Ahmedabad Chartered Accountant Journal April, 2026 1TMVolume : 50 Part : 01 April, 2026E-mail : [email protected] Website : www.caa-ahm.orgAhmedabad Chartered Accountant JournalIn this IssueContents Author's Name Page No.- caaahmedabadJournal CommitteeCA. Jianah Tulsija CA. Monika ShahChairperson ConvenerCA. Jignesh Shah CA. Jayesh SharedalalE. C. Representative Past PresidentMembersCA. Ashok Kataria CA. Disha Shah CA. Labdhi ShahCA. Mayur Zanjrukiya CA. Meeta Prajapati CA. Mira ShahCA. Monish Shah CA. Niket Rasania CA. Rahul PujaraCA. Rajni Shah CA. Yash Shah - The Constant Behind the Change CA. Ashok Kataria 4 Editorial - Embracing Change, Celebrating Legacy and Shaping the Future CA. Jianah Tulsija 5From the President Dr. CA. Anjali Choksi 7Legacy of Excellence : Honoring Our Founding Presidents 9ArticlesFrom Incentives to Impact : Unlocking Opportunities under the CA. Ketan Samdani 11Mini Cluster Development SchemeNavigating Fixed Establishment Compliance in India for CA. Amit Soni 16Foreign Entities under GSTIndia-New Zealand FTS 2026 : A New Chapter in India's Global Trade Strategy CA. Amrin Alwani 19Direct TaxesGlimpses of Supreme Court Rulings Adv. Samir N. Divatia 22From the Courts CA. Jayesh Sharedalal 23Tribunal News CA. Yogesh G. Shah & 26CA. Aparna ParelkarUnreported Judgements CA. Sanjay R. Shah 32Controversies CA. Kaushik D. Shah 35TM
2 Ahmedabad Chartered Accountant Journal April, 2026TMContents Author's Name Page No. FEMA & International TaxationFEMA & International Taxation CA. Dhinal A. Shah & 37CA. Sunil ManglaniFEMA Updates CA. Dr. Savan R. Godiawala 41GULF Insights CA. Sanskar Jain 42 Indirect TaxesGST and VAT Judgments and Updates CA. Bihari B. Shah & 44CA. Vishrut R. ShahAdvance Ruling under GST CA. Monish S. Shah 47Corporate Law & OthersInd AS Insights CA. Niket Rasania 50Corporate Law Update CA. Naveen Mandovara 52GujRERA Corner CA. Manan Doshi 54Capital Markets CA. Karan P. Vora 57Special ServicesThe Insolvency and Bankruptcy Code (Amendment) Act, 2026 Dr. CA. IP RV Anjali Choksi 62From Published Accounts CA. Pamil H. Shah 72From the Government CA. Ashwin H. Shah & 74CA. Kunal A. ShahIT Corner CA. Zalak Parikh 77CSR Stories CA. Siddharth Bhatt 81Professional Opportunities : Networking Zone 83Association News CA. Sulabh Padshah & 85CA. Parth DesaiACAJ Crossword Contest 88❉ ❉ ❉
Ahmedabad Chartered Accountant Journal April, 2026 3TMAttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within onemonth. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Subscription for the financial year 2026-27 is ` 1500/-, single copy ` 150/- (if available).4. Please mention your membership number in all your correspondence.5. While sending Articles for this Journal, please confirm that the same are not published / not even meant forpublishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication,nor will they be sent back.6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarilyconcur with the authors / contributors.7. Life Membership/Annual Membership and Other Fees F. Y. 2026-27 Amount in `Basic GST Total1. Admission Fees 500 90 5902. Annual Membership Feesa. If Paid Prior to june 30 of each financial year :i. In case of membership (of ICAI) for a period of less than or equal to five years 750 - 750ii. In case of membership of (ICAI) for a period more than five years, 800 - 800b. If paid after june 30 of each financial year :i. In case of membership (of ICAI) for a period of less than or equal to five years, 900 - 900ii. In case of membership of (ICAI) for a period of more than five years 960 - 9603. Life Membership Feesi. In case of membership (of ICAI) for a period of less than or equal to five years 8000 1440 9440ii. In case of membership of (ICAI) for a period more than five years 10000 1800 118004. Brain Trust Membership Feesa. Individual Membership Fees 2000 360 2360b. Non Member Fees 2500 450 2950c. Flexi Firm/Corporate Membership Fees*** 4000 720 4720*** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting.Additional Representatives can be nominated @2000/- plus GST per participant subject to maximum of 20 participantper firmPublished ByCA. Jianah Tulsija, on behalf of Chartered Accountants Association, Ahmedabad, 2nd Floor, Darshak, 14/A,Swastik Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'AlliedLaws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in theprofession. Articles and reading literatures are invited from members as well as from other professional colleagues.Printed : Pratiksha Printer, Ahmedabad Mobile : 98252 62512 E-mail : [email protected]
4 Ahmedabad Chartered Accountant Journal April, 2026TM“Change is the only constant” is a statement we hearvery often today. To a large extent, it is true. The worldaround us is constantly changing. Technology changes,laws change, professions change, relationshipschange, and even our own thoughts keep changing.But if we reflect deeply, an important question arises:Is change possible without something remainingconstant?When we look around, everything appears to be inmotion. In Sanskrit, the world is called Jagat. The verymeaning of the word Jagat is “that which is constantlymoving or changing.” The nature of the world itself ischange. Nothing remains the same forever. Seasonschange, circumstances change, and people change.This truth becomes even clearer when we observeour own personality.Our body is continuously changing. It is said that everycell in the body changes over a period of years.Compare the body of a newborn child with that of ayouth or an adult. There is complete transformation.Similarly, the mind also keeps changing. As children,we were fascinated by toys and chocolates. Later thoseattractions disappeared and new interests took theirplace. Even our likes and dislikes do not remain thesame. What we strongly preferred yesterday may notappeal to us today. Intellectually too, our understandingkeeps evolving. There are pursuits which at one stageof life appeared extremely important, but with time theylose their attraction. Thus body changes, mindchanges, and even intellectual convictions change.Then comes the deeper question: if everything ischanging, what enables us to recognize change at all?Change can be identified only when there is somethingconstant in reference to it. A moving train is seen asmoving because the land outside appears steady. Butwhen travelling in the sky, movement is not easily feltThe Constant Behindthe Change CA. Ashok [email protected] there is no stable reference point outside. Inthe same way, our scriptures guide us to discover thatunchanging principle within ourselves. Amidst the everchanging world, there exists something constant,something stable, something eternal. Discovering thattruth is the real purpose of human life.Swami Chinmayananda beautifully said, “Let the mindrun. You do not run. Stay put as the Changeless in themidst of all change.” This one sentence captures theessence of Vedanta. Thoughts may rise and fall,emotions may come and go, situations may keepchanging, but there is within us a silent presence thatremains untouched by all changes. The more wediscover and abide in that inner stability, the morepeaceful and balanced life becomes.This understanding is not limited only to philosophy.Even in our professional life, especially in today’srapidly changing environment, adaptation is necessary.Laws change, technology changes, methods ofpractice change, and professionals must evolve withtime to remain relevant and competitive. However,while adapting to external changes, certain foundationsmust remain firm. Values, ethics, integrity, and principlescannot change according to convenience. Theseconstants become the anchor that guide us throughchanging situations.Perhaps that is the real wisdom behind life. Change isnecessary and unavoidable, but meaningful changeis possible only when supported by a strong andconstant foundation. The challenge before us is notmerely to adjust to the changing world, but also todiscover and preserve that which should neverchange within us.❉ ❉ ❉
Ahmedabad Chartered Accountant Journal April, 2026 5TMEmbracing Change, Celebrating Legacy and Shaping the FutureAs we embark on a new financial year, we are guided by a foundational truth: Change is the onlyconstant. We see this evolution vividly within our own Association as we welcome new chairpersonsand newly formed committees, bringing fresh perspectives and renewed Vigor to our fraternity.Simultaneously, our profession is navigating a historic era of transformation. We are currently witnessinga monumental shift from the long-standing Income Tax Act of 1961 to the newly enacted Income Tax Act2025, alongside major, transformative changes within the Insolvency and Bankruptcy Code (IBC) andmuch more. These are not merely amendments; they represent a complete reimagining of our legislativeframework.To thrive in this dynamic environment, we must do more than just observe these changes; we mustactively embrace and adapt to them. This requires an unwavering commitment to continuous learning.As we step into this new term, the CA Association Journal renews its promise to be your steadfast partnerin growth, providing the rich, insightful, and practical content you need to navigate this new era successfully.This year holds profound historical significance for us as we celebrate our 75th year. Guided by ourtheme - Celebrating Legacy, Shaping Future - we are introducing several exciting additions to theJournal:● Honouring Our Leaders:To inspire our future generation, we are dedicating a special column to pay tribute to the past 75Presidents of the CA Association, highlighting their pivotal achievements and the foundations theybuilt.● Special Services Column:To keep pace with emerging practice areas, this new column will feature expert write-ups on highlyspecialized subjects such as IBC, Valuation, and Forensic Accounting , etc.● Professional Opportunities Column:Recognizing the power of synergy, this column will serve to bridge the gap between professionalsseeking strategic collaborations and those ready to partner and expand.With these exciting new avenues open, and as we embrace the spirit of this new financial year, I ammaking a sincere call to action to my peers in the profession.CA. Jianah [email protected]
