08,840 to Rs. 27,211.

The assessee filed another rectification application and an order under section 154 of the Act was passed increasing demand to Rs. 99,770 as against earlier demand of Rs. 81,620.

Aggrieved, the assessee preferred an appeal before the CIT(A) who remitted the issue to the file of the Assessing Officer (AO) to verify the facts and rectify intimation and recalculate the interest payable to the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the short point for adjudication before it is allowance of TDS credit of Rs. 1,79,606, which was short allowed by the AO while processing return under Section 143(1) of the Act.

The Tribunal noted that the assessee is engaged in real estate business and follows percentage of completion method for recognition of Revenue.

On behalf of the assessee it was submitted that due to introduction of IND-AS 115 with effect from 1st April, 2018 relevant to assessment year 2019-20, revenue was recognized on offer of possession to customers. Due to specific nature of business and timing difference in revenue recognition in books and receipt of amount from customers in different periods, TDS is deducted by the customers at the time of making payment to the assessee irrespective of the fact when the invoice was raised by the assessee or when the revenue is recognized by the assessee. It was further submitted that the revenue is recognized in different periods and amounts are paid and TDS deducted in different periods by customers and therefore, there is bound to be difference in the receipts as per profit & loss account and return of income and as per Form 26AS.

The Tribunal observed that there is no dispute about TDS deducted of Rs 19,93,696 but TDS credit was allowed only to the extent of Rs. 18,14,094. The assessee company explained that it booked revenue in earlier years on the basis of offer of possession given to customers and customers deducted and deposited TDS during assessment year 2022-23. As the assessee cannot claim TDS in respect of revenue booked in earlier assessment years as time to file revised return is over, hence, TDS was claimed as and when TDS was deducted and deposited, that is the case in assessment year 2022-23. Assessee’s claim was that it offered higher income in earlier years and claimed credit for TDS as and when customers deducted TDS and deposited TDS.

The Tribunal found the assessee’s plea to be quite reasonable and as per law. But, since the facts need to be verified whether any TDS deducted by these parties on whose account the assessee company booked revenue in the earlier years on the basis of offer of possession to the customers.

The Tribunal remitted this issue to the file of the AO just for the purpose of verification whether the assessee has offered revenue in the earlier years on the basis of offer of possession. It directed the AO to allow credit for TDS deducted in the current year in case revenue is booked in the earlier year.

BCAJ Admin

TDS credit cannot be denied merely because corresponding income is not taxable in the hands of the assessee. Rule 37BA which stipulates grant of TDS credit does not mandate corresponding income being offered for tax.

16. TS-570-ITAT-2026 (Hyderabad)

Transmission Corporation of Telangana v. DCIT

A.Y.: 2018-19

Date of Order: 30.3.2026

Section: 199, Rule 37BA

TDS credit cannot be denied merely because corresponding income is not taxable in the hands of the assessee. Rule 37BA which stipulates grant of TDS credit does not mandate corresponding income being offered for tax.

FACTS

The assessee company engaged in business of transmission of electrical energy in state of Telangana filed its return of income declaring a loss of Rs.119.05 crore. Subsequently, a revised return of income was filed declaring a loss of Rs.227.33 crore and a profit of Rs.102.46 crore under MAT provisions. The Assessing Officer (AO) while assessing the total income of the assessee interalia made an addition of Rs.121.92 crore on account of interest from deposits of unutilised Lift Irrigation Scheme (LIS) Fund. The assessee had not offered this income for taxation but the credit for TDS on this interest income was claimed. The AO also rejected the claim of TDS on interest receipt.

Aggrieved, the assessee preferred an appeal to the CIT(A) who, following the order of the Tribunal in the assessee’s own case in earlier year, held that interest income was not chargeable to tax. However, he also held that the assessee is not entitled to claim TDS credit in respect of such income which has been claimed to be not taxable which claim was upheld by him.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that there is no dispute that the interest income on which tax has been deducted at source has been accounted in the books of the assessee. The deposit claimed to have been made with the deductor has in fact been made and that the deductor has furnished details of deduction of TDS in TDS return reflecting assessee as a deductee and consequently the amount is reflected in Form 26AS of the assessee. The Tribunal held that in this factual background it found merit in the contention of the assessee that merely because the corresponding income is not taxable in the hands of the assessee, TDS credit cannot be denied.

The Tribunal having gone through the provisions of Rule 37BA held that the said Rule provides that credit for tax deducted at source shall be given to the person to whom payment has been made or credit has been given, on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority. It observed that in the instant case, the deductor has furnished the information to the income-tax authority specifying assessee as the deductee. Therefore, primary requirement of Rule 37BA stood satisfied. It further observed that Rule 37BA also contemplates a situation where the deductee furnishes a declaration to the deductor that credit of TDS is to be given to another person. However, in the present case no such declaration having been furnished, the said provision is not applicable to the facts of the present case.

The Tribunal held that the contention of the DR that TDS credit can be allowed only if corresponding income is offered to tax is not borne out from the plain reading of Rule 37BA. The Tribunal held that it does not find any such pre-condition in the said Rule. It further held that the scheme of TDS credit is based on the principle that once tax has been deducted and paid to the Central Government and the same is reflected in the account of the deductee, the credit thereof should ordinarily be granted to such deductee.

The Tribunal, with a view to avoid possibility of double credit of TDS set aside the matter to the AO for limited verification whether TDS credit has been claimed elsewhere or whether there is any possibility of double credit. The AO was directed to allow TDS credit if it is found that there is no double claim of TDS.

BCAJ Admin

Assured Returns under FEMA

Under India’s FEMA and NDI Rules 2019, foreign direct investment (FDI) strictly prohibits “assured returns,” such as pre-determined internal rates of return or guaranteed exit prices. While investors can utilize optionality clauses like put options, these require a minimum one-year lock-in and must base the exit price on fair market value determined at the time of exit. Common compliance pitfalls include embedding minimum floor prices or using downstream entities to bypass these rules. Although Indian courts may enforce arbitral damages for a promoter’s breach of exit obligations, the actual cross-border remittance of those damages remains subject to strict RBI banking scrutiny.

INTRODUCTION

This article provides a detailed, legally grounded examination of the prohibition on assured returns in foreign direct investment (FDI) under India’s Foreign Exchange Management Act, 1999 (FEMA) framework. It draws attention to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, applicable Reserve Bank of India (RBI) Master Directions and circulars, and leading judicial decisions.

1. UNDERSTANDING THE CONCEPT OF “ASSURED RETURNS” & “OPTIONALITY CLAUSE” IN FOREIGN DIRECT INVESTMENT

Assured Return

In the context of foreign direct investment into India, the term “assured return” refers to any arrangement under which a foreign investor is contractually guaranteed a pre-determined profit, a minimum internal rate of return (IRR), or a pre-agreed exit price or buy-back price at the time of making an equity investment – irrespective of the actual commercial performance of the investee company.

Optionality Without Assurance

A foreign investor may validly be granted an optionality clause, most commonly in the form of a put option, which gives the investor the contractual right to sell its equity shares or compulsorily convertible instruments back to the promoter or to a third party at a future date. However, even optionality is not allowed with the pre-agreed return at the exit.

Examples of Assured Return and Optionality Clause

Example 1 – IRR-Based Exit (Prohibited)

Investor shall be entitled to exit at a price that gives them 18% IRR.

Example 2 – Guaranteed Minimum Exit Value (Prohibited)

Investor will be bought out at not less than the original investment amount plus 12% per annum.

Example 3 – Put Option with Pre-Agreed Price (Prohibited)

Investor may sell its shares to the Promoters at ₹500 per share after 3 years.

Example 4 – Call Option at FMV (Allowed)

The Company may repurchase the Investor’s CCDs at FMV on the date of exercise, following the FEMA pricing guidelines.

Example 5 – Put Option at Fair Value (Allowed)

After the 1-year minimum lock-in, the Investor may require the Promoters to purchase the shares at fair market value determined at the time of exit.

2. THE REGULATORY FRAMEWORK: STATUTORY AND REGULATORY BASIS

2.1 The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules), notified by the Central Government in exercise of powers under Section 47 of FEMA, 1999, constitute the primary subordinate legislation governing foreign investment in equity and equity-linked instruments of Indian companies. The NDI Rules define the scope of “equity instruments” eligible for FDI, which include equity shares, fully and compulsorily convertible preference shares (FCPS), and fully and compulsorily convertible debentures (FCDs).

FDI in INDIA The No Guarantee Rule

Rule 21(2)(c)(iii) Explanation: The guiding principle shall be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment or agreement and shall exit at the price prevailing at the time of exit.

Explanation: The guiding principle shall be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment or agreement and shall exit at the price prevailing at the time of exit.

Rule(9)(5) A person resident outside India holding equity instruments of an Indian company containing an optionality clause in accordance with these rules and exercising the option or right, may exit without any assured return, subject to the pricing guidelines prescribed in these rules and a minimum lock-in period of one year or a minimum lock-in period as prescribed in these rules, whichever is higher.

Rule(2)(k)(i) Equity instruments can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price.

2.2 RBI Circulars on Optionality and Pricing

In addition to the NDI Rules, the RBI has issued two foundational circulars that operationalise the concept of permissible optionality for FDI investors:

A.P. (DIR Series) Circular No. 86 dated January 9, 2014

RBI Circular No. 86 (RBI/2013-14/436) was the first circular to explicitly permit optionality clauses in equity shares, compulsorily convertible preference shares, and compulsorily convertible debentures held by FDI investors. The circular simultaneously imposed three firm conditions that remain operative to this day:

Minimum lock-in period: The option may not be exercised until the expiry of a minimum lock-in period of one year from the date of allotment of the instruments.
No assured return: The exit must be made without any assured return. No minimum IRR, floor price, or guaranteed buy-back price may be stipulated.
Pricing compliance: The exit price must conform to the applicable pricing guidelines, market price for listed securities and fair market value for unlisted securities.

A.P. (DIR Series) Circular No. 4 dated July 15, 2014

This circular (RBI/2014-15/129) revised the pricing guidelines for FDI transactions more broadly, and specifically reiterated the conditions applicable to optionality exits. It confirmed that for unlisted securities, the exit price under an optionality clause must be determined using an internationally accepted pricing methodology – typically a discounted cash flow or comparable company analysis or any another method of valuation certified by a SEBI-registered merchant banker, a Chartered Accountant, or a Cost Accountant and must not be pre-fixed at the time of the original investment. For listed securities, the exit price must be the prevailing market price on a recognised stock exchange. (The above-mentioned circulars have been discontinued, and the relevant provisions are now incorporated under the NDI Rules, 2019)

3. COMMON MARKET MISCONCEPTIONS AND COMPLIANCE PITFALLS

Notwithstanding the clarity of the regulatory framework, a range of misconceptions and structuring errors continue to arise in practice. The following are the most frequently encountered pitfalls, drawn from disputes, enforcement actions, and professional practice.

Pitfall 1: Including Guaranteed Minimum Returns or Set Buy-Back Prices in Contracts

One of the most common violations occurs when transaction documents, whether a shareholders’ agreement (SHA), share subscription agreement (SSA), or a side letter, contain a clause that ensures the foreign investor a minimum exit value, whether expressed as a fixed buy-back price, a minimum IRR, or a floor on the value of the investor’s shareholding. Such clauses, regardless of how they are labelled (for example, as “downside protection,” “capital preservation,” or “guaranteed returns”), constitute an assured return and are squarely prohibited by the NDI Rules, 2019 and the applicable RBI circulars.

Pitfall 2: Treating Legal Compensation for Losses the Same as Agreed-Upon Sale Prices

A nuanced but important misconception arises from the assumption that because Indian courts have enforced foreign arbitral awards granting damages arising out of a failed put option or exit obligation, the underlying assured-return structure itself has been validated. This is legally incorrect.

When a court enforces damages awarded by an arbitral tribunal for breach of a contractual obligation (for example, the promoter’s failure to honour a put option), it is enforcing a remedy for breach of contract, not endorsing or validating a pre-agreed assured exit price. The legal character of the payment – damages for breach, as opposed to the consideration for a share transfer, is what may take it outside the direct operation of the pricing guidelines under FEMA.

Critically, however, even where a court upholds such a damages award, the actual remittance of funds to the foreign investor (i.e., the cross-border transfer) remains subject to FEMA and must pass through the banking system with appropriate FEMA-compliant documentation. AD banks will scrutinise the transaction, and in certain cases, RBI consultation may be required.

Pitfall 3: Failure to Maintain Valuation and Reporting Discipline

Beyond the substantive prohibition on assured returns, compliance failures frequently arise in the procedural and reporting dimensions of FDI transactions. The key reporting obligations and timelines are:

FC-GPR (Form Foreign Currency – Gross Provisional Return): Must be filed with the RBI through the AD Category-I bank within 30 days of allotment of FDI instruments to the foreign investor.
FC-TRS (Form Foreign Currency – Transfer of Shares): Must be filed within 60 days of the date of receipt of consideration or the date of transfer, whichever is earlier, in respect of any transfer of FDI instruments between a resident and a non-resident.
Form DI (Downstream Investment): Must be filed within 30 days of the downstream investment being made by an Indian entity that has received foreign investment (including a Foreign-Owned and Controlled Company or FOCC).

On the valuation side, parties must ensure that unlisted exit transactions are supported by an FMV certificate prepared using an internationally accepted valuation methodology by a SEBI-registered merchant banker or Chartered Accountant or a Cost Accountant. For listed transactions, the recognised stock exchange price applies. Valuation working papers should be retained and made available for AD bank review.

Pitfall 4: Attempting to Circumvent Restrictions Through Downstream or FOCC Layers

A significant structuring risk arises when parties attempt to achieve through indirect means what they cannot achieve directly. For example, an FOCC (a company incorporated in India but owned and controlled by foreign investors) might attempt to make a downstream investment into another Indian company on terms that include an assured return element on the implicit assumption that FEMA’s constraints apply only to direct FDI flows.

The RBI’s 2025 clarifications in the Master Direction on Foreign Investment have made clear that downstream investments by FOCCs are to be treated at par with direct FDI in all material respects, including pricing conditions, entry route requirements, sectoral caps, conditionalities, and reporting obligations. Accordingly, any assured-return structure that would be impermissible in a direct FDI context is equally impermissible when attempted through a downstream investment by an FOCC.

4. KEY JUDICIAL DECISIONS: ANALYSIS OF LEADING CASES

Indian courts and the Supreme Court have had occasion to examine the intersection of contractual exit rights, FEMA compliance, and arbitral award enforcement in several significant decisions. The following cases are the most frequently cited and analytically relevant.

4.1 NTT Docomo Inc. v. Tata Sons Ltd. Delhi High Court | April 28, 2017

“The sum of US$1.17 billion was granted as damages and not purchase consideration for Docomo’s Sale Shares; hence, pricing guidelines under FEMA for transfer of shares would not apply.”

Significance: This decision is the most important judicial authority on the distinction between damages for breach and purchase consideration. The Court upheld an ICC arbitral award in favour of NTT Docomo, holding that the payment constituted compensation for the promoter’s failure to honour the exit mechanism agreed in the shareholders’ agreement and not a transfer of shares at a pre-agreed price. As a result, the Court held that FEMA’s pricing guidelines for share transfers were not directly triggered. RBI’s objections to enforcement were dismissed. However, the decision does not validate assured-return structures per se; it underscores that where a foreign investor has been denied an exit and pursues damages before an arbitral tribunal, the remedy for breach may be enforced by courts, but actual cross-border remittance remains subject to FEMA banking norms.