6 Ahmedabad Chartered Accountant Journal April, 2026TMCALL FOR ARTICLESShare Your Expertise and Shape Our Legacy“Information equips us, but insight empowers us. Let us build our legacy not just by sharing facts, butby sharing the practical wisdom drawn from real-world experience.”Dear Members and Professional Colleagues,Let us come together to build a true wealth of knowledge. On behalf of the CA Association Ahmedabad, Iwarmly invite you to submit your articles, professional insights, and reading literature for our upcomingeditions. As we step into this milestone year, it is your expertise that will make our Journal a beacon ofprofessional excellence.To ensure a smooth editorial process, please keep the following submission guidelines in mind:● Who Can Contribute: We warmly welcome articles from Professionals (CAs, CSs, Advocates) as wellas students from across PAN India.● Word Limit & Author Details: Articles should be comprehensive, ranging between 1,500 to 3,500words. Each submission must be accompanied by the author’s photograph, email ID, and contactnumber.● Monthly Deadline: Please submit your articles by the 20th of each month for consideration in theupcoming issue.● Exclusivity: Upon submission, please confirm that your article is an original piece that has not beenpublished, nor is it currently meant for publishing elsewhere.● Editorial Policy: Please note that no correspondence will be made regarding articles not accepted forpublication, nor will unaccepted articles be sent back.● Disclaimer: The opinions, views, statements, and results published in this Journal are solely those ofthe respective authors and contributors. The Chartered Accountants Association, Ahmedabad is neitherresponsible for the same, nor does it necessarily concur with the authors’ views.I also have a humble request for all the wonderful members who contribute their time and knowledge. In thismodern era, we can absolutely embrace AI - let it be your ‘Saarthi’. But remember, the steering wheel mustalways remain firmly in your hands. You can take help from technology to refine your work, but we will only beaccepting articles that are original. Please maintain the depth and authentic voice that makes your articles sovaluable to our community; the core thought and content must be yours.Together, let us enrich our professional fraternity and ensure our Journal continues to be a profound platformof learning. I eagerly look forward to reading your valuable contributions!Please send your submissions to our official email ID at [email protected]. For any other queries,you can directly reach me at [email protected] or ping me on 9879509214.Warm Regards,CA. Jianah Tulsija❉ ❉ ❉Editorial
Ahmedabad Chartered Accountant Journal April, 2026 7TMRespected Members,First Greetings from the President!!The CA Association Ahmedabad turned 75, three quarters of a century and what a journey it has been. Itis a momentous year for all of us and it is with that spirit that I stand before you today, humbled by thehonour of serving as your First Woman President in the history of 75 years of the third largest CAAssociation in India.I am deeply conscious of the significance of this moment not only because it is the 75th year of this augustbody, but because of what this year represents for every one of us as professionals. We stand at a rareintersection: of legacy and disruption, of tradition and transformation, of pride in what we have built andurgency about what lies ahead.The world around us is changing at a pace that demands we not merely keep upbut lead. The theme forthe year is CELEBRATING THE LEGACY & SHAPING THE FUTURE which we shared along withunveiling of the 75th year logo. In line with this, the theme for the First Edition of the journal isChange is Constant is not merely a philosophical statement it is a lived reality, especially in thedynamic world of the Chartered Accountancy profession. As we stand at a significant milestone the 75thyear of CAA this theme offers a powerful lens to reflect on our journey, acknowledge our legacy andenvision the future we aspire to shape.The profession has witnessed remarkable transformations over the decades. From manual bookkeepingto Advanced Digital Ecosystems, from Compliance-driven roles to strategic advisory functions, CharteredAccountants have continuously evolved. Regulatory Frameworks, Taxation systems, Global reportingstandards and Technological Innovations have all undergone rapid change. Yet, through all this, onething has remained constant the profession’s commitment to integrity, excellence and public trust. Thevision for the year rests on this four Pillars: -1. Elevating Professional Competence.The Chartered Accountant of tomorrow cannot be the Chartered Accountant of yesterday. Artificialintelligence is not a distant disruption it is here, reshaping audit, tax, valuation, and advisory. Ourmembers must not fear this change. They must master it. This year, we will focus on structuredprogrammes in emerging are as data analytics, AI-assisted audit, forensic accounting, internationaltaxation and IBC so that every member of this association is equipped not just to survive the future,but to define it.From the PresidentDr. CA IP RV Anjali [email protected]
8 Ahmedabad Chartered Accountant Journal April, 2026TM2. Nurturing the Next Generation.Our students and young members are not the future of this profession. They are the present. We willdeepen our engagement with young members through mentorship initiatives, career guidance andexposure to real-world practice areas. Every senior member of this association carries a responsibilityto reach back, guide and inspire. I intend to institutionalise that responsibility this year.3. Strengthening the Ecosystem of Ethics and Excellence.In a world where trust is the most scarce commodity, the Chartered Accountant remains society’smost trusted professional. This year, we will actively promote ethical practice, reinforce peeraccountability and create platforms for open dialogue on the challenges our members face inmaintaining professional independence. Excellence and ethics are not competing values. They areinseparable.4. Building an Inclusive, Vibrant Association.As an association, we will this year make deliberate efforts to ensure greater participation of womenmembers, young professionals, and members from varied practice backgrounds in our events, ourcommittees and our conversations. An association that reflects its members fully is one that servesthem better.On the basis of these four pillars this year, we are adding two more committees -Public RelationsCommittee for building connections and creating impact whereby we leverage social media and DigitalOutreach to invite more youngsters and collaboration with various associations to amplify our reach andestablish Association as a premier voice in professional circles & Placement Committee to fill the gapbetween paid assistants and CA firms. We will formalize partnerships with leading colleges to providestudents for structured Internship platforms followed by employability.Lastly I would sayThe strength of a tree lies not in the height it reaches, but in the depth of its roots.Our roots - 75 years deep - are strong. And because they are strong, we can grow tall without fear.Warm Regards,Dr. CA IP RV Anjali Choksi❉ ❉ ❉From the President
Ahmedabad Chartered Accountant Journal April, 2026 9TMAs we celebrate 75 years of the Chartered Accountants Association, Ahmedabad, we dedicate this column tothe leaders who stood at the helm when our first stones were laid. Their foresight established the ethical andprofessional standards we uphold today.1. Late Shri C. S. Patel (President: 1951)● The First Torchbearer:Shri C. S. Patel holds the distinct honour of serving as the first President in our inaugural year, 1951.● Foundational Vision:As the founding leader, he played a pivotal role in laying the foundation and shaping the vision of theAssociation during its formative years.● Fraternal Commitment:His leadership and unwavering commitment helped establish a strong platform for professionalexcellence and fraternity among members.2. Shri Naushir M. Marfatia (President: 1952)● Ensuring Continuity:Serving as the second President, Shri Marfatia contributed significantly to the growthand continuity of the Association in its infancy.● A Distinguished Practitioner:A leading professional of his time, he was the founder of the esteemed firm M/sNaushir Marfatia & Co. in Ahmedabad.● Enduring Values:His firm continues to uphold the professional values and legacy he established,reflecting his lasting impact on the local fraternity.3. Shri Chandraprasad Ratilal Lakhia (President: 1953)● Academic Excellence:A highly qualified professional holding a B.Com. and G.D.A., Shri Lakhia representedthe pinnacle of academic and professional dedication in the pre-ICAI era.● Institutional Linkages:Beyond his practice at M/s Lakhia Desai & Co., his strong connection with GujaratUniversity helped bridge the gap between academic learning and professionalpractice.Legacy of Excellence : Honoring Our Founding Presidents
10 Ahmedabad Chartered Accountant Journal April, 2026TM4. Late Shri J. M. Shah (President: 1954)● A Stewardship of Integrity:Shri J. M. Shah is remembered for his disciplined leadership and his role instrengthening the Association’s organizational roots.● Professional Integrity:Through his practice, he set high benchmarks for auditing standards and professionalethics that have served as a guide for subsequent generations.5. Late Shri Shantilal K. Shah (President: 1955)● Foundational Strength:As an early leader, Shri Shantilal K. Shah focused on expanding the reach andinfluence of the Association within the regional business ecosystem.● The Power of Mentorship:The founder of Shantilal K. Shah & Co., he is remembered as a master mentorwho dedicated his career to training and elevating the skills of young professionals.A Tribute to the Pioneers:These five leaders did not just manage an association; they built a community. In an era where resources werescarce, they relied on character, intellect, and a shared passion for the profession. As we look toward our 75thyear, we stand on the sturdy shoulders of these giants.❉ ❉ ❉Legacy of Excellence : Honoring Our Founding Presidents
Ahmedabad Chartered Accountant Journal April, 2026 11TMThe “Scheme for Assistance to Mini ClusterDevelopment” reflects a significant evolution in the roleof the State Government-from a conventional subsidyprovider to a catalytic promoter and institutional enablerof shared industrial infrastructure. A ` 5 crore projectwith only ` 50 lakh contribution is possible under thisscheme-making it one of the most capital-efficientopportunities available to MSMEs today. While thescheme formally assigns ownership, implementation,and operational responsibility to the Special PurposeVehicle (SPV) constituted by cluster enterprises, itoperates within a tightly structured institutionalframework wherein key financial flows, procurementprocesses and project approvals remain centrallyguided. While ownership rests with the SPV, keyfinancial and procurement decisions remaininstitutionally controlled through mechanisms such asthe State Level Implementation Committee (SLIC),Project Management Unit (PMU), and prescribed funddisbursement conditions. This calibrated modelensures that enterprises retain operationalaccountability while benefiting from structuredoversight, thereby reducing execution risk andimproving project discipline. The scheme thusrepresents a shift from isolated financial incentives tocoordinated cluster-based development, enablingMSMEs to access advanced infrastructure, improveproductivity and enhance competitiveness throughCommon Facility Centres (CFCs).a. Key features of this scheme: The Mini ClusterDevelopment Scheme is structured as acomprehensive policy framework aimed atenhancing the competitiveness of Micro and SmallEnterprises through collective infrastructure andinstitutional support. Its key features reflect a shiftfrom isolated unit-level incentives to cluster-baseddevelopment, emphasizing shared facilities,technology access and economies of scale. TheFrom Incentives to Impact : UnlockingOpportunities under the Mini ClusterDevelopment Schemescheme integrates financial assistance withstructured implementation mechanisms, includingmandatory formation of a Special Purpose Vehicle(SPV), appraisal and approval by the State LevelImplementation Committee (SLIC), and executionsupport through the Project Management Unit(PMU). With substantial capital subsidy of up to80-90% and clearly defined eligibility conditions,the scheme balances financial support withaccountability. It also mandates long-termoperational sustainability of assets, ensuring thatthe benefits extend beyond initial funding. Overall,the scheme’s design highlights a coordinatedapproach combining financial aid, governancestructure, and monitoring to achieve sustainablecluster development.Particulars DetailsOperative Period of this 2nd August 2021 to 1st Augustscheme 2031Target Beneficiaries Micro & Small EnterprisesMinimum no. of Units in 10 unitsClusterLegal Structure SPV (Section 8 / Trust / NGO)Maximum Project Cost Rs. 5 CroreFocus Area Common Facility Centre (CFC)b. Quantum of assistance (Subsidy):One of themost striking features of the Mini ClusterDevelopment Scheme is the substantial level offinancial support provided by the StateGovernment. With assistance ranging from 80%to 90% of the project cost, the scheme significantlyreduces the capital burden on participatingenterprises. However, this high level of supportalso brings with it increased responsibility forproper utilization and long-term sustainability. Therelatively lower contribution required from SPVmembers can sometimes lead to weaker financialdiscipline and reduced ownership. This creates aCA. Ketan [email protected]
12 Ahmedabad Chartered Accountant Journal April, 2026TMrisk where projects are undertaken primarily dueto subsidy availability rather than genuine need.Therefore, while the scheme offers a strongfinancial foundation, its success depends on thecommitment and accountability of participatingmembers. A balanced approach between supportand responsibility is crucial. Without this, highsubsidy may inadvertently lead to low efficiency.Category of promoter Govt. Assistance Maximum limit SPV Contributionof Assistance (to be brought upfront)General Category 80% Rs. 4 Crore 20%SC / ST / Women > 50% 90% Rs. 4.50 Crore 10%c. Eligible Activities – Scope and StrategicRelevance:The scheme provides a well-defined scope ofeligible activities, primarily categorized into hardand soft interventions. Hard interventions focus oncreating tangible infrastructure such as testingfacilities, production centres and common utilities,which directly enhance operational capabilities.Soft interventions, on the other hand, aim atcapacity building through training, exposure visits,and technical support. This dual approach ensuresthat both infrastructure and human capability gapsare addressed simultaneously. The activities arecarefully designed to improve productivity, reducecosts and enhance market access for clustermembers. Importantly, soft interventions arepermitted only when linked with hard interventions,ensuring that capacity building is aligned withactual infrastructure usage. This integratedframework reflects a holistic development strategy.It also prevents fragmented or ineffectivedeployment of resources.Particulars Hard Intervention Soft InterventionMeaning It refers to creation of tangible, capital- It refers to non-tangible, capacity-buildingintensive common infrastructure and and support activitiesassets within the cluster, primarilythrough establishment of a CommonFacility Centre (CFC).Nature Tangible IntangibleAim Improving production capability, Strengthening the managerial, technical,technology access and operational capabilities of clustermembersPurpose Infrastructure creation Capability buildingKey Components Manufacturing Infrastructure - Skill development - training programs /Machines and equipment’s, testing & workshops, capacity building -quality equipment’s, common counselling sessions, Exposure -infrastructure - ware house, tool room, domestic /international trade visits,production floor, technology knowledge support - product design,upgradation - R&D, environment technical knowhow, etc.systems - Effluent treatment, wastemanagement, etc.Financial limits As mentioned in (b) above. Max. Project cost - Rs. 10.00/- Lakhs inwhich Govt. Assistance - 90% & SPVcontribution - 10%Dependency Independent Cannot exist aloneRole Core Asset Support FunctionFrom Incentives to Impact : Unlocking Opportunities under the Mini Cluster Development Scheme