4.2 IDBI Trusteeship Services Ltd. v. Hubtown Ltd. Supreme Court of India | November 15, 2016

Significance: This Supreme Court decision arose in the context of a summary suit involving a structured investment arrangement that was alleged to provide fixed returns through an optionally convertible debenture structure, which the defendant argued was prohibited under FEMA as it constituted ECB rather than FDI. The Court granted unconditional leave to defend, recognising that the FEMA characterisation of the transaction raised triable issues. While the decision does not decide the FEMA compliance question on the merits, it is frequently cited for two propositions: first, that courts will not summarily decide complex FEMA compliance questions in enforcement proceedings; and second, that structured investment arrangements that allegedly deliver assured returns through non-equity instruments will be subject to close judicial scrutiny.

4.3 GPE (India) Ltd. & Ors v. Twarit Consultancy Services Pvt. Ltd. Supreme Court of India (arising from Madras High Court enforcement) | SC Order: April 17, 2023 | Madras HC Judgment: January 5, 2023

“Notice will also be issued to the Reserve Bank of India to ascertain, if at all any approval or permission from them is required, and if yes, at what stage will it be required.”

Significance: This case illustrates an increasingly important dimension of post-award FEMA compliance. Even after a foreign arbitral award relating to a put option or exit mechanism has been upheld at the enforcement stage by the High Court, the Supreme Court directed that notice be issued to the RBI to ascertain whether any regulatory approval or permission was required and at what stage for the actual cross-border remittance of the award amount. This decision underscores that judicial enforcement of an arbitral award does not automatically complete the FEMA compliance cycle. The regulatory overlay persists at the remittance stage, and parties must plan for AD bank scrutiny and, where necessary, engagement with the RBI before funds can be transferred outside India.

5. PRACTICAL GUIDANCE: STRUCTURING, DOCUMENTATION, AND COMPLIANCE

The regulatory framework described above, read in conjunction with the judicial decisions analysed in the preceding section, yields a set of clear, actionable guidance points for legal practitioners, company secretaries, investment bankers, CFOs, and compliance professionals engaged in FDI transactions.

A. Structuring Principle: Preserve the Option, Remove the Guarantee

The foundational structuring principle is straightforward: an FDI investor may hold a valid exit right or put option, but the exit price must not be pre-determined at the time of investment. Agreements should be drafted to provide the investor with the contractual right to exit after the lock-in period, with the exit price to be determined at the time of exercise of the option in accordance with applicable pricing guidelines.

Documents should clearly and expressly state that no assured return is being provided and that the exit price will be determined at the time of exit. Boilerplate clauses copied from non-Indian investment agreements (particularly those from jurisdictions without similar exchange-control restrictions) are a significant source of non-compliance and should be carefully reviewed.

Compliant vs. Non-Compliant Language

Compliant: “The Investor shall have the right, exercisable after the Lock-in Period, to require the Promoter to purchase the Investor’s Shares at a price determined in accordance with the pricing guidelines applicable under FEMA and the NDI Rules at the time of exercise of such right.”

Non-Compliant: “The Promoter shall repurchase the Investor’s Shares at a price equal to the original investment plus 15% per annum IRR.”

B. Valuation and Documentation Hygiene

Rigorous valuation and documentation practices are essential for FEMA compliance, particularly at the time of exit:

Unlisted Company Exits: Obtain a formal FMV certificate from a SEBI-registered merchant banker or chartered accountant using an internationally accepted valuation methodology (such as DCF, comparable company analysis, or net asset value). Retain the working papers, assumptions, and methodology documentation for AD bank review.
Listed Company Exits: The exit price must be the prevailing market price on a recognised stock exchange. Ensure documentary evidence of the exchange price on the date of transfer is retained.

C. Downstream and FOCC Compliance: Strict Parity with Direct FDI

As noted above, the RBI’s updated Master Direction (January 2025) has confirmed that downstream investments by FOCCs are subject to the same pricing conditions, entry route requirements, sectoral caps, conditionalities, and reporting obligations as direct FDI. Compliance teams should apply the same level of scrutiny to downstream transactions as they would to a primary FDI transaction. In particular, assured-return structures must not be introduced at the downstream level as a surrogate for what cannot be done at the primary level.

D. When a Put Option Fails: Arbitration and Post-Award Compliance

Where a put option or exit mechanism fails because the Indian promoter refuses to honour it, the foreign investor may pursue remedies through arbitration (whether domestic or international). As illustrated by the Docomo case, Indian courts have shown a willingness to enforce arbitral damages awards in such circumstances, characterising the payment as compensation for breach rather than as the enforcement of a pre-agreed exit price.

However, several practical steps must be planned for:

FEMA Compliance at Remittance: Even after a court order enforcing an arbitral award is obtained, the foreign investor’s legal counsel must work with the AD bank to structure the cross-border remittance in a FEMA-compliant manner. The AD bank will need to satisfy itself as to the nature and regulatory characterisation of the payment.
RBI Engagement: In complex cases (as illustrated by the GPE v. Twarit decision), it may be necessary to approach the RBI directly to seek guidance or a no-objection before remittance. Timelines for such engagement can be significant and should be factored into post-award planning.
Tax Treatment: The tax treatment of damages received by a foreign investor (whether as income, capital gains, or otherwise) requires separate analysis under the Income Tax Act, 2025 and applicable tax treaties, and should be addressed in parallel.

6. FREQUENTLY ASKED QUESTIONS (WITH PRACTICAL ANSWERS)

Q1: Can we give a foreign investor a put option with an IRR formula “subject to FEMA pricing at exit”?

A1: Avoid IRR language for equity; state that exit will be at fair value determined at the time of exercise, complying with pricing guidelines. You can reference optionality (per RBI 2014; SEBI 2013), but the payout cannot be assured/guaranteed up front.

Q2: Can we fix a minimum floor equal to the invested amount (a “capital protection” clause)?

A2: No, if your drafting guarantees a minimum return on equity instruments at exit, that’s effectively an assured return and non compliant. Price must be set at exit time fair value, not a pre agreed floor.

Q3: Are CCPS/CCDs safer than equity shares?

A3: CCPS/CCD are equity instruments under NDI. Optionality in exit is allowed without assured returns. Optionally convertible or redeemable variants (i.e., hybrids) are problematic for FDI equity. If your intent is fixed return, consider debt (ECB) instead.

Q4: What about “downside protection” clauses?

A4: You may craft damages remedies for breach (e.g., where promoters fail to undertake actions they are obligated to perform), but do not conflate them with assured equity exit prices. Even damages payable overseas will be subject to RBI permissions at remittance. Courts have enforced foreign awards in specific cases, but that is not blanket permission to sidestep FEMA.

Q5: In real estate, can a foreign investor get an assured rental yield?

A5: FDI in the real estate business is prohibited, while construction development is permitted with conditions. Regardless of sector, any equity exit assured return is barred; rent is an operating cash flow, not an exit price. Ensure the sectoral policy (DPIIT/Press Notes) and instrument level FEMA rules both align.

Q6: Does the dividend on CCPS / interest on CCD amounts to an assured return?

A6: No, dividends on CCPS and interest on CCDs are not treated as “assured returns” under FEMA.

What FEMA prohibits is pre agreed fixed exit pricing (IRR / assured minimum amount) on equity instruments, not normal commercial payouts like dividends or interest that arise from their contractual terms.

KEY PRINCIPLE

An FDI investor may hold a put option or an exit right. What is not permitted is a pre-agreed, fixed exit price or minimum IRR guarantee embedded at the time of investment. The price must be determined at the time of exit, post lock-in, in accordance with RBI pricing guidelines.

The investment instrument is formally structured as equity, which, by its nature, carries risk and participates in the company’s fortunes, and it cannot guarantee a return without exposure to business risk.

BCAJ Admin

Role of Audit Committees And Challenges

Despite stringent regulations, severe corporate scandals—including SecureKloud, Karvy, and IL&FS—highlight the persistent failures of Independent Audit Committees. Recently, the 2026 SAT order upheld penalties against SecureKloud’s committee members for assisting management in financial manipulation rather than functioning as independent watchdogs. To prevent such failures, Audit Committees must overcome their over-reliance on management and assert absolute independence. Implementing strategic reforms like stricter financial qualifications, more frequent meetings, and direct auditor engagement is crucial. Ultimately, committees must evolve from passive compliance bodies into proactive guardians overseeing modern risks, including cybersecurity and data privacy.

INTRODUCTION

Despite stringent regulations like the Companies Act 2013 and SEBI LODR, India’s corporate landscape continues to be rocked by financial scandals—from IL&FS to Karvy. At the center of these failures lies a crucial question: Where was the Independent Audit Committee? As business dynamics shift into the digital and AI era, the Committee must evolve from a passive rubber-stamp into an aggressive, independent watchdog.

The provisions relating to Audit Committee have been specified under Section 177 of Companies Act, 2013 and under Rule 6-Companies (Meetings of Board & its Powers) Rules, 2014. Under SEBI (LODR) Regulation, 2015, the provisions of Committee are subject to Regulation 18 & Part C of Schedule II of SEBI (LODR) Regulation, 2015.

Recent regulatory orders highlight the consequences of failure of Audit Committee in reputed corporates.

From Rubber stamp to Independent watch dog

SEBI order on M/s Securekloud Technologies Ltd. for false financial statement¹

Securities and Exchange Board of India (SEBI) vide Adjudication Order No. Order/VV/PSS/2022-23/22968-22973 dt 20 January 2023 has imposed a penalty of Rs.55 lakh on three directors and three executives of Securekloud Technologies Ltd (formerly 8K miles Softwares) for submitting false disclosures, making false representations and misrepresentation in financial statements. The SEBI order noted that Audit Committee members Punniamurthy and Singaram acted as agents of the company rather than independent overseers. By failing to conduct due diligence or exercise independent judgment, they directly violated regulatory norms.

¹ Source: https://www.moneylife.in/article/sebi-imposes-rs55-lakh-fine-on-directors-executives-of-securekloud-technologies-for-false-financial-statement/69592.html

The SAT order (2026) unequivocally upheld the penalties against the Audit Committee members

On appeals filed by SecureKloud and its officials, the Securities Appellate Tribunal (SAT) pronounced its judgment on March 6, 2026.

While the Tribunal granted partial relief to the company by setting aside a specific direction to recover Rs. 3.83 crores from its promoter, Suresh Venkatachari, it categorically dismissed the appeals filed by the Audit Committee members, Dinesh Raja Punniamurthy (Chairperson) and Babita Singaram.

SAT explicitly confirmed the penalties levied against the Audit Committee members under the SEBI Act and LODR Regulations. The Tribunal critically observed that the officials chose to ignore express “red flags” raised by the company’s statutory auditors. Furthermore, SAT noted that instead of functioning as the “watchdog for investors,” the Audit Committee was involved in the manipulation and actively assisted the management in inflating the financials.

SEBI delivers final order in Karvy demat scam, cracks down on MD and directors²

Similarly, SEBI cracked down on the MD and independent directors of Karvy Stock Broking Limited (KSBL), marking an inflection point in the stock market scam that siphoned off crores in investor wealth and prompted deep and structural investor reforms. Independent directors of the company have also been penalised.

IL&FS Crisis³

The Serious Fraud Investigation Office (SFIO) has charged accounting companies along with some of its partners, as well as members of the Committee, for their failure in not disclosing true financials of IL&FS Financial Services (I-FIN) and allegedly conniving with the management to suppress information. The SFIO’s charge sheet also levelled multiple allegations against Committee members in chargesheet.

Even after enactment of stringent Regulation under the Companies Act, 2013, SEBI LODR and several Guidance Note prescribed by regulatory body, systemic corporate governance failures continue to surface, which is detrimental to the interest of the Indian Economy and Investor confidence in capital market. A question arises on the effectiveness of the Independent Audit Committee.

Provisions for Audit Committee (AC) under the Companies Act 2013 and SEBI (LODR) Regulations 2015 can be enumerated as below mentioned:

Details	Under the Companies Act 2013	Under the SEBI (LODR) Regulations 2015
Constitution :	AC must comprise of at least 3 directors, with independent directors forming majority. Such members must be appointed for the audit committee under Companies Act who can read and understand financial statements. This provisions is also applicable while appointing a chairperson.	AC must comprise of at least 3 directors as members. Further, two-thirds of the members of the audit committee should be independent directors. The chairperson of the audit committee must be an independent director. All the audit committee members should be literate financially, and minimum one member should be expert in accounting or related financial management.
Meetings :	The Companies Act 2013 doesn’t mandate for an audit committee meeting frequently. Nevertheless, Audit Committee should meet as often as required subject to requirement as may be prescribed under law.	The SEBI (LODR) Regulations 2015 requires audit committee to meet minimum 4 times in a year, and more than 120 days should not have elapsed between two meetings. The quorum for such meeting shall be of 2 members or 1/3 of the members of the audit committee, whichever is greater, with a minimum of 2 independent directors.
Functions And Role :	As per Section 177(4) of the Companies Act, every audit committee needs to adhere to the terms of reference mentioned in writing by the board which will include: (i)The recommendation for appointment, remuneration & terms of appointment of the company’s auditors; (ii)Review & monitor the independence & performance of auditor as well as the effectiveness of the audit process; (iii) Examine the financial statement and the auditors’ report; (iv)Approval or modification of company’s transactions with related parties. (v)Scrutiny of inter-corporate loans and investments; (vi)Valuation of undertaking or assets of the listed entity, where required; evaluating internal financial controls and risk management systems; (vii)evaluation of internal financial controls and risk management systems; (viii)To review the end usage of funds raised through public offers and related matters.	Part C Schedule II of SEBI (LODR) Regulations prescribes the role of Audit Committee. It includes the following: (i) Oversight of the listed entity’s financial reporting process and the disclosure of its financial information to ensure its credibility; (ii)Recommend appointment, remuneration and terms of appointment of listed entity’s auditors; (iii)Providing payment approval to statutory auditors for services rendered by the statutory auditors; (iv)To review the annual financial statements and auditors’ report before it is submitted to the board for approval with a special reference to the following: 1.Matters to be included in the directors’ responsibility statement; 2. Changes in accounting policies & practices and reasons, if any; 3. Major accounting entries; 4. Core adjustments made in the financial statement from audit findings; 5. Adherence to the listing and other legal requirements pertaining to financial statements; 6. Disclosure of Related Party Transactions (RPTs); 7. Modified opinion in the draft audit report.
Powers :	To call for the comments of auditors regarding internal control systems, scope of audit and review financial statement before it is submitted tothe board and can also discuss any issues related with the internal as well as statutory auditors and the management of the company; (i) To investigate into a matter relating to Company and the committee can obtain professional advice from external sources. The committee has the power to access information in the records of the company.	(i) To investigate an activity within its terms of reference; (ii) To get information from any employee; (iii) To get legal or other professional advice from outside; (iv) To get attendance of outsiders having relevant expertise, if required.

2. Source:https://www.moneycontrol.com/news/business/markets/sebi-delivers-final-order-in-karvy-demat-scam-cracks-down-on-md-and-directors-10495611.html

3. Source:-   https://timesofindia.indiatimes.com/business/india-business/deloitte-kpmg-charged-with-helping-i-fin-cook-its-books/articleshow/69657703.cms

ROLES OF INDEPENDENT AUDIT COMMITTEE

There are several areas where the Independent Audit Committee plays an important role. Few important areas may be highlighted as below: –

A. Independence First

Independence of the Members on Audit Committee is first and foremost requirement for ensuring the effective functioning of the committee. The committee has to take an objective view of all matters under consideration. A member of the Committee who has close links with the promoters or the senior management may not, on all occasions, take such a view. Nonetheless, independent directors may not be less than Independent Auditors in my view.

A continuing loss of independence or conflict of interest may justify the director leaving the committee. A stark example of this occurred during the YES Bank crisis as below mentioned.