Ahmedabad Chartered Accountant Journal April, 2026 13TMTo sum up:- Hard Interventions: Creation of shared physicalinfrastructure and assets (CFC) for improvingproduction and efficiency.- Soft Interventions: Capacity-building andsupport activities enabling effective utilizationand sustainability of such infrastructure.d. SPV Model - Introduction and conditions:The Special Purpose Vehicle (SPV) is the centralinstitutional structure through which the scheme isimplemented. It is expected to function as acollective decision-making and execution bodyrepresenting the interests of all cluster members.While the SPV model promotes shared ownershipand collaboration, it also introduces governancechallenges. Differences in objectives, financialcapacity, and management styles amongmembers can lead to conflicts and inefficiencies.The success of the entire project is heavilydependent on the strength and professionalismof the SPV. In many cases, inadequategovernance structures have resulted in delays orunderutilization of assets. Therefore, forming anSPV should not be treated as a proceduralrequirement but as a strategic exercise. Strongleadership and clear accountability mechanismsare essential. Without these, the SPV can becomea bottleneck rather than a facilitator.Condition RequirementMinimum Members 10 MSME unitsMicro Enterprise Share > 50%Individual Shareholding Max. 10%Family Members Not allowedOperational Period Minimum 10 yearsMinimum internal capacity 60%utilizationCaution:While the scheme provides substantialfinancial and institutional support, the responsibilityfor compliance, proper utilization and sustainedoperation of the CFC rests with the SPV. In caseof non-compliance, underutilization, or failure tooperate the facility as envisaged, the Governmentreserves the right to recover the assistancegranted or take appropriate action, includingtransfer or reallocation of the CFC. Thisunderscores the importance of disciplinedexecution and long-term commitment by theparticipating enterprises.e. Components of project cost:A well-structured financial plan is fundamental tothe success of any cluster project under thescheme. The project cost typically includes land,building, plant and machinery, and pre-operativeexpenses, with defined limits on certaincomponents. While the Government providessubstantial grant support, the responsibility ofarranging the balance contribution lies with the SPV.This necessitates careful financial planning andcoordination among members. Inadequate fundingarrangements can lead to delays inimplementation and disruption in project timelines.Additionally, reliance solely on subsidy withoutconsidering long-term financial sustainability canweaken the project’s viability. A clearunderstanding of cost components and fundingsources is therefore essential. Financial structuringmust align with both immediate and futurerequirements. This ensures smooth execution andoperational stability.Component InclusionLand Up to 25% (as perJantri rate)Building Shed, RCC structuresPlant & Machinery Plant & MachineryMisc. Assets Furniture, utilitiesPre-operative Expenses DPR, legal, adminWorking Capital Margin Initial operationsf. Project implementation framework:The scheme outlines a detailed implementationframework, starting from cluster identification toproject completion. While the process isstructured, it involves multiple stages includingDPR preparation, appraisal, approval and funddisbursement. Each stage requires coordinationFrom Incentives to Impact : Unlocking Opportunities under the Mini Cluster Development Scheme
14 Ahmedabad Chartered Accountant Journal April, 2026TMamong various stakeholders such as the SPV,PMU, DIC, and SLIC. Delays or inefficiencies atany stage can impact the overall project timeline.The requirement to complete the project within aspecified period further adds to executionpressure. In practice, many projects facechallenges due to lack of preparedness orcoordination. Effective project management andcontinuous monitoring are therefore critical. Aproactive approach can mitigate risks and ensuretimely completion. Execution discipline is asimportant as project design.Stage Activity1 Cluster identification2 SPV formation3 DPR preparation4 Technical appraisal5 Submission to MSME Commissioner6 Presentation before SLIC7 Approval & sanction8 Fund release (50:40:10)9 Implementation (24 months)Important notes:- In case of delay in implementation, theassistance from Govt. will be reduced by10%.- Procurement under the scheme is carried outwithin a structured framework and is not leftentirely to the discretion of the SPV, beingsubject to prescribed procedures andinstitutional oversight.g. Fund release conditions:The fund release mechanism under the Mini ClusterDevelopment Scheme is designed to ensuredisciplined utilization of public funds through aphased, performance-linked approach. Ratherthan providing upfront financial assistance, thescheme mandates release of grants in installments,each contingent upon achievement of specificmilestones and submission of prescribeddocumentation such as utilization certificates andCA-certified expenditure statements. Thisstructured disbursement, typically in the ratio of50:40:10, aligns fund flow with project progressand mitigates the risk of misallocation or diversionof funds. The involvement of the ProjectManagement Unit (PMU) and verification byconcerned authorities further strengthens financialoversight and accountability. Such conditions notonly enforce financial discipline but also compelthe Special Purpose Vehicle (SPV) to maintainexecution efficiency and transparency.Consequently, the fund release framework actsas both a control mechanism and a performancedriver within the scheme.Install- % of Conditionment release1st 50% After procurement + CAcertified expenditure + sitereadiness2nd 40% Utilization certificate (UC) +joint verification3rd 10% Completion report + proof ofSPV contribution + UCh. Detailed Project Report (DPR):The Detailed Project Report (DPR) serves as thefoundation for both approval and implementationof the project. It is expected to provide acomprehensive analysis of the cluster, includingtechnical, financial, and operational aspects.However, in many cases, DPRs are treated asmere formalities, leading to weak project planning.A robust DPR should clearly identify the gapswithin the cluster and propose practical solutionsthrough the CFC. It must also include realisticfinancial projections and a sustainable revenuemodel. The quality of the DPR directly influencesthe credibility of the proposal before approvingauthorities. Therefore, it should be prepared withdue diligence and professional expertise. A wellprepared DPR can significantly enhance thechances of success. Conversely, a weak DPR canundermine even a strong concept.From Incentives to Impact : Unlocking Opportunities under the Mini Cluster Development Scheme
Ahmedabad Chartered Accountant Journal April, 2026 15TMEssentials of DPR:Section RequirementCluster Analysis SWOT, turnover, employmentGap Identification Core bottlenecksTechnical Details Machinery, utilitiesFinancials 5-10-year projectionsSustainability Revenue modelUtilization Minimum 60% internal usageKey Points Techno Economic viability, capacityjustification (% of utilization), demandvalidation.i. Role of Chartered Accountants - Beyondcompliance:Chartered Accountants have a critical role to playin the successful implementation of suchschemes. Traditionally, their involvement has beenlimited to compliance and certification activities.However, the complexity of cluster projectsrequires a more strategic approach. CAs cancontribute significantly in areas such as financialplanning, risk assessment, and governancestructuring. Their expertise can help in ensuringthat projects are both viable and compliant. Bymoving beyond traditional roles, CAs can addsubstantial value to MSME projects. This alsopresents an opportunity to expand theirprofessional practice. A strategic advisoryapproach can lead to better project outcomes. Itpositions the CA as a key stakeholder in thedevelopment process.Traditional Role Strategic Role (High Impact)(Limited Impact)DPR Preparation Feasibility - Demand & viabilityassessmentCertification Structuring - SPV governance &fundingFiling applications Financial Planning - ROI & Breakeven analysisRisk Management - SensitivityanalysisMonitoring - post-implementationreviewStrategic positioning for professionals:The evolving landscape of MSME advisorypresents significant opportunities for professionals.The Mini Cluster Development Scheme, inparticular, offers a platform to engage in high-valueadvisory services. Professionals can positionthemselves as strategic partners in projectdevelopment rather than mere facilitators. Thisinvolves a deeper understanding of policy,finance, and operational dynamics. By adoptinga holistic approach, they can delivercomprehensive solutions to clients. This not onlyenhances client value but also strengthensprofessional credibility. The ability to integratemultiple aspects of project development is a keydifferentiator. It enables professionals to stand outin a competitive environment. Strategic positioningis essential for long-term growth.j. Conclusion - From Subsidy to Sustainability:The Mini Cluster Development Scheme representsa significant step towards strengthening the MSMEsector through collective infrastructure andstrategic intervention. However, the true successof the scheme lies not in the quantum of subsidybut in the sustainability of the projects it supports.A shift in focus from short-term financial gains tolong-term viability is essential. This requires acombination of strong governance, sound financialplanning, and effective execution. Stakeholdersmust recognize that subsidy is only a means toan end, not the end itself. By adopting a holisticand disciplined approach, the full potential of thescheme can be realized. Ultimately, sustainablegrowth should be the primary objective. This willensure that the benefits extend beyond the initialfunding phase. To Conclude - “The scheme is notmerely a subsidy-it is a structured project financingframework.”❉ ❉ ❉From Incentives to Impact : Unlocking Opportunities under the Mini Cluster Development Scheme