YES Bank crisis⁴

On 10th January 2020, Yes Bank’s audit committee chairman Uttam Prakash Agarwal resigned as independent director citing concerns regarding the deteriorating standard of Board oversight at the private lender. In a letter to the regulators, he said, “There are serious concerns as regards deteriorating standards of the corporate governance, failure of compliance, management practices and the manner in which the state of affairs of the company are being conducted.

4. https://www.livemint.com/industry/banking/yes-bank-s-audit-committee-chairman-resigns-citing-governance-concerns-11578648202811.html

B. The Audit Committee and Critical Audit Matters (CAMs)

While the independent auditor is solely responsible for writing and communicating CAMs, audit committees should engage in a substantive dialogue with the auditor regarding the audit and expected CAMs to understand the nature of each CAMs, the auditor’s basis for the determination of each CAM and how each CAMs is expected to be described in the auditor’s report. Further, these CAMs may provide a lead in future action and decision.

C. The Audit committee and internal control

The board is responsible for the total process of risk management, which includes ensuring that the system of internal control is adequate and effective. While the board holds ultimate responsibility for risk management, it delegates day-to-day oversight to the Audit Committee. Consequently, the Committee must actively monitor the adequacy of internal financial controls and ensure:

review compliance with regulations, legislation and ethical practices (such as environmental policies and codes of conduct), and ensure that systems are in place to support such compliant behaviour;
review the company’s fraud risk management policy, ensuring that awareness is promoted and reporting and investigation mechanisms exist;
give its approval to the statements in the annual report relating to internal control and risk management;
receive reports on the conclusions of any tests carried out on the controls by the internal or external auditors, and consider the recommendations that are made;’
monitor and assess the role and effectiveness of the internal audit function within the company’s overall risk management system;
check the efficiency of internal audit by quality of observations;
approve the appointment, or termination of appointment, of the head of internal audit;
ensure that the internal audit function has direct access to the board chairman and is accountable to the audit committee;
review and assess the annual internal audit work plan;
receive periodic reports about the work of the internal audit function;
review and monitor the response of management to internal audit findings;
ensure that recommendations made by internal audit are actioned;
help preserve the independence of the internal audit function from pressure or interference.

The committee should meet with internal auditors at least once a year, without management present, to discuss audit-related matters.

The Audit committee and internal control

D. THE AUDIT COMMITTEE AND EXTERNAL AUDITORS

Beyond internal metrics, the Committee must independently manage the relationship with external auditors. The audit committee should:

Regarding external auditors, the Committee serves as the primary gateway for appointments, remuneration, and oversight of the audit’s scope to the board on the appointment, re-appointment or removal of the external auditors;
oversee the selection process when new auditors are being considered;
approve the terms of engagement of the external auditors and the remuneration for their audit services;
ensure the independence and objectivity of the external auditors;
review the scope of the audit with the auditor, and satisfy itself that this is sufficient;
make sure that appropriate plans are in place for the audit at the start of each annual audit;
carry out a post-completion audit review.

E. The Audit committee and compliance

Ensuring strict compliance with external reporting regulations remains a cornerstone of the Committee’s mandate. The audit committee needs to satisfy itself that the financial statements prepared by management and approved by the auditors are acceptable. It should consider:

the material accounting policies that have been used, and whether these are appropriate;
any critical estimates or judgements that have been made, and whether these are reasonable;
the method used to account for any material or unusual transactions, where alternative accounting treatments are possible; and
the clarity and completeness of the disclosures in the financial statements.

The committee should listen to the views of the auditors on these matters. If it is not satisfied with any aspect of the proposed accounting integrity, it should inform the board.

The committee should also re-review the Business Review section and the corporate integrity statements relating to audit and risk management in the Annual Report.

Impediments to Audit Committee Effectiveness and Common Mistakes

The Board and Audit Committee members view the Committee only as a legal or regulatory requirement to be fulfilled. A few common mistakes or misconceptions are below mentioned:

Inadequate understanding of accounting, control, audit, reporting and complex business issues.
Over-reliance on the company’s management and lack of inquisitiveness and healthy scepticism.
Committee’s inability to assert itself in the face of dominant management.
Lack of effective leadership leading to consequent lack of coordination with auditors and management.
Ineffective meetings ridden with poor agenda planning and unfocussed discussions.

RECOMMENDATIONS FOR EFFECTIVE INDEPENDENT AUDIT COMMITTEE

Boards can implement the following strategic shifts to drastically improve Committee effectiveness:

Minimum financial qualification and functional experience to be an audit committee member should be raised from just comprehensive knowledge of financial statements where only the Chairman is required to be an expert in the committee.
There should be a minimum of six audit committee meetings in a year—two meetings devoted to evaluating the thorough control environment and risk management related matters comprehensively.
There must be a check on the maximum number of audit committees a person can be a member.
The audit committee meetings to be held at least a day before the board meeting, to allow for enough time to deliberate and discuss key issues.
Appointment of the audit committee should be ensured through a well-defined selection procedure and should not be done by the chairman or board or promoters.
The tenure of the audit committee membership should be well defined, and a transparent succession planning process must be there.
Appointment of internal auditor and their reporting should be done by and to the audit committee.
The Audit Committee reviews its charter at least once in a year and recommends any amendments to the Board.
The Audit Committee engages with the auditors on a regular basis.
The Committee reviews its own performance once in a year.
The Committee reviews areas concerning management’s assumptions, material accounting treatments that have a material impact on the financial statements.
The committee should follow guidance issued by ICAI in spirit on “Technical Guide on Functioning Audit Committee & Its Review Checklist”
The members use various AccountingRatio tools to check the health of the Financial statements.

CONCLUSION

Ultimately, these structural recommendations point to a single truth: the Audit Committee must evolve from a passive compliance body into a proactive, independent watchdog.

The role of the Audit Committee is no longer confined to finalizing financial statements. In an era of digital transformation, their mandate has expanded to encompass cybersecurity, sustainability reporting, and data privacy under the DPDP Act. To truly protect stakeholders, Audit Committees must shed their reliance on management, assert their independence, and embrace their role as the ultimate guardians of corporate integrity.

BCAJ Admin

Principles of Applying Ethics In Professional Judgement

The ICAI Code of Ethics mandates five fundamental principles for Chartered Accountants to ensure they consistently act in the public interest.

First, Integrity requires straightforwardness and honesty in all professional, business, and personal relationships. Second, Objectivity demands that professional judgment remains uncompromised by biases, conflicts of interest, or undue influence. Third, Professional Competence and Due Care entails maintaining up-to-date professional knowledge and acting diligently in accordance with technical standards. Fourth, Confidentiality obligates accountants to fiercely protect client information both during and after professional engagements. Finally, Professional Behaviour involves complying with laws and avoiding any conduct that might discredit the accounting profession.

OVERVIEW AND INTRODUCTION:

One of the hallmarks of the chartered accountancy profession is the underlying and tacit responsibility of acting in ‘public interest’. A chartered accountant plays various professional roles in society namely as an accountant, financial advisor, tax advisor, auditor and many more. The impact that each of these roles is able to create depends on the skills and values that accountants bring to the fore. More importantly, the agenda of public interest is served by adherence to ethical principles and professional standards, business knowledge, technical knowledge and lastly professional judgements.

While it is easy for us to sermonize that all accountants should act ethically, what does it mean in practice? Are there any fundamental principles on ethics that can guide the accountant’s behaviour? This article attempts to answer this question and provides an overview of the five fundamental principles of ethics for chartered accountants as enshrined in the Institute of Chartered Accountants of India (ICAI) Code of Ethics (CoE).

FIVE FUNDAMENTAL PRINCIPLES OF ETHICS

There are five fundamental principles of ethics for chartered accountants:

Integrity

Let’s explore each of these in more detail:

A] INTEGRITY

The CoE defines this as ‘to be straightforward and honest in all professional and business relationships’.

Integrity is also when there is congruence between one’s thoughts, speech and actions. Simply put it means that what one thinks should be aligned with what one says and that is how it should translate into action as well.

Personal versus professional lives: A Chartered Accountant is expected to be honest and upright as a citizen, and in all his personal affairs. The term ‘work life balance’ has become quite fashionable nowadays where professionals want to carve out their office and personal lives with a pursuit to avoid any infringement in boundaries set by each part of these lives. However, when it comes to matters of integrity, there are no boundaries between one’s professional behaviour versus how one behaves in personal life. Only if one displays integrity in personal life, will they be able to have integrity in professional life with the reverse also holding true.

One cannot take the plea that ‘I am obliged to have integrity only while fulfilling my duties as a professional’. Integrity goes to the root of one’s personality and is engrained in each thought, emotion and action. Unless all these components are aligned, the professional will always struggle.

Guts and gumption – Integrity also involves dealing fairly, truthfully, and acting appropriately. It also means that the professional should not let go of his values, even when facing pressure to do otherwise or when doing so might create potential adverse personal or organizational consequences. Various situations may arise which tests one’s mettle irrespective of whether one is a practicing accountant or one employed in industry. When one is confronted by difficult situations, one should stand one’s ground if one believes that he is on the right path. The professional should also challenge others as and when the circumstances require so, in a manner which is appropriate.

False or misleading statements – As a chartered accountant, the professional will be involved in various deliverables such as generating reports, tax returns, email communications, representations etc. Integrity should be upheld at all times in all such activities. He should not be knowingly associated with any such information where he has a reason to believe that it contains any false or misleading statement. He should also put his foot down in case of any statements or information are provided in grossly negligent manner. It is important that one does not hide information where the act of such omission itself would be misleading. The professional’s argument that he did not say anything false would not hold good if he was involved in omitting any important information with full knowledge and awareness that such omission would be misleading. Upon becoming aware, he should also take all necessary steps to disassociate himself from that information. This may also mean taking tough and difficult steps such as issuing any written clarifications to this effect to the recipients of the information or to any other stakeholders.

B] OBJECTIVITY

One of the meanings of ‘objectivity’ by the Merriam Webster dictionary is ‘freedom from bias’ or ‘lack of favoritism toward one side or another’. It means dealing with situations without being influenced by personal feelings, biases, or prejudices. Being objective means relying on facts and evidence rather than the outcome being influenced by personal opinions or emotions.

The CoE requires every chartered accountant to comply with the principle of objectivity, which requires an accountant to exercise professional or business judgment without being compromised by:

Bias;
Conflict of interest; or
Undue influence of, or undue reliance on, individuals, organizations, technology or other factors.

Biases – Bias can be defined as ‘a feeling of favour often not based on fair judgement or facts’. Unconscious or conscious biases may affect professional judgments of the chartered accountant.

Various types of Unconscious Biases

1 ISA220 (Revised) published by International Auditing and Assurance Standards Board

Examples of unconscious biases1 that may impede the exercise of reasonable professional judgments may include:

Confirmation Bias: The tendency to seek or focus on information that confirms preexisting beliefs or expectations, while ignoring evidence that contradicts them.
Overconfidence Bias: Overestimating one’s own abilities, knowledge, or judgment, which can lead to insufficient testing or overlooking risks.
Anchoring Bias: Relying too heavily on an initial piece of information (such as last year’s figures or management’s initial estimate) and not adjusting adequately when new, contradictory information arises.
Familiarity Bias: Placing undue trust or reliance on clients due to long-standing relationships, which may lead to a reluctance to challenge management.
Groupthink Bias: A phenomenon where team members agree with a consensus or senior member, suppressing dissent or alternative perspectives to avoid conflict.
Availability Bias: Giving undue weight to information that is readily available or recent, while ignoring less accessible but more relevant evidence

Getting rid of biases does not happen by wishful thinking! it is a result of conscious and deliberate efforts.

Conflicts of interest: A conflict of interest arises if a firm or any of its associated persons has a relationship with another person, entity, or service that may reasonably be thought to bear on the ability of the firm or the associated person to exercise objective and impartial judgment in connection with their responsibilities under applicable professional and legal requirements with respect to an engagement not involving such other person, entity, or service².

A chartered accountant should not undertake a professional activity if a circumstance or relationship unduly influences the accountant’s professional judgment regarding that activity.

The below examples³ from some relevant overseas standards on this topic, may help clarify:

There is a lawsuit filed against an existing Client A of the chartered accountant/firm and he has also been approached by the opposite party to assist them on the lawsuit.
Providing tax and financial planning advice to a client and suggesting them to invest in a business in which he or she has a financial interest.
Providing services for several members of a family who may have opposing interests.
Having significant financial interest in a company that is a major competitor of a client for which the member performs consulting services.
Serving on a government panel/ committee which considers matters involving several of his tax clients.

2 PCAOB standards on Integrity and Objectivity

3 PCAOB standards on Integrity and Objectivity

C] PROFESSIONAL COMPETENCE AND DUE CARE

The CoE states that a chartered accountant shall comply with the principle of professional competence and due care, which requires an accountant to:

(a) Attain and maintain professional knowledge and skills at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation; and

(b) Act diligently and in accordance with applicable technical and professional standards.

Professional competence is the most important reason that clients approach chartered accountants. The chartered accountant is expected to be proficient in the areas that he practices in. One cannot make an excuse that there was no time to read up on a latest professional update if the client poses a query on the same. Similarly, for any organization employing chartered accountants, the very reason that he is employed is that the underlying assumption that a chartered accountant always endeavors to be at the peak of his game. Irrespective of whether the chartered accountant is a practitioner or in industry, it is expected that he should perform his work based on all applicable technical and professional standards. By no means, is a chartered accountant expected to be an ‘antaryaami’! (colloquial for the almighty omniscient) expected to have expert knowledge on everything under the sun. There are myriad of areas which chartered accountants gain exposure to, however there are a few which the chartered accountant chooses to profess and specialise in. These are the areas where professional competence and knowledge becomes non-negotiable.

Considering that the chartered accountant’s team would very often interact with the clients more than him, it is also in the chartered accountant’s own interest to ensure that the team working under him is also sufficiently trained and supervised.

D] CONFIDENTIALITY

Confidentiality is the bed rock of every professional engagement. More so for an engagement with a chartered accountant, the client exposes every little innards of his organisation and practices in order to ensure that he receives sound advice based on accurate and complete information. Having been privy to such information, a chartered accountant is under an obligation to ensure that the client’s interests are always protected. Maintaining confidentiality of information is one such basic expectation from a chartered accountant.

The CoE states that a chartered accountant shall comply with the principle of confidentiality, which requires an accountant to respect the confidentiality of information acquired in the course of professional and employment relationships. An accountant shall:

Be alert to the possibility of inadvertent disclosure, including in a social environment, and particularly to a close business associate or an immediate or a close family member;
Maintain confidentiality of information within the firm or employing organization;
Maintain confidentiality of information disclosed by a prospective client or employing organization; and
Take reasonable steps to ensure that personnel under the accountant’s control, and individuals from whom advice and assistance are obtained, comply with the accountant’s duty of confidentiality.

While confidentiality is a basic expectation arising from the CoE requirements, the same can also be enforced contractually by the client. Some clients may also apply onerous obligations for reimbursement of damages caused due to breach of confidentiality. At times these may be various multiples of fees depending on how the same is negotiated. Also, given the recent developments in enhancements in personal data laws, this requirement is more critical than ever.

WHAT SHOULD HE NOT DO:

A CA shall not

All chartered accountants need to take appropriate safeguards to ensure that confidentiality is not breached. It is his responsibility to ensure that:

(a) No disclosure of confidential information acquired in the course of professional and business relationships;

(b) No using of confidential information acquired for any undue advantage;

(d) No use or disclosure of information even after the information has become publicly available, whether properly or improperly.

Exceptions when a chartered accountant may disclose or use confidential information:

A CA may disclose or use confidential

There are some exceptions that are permitted by the CoE when it comes to disclosure of confidential information. These exceptions are to be carefully considered and all possible safeguards should be applied that sufficient criteria are met for disclosure.

Situations where disclosure is required by law or regulations: For example, if there are any legal proceedings and the chartered accountant is required to provide certain documents/ evidence as mandated by the regulator. There are also certain situations where the CoE requires the professional to report to the appropriate public authorities of infringements of the law that have come to his information. There are separate sections of the CoE which deal with the professional’s reporting obligations in case certain situations of NOCLAR (Non Compliance with Laws and Regulations) are noted by him in the course of his professional duties.

Other situations based on client consent: The ICAI performs quality reviews of work performed by practicing chartered accountants whereby he may be required to disclose certain confidential information of the client forming part of his working papers in order to comply with the requirements of peer review or quality review or such other review by the Institute. There may be other such situations as well, however the consent of the client is required to be taken before any such disclosure is made. Client consent should be the obtained in writing and should specify the end purposes for which the confidential information is sought to be disclosed.

The obligation for confidentiality is not merely driven by the contractual term but survives the completion of the engagements and he shall continue to comply with the principle of confidentiality even after the end of the relationship between the accountant and a client or employing organization.

E] PROFESSIONAL BEHAVIOUR

As per the CoE, a chartered accountant shall comply with the principle of professional behaviour, which requires an accountant to:

Comply with relevant laws and regulations;
Behave in a manner consistent with the professional’s responsibility to act in the public interest in all professional activities and business relationships; and
Avoid any conduct that the accountant knows or should know might discredit the profession.

If the action has the likelihood to adversely affect the good reputation of the profession, then it needs to be avoided. This again goes to the aspect that we talked about at the beginning of this article i.e. public interest.

Every chartered accountant is also bound by the Chartered Accountants Act (‘Act’) where the first and second schedule of the Act provides various aspects of behaviour which are considered as ‘professional misconduct’. The requirements of the CoE are harmonious with the requirements of the Act and therefore the chartered accountant needs to adhere to both the requirements.

To provide examples, some behaviours which are construed as professional misconduct are:

Entering into partnerships outside of permitted professionals
Sharing of fees with non-member
Accepting share of fees from non-member
Soliciting professional work in violation of permitted guidelines
Advertising in violation of permitted guidelines
Exaggerated claims for the services offered by, or the qualifications or experience of, the accountant;
Disparaging references or unsubstantiated comparisons to the work of others.
Engaging in non-permitted occupations
Breach of client confidentiality
Grossly negligent in performing duties
Providing false information etc.

F] PRACTICAL ILLUSTRATIONS IN PROFESSIONAL PRACTICE – ETHICAL DILEMMAS

Now that we have discussed the tenets of professional ethics, let us explore a few situations which may be faced in professional practice. Situations involving such ethical dilemma are difficult to navigate and there are shades of grey. Each step in such situations needs to be carefully considered and deliberated by the professional as quite often, there is no turning back! One wrong action has the potential to irrevocably tarnish the professional’s reputation.

This article will intentionally not endeavour to provide solutions to these situations as it involves professional judgement.

Example #1

Your brother in law has faced massive losses in his business recently. His house is mortgaged and he is unable to repay his home loan. The bank authorities are now about to seize possession of his house. You are working on a confidential engagement with a listed client and you have come to know of a huge contract won by the client which is likely going to triple the profitability of the client in the next year. Your brother in law was sitting in the same room where you were having the conference call with the client and
he has overheard some part of the conversation but not fully. He has asked you to share more information with him so that he can use this to trade in the securities and recoup part of his business losses. What will you do ?

Example #2

You have recently joined a new organisation. You had created certain business templates/documents using publicly available sources for work in your previous employment and for some reason they are available in your personal email address storage. Your new boss is facing an urgent requirement and he has asked you for help for responding to a client request immediately that evening. The templates available on your personal email address exactly match the client’s request. You are due for promotion next month and if you are not able to help your boss today, the chances of your promotion are bleak. What will you do?

The idea of the above examples is to make you aware of various scenarios that can arise, how complex can they be and force you to think and apply the basic principles that we have just explored above.

Finally, in case the chartered accountant is dealing with situations where complying with one fundamental principle conflicts with complying with one or more other fundamental principles, he should consider consulting within or external to the organisation.

BCAJ Admin

Taxing Escrows and Earn-Outs In Share Purchase Agreement

In M&A transactions, buyers frequently deposit a portion of the sale consideration into escrow accounts to mitigate future risks or indemnify against potential liabilities. Because the seller lacks an unconditional right to these funds until specific conditions are met, the income does not legally “accrue” and is not taxable in the year of transfer. However, the Income-tax Act, 2025 contains a statutory lacuna: it lacks a specific deeming fiction to tax these escrow releases in the subsequent year they accrue. Strictly interpreted, subsequent escrow realisations constitute non-taxable capital receipts, although prevailing market practice pragmatically taxes them as capital gains in the year of release.

INTRODUCTION

It is increasingly common in contemporary acquisitions of shares or businesses for the consideration to include an element that is either deferred or contingent. Deferred consideration refers to consideration that is fixed as of the date of transfer but payable after a specified period. Contingent consideration, conversely, comprises additional consideration that becomes payable only upon the satisfaction of specified future conditions, such as the achievement of stipulated profit levels or EBITDA. Such arrangements are often structured as “earn-outs”, whereby the acquirer undertakes to transfer additional value to the seller upon the occurrence of agreed future events.

These mechanisms bridge valuation gaps and incentivize sellers to enhance operational performance post-transfer. However, while commercially effective, they create complex tax implications regarding the timing, characterisation, and computation of capital gains, particularly where additional consideration accrues or is received after the year of transfer.

The distinction between the two is critical. Deferred consideration involves an obligation that is fixed and unconditional, subject only to the passage of time. Contingent consideration, however, becomes due only upon the fulfilment of uncertain future events.¹

¹Illustration of Deferred vs. Contingent Consideration: Deferred Consideration: An investor acquires shares of A Ltd. 
for INR 500,000. INR 200,000 is paid upfront, and INR 300,000 is payable after two years. 
The obligation to pay the balance is fixed and unconditional; hence, it is deferred consideration. 
Contingent Consideration: Shares are sold for a maximum of INR 1,000,000 (INR 400,000 upfront). 
The balance is payable only if EBITDA exceeds specific thresholds (e.g., INR 200,000 if EBITDA > INR 5 million; 
INR 600,000 if EBITDA > INR 9 million). This is contingent consideration as the debt arises only upon fulfilment of performance conditions.

In practice, one must also distinguish between two closely related but conceptually distinct situations. The first is where a portion of the agreed sale consideration is deposited into an escrow account and released only upon the satisfaction of specified covenants, indemnity conditions, or the non-occurrence of identified liabilities. The second is where the seller becomes entitled to additional consideration only upon the achievement of future performance metrics or other stipulated milestones. Though both involve delayed receipts and uncertainty at the time of transfer, the legal architecture of the seller’s entitlement is not identical in the two cases. That distinction may have a material bearing on the tax analysis.

This article is therefore being presented in two parts. The present part introduces the broader issue and focuses in detail on the taxation of consideration placed in escrow, including the question whether such amounts accrue to the seller at the time of transfer, whether their subsequent release gives rise to capital gains taxation, and whether forfeiture of escrowed amounts has any tax consequences. The second part will deal with contingent consideration more specifically, including the possible application of the principles in Marren v. Inglis², the treatment of contingent rights under the Income-tax Act, 2025 (IT Act), valuation issues, characterization concerns where continued employment is involved, and related questions arising in the context of share purchase agreements.

² (1980) 1 WLR 983 (HL), cited by HMRC in their capital gains manual,available at CG14950 
- https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14950 (Last accessed 16 May 2026)

This distinction also assumes practical significance at the drafting stage. In a share purchase agreement, the precise manner in which the earn-out or escrow arrangement is documented may materially affect its eventual tax treatment. Language that clearly evidences that the amount forms part of the negotiated capital value for the shares—rather than compensation for future services—may support capital gains treatment. Likewise, the drafting of escrow release conditions, indemnity mechanics, and performance triggers may materially influence the timing and characterization analysis.

STATUTORY FRAMEWORK: THE CONCEPT OF ACCRUAL

Section 67(1) of the IT Act³ charges capital gains to tax in the year the transfer is effected⁴. While Section 67(1) creates the charge, the scope of total income is governed by Section 5 of the IT Act⁵, which includes income that is received, deemed to be received, or which accrues or arises or is deemed to accrue or arise to a person during the tax year.

³ Erstwhile Section 45(1) of the Income-tax Act, 1961 (Act)

⁴ The chargeability under this head is generally linked to the year of transfer, 
except in certain statutory exceptions, such as Section 67(6)[erstwhile Section 45(2)] 
(which deals with the conversion of a capital asset into stock-in-trade, 
where capital gains are taxable in the year in which such stock-in-trade is sold) 
and Section 67(12)[erstwhile Section 45(5)] (which governs the taxation of capital gains arising from compulsory acquisition,
 where initial compensation is taxable in the year of receipt or part thereof and any enhanced compensation is taxable in the year of receipt thereof).

⁵  Erstwhile Section 5 of the Act

Since deferred or contingent consideration is not “received” in the year of transfer, it is sine qua non that the income must have “accrued” to the assessee to be taxable. The IT Act does not define accrual; thus, it must be determined on general legal principles. Accrual postulates the creation of a present enforceable right to receive income—debitum in praesenti, solvendum in futuro.

The locus classicus on this concept is the Supreme Court’s judgment in E.D. Sassoon & Co. Ltd, which established that income does not accrue unless a debt is created in favour of the assessee. The Court emphasized that unless a debt due by somebody is created in favour of the assessee, it cannot be said that they have acquired a right to receive the income.⁶

Furthermore, the charging and computation provisions of the IT Act constitute an integrated code. As held by the Supreme Court in B.C. Srinivasa Setty, if the computation provisions (Section 72 of the IT Act⁷) cannot be applied, the charge itself fails.⁸ Under Section 72, only consideration that is received or has accrued can be taken into account for the purposes of computation of capital gains.

⁶  E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 (SC); 
see also CIT v. Walchand Industries Ltd. (2003) 262 ITR 212 (Bom), 
wherein it was held that an unenforceable claim to receive an undetermined 
or undefined sum does not give rise to accrual of income.

⁷  Erstwhile Section 48 of the Act

⁸  CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC).

In the case of deferred consideration, it is settled that such consideration accrues on the date of transfer because the right to receive it is unconditional. However, where an amount is parked in escrow and released only upon the satisfaction of specified conditions, the question is materially different. The seller may have divested the underlying capital asset, but whether the escrowed amount forms part of the taxable consideration in the year of transfer depends upon whether the seller has, in law, acquired an enforceable right to receive it in that year.

In certain transactions, contingencies may arise regarding contingent liabilities becoming due and payable, or adjustments may be contemplated based on issues identified during the due diligence process. These issues often relate to the company’s financials (e.g., inconsistent application of accounting policies or discrepancies in revenue recognition) or specific tax positions that could result in a demand, thereby adversely impacting the company’s cash flows and reducing its valuation.

Instead of making a direct debt adjustment to the valuation — which forms the basis for determining the purchase price — the parties may commercially agree to deposit an amount corresponding to the disputed issues into a separate escrow account. These escrowed funds are subsequently released to the sellers only upon the satisfaction of specific conditions, such as the rectification of the identified issues, the closure of pending tax proceedings, or the non-emergence of liabilities during a specified period agreed between the parties. Similarly, amounts may be deposited in escrow to safeguard the buyer against indemnities provided by the seller in the relevant agreements.

Commercially, therefore, escrow is not a mere payment deferral mechanism. It is ordinarily a risk-allocation device. The amount is held back not because the liability to pay is merely postponed, but because the buyer’s obligation to permit release to the seller remains subject to the outcome of specified events. That distinction is important because the tax law does not generally concern itself with commercial labels; it asks whether the seller has a present right to receive the amount.

Consequently, the question arises as to whether the seller is liable to pay capital gains tax on the amounts deposited into the escrow account at the time of deposit.

AMOUNTS DEPOSITED INTO ESCROW BY THE BUYER: ACCRUAL TO THE SELLER?

As previously discussed, for any income to form part of the total income, it must satisfy the referability criteria under Section 5 of the IT Act; that is, the income must have either been received by or accrued to the assessee. The seller possesses no right to demand the release of the escrowed amounts until the covenants stipulated in the relevant agreement are fulfilled. The right to receive the income, or the crystallization of the debt, occurs exclusively upon the satisfaction of these conditions. Until such time, the amounts deposited in escrow do not accrue to the seller and, therefore, should not be offered to tax. In this regard, reliance may be placed on the judgment of the Bombay High Court in Dinesh Vazirani⁹ and the order of the Mumbai Bench of the Income-tax Appellate Tribunal (ITAT) in Universal Medicare.¹⁰

⁹ Dinesh Vazirani v. Principal Commissioner of Income-tax [2022] 445 ITR 110 (Bom).

¹⁰ Universal Medicare (P.) Ltd. v. DCIT [2020] 185 ITD 250 (Mum).

The rationale is straightforward. A sum lying in escrow is not, merely by reason of such deposit, placed at the unrestricted disposal of the seller. The seller cannot ordinarily call for release at will; nor can it be said that a debt is due in presenti. The escrow arrangement interposes a contractual barrier between the seller and the money. Until that barrier is crossed by fulfilment of the conditions, the seller’s interest remains inchoate. Taxing such amount in the year of transfer would therefore amount to taxing a hypothetical receipt.

This reasoning also accords with first principles. If the buyer has deposited the amount into escrow to secure itself against warranties, indemnities, tax exposures, or identified diligence issues, the buyer has not accepted an unconditional liability to pay that amount to the seller. At most, the arrangement contemplates that the seller may become entitled to the amount in whole or in part depending on how the identified risks unfold. Such a conditional and defeasible entitlement is fundamentally different from deferred consideration payable merely upon the lapse of time.

To conclude at this stage, amounts deposited in escrow do not accrue in the year of deposit and, therefore, should not be offered to tax at that juncture. The subsequent realization of these escrowed amounts does not arise from a distinct transfer of a capital asset in the ordinary sense. Whether and how such subsequent realization may nevertheless be taxed under the present statutory framework requires closer examination.

THE LACUNA: TAXATION UPON RELEASE OF ESCROW AMOUNTS

The current framework of Section 5, Section 67(1), and Section 72 does not specifically provide for the release of escrow amounts upon satisfaction of the specified conditions. While it is judicially settled that escrow amounts are not taxable in the year of transfer if the seller has no enforceable right to receive them, the statute does not expressly address in any conclusive manner the way in which such amounts are to be taxed in the year in which the escrow conditions are actually satisfied and the amount is released.

More specifically, should the release of escrow amounts be subjected to tax as capital gains arising from the transfer of the original capital asset in the year of realization? If so, would this approach conflict with Section 67(1), which mandates that capital gains be charged to tax in the year in which the transfer takes place? Alternatively, does the release of the escrow amount merely represent the receipt of a capital sum outside the charging architecture of Section 67(1), since there is no separate transfer of a capital asset upon release?

At this juncture, it is apposite to acknowledge the prevailing market practice: taxpayers generally offer release of escrow amounts to tax in the year of accrual, characterizing it as capital gains of the same nature as the original transfer¹¹. If the original gains were long-term, the escrow release is also often treated as long-term capital gains, though not in the year of transfer, but in the year of accrual. While this may appear commercially logical and administratively convenient, its technical foundation under the IT Act is not free from doubt.