16 Ahmedabad Chartered Accountant Journal April, 2026TMIntroductionIndia’s Goods and Services Tax (GST) regime hasintroduced various compliance obligations forbusinesses, cross-border transactions and foreignbusinesses operating in Indiasupplying goods orservices. A burning question is whether such entitiesmust obtain GST registration? The answer hinges onthe concept of Fixed Establishment (FE) under Section2(50) of the CGST Act, 2017.What is a Fixed Establishment?As per Section 2(50) of the CGST Act, 2017, “fixedestablishment” means a place (other than theregistered place of business) which is characterisedby a sufficient degree of permanence and suitablestructure in terms of human and technical resourcesto supply services, or to receive and use services forits own needs.From the above a Fixed Establishment is defined asa place (other than the registered place of business)with:- Sufficient permanence -The establishment should not be temporary,casual, or sporadic in nature. The test ofpermanence generally examinesduration ofoperations& frequency of activities with intend tolong run.- Human and technical resources -The establishment must have a team withresources in technical (IT or support infrastructure)and human nature.- Ability to supply or receive services -The establishment must able to fulfilment toprovide a complete service independently.Navigating Fixed EstablishmentCompliance in India forForeign Entities under GSTThis means that if a foreign company has a stableoperational presence in India, it may be treated as afixed establishment and thus liable for GST registration.Whether their presence in India constitutes a “FixedEstablishment” (“FE”) requiring GST registrationin India?The answer has substantial importance due to theexistence of a Fixed Establishment may lead tomandatory GST registration; GST liability changed fromRCM to FCM.The recent Supreme Court ruling in the HyattInternational case, coupled with emerging discussionson work-from-home arrangements and updated GSTregistration verification mechanisms, has broughtrenewed focus to the determination of FE in India.Judicial and Regulatory ClarificationsHyatt International Case (Hyatt International SouthwestAsia Ltd. v. Additional Director of Income Tax (2025),Supreme Court), although rendered under Income Taxlaw concerning Permanent Establishment (“PE”), thejudgment has substantial persuasive relevance for GSTFE analysis;- Brief Facts of the case:- Hyatt International Southwest Asia Ltd., isincorporated in Dubai, UAE.- They entered in two strategic oversight servicesagreements, for 20 years which basicallyincludes services like brand recognition,planning, staff procurement policy and HR policyetc. for making brand globally recognizable withIndian hotels.- The Indian tax authorities alleged that Hyatt hada business connection in India under Section 9of the Income Tax Act, 1961 and a PermanentCA. Amit [email protected]
Ahmedabad Chartered Accountant Journal April, 2026 17TMNavigating Fixed Establishment Compliance in India for Foreign Entities under GSTEstablishment (“PE”) in India under Article 5 ofthe India-UAE DTAA.- As Income arisen from agreement was taxableas business profits attributable to the PE in India.- Supreme Court’s Findings:- The SOSA is extended for nearly two decadeswhich reflecteda continuous supply, not onlyconsultation,but fully engaged in operation,guidance, managerial control and strategicdecision-makingas the Court emphasized thatpermanence is determined based on actualbusiness conduct and not merely on legal form.- Even entered agreement has substance todirect involvement for business activity withdeliberately power& authority even frequentvisits to India for operationally evaluation alsoestablished the element of permanence.- As the Supreme Court clarified the meaning of“presence” and “control” in determining aPermanent Establishment (PE) under Income Taxlaw.Though the case was under Income Tax, its reasoninghas been extended to GSTmere contractualarrangements or temporary presence do not amountto a fixed establishment.The judgment suggests that merely labeling servicesas “consultancy” may not prevent FE exposure,sustained operational involvement in India may createGST registration obligations.For GST, this means that physical infrastructure andpersonnel in India are essential to establish FE butat other side the ruling also indicates that occasionalvisits, isolated support services & purely remoteadvisory functions without operational infrastructure inIndia may not constitute FE.Work-from-Home Staff and Cross-Border Services(Nov 2025)- An analysis highlighted that work-from-home staffin India could create a fixed establishment if theyprovide sufficient permanence and resources for aforeign entity.- It stressed that the same resources cannotsimultaneously serve as both supplier’s andrecipient’s establishment, referencing EUjurisprudence.GST Registration Framework Update (Nov 2025)- India revised its GST registration frameworkeffective from 1 November 2025, introducingstronger verification systems and streamlinedcompliance for foreign-owned entities.- These updates ensure that only entities with genuinefixed establishments in India are required to register,while others can rely on the Reverse ChargeMechanism (RCM).Scenario Fixed GSTEstablishment? RequirementForeign IT firm with Yes Registrationstaffed at Indian Office requiredForeign consultancy No RCM byproviding remote Indian clientvideo-call servicesForeign e-commerce storing Yes Registrationgoods in Indian warehouses mandatoryForeign firm with temporary No RCM appliesproject staff, no fixed officeForeign hotel management High FE risk Registrationcompany exercising exposureoperational control over Indian hotels possible
18 Ahmedabad Chartered Accountant Journal April, 2026TMDecision FlowchartCompliance ImplicationsForeign entities should carefully assess:- Presence of infrastructure in India- Deployment of human resources locally- Degree of permanence in operationsFailure to appropriately evaluate FE exposure, canlead to penalties, denial of export benefits, whileunnecessary registration increases complianceburden.Authors’ ObservationThe clarifications from the Supreme Court (Hyatt case),on work-from-home arrangements, and the updatedGST registration framework (Nov 2025) provide muchneeded certainty.Foreign entities must scrutinize their Indian footprintto avoid penalties for non-registration orunnecessary compliance costs. These 2025developments—from judicial precedents toframework updates—offer clarity, promoting taxenforcement while easing legitimate cross-bordertrade.A carefully structured operational model cansignificantly reduce future litigation exposure andensure seamless GST compliance in India.❉ ❉ ❉Does the Foreign entityhave a physical presencein India ?Does the presence havesufficient permanence ?(e.g. office, warehouse,staff, insfrastructure)GST RegistrationRequiredEntity must comply withGST laws (filling returns,collecting tax, etc.)GST Registration NotRequiredIndian recipient paysGST under RCMNavigating Fixed Establishment Compliance in India for Foreign Entities under GST
Ahmedabad Chartered Accountant Journal April, 2026 19TMThe recently signed India-New Zealand Free TradeAgreement (FTA) marks an important milestone inIndia’s evolving trade policy framework. Signed on 27April 2026, the Agreement reflects India’s continuedfocus on strengthening economic engagement withdeveloped economies while simultaneouslyexpanding export opportunities for Indian businesses.Unlike conventional trade agreements that are primarilytariff-driven, this FTA adopts a broader economicpartnership model. The Agreement covers not onlytrade in goods, but also services, customscooperation, investment facilitation, movement ofprofessionals, regulatory transparency and sustainabledevelopment. In effect, the framework seeks to createa stable and predictable ecosystem for businessesengaged in cross-border trade between the twocountries.One of the most significant features of the Agreementis New Zealand’s commitment to provide extensiveduty-free access to Indian exports immediately uponentry into force. On the other hand, India has adopteda calibrated liberalisation model, opening selectedsectors gradually while protecting sensitive areas suchas dairy and key agricultural products.The Agreement therefore represents a carefullybalanced framework aimed at promoting trade growthwithout compromising domestic economic priorities.Structural Overview | The Five/ Pillars of the AgreementPillar Coverage Purpose / StrategicObjectiveTrade in Goods Tariff elimination, Boost exports &origin rules, competitivenesssafeguardsTrade in Services 118 service sectors Expand India’s global+ 139 MFN sub services footprintsectorsMobility & Talent Student & Enable global workforceprofessional visas integrationIndia-New Zealand FTS 2026 :A New Chapter in India'sGlobal Trade StrategyInvestment USD 20 billion Strengthen capital,commitment technology flowsCooperation Agriculture, Build long termAYUSH, digital sectoral linkstrade, cultureLiberalisation of Trade in GoodsA major pillar of the FTA is the phased reduction andelimination of customs duties on originating goodstraded between the two countries. The Agreementcontains detailed tariff schedules prescribing productwise commitments and timelines for duty reduction.For Indian exporters, the most commercially relevantdevelopment is the immediate zero-duty market accessoffered by New Zealand across a substantial portionof Indian exports. This is expected to significantlyimprove the competitiveness of Indian products insectors such as:- Textiles and garments- Engineering goods- Pharmaceuticals- Machinery and industrial products- Chemicals and processed foods- Leather and marine productsThe upfront removal of customs duties creates asubstantial pricing advantage for Indian suppliers inthe New Zealand market.India, however, has adopteda more measured approach. Duties on certain importsfrom New Zealand will be reduced gradually overperiods ranging from 3 to 10 years depending uponproduct sensitivity. Such phased liberalisation allowsIndian industries adequate time to adjust to importcompetition.An important safeguard incorporated in the Agreementis the Most-Favoured-Nation (MFN) fallbackmechanism. Under this mechanism, if the general MFNCA. Amrin [email protected]