The issue, therefore, is not whether the market has adopted a pragmatic convention, but whether that convention is supported by the statute on a strict construction. In addressing this question, one may refer to Section 2(108) of the IT Act¹², which defines “total income”¹³ to mean the total amount of income referred to in Section 5, computed in the manner laid down in the IT Act. Accordingly, it is not sufficient that the referability requirement under Section 5—whether by way of accrual or receipt—is satisfied. The computation of such income must also be possible in the manner contemplated by the IT Act.

¹¹ One may refer to the factual matrix before the Mumbai ITAT in Universal Medicare (P.) Ltd. v. DCIT (supra) 
(see para 23.1 and para 35 of the order), albeit the issue directly under consideration in that case was 
the taxability of escrow amounts in the year of transfer. While such a view may appear commercially logical, 
it is not strictly aligned with the statutory mandate of Section 67(1) of the IT Act. As per Section 67(1), 
capital gains are chargeable only in the year of transfer. However, escrow consideration is not subjected to 
tax in that year due to its failure to fall within the scope of Section 5 and the combined operation of Section 67(1) with Section 72, 
which permits taxation only of consideration that has accrued or been received. This approach may be viewed as 
an indirect extension of the principle underlying Section 67(12) [erstwhile Section 45(5) of the Act], 
which deals with the receipt of additional compensation and treats such additional compensation as having the same character 
as the gains arising from the receipt of the initial compensation, which is chargeable to tax in the year in which 
such consideration is actually received. In most cases, by the time such escrow amount accrues to the assessee, 
the statutory timelines for filing the return of income or a revised return, as the case may be, would have elapsed.
 Even where receipt occurs within such timelines, offering contingent consideration to tax by revising the return 
for the year of transfer may not be feasible, as it would result in the levy of interest under Sections 424 and 425 
(erstwhile Sections 234B and Section 234C), notwithstanding the absence of any actual default on the part of the assessee. 
Filing an updated return may also not be an attractive option, given the requirement to pay interest under Sections 424 and 425,
 together with additional tax under Section 267 (erstwhile Section 140B), which could significantly increase the effective rate of
 tax on long-term capital gains beyond the statutory rate applicable to the escrow amounts received.

¹² Erstwhile Section 2(45) of the Act

¹³ On which Section 4 of the IT Act creates the charge. Section 4(1) provides that where any Central
 Act enacts that income-tax shall be charged for any tax year at any rate or rates, 
income-tax for such tax year shall be charged at that rate or those rates in accordance 
with and subject to the provisions of the IT Act. Section 4(2) further provides that the charge
 of income-tax under sub-section (1)shall be on the total income of the tax year of 
every person as determined in accordance with the provisions of the IT Act.

AN ALTERNATIVE PERSPECTIVE: COULD REALISATIONS FROM ESCROW ACCOUNTS BE CAPITAL RECEIPTS NOT CHARGEABLE TO TAX?

There is a nuanced distinction between the tax treatment of escrow amounts and contingent consideration. For present purposes, the discussion is confined to escrow amounts. The technical sustainability of classifying escrow realisations as capital receipts not chargeable to tax is discussed below.

1. Capital Receipts vs. Income: The Principle of Strict Interpretation

At the outset, it is pertinent to understand that a “capital receipt” in common parlance does not constitute “income.” Capital receipts are taxed by exception and strictly through the usage of specific deeming fictions in the statute.

It is a settled principle of interpretation that charging provisions (and, more importantly, deeming fictions) must be strictly construed. There is no equity about a tax, and there can be no tax by intendment. Capital gains are specifically made taxable only by virtue of an extended meaning attributed to the term “income” under Section 2(49)(k)¹⁴ of the IT Act. Accordingly, the analysis that follows is based on a literal reading of the law, applying the principles of strict interpretation as famously propounded by Lord Cairns in Partington v. Attorney General¹⁵ and subsequently adopted by the Supreme Court of India in landmark decisions such as A.V. Fernandez v. State of Kerala¹⁶, CST v. Modi Sugar Mills Ltd¹⁷ and CIT v. Kasturi & Sons Ltd.¹⁸ Equally famous words to this effect are those of Justice Rowlatt in Cape Brandy Syndicate v. IRC¹⁹ “in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” These principles were recently reiterated by the Supreme Court in American Express²⁰.

¹⁴ Erstwhile Section 2(24)(vi) of the Act

¹⁵ [1869] LR 4 HL 100, wherein Lord Cairns observed: 
“If the person sought to be taxed comes within the letter of the law he must be taxed, 
however great the hardship may appear to the judicial mind to be. On the other hand, 
if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, 
the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. 
In other words, if there be admissible in any statute what is called an equitable construction, 
such a construction is not admissible in a taxing statute where you simply adhere to the words of the statute.”

¹⁶ AIR 1957 SC 657.

¹⁷ [1961] 12 STC 182 (SC).

¹⁸  [1999] 237 ITR 24 (SC).

¹⁹  [1921] 1 KB 64. Cited with approval, inter alia, in Ranbaxy Laboratories Ltd v UOI [2011] 10 SCC 292; CCE v Acer India Ltd. [2004] 8 SCC 173.

²⁰ DIT (International Taxation) v American Express Bank Ltd. [2026] 484 ITR 137, see pp. 160-165

2. The Sine Qua Non of Section 67(1)

The sine qua non for the applicability of Section 67(1) of the IT Act is the “transfer of a capital asset” during the tax year. Consequently, two essential conditions must be satisfied concurrently to trigger capital gains tax:

(a) The existence of a capital asset; and
(b)The transfer of such capital asset during the relevant tax year.

In the case of an escrow release, the transfer of the shares or business has already taken place in an earlier year. In the year of release, no fresh transfer takes place. This creates the central difficulty in fitting the receipt within the language of Section 67(1).

3. Characterisation of Escrow Realisations

As discussed in preceding sections, amounts are typically deposited into an escrow account to protect the buyer against future, unforeseen liabilities or realisation of indemnity payout on breach of covenants provided by the seller. The release of these funds is generally not linked to any active performance conditions by the seller. Therefore, there should be little debate regarding the characterisation of escrow realisations: they are fundamentally capital receipts.

Such a realisation does not meet the traditional test of “income” as propounded by the Privy Council in CIT v. Shaw Wallace & Co.,²¹ where income was likened to a periodical monetary return coming in with some sort of regularity from a definite source. As a capital receipt, it can only be taxed if the specific statutory provisions governing the taxation of capital gains are entirely satisfied. Capital gain is an artificial income created by the relevant provisions of the IT Act. Therefore, these provisions should be strictly construed. In case of doubt, the assessee would be entitled to the benefit of doubt.²²

²¹ AIR 1932 PC 138.

²² CIT v. Bhupender Singh Atwal [1983] 140 ITR 928 (Cal).

4. Absence of a Distinct Capital Asset

Crucially, the assessee does not acquire a distinct, independent capital asset in the form of a “right to receive escrow amounts.” Rather, the escrow mechanism is merely a contractual covenant designed to protect the buyer’s interests. One may refer to the below observation made in Decoding Section 5²³:

²³ Decoding Section 5, pp. 151-152.

“In the course of negotiation, the seller may have held a bundle of promises and the consideration may have been fixed on the basis of the same. The bundle of promises may include a promise about the sustainability and profitability of the business being sold (either a slump sale or share transfer – where the promise would be for the business of the company). The buyer may decide to pay the first part of the consideration instantly and second part of the consideration only if the promise about the sustainability and profitability of the business is met. Second part of the consideration would thus be contingent upon the promise being fulfilled.”

Basically, the contractual covenants may be understood as mere promises under the contract rather than a distinct capital asset. Put differently, the contract may be seen as the legal source of reciprocal rights and obligations, but not every right that arises under it necessarily assumes the character of an independent capital asset. If one were to contend otherwise, the consequences would be far-reaching. For instance, in an ordinary contract for supply of goods, once the seller supplies the goods, a corresponding right arises to demand payment from the buyer. Yet, the subsequent realization of that amount is never understood as giving rise to capital gains on the transfer or extinguishment of a separate capital asset in the form of a contractual right. It is simply taxed under the ordinary head referable to the transaction — typically business income.

The same reasoning applies more generally across contractual arrangements. Rights to receive salary under an employment contract, fees under a services agreement, or sale proceeds under a trading contract are all rights traceable to contract. However, their realization is not, for that reason alone, treated as the transfer or satisfaction of a distinct capital asset attracting capital gains tax. If every enforceable contractual right were to be elevated into a separate capital asset, the consequence would be to distort the entire scheme of the IT Act, under which receipts are ordinarily taxed under specific heads such as Salaries or Profits and Gains of Business or Profession, depending on their true character. That would suggest that the mere existence of a contractual right cannot, without more, justify treating its realization as capital gains.

As established, these amounts do not accrue to the seller until the contingency associated with the escrow is resolved. The right to receive the funds — and the consequent accrual — only crystallizes in the year the covenant is satisfied.

5. Statutory Lacunae in the IT Act²⁴

²⁴ Various budget representations have consistently raised this issue. Illustratively, refer  
https://bombaychamber.com/wp-content/uploads/2026/01/Part-A-BCCI-Pre-Budget-Representations-Direct-Tax-2026-Legislative-issues.pdf 
(Last accessed on 15 May 2026).

The inability of the current statutory framework to tax such escrow realisations stems from a distinct legislative lacuna, which can be deconstructed as follows:

Mismatch of Timing under Section 67(1): Section 67(1) mandates that capital gains arising from the transfer of a capital asset shall be deemed to be the income of the tax year in which the transfer took place.
Interplay with Section 72: Reading Section 67(1) harmoniously with the computation mechanism in Section 72, the escrow amounts cannot be taxed in the year of the transfer because there is an absolute absence of accrual at that point in time.
Failure of the Referability Criteria (Section 5): Even when the escrow amounts finally accrue in a subsequent year, the referability criteria under Section 5 of the IT Act are not met in the year of transfer to enable the application of Section 45(1). While the “full value of consideration” for the purpose of Section 48 might theoretically include such escrow amounts upon realization, the charging section fails.
The “During Such Year” Requirement: Section 5 requires not just “accrual,” but specifically mandates that the income “accrues or arises or is deemed to accrue or arise to him in India during such year.” Because the accrual of the escrow amount does not occur in the year of transfer, the referability criteria fail. Consequently, the machinery to apply Section 67(1) and the computation provisions breaks down. One cannot tax the amount in the year of transfer (as it has not accrued – first limb of Section 2(108) fails), and one cannot tax it in the year of accrual (as there is no transfer in that year – second limb of Section 2(108) fails).

This, in substance, is the core lacuna. The charging event and the accrual event occur in different years, but the statute does not contain a specific fiction to bridge that mismatch in the case of escrow.

6. Legislative Intent and the Section 67(12)(b)²⁵ Analogy

One may draw robust support for this interpretation by examining specific legislative fictions introduced elsewhere in the statute, such as Section 67(12)(b).

Historically, the revenue faced identical difficulties in taxing enhanced compensation received on compulsory acquisitions, precisely because the additional consideration did not accrue and was not received in the year of the original transfer. The accrual often happened years later upon the final resolution by a Court. To cure this, the legislature introduced a specific deeming fiction under erstwhile Section 45(5)(b) of the Act to tax the enhanced compensation in the year of receipt, which is carried on into Section 67(12) of the IT Act.

In this regard, reference is made to the observations in Chaturvedi & Pithisaria’s Income Tax Law²⁶ concerning the introduction of erstwhile Section 45(5) of the Act, which are reproduced below:

“Since additional compensation under the 1894 Act was awarded in several stages, multiple rectification had to be made to the original assessment which caused great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. Further, repeated rectifications of assessment on account of enhancement of compensation by the different Courts often resulted in mistakes in computation of tax. To obviate the contention that in the absence of any transfer of capital asset, the amount received in the subsequent years cannot be brought to tax, section 45(5) has been enacted. Similarly, the disputes as to year in which the additional amount should be brought to tax, and whether the year in which the transaction was originally taxed should be reopened, and whether limitation would apply for the purposes of reopening, etc., would all stand resolved by the operation of section 45(5)”

The absence of a similar deeming provision or legislative fiction to determine the year of taxability for delayed escrow realizations strongly implies a statutory lacuna. Applying the rule of strict interpretation, the revenue cannot stretch the existing provisions to cure this defect, rendering the receipt of such escrow amounts a capital receipt not chargeable to tax.

²⁵ Erstwhile Section 45(5)(b)of the Act

26 Chaturvedi & Pithisaria's Income Tax Law, English Edition, Volume 5. p.8040

COULD THE REVENUE TAX THE RECEIPT UNDER SECTION 92²⁷?

For the sake of completeness, if the release of escrowed amounts escapes the charge of capital gains tax for the reasons discussed above, the Revenue may attempt to tax such receipts under the residuary head, “Income from Other Sources”. This approach should not be tenable for the following reasons:

Relying on the landmark principle established by the Supreme Court in Nalinikant Ambalal Mody v. S.A.L. Narayan Row²⁸, if a receipt is inherently referable to a specific head of income (such as Capital Gains) but falls outside its charging provisions—for instance, due to the failure of the computation mechanism—it cannot automatically be thrust into the residuary provisions of Section 92(1) of the IT Act²⁹. The character of the receipt does not change merely because the computation machinery under the appropriate head fails.
Furthermore, the specific anti-abuse provisions of Section 92(2)(m)(i)³⁰ of the IT Act, which seek to tax any sum of money received “without consideration”, should not apply to the release of escrow amounts. The realization of such amounts is by no means a gratuitous receipt; rather, it is backed by valid and binding commercial consideration. In the context of such transactions, the consideration for the subsequent receipt encompasses the seller’s contractual promises, covenants, indemnities, and commercial detriment suffered as part of the principal transfer arrangement.
All these factors squarely fall within the wide ambit of “consideration” as defined under Section 2(d) of the Indian Contract Act, 1872, which recognizes acts, abstinences, and mutual promises as valid consideration. Section 92(2)(m)(i) concerns itself exclusively with the absolute absence of consideration, and does not grant the Revenue the authority to question the adequacy of such consideration. As long as valid legal consideration exists, which, notably, need not be strictly monetary in nature, the rigours of Section 92(2)(m)(i) are not triggered.

²⁷ Erstwhile Section 56 of the Act

²⁸ [1966] 61 ITR 428 (SC)

²⁹ Although this principle was articulated in the context of section 12 of the Indian Income-tax Act, 1922, 
it should apply with equal force to section 56(1) of the Act—as indeed it has—and to section 92(1) of the IT Act

³⁰ Erstwhile Section 56(2)(x)(a) of the Act

FORFEITURE OF ESCROW AMOUNTS

If the escrowed amount, or a part thereof, is ultimately forfeited or appropriated towards indemnity or identified liabilities, no separate tax consequence should ordinarily arise for the seller in respect of the forfeited amount, because the corresponding income never accrued to the seller and was never brought to tax. Equally, for the buyer, such appropriation would ordinarily operate as an economic reduction of the purchase price or as satisfaction of a contractual protection built into the consideration mechanics.

This is another reason why treating the escrow deposit itself as accrued income in the year of transfer may produce distortion. If the entire amount were taxed upfront, but a portion was later never released, the statutory framework does not provide an elegant corrective mechanism in all cases. The structure of the law therefore reinforces the conclusion that escrowed amounts should not be treated as accrued merely because they have been parked in a designated account.

PRACTICAL COMPLICATION: CLAWBACKS AND PRICE ADJUSTMENTS

Practical complications may arise where an agreement contains clawback or price adjustment provisions, requiring the seller to return consideration if specified conditions are not met or if representations are later found to be inaccurate. If the agreement is drafted such that the clawback or price adjustment is linked to the purchase price itself rather than a separate indemnity payout, it could be argued that the seller might seek to rely on principles analogous to those applicable in escrow situations.