20 Ahmedabad Chartered Accountant Journal April, 2026TMduty rate becomes lower than the FTA preferential rateat any point of time, importers may avail the lower dutyrate. This ensures that businesses are never placedat a disadvantage merely because they opted for FTAtreatment.The Agreement also facilitates easier movement ofcommercial samples and advertising materials bypermitting duty-free import of low-value promotionalgoods, thereby supporting marketing and tradepromotion activities.Overall, the tariff framework is expected to improvesupply-chain certainty, encourage export diversificationand enhance bilateral trade volumes between the twoeconomies.Rules of Origin: The Foundation for Preferential BenefitsAs with any trade agreement, preferential duty benefitsunder the India–New Zealand FTA are available onlywhen goods satisfy the prescribed Rules of Origin(RoO).The Agreement provides that a product will qualify as“originating” if it is either wholly obtained within theparticipating countries or satisfies the prescribedproduct-specific origin criteria. These criteria generallyinvolve:- Change in tariff classification requirements; or- Prescribed local value-addition thresholds.A particularly business-friendly feature of theAgreement is the concept of bilateral cumulation. Thisallows materials originating in either India or NewZealand to be treated as originating inputs when usedin the production process in the other country. Suchflexibility promotes integrated supply chains andsupports regional manufacturing collaboration.The Agreement also introduces de-minimis provisionsallowing limited usage of non-originating materialswithout losing preferential status. This reducescompliance rigidity and recognises commercialmanufacturing realities where minor imported inputsmay be unavoidable.For sectors such as textiles and apparel, where globalsourcing models are common, the relaxed originflexibility can substantially improve operationalfeasibility.From a practical perspective, businesses intendingto claim preferential treatment must establish robustdocumentation systems to demonstrate compliancewith origin requirements. Failure to satisfy RoOconditions may result in denial of benefits and recoveryof differential duties.Customs Facilitation and Trade Efficiency MeasuresBeyond tariff concessions, the FTA placesconsiderable emphasis on simplifying customsprocedures and reducing border delays.One of thenotable commitments under the Agreement is theadoption of time-bound cargo clearance mechanisms.Standard consignments are expected to be releasedwithin 48 hours of arrival, while express and perishableconsignments are intended to be cleared within 24hours, subject to risk assessment and regulatorychecks.The Agreement also strengthens the framework foradvance rulings on issues such as:- Tariff classification- Customs valuation- Determination of originSuch advance rulings provide certainty to importersand exporters before actual shipment, therebyreducing litigation and post-clearance disputes.In addition, the FTA promotes digitisation andpaperless customs administration through:- Electronic filing systems- Single-window clearance mechanisms- Simplified documentation proceduresInterestingly, the Agreement specifically discouragesmandatory dependence on customs brokers as acondition for import or export, thereby providingbusinesses greater operational flexibility.The customs framework under the Agreement alignsclosely with modern global trade facilitation standardsand is likely to reduce transaction costs, improvelogistics efficiency and strengthen ease of doingbusiness.Services Trade and Movement of ProfessionalsThe India–New Zealand FTA goes beyond goods tradeand contains substantial commitments in the area ofservices.India-New Zealand FTS 2026 : A New Chapter in India's Global Trade Strategy
Ahmedabad Chartered Accountant Journal April, 2026 21TMThe Agreement covers a wide range of service sectorsincluding:- Information technology and IT-enabled services- Professional services- Financial services- Healthcare and traditional medicine- Education-related servicesA particularly significant feature is the frameworkfacilitating temporary movement of professionals andbusiness visitors. These provisions enable short-termcross-border deployment of skilled personnel forproject execution, business development and servicedelivery activities.While immigration laws of eachcountry continue to apply, the Agreement introducesgreater clarity and predictability for businesses relyingon international talent mobility.The FTA also encourages mutual recognitiondiscussions between professional bodies andregulators. Although automatic recognition ofqualifications has not been granted, the frameworkcreates a pathway for future alignment of professionalstandards.For India, which has emerged as a major globalservices exporter, these provisions are strategicallyvaluable and may strengthen India’s position ininternational knowledge-based industries.Compliance Framework and Procedural RequirementsFor businesses seeking to utilise the benefits of theFTA, procedural compliance will be equally importantas commercial planning.The Agreement permits preferential treatment through:- Certificate of Origin issued by authorised bodies;or- Origin declarations issued by eligible exporters.Proofs of origin generally remain valid for 12 monthsand may even be issued retrospectively in specifiedcases.The FTA also imposes detailed record-keepingobligations. Businesses must maintain supportingrecords relating to:- Source of inputs- Manufacturing processes- Cost structures- Value addition calculationsSuch records are required to be retained for at leastfive years.Customs authorities are empowered to conduct originverification through documentary reviews, authority-toauthority cooperation and on-site verification visits.Incorrect origin claims may result in:- Denial of preferential benefits- Recovery of duties- Penalties and suspension of FTA privileges inserious casesImportantly, the Agreement also allows post-importrefund claims where preferential benefits were notclaimed at the time of import, provided the claim isfiled within the prescribed timeline.Accordingly, businesses must develop strong internalcompliance systems to effectively utilise FTA benefitswhile mitigating litigation risks.Author’s CommentsThe India–New Zealand FTA represents a strategicallyimportant development in India’s external tradearchitecture. The Agreement combines tariffliberalisation with modern customs facilitationmeasures, services commitments, investmentcooperation and regulatory transparency.For Indianexporters, professionals and investors, the Agreementopens access to a stable and high-income market withsignificant potential for expansion across manufacturingand services sectors.At the same time, India has maintained a cautious andcalibrated approach by safeguarding sensitivedomestic sectors and preserving regulatory flexibilityin critical policy areas. The long-term success of theAgreement, however, will depend not merely on thelegal framework but on effective implementation,industry preparedness and proactive utilisation bybusinesses. Companies intending to leverage the FTAmust therefore focus equally on commercialopportunities and compliance preparedness.In substance, the India–New Zealand FTA is not merelya trade agreement; it is a broader economic partnershipdesigned to strengthen bilateral integration and positionIndian businesses more competitively in global valuechains.❉ ❉ ❉India-New Zealand FTS 2026 : A New Chapter in India's Global Trade Strategy
22 Ahmedabad Chartered Accountant Journal April, 2026TMStatute Law – Vested and contingent rightsA right vests when all facts have occurred which mustby law occur in order for person in question to haveright. A right is contingent when some but not all ofvestitive facts, as they are termed, have occurred. Agrant of land to A in fee simple will give A a vestedright of ownership. A grant to A for life and then to B infee simple if he survives A, gives B a contingent rightfor life and then to B in fee simple if he survives Agives B a contingent right – It is contingent becausesome of vestitive facts have not yet taken place, andindeed may never do so: B may not survive A – If hedoes, his formerly contingent right now becomesvested – A contingent right then is a right that isincomplete – A contingent right is different, however,from a mere hope or spes – If a leaves B a legacy inhis will, B has no right to this during A’s lifetime – Hehas no more than a hope that he will obtain legacy; hecertainly does not have an incomplete right, since it isopen to A at any time to alter his will.Classification of a statute as either substantive orprocedural does not necessarily determine whetherit may have a retrospective operation – For example,a statute of limitation is generally regarded asprocedural but if its application to a past limitation isgenerally regarded as procedural, but if its applicationto a past cause of action has effect of reviving orextinguishing a right of suit, such an operation cannotbe said to be merely procedural – For these reasonsrule against retrospectivity has also been avoidingclassification of statutes into substantive andprocedural and avoiding use of words like existingor vested.Vijaya Kumari S. Union of India (2026) 2 SCC.1Advocate Samir N. [email protected] ofRulingsProfessional communication – ProtectivePrivilege – Nature of Elucidated.Issue 1 : The investigating agency/prosecuting agency/the police cannot directly summon a lawyer appearingin a case to elicit the details of the case, unless thereis something, the IO has knowledge of, which fallsunder the exceptions, in which case it has to bespecifically mentioned in the summons, which thelawyer summoned can challenge under Section 528BNSS. Further, any such summons issued as againsta lawyer by an IO has to be with the approval andsatisfaction of the hierarchical superior, not below therank of a Superintendent of Police which satisfactionhas to be recorded in writing and should mention thefacts leading to the exception under section 132 BSA,for which the summons is issued.Power to issue summons against an Advocate in acase where he is appearing for a party, is not anabsolute or a blanket power to be exercised but subjectto the limits and exceptions to the privilege conferredon confidential professional communications betweena client and an advocate. If there is an overreach, theconstitutional courts could always be approached ashas been done in the present case.Summoning Advocates…[(2026) 2 SCC 233, 239]Formation of Defects Rendering Contractvoid – Unconscionable BargainsHeld, any question as to the unconscionableness of astipulation contained in an agreement would probablyarisefor consideration only if it is shown that : (i) therelationship between the contracting parties was suchthat one of them was in a position to dominate the willof the other, and (ii) he had made use of such positionto obtain an unfair advantage over the other . It is onlyin cases where both the conditions mentioned aboveSUPREME COURT23Continued to page 25
Ahmedabad Chartered Accountant Journal April, 2026 23TMDisallowance u/s 14A where assessee is adebt free company.Principal Commissioner of Income Tax v/s.Inductis India Pvt. Ltd.[2025] 483 ITR 492 (Delhi)Issue:Whether disallowance u/s 14A read with Rule 8D(2)(iii)is justified in a debt free company?Held: Head Notes:Held, dismissing the appeal, (i) that the Tribunal wasjustified in deleting the disallowance made undersection 14A read with rule 8D(2)(iii) of the Income-taxRules, 1962, on the basis that the assessee was adebt-free company. The Assessing Officer hadproceeded on the mere assumption that the interestbearing funds could also have been utilised for makingthe investment in question, because the assessee hadfailed to establish that the source of investments wasits own funds. The Tribunal had examined the balancesheets of the assessee and had concluded that theinvestments were made in the mutual funds in liquidityplan wherein the dividend was automatically reinvestedwith weekly frequency without any efforts for earningdividend income and that no borrowed funds wereutilised and had consequently held that thedisallowance under section 14A was unwarranted. (para5.1)Fees charged for domain name registration:Character of income.Godaddy.Com LLC v/s. AssistantCommissioner of Income Tax[2025] 483 ITR 515 (Delhi)Issue:Whether fees charged from customers for domainname registration could be considered as Royaltyincome?Held: Head Notes:Held, that in effect what a domain name does for thecustomer is to provide an easy-to-remember or identifyinternet protocol address. Furthermore, the assessee’sstand was that it had no ownership rights in the domainname registered by it was demonstrable upon perusalof clause 3.5 of the accreditation agreement. Theassessee was referred to as the registrar in theagreement. Clause 3.5 of the accreditation agreementclearly established that the assessee who acted as aregistrar and, in that capacity, provided domainregistration services to its customers did not have anyproprietorship rights in the domain name. What wasagreed between the assessee and its customers wasthat mere registration of a domain name did not createany proprietorship rights in the name used as thedomain name or in the domain name registration eitherin the assessee or the customers or even any otherthird party. The assessee was only acting as a registrarand thus offering its services to its customers for havingtheir domain names registered. The fees received bythe assessee for registration of domain names of thirdparties, i.e., its customers, could not be treated asroyalty. (paras 14, 15, 16)Scope of Section 50C.Shourya Infrastructure Pvt. Ltd. v/s. IncomeTax Officer and Another[2025] 483 ITR 528 (Delhi)Issue:Whether section 50C applies to asset held as stock intrade?Held: Head Notes:Held, dismissing the petition:Section 50C applies only when there is a transfer of acapital asset. However, it was clear that the subjectCA. Jayesh C. [email protected] the Courts32
24 Ahmedabad Chartered Accountant Journal April, 2026TMland was stock-in-trade, since the assessee wasinvolved in the real estate business. The subject landwas treated as stock-in-trade in the hands of theassessee as well as STPL. Thus, the Assessing Officercommitted an error in taking recourse to section 50Cof the Act and calculating the value of the land basedon the then prevailing circle rate, after adjusting itagainst the sale consideration. (paras 34, 34.1, 34.2)Reassessment: Failure of AO to allegeabsence of full and true disclosure byAssessee.Shourya Infrastructure Pvt. Ltd. v/s. IncomeTax Officer and Another[2025] 483 ITR 528 (Delhi)Issue:When the reassessment is after four years, whathappens if the AO does not allege that there was failureof assessee to fully and truly disclose all material facts?Held:Head Notes:(ii) That although the reassessment had beenundertaken after the end of four years from theend of the relevant assessment year, theAssessing Officer did not allege that the assesseehad failed to disclose fully and truly all materialfacts necessary for carrying out the assessment.(para 34.4)(iii) That queries were raised during the originalassessment, which included questionsconcerning the sale of the subject land. Moreparticularly, answers were furnished by theassessee along with the relevant documents andmaterial sought by the Assessing Officer. Clearly,the transaction was examined and thereafter, anassessment order dated February 28, 2014 waspassed. Therefore, it could not be said that thesubject transaction was not scrutinised by theAssessing Officer. The Department’s contentionthat the original assessment order did not discloseany reasoning was untenable in law, as anassessee has no control over how the assessmentorder is framed. Therefore, this was a case ofchange of opinion, which cannot form the basis ofreassessment. (paras 34.4, 35, 36, 37, 39)From the CourtsPenalty u/s 271(1)(c) for exemption claimedby Public Charitable Trust pendingregistration u/s 12AA.CIT (Exemptions) v/s. Punjab Heritage andTourism Promotion Board,[2025] 483 ITR 581 (P&H)Issue:Whether penalty u/s 271(1(c) can be levied if the returnis filed by assesseeclaiming exemption u/s 11 pendingthe grant of registration u/s 12AA though application isfiled before filing the return of income?Held: Head Notes:Held, dismissing the appeal, that the assessee was acharitable institution. It had applied for registration undersection 12AA of the Income-tax Act, 1961. Theassessee in its return filed had mentioned that thematter was pending. Thereafter, it was followed up byfiling an application for rectification asking for exemptionfrom the date the application was filed. Hence theTribunal had rightly come to the conclusion that theassessee was under a bona fide belief that itsapplication for registration was likely to be allowed.The deletion of penalty was justified. (paras 7, 8)Validity of assessment order passed withoutgiving opportunity of VC hearing.Studio Virtues v/s. Additional/ Joint/ deputy/Assistant Commissioner of Income Tax/Income Tax Officer, National FacelessAssessment Centre or his Successor,[2025] 483 ITR 636 (Guj)Issue:Whether assessment order is valid if the assessee’sclaim for VC hearing is not granted?Held: Head Notes:Held, that the assessee had sought video conferencingand uploaded the request on March 28, 2022. However,without providing an opportunity of hearing throughvideo conferencing, the order of reassessment undersection 144 read with section 144B of the Act datedMarch 29, 2022 was passed. The order was not valid.(para 6)645