However, a key distinction remains. In typical clawback scenarios, the seller has already received consideration, whereas in escrow cases the relevant amount is held back and does not reach the seller unless the stipulated conditions are satisfied. This distinction provides a far stronger basis in escrow cases to contend that the amount was neither actually received nor had accrued to the seller. Receipt of consideration may also raise questions under Section 72 of the IT Act. One could, however, argue that Sections 5(1)(a) and 5(2)(a) should apply only to cases where certain sums are deemed to be income only upon receipt, such as advance salary or gifts.

Conceptually, clawback provisions are analogous to warranties in the sale of goods. Under such warranties, if goods fail to meet agreed standards, the seller may be obliged to replace them or provide a refund. Importantly, the accrual of income — i.e., the sale price—has occurred at the time of the transaction; the subsequent obligation to return consideration does not alter the fact of accrual. Similarly, under SPA clawback clauses, the legal right to receive consideration for the transfer of shares has already accrued to the seller. The contingency of returning a portion of the consideration, therefore, may not affect the recognition of income in the year of transfer, as the accrual is already a fait accompli.

From a business contract perspective, there is continuity in the source of income, and subsequent payments may rightly be treated as expenditures under Section 34³¹. Nevertheless, capital gains differ in nature: it is generally considered that subsequent events requiring the return of part of the sale consideration do not allow for a reduction in the full value of consideration originally accrued. In this context, the Madras High Court in Caborandum Universal Ltd. v. ACIT³² observed:

³¹  Erstwhile Section 37 of Act

³²  [2021] 283 Taxman 312 (Mad)

“…Even going by the case as projected by the assessee, the amount of Rs.3.25 Crores is retained in an Escrow account and the right of the assessee has not been disputed and that amount was retained to cover four contingencies which are part of the indemnity clause and assuming certain payoffs were to be made from the retention money that will not in any manner alter the full and total consideration received by the assessee pursuant to the Business Sale Agreement and if such is the factual position, undoubtedly, the entire sale consideration had accrued in favour of the assessee during the assessment year under consideration. Even assuming that certain payments have been made from the amount retained in the Escrow account, it will not make or in any manner reduce the cost of acquisition [sic full value of consideration].”

While these observations were made in the context of escrow arrangements, it is respectfully submitted that amounts deposited in escrow cannot, in strict terms, be regarded as having been received or accrued to the assessee where the seller has no enforceable right to demand release pending fulfilment of conditions. That distinction merits careful reconsideration. Nevertheless, the judgment does illustrate the risk that courts may, in certain fact patterns, treat escrow retention as merely a mode of application of consideration rather than as a true suspension of accrual. Drafting, therefore, assumes considerable significance.

To minimize ambiguities, amounts genuinely subject to a potential claim or adjustment should ideally be deposited in escrow accounts with clear release conditions and clear restrictions on the seller’s rights pending satisfaction of those conditions. The agreement should also make it evident that the escrow arrangement is not merely a payment routing mechanism but a substantive contractual allocation of risk. The agreement should explicitly state that the escrow arrangement is made at the Purchaser’s request, as this could help distinguish the current situation from the facts in Caborandum Universal Ltd. (supra). In that case, the court held that amounts placed in escrow were considered to have accrued to the seller since the escrow arrangement was mutually agreed upon. The court viewed the escrow deposit as a subsequent event and did not alter the original agreement’s terms.

CONCLUSION

The taxation of escrow consideration reveals a structural tension between commercial reality and statutory design. On first principles, and supported by judicial authority, an amount placed in escrow subject to substantive release conditions should not be regarded as having accrued to the seller in the year of transfer, because no enforceable right to receive such amount exists at that stage.

The more difficult question arises later: when the escrow conditions are satisfied and the money is released, the IT Act does not contain a specific mechanism equivalent to Section 67(12) to bridge the mismatch between the year of transfer and the year of accrual. This gives rise to a serious argument that the receipt, being capital in nature, may fall outside the charge altogether unless and until Parliament enacts a specific deeming provision.

At the same time, market practice continues to favour taxation in the year of release as capital gains of the same character as the original transfer. That practice may be commercially sensible, but it sits on uncertain statutory footing. The issue therefore remains open to debate and is likely to continue to generate controversy until legislative clarity is introduced.

The second part will examine whether similar or different conclusions follow in the case of contingent consideration, where the seller’s entitlement is not to a retained portion of an agreed price, but to an additional amount that itself comes into existence only upon the happening of uncertain future events.

BCAJ Admin

From The President

My Dear BCAS Family,

As I begin to pen my thoughts, Mumbai and many parts of the country are experiencing unusual heat, with temperatures frequently breaching normal ranges. Further, by the time the issue reaches you, the monsoon season will also be underway in many parts of India. Recent reports by the Indian Meteorological Department indicate that the El Niño effect will reduce monsoon winds in 2026, raising the possibility of a below-normal monsoon in several areas. All this is part of the broader global phenomenon of climate change, which manifests in several other forms, such as retreating glaciers, melting snow, and rising sea levels.

Accordingly, climate change is no longer an environmental concern to be debated in scientific journals and conferences, but a defining economic, social, and governance challenge. Its implications extend far beyond rising temperatures and extreme weather events; it is fundamentally reshaping the way businesses operate, governments regulate, and professionals deliver value.

This has made me reflect on the theme of climate change and its impact on professionals and institutions like ours.

IMPACT ON PROFESSIONALS

As CAs, our domain expertise has traditionally been in financial reporting, coupled with ethics and integrity. Climate change has expanded our roles from guardians of financial capital to guardians of natural capital, which encompasses environmental, social, and governance (ESG) dimensions. This has broadened our roles and responsibilities in several areas as follows:

The New Guardians Cas and the Climate Shift

NEW REPORTING FRAMEWORKS

Several specialised global reporting frameworks, commonly referred to as Carbon Accounting Frameworks, that help measure, report, and verify greenhouse gas emissions have recently emerged, each dealing with specific aspects. A few of the commonly used frameworks are as follows:

GHG Protocol, which deals with measuring and reporting of Scope 1, 2 and 3 emissions
Science-Based Targets Initiative (SBTi) helps in quantifying how much CO2 the world can continue to emit to limit the global temperature increase to within 1.5 degrees centigrade and scientifically lays specific sector and company-level targets with respect to this.
Task Force on Climate-Related Financial Disclosures (TCFD), which focuses on climate risk disclosures in the financial statements.

Closer home, SEBI’s BRSR framework also captures these and several other aspects. All this will require continuous upskilling and a deeper understanding of interdisciplinary domains such as environmental science, policy frameworks, and sustainability metrics, which would need disclosure and corresponding assurance from professionals.

Changing Risk Landscape and Consequential Reporting and Accounting Challenges

Climate change introduces a multi-dimensional risk framework that directly affects financial statements, assurance processes, and corporate disclosures. For professionals, the complexity lies not merely in identifying these risks but in translating them into measurable, reportable, and auditable financial impacts. The important risk categories and the consequential accounting and reporting challenges are briefly identified as follows:

Physical Risks:

These arise from acute and chronic climate events, such as extreme weather disrupting operations and supply chains, damage to property, plant, and equipment, and increased insurance costs. Consequently, these affect asset impairment, changes in the useful lives of fixed assets, increased provisions for restoration costs, and additional contingent liabilities.

Transition Risks:

These arise from a shift toward a low-carbon economy, with resultant regulatory changes such as carbon taxes and emission caps, technological obsolescence due to equipment changes to enable controlled emission generation, and market shifts in consumer preferences. These can result in accelerated depreciation, reassessment of investment viability and fair value adjustments.

Litigation Risks:

These arise from organisations facing increasing claims due to regulatory non-compliance with pollution and emissions norms, as well as claims related to environmental damage, resulting in higher provisioning, additional legal costs, and higher contingent liabilities.

IMPACT ON CORPORATE STRATEGY

Climate change has direct implications for professionals advising organisations on capital allocation decisions, as sustainability goals increasingly influence these. Also, the risk management framework must incorporate climate scenarios. Further, performance metrics are evolving to include non-financial indicators, and, finally, stakeholder expectations are shifting toward sustainable enterprises, as they perceive them as long-term value creators. As professionals, we will have to ensure that climate considerations are increasingly integrated into decision-making processes.

ETHICAL CONSIDERATIONS

Beyond technical competencies, climate change presents several ethical dimensions and challenges. As trusted advisors, we must uphold integrity in disclosures, objectivity in our assurance engagements, given the significant qualitative judgment involved, and a commitment to the public interest. Finally, we must guard against greenwashing claims.

BCAS’ ROLE

I see BCAS playing a pivotal role in the coming years to shape the profession’s response to climate change in several ways as follows:

Education and Capacity Building: We will strive to introduce structured learning programmes through the BCAS Academy platform. These will be useful for practitioners at every stage of their careers.
Technical Guidance: We will work towards developing appropriate publications to assist practitioners in navigating the complexities of BRSR assurance and related areas
Thought Leadership and Advocacy: BCAS will endeavour to contribute to national policy conversations around sustainable finance and accounting standards. Our voice must be heard in shaping frameworks that are practical, credible, and appropriate.
Green Operations: Being an ISO-compliant organisation, we will endeavour to examine our own organisational footprint in terms of energy usage, paper consumption, and travel, thereby setting an example in sustainable and responsible institutional behaviour.

TIME FOR ACTION OVER DEBATE

To conclude, I would like to refer to a quote by Sir Nicholas Stern in the magazine, The Stern Review on Economics of Climate Change, way back in 2006, which validates that climate change is no longer just an environmental issue but a defining economic and government challenge, which needs action rather than just debate.

“Climate change is the greatest market failure the world has ever seen”

A big thank you to one and all!

Warm Regards,

CA. Zubin F. Billimoria

President

BCAJ Admin

Geography Is History – Regional to National to Global

For decades, the geography of a Chartered Accountant’s practice was the geography of his professional destiny. Metros like Mumbai, Delhi, and Bengaluru boasted of the best clients, the highest fee realisations, and the strongest talent, trapping practitioners in Tier 2 and Tier 3 cities in a constrained universe. This divide created a self-perpetuating cycle: small-city firms lacked the resources to pitch for large mandates, and the absence of such mandates prevented them from attracting top-tier talent. Today, however, that geographic monopoly is collapsing, reshaping the profession from the ground up.

The first disruption was statutory. The introduction of the GST Network, income tax portal and the MCA21 portal unified the national compliance architecture. Most compliance and filing obligations no longer require proximity to the jurisdictional government offices but are accessible through a single browser interface. A well-equipped firm in Nagpur can now manage multi-state compliance for a pan-India manufacturer just as effectively as a firm in Mumbai, quietly eroding the traditional ‘local CA advantage’. One nation, one tax inherently produced a level playing field for practitioners across the country.

The second equaliser is the advent of faceless adjudication. By shifting assessments to the National Faceless Assessment Centre, cases are no longer tied to geographical wards but are allocated randomly based on workload and expertise. Central GST hearings are also mandated to be virtual unless specifically requested. The quality of the written brief, structured argumentation, and legal precision often dictate success, rather than mere proximity to government offices.

Geography is History The Borderless CA

Layered over these regulatory shifts is the third and most potent equaliser: Artificial Intelligence. AI tools now act as a productivity leveller, permitting retail access to capabilities that were once the exclusive domain of well-resourced global firms. Technology allows mid-sized Indian firms to access resources and close workflows exponentially faster. Properly used, generative AI can empower a three-partner firm in Coimbatore to produce grounds of appeal that match the statutory construction and case law citation of top-tier metro practices with significant domain expertise. Recognising this paradigm shift, the ICAI has actively endorsed AI adoption, hosting tools on its portal and signalling that technological proficiency is now a baseline professional expectation rather than a mere competitive edge.

Yet, supply-side equalisation must confront a stubborn demand-side barrier: client perception. Historically, the Indian business owner’s trust in a CA was rooted in physical accessibility: the comfort of a neighbourhood advisor who shared community norms and could be called upon at any hour. However, this architecture is rapidly evolving. A generational transition is transferring business control to a digital-first cohort of leaders. For these incoming decision-makers, a practitioner’s digital presence, peer reputation, and technical expertise carry far more persuasive weight than a shared postal code.

If digital portals and AI have erased the borders between Coimbatore and Mumbai, they have equally erased the borders between Surat and Silicon Valley. Geography is history, and the infrastructure of a local meritocracy is the exact same infrastructure needed for global export. Yes, globalising beyond national borders brings in questions of multi-jurisdictional regulatory oversight. One may also need to develop a larger scepticism quotient to discern a hallucinated AI generated response in a domain which has been uncharted. Many more issues will arise, but the opportunity is real. We have already witnessed a few success stories of regional firms from smaller cities growing in scale and nurturing national aspirations. The time is ripe to further expand our horizons. The next edition of the BCAJ will explore the theme of ‘Globalisation of Indian CA Firms’ offering thought leadership on how practitioners can leverage this new borderless reality not just to scale nationally, but to claim their rightful place on the global stage.

Best Regards,

CA. Sunil Gabhawalla

Editor

BCAJ Admin

Time – A Human Construct or Universal Truth

कालः पचति भूतानि, कालः संहरते प्रजाः ।

कालः सुप्तेषु जागर्ति, कालो हि दुरतिक्रमः ॥

Time “digests” (or processes) all that has come into being, and time “takes back” all that has been born. While everything else sleeps, time is awake, and time is truly impossible to overcome.

Time is the unseen thread that runs through all memories, sunrises, and heartbeats. We fear its unavoidable flow, evaluate our accomplishments in its passage, and awaken to its beat. Beneath its pervasiveness, however, is a dilemma that has troubled philosophers, poets, and scientists alike: is time only a product of our imagination, or is it a universal reality that exists outside from us?

The Paradox of Time Ruler Vs Horizon

From one perspective, time appears to have been created by us—a framework we constructed to give order to the chaos of life. Time zones, clocks, and calendars are unquestionably human inventions. The twelve-month year, the seven-day workweek, the concept of a “weekend” or a “deadline”—these are cultural conventions rather than natural rules. Calendars, year counting, and even the definition of hours have all been modified by civilizations. Time, as we experience it, is therefore less a universal fact and more a language of order, a means of coordinating the billions of lives that are moving in unison on this globe. Without it, society’s symphony could disintegrate into chaos.

Yet when we turn our gaze to the universe, time reveals itself as something far greater than human invention. Stars are born, burn, and die; planets orbit in predictable cycles; atoms decay with precise regularity. Einstein’s theory of relativity reminds us that time is not an illusion—it is a dimension of reality, as real as space itself. The fact that a clock ticks more slowly near a black hole than on Earth shows that time is not merely in our minds; it bends and shifts with the universe’s laws. Time, in this sense, is woven into the fabric of existence, indifferent to our attempts to measure it.

Time, in all its magnificence, is nevertheless profoundly individual. Rather than experiencing time in the way that science defines it, we live it. In times of happiness, time ebbs and flows like water; in times of pain, every second feels like an age. While summer seems to go on forever to a kid, an older person can’t help but wonder where the years went. Time appears to be both a constant and a reflection of our ownawareness, according to this property of its elasticity. What we often refer to as “time” may actuallybe a product of our own minds and hearts—a rhythm shaped by our memories, our perceptions, and our desires.

In the Bhagavad Gita, Lord Krishna explains the concept of time in the cosmic scale, with the dayand night of Lord Brahma, the creator deity in Hinduism, lasting for immense periods beyond human comprehension.

सहस्र-युग-पर्यन्तम् अहर् यद् ब्राह्मणो विदुः।
रात्रिं युग-सहस्रान्तां तेऽहो-रात्रि-विदो जनाः ॥

This verse in Sanskrit can be translated as:

“By human calculation, a thousand ages taken together form the duration of Brahma’s one day. And such also is the duration of his night.”

In Hindu cosmology, a “Yuga” is an age or epoch, and it represents a specific era or cycle of time in the grand cosmic order. The Yugas are often depicted as a cycle of four ages, and each Yuga is characterized by a unique set of attributes, moral qualities, and societal conditions. These four Yugas are: Satya Yuga, Treta Yuga, Dvapara Yuga & Kali Yuga. All the four Yugas constitute a ‘Maha Yuga’, lasting 4.32 million years.

The Kalpa: A Kalpa is a colossal unit of time and is considered as one day at Brahma Loka (Sathya Loka). Hence, Brahma’s one day lasts a 1000 Maha Yugas (4.32 billion years) and Brahma’s one night lasts another 4.32 billion years.

It is said that the lifespan of Brahma is a 100 years, with each year comprising of 360 days. In total, the lifespan comes to 72 million Maha Yugas or 311.04 trillion human years! Mind boggling indeed!!

After this immense period, a new Brahma is said to take over the creative duties, and the cycle continues. It’s important to note that these numbers are symbolic and meant to convey the vastness of time in Hindu cosmology rather than literal measurements.

In conclusion, the concept of time in Hinduism is multifaceted and profound. It is interwoven with the religion’s philosophy, spirituality, and cosmology, and it encourages individuals to focus on the present moment, fulfil their duties, and seek self-realization to transcend the limitations of time and the material world. Time is not just a linear progression but a cyclical and eternal process in the rich tapestry.

Time is both a fabrication and a truth, which is the contradiction. It is both the planets’ orbits and the wall clock. It is the unending quiet of the stars and the ticking second hand. It is the useful instrument we created to coexist and the everlasting current that transports us from conception to death, whether voluntarily or not.

Perhaps living rather than solving problems is what time is all about. If we simply refer to it as a construct, we are undermining the mystery of the universe; if we only refer to it as a universal truth, we are ignoring the profoundly human ways in which we experience and influence it. Time is both the horizon we can never reach and the ruler we hold in our hands. It is both our greatest gift and our greatest invention.

BCAJ Admin

Learning Events At BCAS

1. A Day of Divine Wisdom at BCAS

We were deeply honored to welcome His Holiness Shri Kanchi Kamakoti Peetadhipati Jagadguru Pujyashri Shankara Vijayendra Saraswati Shankaracharya Swamiji to the BCAS Hall, Churchgate, on 9th April 2026

A Day of Divine Wisdom at BCAS

The atmosphere was one of profound serenity as Swamiji arrived, gracing us with his presence and a message of timeless wisdom. The event was attended by the Office Bearers, Past Presidents, members of the managing committee and BCAS Staff members.

BCAS recorded a podcast —”Samvaad with BCAS” with His Holiness on the topic: “Culture – Foundation for Strong India | Sanskriti – Majboot Bharat ki Neev” which was anchored by CA Mihir Sheth, Past President of BCAS.

During his visit, His Holiness appreciated the institution’s ongoing efforts in delivering meaningful services and contributing to societal development. He acknowledged the role of such initiatives in strengthening national values and outreach across communities.

BCAS is humbled to share the remarks penned by His Holiness Pujya Shri Shankara Vijayendra Saraswati Swamiji during his visit on 9th April 2026:

“Visit to this institution, which catalyses economic growth through useful audit & account services, has been revealing & highly satisfying. Your contribution to the sustained growth of the nation, reaching out the gains of democracy to all sections of society, even in deep hinterlands, is commendable. National policies cannot lose sight of the basic dharmic characteristics of our nation. You have been following that path towards Viksit Bharat. Blessings & Prayers for continued good work. Jaya Jaya Shankara. Hara Hara Shankara”.

BCAS was also honoured to support the DHARMAM CHARA event held at the BSE Convention Hall on 7th April 2026 under the auspicious presence of His Holiness. President of BCAS CA Zubin Billimoria, and Vice President, CA Kinjal Shah, were felicitated at the event.

We are grateful for His blessings and encouragement as we continue our journey of service and impact.

2. Finance, Corporate & Allied Laws Study Circle – Recent Developments in Labour Laws: An Auditor’s Perspective held on Friday, 03rd April, 2026 @ Virtual

In this virtual session Mr. Pankaj Savla deliberated on the evolving landscape of labour laws and their implications for auditors. The session covered key regulatory changes and their impact on compliance and audit procedures. Emphasis was laid on understanding the practical challenges faced while auditing labour law compliance.

The speaker highlighted critical areas requiring due diligence, including verification of statutory records and adherence to updated provisions. Insights were shared on identifying compliance gaps and mitigating associated risks. The session also addressed documentation and reporting considerations from an auditor’s standpoint. Participants gained clarity on the auditor’s role in ensuring compliance with applicable labour regulations. The discussion provided practical perspectives and enhanced awareness of recent developments in labour laws. A total of 39 participants attended the session via Zoom.

3. FEMA Study Circle -“Amended ECB Regulations, 2026,” held on 27th March 2026@ Virtual.

In this session, the participants discussed the revised ECB Framework announced for 2026, focusing on regulatory changes and compliance obligations. The session gave clarity on end-use restrictions, eligibility of borrowers and lenders, maturity period, pricing, reporting and various other critical aspects. The meeting was chaired by CA Natwar Thakrar and led by group leader CA Parth Panchal.

Overview of the session

The Chairman opened with an overview of the core and policy-level reforms. The group leader proceeded to explain the amendments in each segment of the new framework, offering a thorough analysis that mapped the amended text with the erstwhile framework, draft regulations circulated for public comments, and RBI clarifications. The deliberations focused on how these changes will reshape the ECB environment in India.

Key areas discussed

Scope and Impact Area of the New Framework outlining the broad framework of the Borrowing and Lending regulations, the scope of the new framework and then discussing how it would impact the nature of transactions.
End Use Restrictions dealing with widened permissible end uses and what continues to be restricted end-use in the new framework. It covered various nuances and practical scenarios having a critical impact.
Eligible Borrowers and Lenders as to how their expanded base would impact the structuring choices.
Pricing, Maturity, and Borrowing Limit emphasizing how pricing caps, maturity rules and borrowing limits would impact the industry, and the practical challenges over ECB pricing that would be faced in the amended framework. Key pricing norms, minimum average maturity thresholds, and borrowing limits were explained.
Procedure and Reporting detailing the reporting obligations to the Reserve Bank of India and the Authorized Dealer banks, timelines for filing Form ECB and related returns.
Other amendments in ECB regulations capturing the other amendments to ECB regulations, which would also need to be taken care of going forward.

The participants also analysed and focused on the changes on borrowing and lending transactions between resident and non-resident individuals, which are brought as part of the Borrowing and Lending Regulations. The meeting was interactive and detail-oriented, with participants raising specific scenarios seeking practical insights on implementing the 2026 ECB Framework.

4. Indirect Tax Laws Study Circle Meeting on “GST Issues in the Entertainment Industry” held on Tuesday, 24th March 2026 @ Virtual.

The session was led by CA. Mansi Shah (Group Leader) under the mentorship of CA. Rajiv Luthia (Mentor), and witnessed active participation from members across the fraternity.

The presentation covered the following aspects for a detailed discussion:

Production Stage Complexities
Analysis of nature of supply and place of supply in multi-location shoots, including classification of temporary sets and renting of immovable property.
Input Tax Credit (ITC) Challenges
Detailed examination of ITC eligibility on items such as scrapped vehicles, aircraft hiring, and logistics arrangements—highlighting the nuances of blocked credits under Section 17(5).
Cross-Border Transactions
Taxability of overseas line producers, reverse charge implications, and valuation issues including treatment of reimbursements and “pure agent” conditions.
Post-Production Services
GST implications on international VFX and editing services, emphasizing place of supply provisions under Section 13 of the IGST Act.
OTT & Export of Services
Key insights on export qualification in OTT transactions, addressing concerns around permanent establishment and recipient determination
Movie Rights & Tax Treatment
Classification of permanent transfer of movie rights as goods, treatment of milestone-based payments, and timing of tax liability.
Industry-Specific Classification Issues
Discussion on printing services on PVC material and composite supplies in hospitality-linked entertainment events.

Around 73 participants from all over India benefited while taking an active part in the discussion. Participants appreciated the efforts of the group leader and the mentor.

5. Felicitation of Chartered Accountancy pass-outs of the January 2026 Batch held on Friday, 13th March 2026 at Sydenham College of Commerce & Economics, Churchgate, Mumbai.

The Seminar, Membership and Public Relations (SMPR) Committee hosted a felicitation ceremony to honour the newly qualified Chartered Accountants from the January 2026 batch. Over 180 enthusiastic newly qualified CAs participated in the event including CA Sidhh Furiya, who secured AIR 38. The guest and mentor for the event was CA Samit Saraf, Managing Committee member of BCAS. In his address, he reminisced about his post-qualification journey and shared with the attendees 10 cheat codes that helped him propel his career in the right direction and which could help them too. He also expressed gratitude for his association with BCAS and encouraged the new CAs to consider joining BCAS and its activities.

Felicitation of Chartered Accountancy pass-outs of the January 2026 Batch

The ceremony served as a warm welcome for the newly qualified CAs into the wider professional fraternity.

6. Seminar on TDS & TCS – What It Is, What Changes, & How to Stay Compliance-Ready jointly with Goa Chamber of Commerce & Industry (GCCI) held on 13th March 2026@ Hybrid.

The Direct Tax Committee of BCAS, jointly with the Goa Chamber of Commerce and Industry, organised a full-day seminar at GCCI Hall, Goa and in virtual mode to cover the TDS provisions under the new Income Tax Act, 2025, the draft Rules, 2026 and the relevant new Forms. The objective was to familiarise participants with the practical new TDS sections, new Forms, revised due dates, etc.

CA Ronak A Rambhia, shared the new TDS provisions with respect to the threshold amount and the applicable rate of deduction under the Income Tax Act 1961 v/s the new Income Tax Act 2025, which were discussed in depth. The current applicable Forms and the due dates in the current provisions were discussed in comparison with the new applicable Forms and Rules. The practical difficulties on TDS on Payment to Partners u/s 194T of the Income Tax Act, 1961 were discussed in depth with practical scenarios. Further, CA Ravikant Kamath gave his in-depth knowledge on specific new provisions in the Income Tax Act, 2025 and the draft Income Tax Rules, specifically on the chapter of Salary perquisites. He discussed practical TDS controversies for various types of business assesses based on the court rulings, tax provisions, Circulars, etc., by giving his views on these controversies.

Mr. Purushottam from the TDS CPC, Ghaziabad, also presented his views on the new TDS portal 2.0. He gave a walk-through on the upcoming TDS portal, which will include features such as the demand outstanding, payments tab, litigation tab, etc. He also shared how the tax department is preparing for the new Income Tax Act 2025 in practical compliance.

The seminar received an encouraging response from the Goa participants in trade commerce, and also viewers from the online platform. The participants, both online and offline, were enlightened to be ready for the upcoming Tax year 2026-27 for the TDS compliances.

7. Indirect Tax Laws Study Circle Meeting on Issues in Construction Industry and Redevelopment held on Thursday, 05th March 2026 @ Virtual

The session was led by CA. Abhijit Dongaonkar (Group Leader) under the mentorship of CA. Naresh Sheth, and focused on complex, real-life scenarios impacting developers, landowners, and housing societies.

The presentation covered the following aspects for a detailed discussion:

Joint Development Agreements (JDA)
Examination of taxability of Transfer of Development Rights (TDR), revenue-sharing vs. area-sharing models, valuation complexities, and implications of minimum guaranteed consideration.

Time of Supply & Valuation Mechanisms
Insights into deferred tax liability for residential components, immediate taxability for commercial portions, and deemed valuation principles under relevant notifications.

Unsold Inventory & Cancellations
Treatment of unsold units at the time of completion certificate and tax implications of pre- and post-OC cancellations.

Developed Plots & Infrastructure Charges
Clarification on non-taxability of sale of land, taxability of amenities when charged separately, and implications for third-party buyers.

Redevelopment of Housing Societies
Analysis of TDR transactions between societies and developers, construction services to members, and taxability of corpus or hardship funds.

Slum Rehabilitation Projects (SRP)
Discussion on taxability of free rehabilitation flats, valuation of non-monetary consideration in the form of TDR/FSI, and applicability of exemptions.

Around 120 participants from all over India benefited while taking an active part in the discussion. Participants appreciated the efforts of the group leader and the mentor.

8. 14th Residential Study Course on IND AS held on Friday 27th February 2026 to Sunday 01st March 2026 @ The Orchid Hotel Pune.

The Accounting & Auditing Committee organised this Study Course on Ind AS in a residential learning format, enabling intensive technical deliberations and professional interaction. The three-day programme focused on advanced and contemporary Ind AS topics with a strong emphasis on practical application, case studies and current regulatory expectations relevant to preparers, auditors and advisors.

The course commenced with detailed sessions on Ind AS 103 and Ind AS 110, focusing on business combinations, mergers and demergers, covering structuring considerations, accounting complexities and interpretational challenges through case studies. An in-depth session on Related Party Transactions covered Ind AS requirements along with SEBI LODR, Companies Act and tax aspects, highlighting common compliance challenges, documentation expectations and practical issues.

Complex financial instruments were discussed in detail with reference to Ind AS 109, Ind AS 113 and Ind AS 32, covering classification, measurement, valuation and disclosure challenges supported by illustrative case studies. A focused session on Presentation of Financial Statements under Ind AS addressed key presentation principles, disclosure requirements, recent amendments, including Ind AS 118 and emerging reporting practices.

The programme also featured an insightful panel discussion on NFRA findings and initiatives for improving audit quality, deliberating on inspection observations, audit documentation and strengthening audit processes. Another panel discussion on Sustainability Reporting covered preparer and assurance perspectives, addressing evolving sustainability reporting requirements, preparedness challenges and assurance considerations.

14th Residential Study Course on IND AS

The Residential Study Course was well received by participants and provided a valuable platform for deep technical learning, exchange of practical experiences and professional networking. Over 94 participants attended the Course.

Faculties for the Residential Study Course:

Dr. CA Anand Banka, CA MP Vijay Kumar, CA Himanshu Kishnadwala, CA Manan Lakhani

Panelists – CA Sudhir Soni CA Amit Mazmudar Moderator- CA Vijay Maniar

Panelists – CA Himanshu Kishnadwala CA Dr Alok Garg Moderator – CA Samit Saraf

9. ITF Study Circle meeting on “International Tax Aspects of Budget 2026 and ITA 2025” (Part 1 & 2) ” held on 10th & 24th February 2026@ Virtual.

The International Tax and Finance Study Circle organized this meeting to discuss amendments in the Budget 2026 on the International Tax aspects. The meeting was divided into 2 parts. Both meetings started with the Chairman of the session, CA Mayur Nayak outlining the amendments along with his comments.

CA Hansh Gangar (Group Leader) took up the various amendments on 10 February 2026. Some key discussion points were:

Foreign assets of Small Taxpayers – Disclosure Scheme, wherein the group discussed the need and objectives of the amendment, along with the penalty matrix. Some key issues which were discussed were implications of receipt of foreign shares under ESOP, where the assessee was NR or NOR at the time of earning undisclosed income or acquiring undisclosed assets, but is now a resident, but failed to disclose the above, whether he will be covered under the scheme.
The Group Leader also took us through other amendments, such as Relaxation of conditions relating to prosecution under the Black Money Act, amendments in IFSC, amendments in NDI rules, amendments in TCS rates, etc.

The Budget meeting continued on 24 February 2026, wherein CA Nemin Shah (Group Leader) discussed other amendments that were made in the Budget 2026. Some key discussion points were

The session opened with introductory remarks from the chairman on his initial views on the determination of residential status.
Amendment in buyback provisions wherein the Group leader took us through the various changes introduced in buyback taxation over the years. He discussed the meaning of promoter. He highlighted some issues that were discussed with the group at length – Whether the additional income tax will be eligible for treaty benefits, whether deduction under section 54F is available, and whether this provision will apply to foreign buyback.
Other amendments, such as Exemption related to Data Centres, were also discussed in the group – some points which came up for discussion- the characterisation of the amount – royalty or FTS? Whether there could be an exposure to constitute a PE.
Participants also discussed the Transfer pricing changes, safe harbour rules, etc.

10. “Mumbai Thane Express – Internal Audit 101” held on Saturday, 21st February 2026@ CKP Hall, Thane West.

This session was organised by BCAS jointly with the Thane Branch (WIRC) of ICAI. The keynote session explored the evolving role of Internal Audit in a dynamic regulatory and business environment, highlighting the advanced use of tools and technology in modern audit practices. Discussions emphasized the transition of Internal Audit from a compliance-focused function to a strategic risk advisory partner.

A detailed deep dive into the design, evaluation, and strengthening of internal control frameworks was conducted, with risks and controls explained through relatable day-to-day examples for better understanding. Practical insights were shared on identifying Key Risk Indicators (KRIs) and effectively linking risk assessment with audit planning. A comprehensive walkthrough of risks, controls, and audit procedures in the Procure-to-Pay (P2P) cycle was presented, supported by a clear and structured audit checklist. The checklist highlighted common control gaps in procurement, vendor management, and payment processes, along with practical mitigation strategies. Special emphasis was laid on drafting impactful, concise, and action-oriented audit reports, with a strong focus on stakeholder value creation. Techniques to transform audit observations into compelling narratives that drive management action were demonstrated through practical examples.

The event concluded with a multi-stakeholder panel discussion, offering perspectives on audit expectations from management, auditors, and governance bodies. The discussion also covered aligning Internal Audit outcomes with organizational objectives and enhancing stakeholder value creation.

Approximately 65 participants from Mumbai, Thane, and Pune attended the event.

Faculties: CA Murtuza Kachwala, CA Prajit Gandhi, CA Samit Saraf, CA Chetan Thakkar, CA Pooja Bhutra, CA Harshita Mulay – Dixit, CA Archana Moghe, CA Preeti Cherian.

11. BCAS Women’s RefresHER Course” held from 6th January 2026 to 19th February 2026@ Virtual.

BCAS launched its first-ever Women’s RefresHER Course – “Re-skill and Re-ignite Your Professional Journey”, creating a dedicated platform for women Chartered Accountants to reconnect with the profession.

The course comprised 14 online sessions, conducted on Tuesdays and Thursdays, covering a wide spectrum of topics including direct tax, GST, FEMA, litigation, succession planning, ESG, audits, valuations, start-ups, and corporate structuring. The sessions were curated to address both foundational concepts and contemporary developments, with a strong focus on practical insights.

A unique feature of the programme was that it was led entirely by women speakers, fostering an open, engaging and relatable learning environment for participants.

Designed for participants at beginner and intermediate levels, including those returning after a career break or looking to build or expand their practice, the course emphasized real-life applications, emerging opportunities and confidence-building.

The programme witnessed an encouraging response, with 85 participants from around 24 towns and cities, making it an interactive experience.

Scan to watch online at BCAS Academy

BCAS Women's RefresHER Course

II. BCAS IN NEWS & MEDIA

BCAS has been featured in several news and media platforms, showing our active involvement, professional contributions, and commitment to the field. This reflects the growing recognition of BCAS in the public and professional space.

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

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BCAS IN NEWS & MEDIA

BCAJ Admin

Regulatory Referencer

I. DIRECT TAX : SPOTLIGHT

1. Referencing by Document Identification Number – Reg – Circular No. 4/2026 dated 31 March 2026

Section 292B and 292BA of Income-tax Act, 1961 and Section 522 of the Income-tax Act 2025, provide that any document issued by Income tax Authority shall be referenced by the computer generated Document Identification number (DIN). The circular provides as under:

a) DIN may be mentioned within the communication itself, attached separately, or included in electronic correspondence such as emails.

b) There is no requirement for the same to be printed on every page, provided the communication is clearly referenced.

The Circular further provides that in certain circumstances, the document may not be referenced by DIN in specific situations and all such communications shall require post-facto approval, within a period of 15 days of the date of issue of such communication.

2. Procedure, formats and standards for generation and allotment of Unique Identification Number (UIN) in respect of Form No. 121 and quarterly furnishing of Part B thereof by the payer – Notification No. 01/CPC(TDS) /2026 dated 28 March 2026.

Section 393(6) of the Income-tax Act, 2025 provides for no deduction of tax in certain cases wherein declaration in Part A of Form No. 121 is furnished by the payee to the payer as per Rule 211 of the Income-tax Rules, 2026.

The payer shall allot a 26-character UIN to each declaration (Part A of Form No. 121) received by him during the tax year. The circular provides for the Procedure, formats and standards for generation and allotment of UIN.

3. CBDT amends India- Brazil DTAA – Notification No.39/2026 dated 30 March 2026

The notification gives effect to the 2022 Amending Protocol to the India–Brazil DTAA, which entered into force on 18 October 2025 and applies in India from FY 2026–27 onwards.

4. ITR Forms 1-7, including ITR V and ITR U(updated return) have been notified by the CBDT, for the financial year 2025-26 – Notification No. 45 to 52 of 2026 dated 30 March 2026.

5. Clarificationthat investments made before April 1, 2017, are fully grandfathered and exempt from GAAR scrutiny – Notification No. 55/2026 dated 31 March 2026.

6. PAN CR-01 and PAN CR-02 prescribed for correction of PAN data for individuals and non-individuals along with guidelines

7. All the provisions of Memorandum of Understanding for Assistance in Collection of taxes, of the Convention between the Government of the Republic of India and the Government of Japan for the avoidance of double taxation and the prevention of fiscal evasion are notified. – Notification No. 56 dated 2 April 2026

II. IFSCA UPDATE FOR MAY 2026 EDITION

1. IFSCA grants Qualifying Central Counterparty (QCCP) status to IIBX

India International Bullion Exchange (IFSC) Limited (‘IIBX’) functions both as a Bullion Exchange and a Bullion Clearing Corporation. The Bullion Clearing Corporation of IIBX has qualified as a Qualifying Central Counterparty (‘QCCP’) as it is regulated by IFSCA, SCRA and complies with global standards, particularly the Principles for Financial Market Infrastructures (PFMIs). The QCCP status confirms that its clearing operations meet international benchmarks for risk management and financial integrity.

Further, IIBX has been designated as a Market Infrastructure Institution (MII) due to its systemic importance in GIFT IFSC and is subject to strict regulatory oversight and supervision within the PFMI framework. In view of the above, IIBX is accorded the status of QCCP.

[Press release, dated 25th March 2026]

2. IFSC Authority removes 7-day comment timeline requirement from KMP circular for FMEs

IFSCA had issued a circular “Appointment and Change of Key Managerial Personnel (‘KMP’) by a Fund Management Entity (‘FME’)” dated February 20, 2025 which specifies the manner and procedure to be followed by a FME for effecting the appointment of or change to their KMPs. Paragraph 4 of this Circular which provided for communication of comments by the Authority within a specified timeline of 7 working days form the date of filing of intimation by the FME has now been removed. All other provisions and conditions specified in the 2025 Circular shall remain the same.

[Circular No. IFSCA/13/2026-Capital Markets/1, dated 1st April 2026]

3. IFSCA mandates certification courses

IFSCA has specified a mandatory certification course titled “Regulatory Framework for Fund Management in IFSC: AIFs and Retail Schemes” for employees of Fund Management Entities (FMEs) offered by the Institute of Company Secretaries of India. All Key Managerial Personnel (KMPs) and employees engaged in core fund management activities are required to successfully complete this certification on or before 30 September 2026, with responsibility for compliance resting on the FME and persons in control. Additionally, FMEs must ensure continuous adherence to eligibility criteria for KMPs under applicable regulations.

The IFSCA has also mandated a certification requirement for employees of Capital Market Intermediaries (CMIs) in IFSC. The Authority has specified the course titled “Regulatory Framework for Capital Market Intermediaries in IFSC” offered by the Institute of Company Secretaries of India. All Key Managerial Personnel (KMPs) and employees engaged in core business activities are required to successfully complete this certification on or before 30 September 2026, with the responsibility for compliance resting on the CMI and persons in control.

[Circular No. IFSCA/13/2026-Capital Markets/1, dated 1st April 2026 & Circular F. No. IFSCA-PLNP/80/2024 Capital Markets, dated 2nd April 2026]

4. IFSCA establishes regulatory framework for registration, regulation and supervision of Pension Funds in IFSC

The IFSC Authority has notified the IFSCA (Pension Fund) Regulations, 2026, establishing a regulatory framework for registration, regulation and supervision of Pension Funds in IFSC. The regulations aim to provide a robust framework for long-term retirement savings, promote a secure and transparent environment for subscribers, protect their interests and maintain the integrity of the pension ecosystem. The framework overrides existing PFRDA regulations within the IFSC, eliminating dual-regulatory burden. The Regulations cover eligibility requirements for the Pension Funds; scheme designs; withdrawal and portability pathways; permissible investments with defined limits over a broad range of asset classes; and risk management & governance requirements; compliance and enforcement.

[F. No. IFSCA/GN/2026/007, dated 30th March 2026]

5. IFSCA bars fund management entities from assigning multiple service roles to fiduciaries in the same scheme

The IFSCA (Fund Management) Regulations, 2025, requires Fund Management Entities (FMEs) to appoint fiduciaries such as trustees (in case of trusts), directors (in case of companies), or designated partners (in case of LLPs), who are obligated to act in the best interest of investors and adhere to high standards of due diligence, care, and independent judgment as per the prescribed Code of Conduct. To strengthen governance and avoid conflicts of interest, IFSCA has clarified that an FME shall not appoint a fiduciary entity to also provide services such as fund administration, valuation, audit, or lending /financing to the same scheme, whether directly or through its associates. For existing schemes already filed or taken on record, FMEs are required to comply with this requirement by 30th September 2026.

[Circular No. IFSCA-IF-10PR/7/2024-Capital Markets/10042026, dated 10th April 2026]

6. IFSCA requires prior approval for Payment Service Providers (PSPs) joining Rupee Drawing Agreement (RDA) as non-resident Exchange Houses

IFSCA has issued a clarification regarding participation in Rupee Drawing Arrangements (RDA) by Payment Service Providers (PSPs). IFSCA has now clarified that prior approval is mandatory for PSPs intending to participate in RDA as non-resident Exchange Houses, in line with the RBI Master Direction on “Opening and Maintenance of Rupee/Foreign Currency Vostro Accounts of Non-resident Exchange Houses” (2016). Further, PSPs must submit, along with their approval request, a comprehensive framework demonstrating compliance with the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022 and any other applicable similar laws.

[Circular No. IFSCA-FMPP0BR/3/ 2023-Banking 2026-27/01, dated 10th April 2026]

III. FEMA

1. Govt notifies uniform Rs.2–10 crore adjudication limit for Additional & Joint Directors under FEMA

The Central Government has amended the notification prescribing jurisdiction of adjudicating authorities under the FEMA. This amendment revises the monetary limits for adjudication of Additional Directors and Joint Directors Enforcement. Previously, Additional Directors handled cases involving amount between Rs.5 crores and Rs.10 crores, while Joint Directors handled cases involving amount between Rs.2 crores and Rs.5 crores. The revised notification merges the scope by prescribing that both categories will now handle cases involving amounts exceeding Rs.2 crores but not exceeding Rs.10 crores.

[Notification No. 1397(E) [F. NO. K-11022/80/2011-AD.ED], dated 18th March 2026]

2. RBI directs ADs to maintain NOP-INR within USD 100 million in the offshore deliverable market

Master Direction on ‘Risk Management and Inter-Bank Dealings’ empowers RBI to prescribe limits on open positions in Rupee for exchange rate management. RBI has issued a circular whereby Authorised Dealers are now required to ensure that Net Open Positions in INR (NOP-INR) positions in the onshore deliverable market are maintained within USD 100 million at the end of each business day. ADs shall ensure compliance at the earliest but not later than 10th April 2026. This is a measure to curb volatility in the Rupee considering ongoing geopolitical issues.

[A.P. (DIR series 2025-26) Circular No. 24, dated 27th March 2026]

3. RBI revises ECB reporting framework and clarifies LSF computation

ECB transactions are required to be reported through Authorised Dealer (AD) Category I banks in prescribed forms, and delays attract Late Submission Fee (LSF). RBI has issued circular to remove ambiguities in classification of returns and streamline LSF computation. Key Highlights from the circular are given as follows:

a. Form ECB-1 and Revised ECB-1 to be treated as non-flow returns, and LSF to be computed accordingly. Non-flow returns are filed once per transaction/event, not periodically.

b. LSF is per return. Each delayed filing of Form ECB-2 to be treated as a separate instance, attracting LSF independently.

c. AD Category I banks shall submit ECB returns to RBI within 7 calendar days of receipt from borrowers.

d. LSF is payable via NEFT/RTGS to RBI Regional Office after receipt of acknowledgment email from RBI. AD banks to ensure and monitor payment of LSF by borrowers.

These amendments are applicable from 1st April 2026.

[A.P. (DIR series 2025-26) Circular No. 25, dated 30th March 2026]

4. RBI standardises guarantee reporting under FEMA; clarifies LSF computation for delays in reporting

RBI has issued circular with regard to obligation on a person to report a guarantee in terms of Regulation 7 FEM (Guarantees) Regulations, 2026 [FEMA 8 (R)] and Master Direction on ‘Reporting under Foreign Exchange Management Act, 1999’. The main points are:

a. Reporting is to be done using files provided on the RBI website (List of Returns Submitted to RBI) for submissions to the authorised dealer bank:

Form GRN Issue – for reporting issuance of guarantee;

Form GRN Modification – for reporting changes in terms such as amount, tenure or pre-closure; and

Form GRN Invocation – for reporting invocation of guarantee.

b. Each guarantee to be assigned a Unique Guarantee Transaction Number (GTN) by AD Bank before submission of the return to RBI.

c. For any delay, LSF will be calculated on amount of liability created towards surety on invocation for Form GRN Invocation only. For Form GRN Issue and Form GRN Modification, LSF to be considered on amount as ‘nil’ since these returns do not capture flows.

The above will come into effect from 1st April 2026.

[A. P. (DIR series 2026-27) Circular No. 1, dated 1st April 2026]

5. RBI permits INR exchange for residents and non-residents at forex counters in airport departure areas beyond immigration

The RBI has decided to allow residents and non-residents to exchange Indian Rupee notes at foreign exchange counters at the departure halls in the international airports established in the Duty-Free Area or Security Hold Area beyond the Immigration or Customs desk. The Master Direction on Money Changing Activities is being amended accordingly.

[A.P. (DIR series 2026-27) Circular No. 4, dated 2nd April 2026]

6. RBI amends Master Direction on non-resident investment in debt instruments, consolidates existing instructions

Over the years, the Reserve Bank has issued directions relating to investments in debt instruments by Non-Resident Indians (NRIs) and offering of debt instruments acquired in terms of FEMA 396 as collateral to recognized Stock Exchanges in India for transactions in exchange traded derivative contracts. These instructions have now been consolidated in the Master Direction on ‘Non-resident Investment in Debt Instruments’, 2025 which earlier covered various related Regulations under FEMA. Annex-1 of the Master Direction provides the list of circulars consolidated while Annex-4 lists the amendments made to the Master Direction over time.

[A.P. (DIR Series) Circular No. 6, dated 10th April 2026]

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