Ahmedabad Chartered Accountant Journal April, 2026 25TMDepreciation on Goodwill arising onacquisition of a going concern under slumpsale.CIT v/s. Grindwell Norton Ltd.[2025] 483 ITR 651 (Bom)Issue:Whether depreciation is to be granted on goodwillarising on account of going concern acquisition undera slump sale?From the Courts7Held: Head Notes:Held, dismissing the appeals, that intangible assetslike goodwill on which depreciation is allowable in anacquisition of a going concern under a slump saletransaction.CIT v. SMIFS Securities Ltd. [2012] 348 ITR 302 (SC);(2012) 13 SCC 488; 2012 SCC OnLine SC 620 reliedon.❉ ❉ ❉Continued from page 22 Glimpses of Rulingsare clearly established by the person who seeks toavoid the transaction and the court further finds that thebargain is in itself unconscionable that the impugnedprovision will be held to be unenforceable on theground of unconscionableness. If people with theireyes open, choose willfully and knowingly, to enterinto a contractual transaction the court will not step into relieve them of their obligations under such contracton the ground that the terms thereof areunconscionable.BPL Limited vs Morgans Securities and CreditsPvt. Ltd. [2026] 3 SCC 1.Power to Mould ReliefOnce a levy has been held to be beyond the authorityof law, Constitutional Court is not expected to remain asilent spectator while the very same level is sought to4be continued through successive or similarnotifications. The jurisdiction of a Constitutional Courtis remedial in nature and extends to ensuring that whathas been declared unlawful is not brought back inanother form. The contention that “no relief can begranted unless each successor notification isseparately struck down” is inconsistent with thatremedial character, and would reward repetition ofillegality. Thus, held in the absence of any new statutorybasis, such notifications do not create a new cause ofaction.Adani Power Ltd v Union of India (2026) 3 SCC145.❉ ❉ ❉
26 Ahmedabad Chartered Accountant Journal April, 2026TMHuntsman Investment [Netherlands] BV v.A.D.I.T, 184taxmann.com602 (Del)/TS-417-ITAT-2026 (Del)Order dated 25th March 2026, AssessmentYear 2009-10Basic FactsThe assessee is company incorporated in Netherlandwith a subsidiary in India. The assessee sold its sharein buyback scheme of the subsidiary and the capitalgain arising on sales was offered to tax in its return ofincome. In the assessment proceedings, the matterwas referred to Transfer pricing officer (TPO) todetermine the Arm’s Length price of transaction andthe TPO proposed adjustment. In the DRPproceedings, the assessee raised additional groundof objection that buy back will qualify as tax neutraltransaction under section 47 since it was between asholding & Subsidiary company. Further even otherwisethe transaction was not taxable under the DTTA betweenIndia & Netherland as per Article 13(5). The DRPrejected the assessee’s additional ground and thematter was carried to the Tribunal. In the proceedingsbefore the Tribunal, the Accountant Member agreedwith the assessee that its case was covered by Article13(5) since the buyback of shares was in the nature ofreorganization based on the decision of Bombay HighCourt in case of SEBI Sterline Industries 53 CLA 41,Andhra Pradesh High Court decision in case of TCIIndustries 60 CLA 382 and ICAI Guidelines. The JudicialMember held against the assessee on various counts.As far as provisions of section 47 were concerned itwas held that the assessee did not fulfil the secondcondition of section 47(iv) which required that the wholeof the shares of the subsidiary should be held by theholding company but here the assessee only held99.98% shares. Hence the exemption u/s 47(iv) wasnot applicable. Regarding assessee’s claim underArticle 13(5), the buyback was not a case ofreorganization, the buyback was in contravention ofthe companies Act since the share capital received in2006-07 by the subsidiary is utilized for payment in thebuyback scheme. The Member also relied on thedecision of Mumbai tribunal in case of M/s AccordisBeher BV V Director of Income Tax ITA no. 4688 &5025/Mum/2010. The matter was referred to ThirdmemberIssue:Whether or not the gains arising to the assesseecompany in the instant case from buyback of sharesby HIIPL is covered by Article 13(5) of the DTAAbetween India & Netherland?Held by Tribunal in Favour of the assessee:The assessee did not press for exemption u/s 47(iv).The assessee submitted funds received on issue ofequity shares in FY 2006-07 were utilized for acquiringbusiness in June 2006. The acquisition so made helpedin increasing the profit of the subsidiary year on yearbasis. The facts were established based on the cashflow statements of the Financials of the subsidiary. Thus,the buyback of shares was undertaken out of the profitsof the business & free reserves including securitypremium which is allowed by Companies Act.Accordingly, there was no contravention of theprovisions of Companies Act as equity share issueproceeds were not used by buy back of shares. Theassesses submitted that as result of buyback there isreduction in financial interest of the assessed and majorchange in the financial structure of the subsidiary. Theassessee relied on the term “reorganization ofcompany as provided in the judicial dictionary of PRamnatha Aiyar’s Major Law Lexicon and the guidanceissued by ICAI which states that the definition of capitaland financial restructuring includes buyback of shares.1CA. Yogesh G. [email protected]. Aparna [email protected] News
Ahmedabad Chartered Accountant Journal April, 2026 27TMThe assessee submitted that the intention of Article13(5) was to provide taxation rights to the home countryin relation to gain arising in the course of corporatereorganization wherein there is transfer of shares withinthe same corporate group. The assessee relied onthe protocol of Netherland – Nigeria DTAA whichprovided the meaning of corporate organization/reorganization/amalgamation/division or similartransaction. Since both the treaties, both the treatieswere negotiated in close proximity.The departmentcontended that the intent in Article 13(5) is to covergains arising from corporate reorganizations at thegroup level or at the level of the entity which realizesthe gains and not merely at the level of the subsidiarycompany buying the shares on standalone basis. Asthe expression corporate reorganization is not definedin DTAA, the meaning needs to be considered fromthe tax laws of India. The Act as well as companies Actdo not define reorganization, hence meaning as pergeneral legal parlance needs to be considered. Buteven those meaning include amalgamation/demergerbut do not include buy back of shares. The protocol ofthe DTAA where India is not a party cannot be importedfor interpretation of the terms of the agreement in theapplicable treaty. On account of buy back there is nochange either in the capital or holding or financingstructure or any change in the controlling interest, right/obligations other shareholders and any assets orliabilities. There is no change in the assessee’s holdingin the subsidiary nor any change in its rights &obligations. The buyback provides exit to theshareholder and cannot be termed as corporatereorganization. It is way of paying back the profit to theparent without payment of Dividend tax.Held by Third memberConsidering the fact that the share capital receivedwas utilized for acquisition of new business, whichresulted in increase in profit and the fact that the saidprofit & share premium was used for buying back ofshares, there is no violation of section 77 of thecompanies Act. The form of assessee’s ownership insubsidiary gets changed by reduction in the financialinterest and there is major change in the financialstructure of the subsidiary, however the ownership ofthe subsidiary remains the same. As per P. RamanathaAiyar’s Major Law Lexicon Reorganization of companyTribunal Newsmeans “reorganization of a company in amalgamationor readjustment when one company acquires anotherby way of merger or single company divides into twoor more entities or a company makes as substantialchange in its capital structure.The guidance issued byICAI states that the definition of capital and financialrestructuring includes buy back of shares. Similarly,Institute of Company Secretaries of India provides thatbuy back is part of corporate restructuring of acompany.As the transaction of buyback results intransfer of shares within the same corporate group,this transaction of buyback should qualify as corporatereorganization and is eligible to claim the benefit ofArticle 13(5) of the DTAA.DCIT v. Halliburton WorldwideGmbh183taxmann.com 643 (Del)Order dated 8th February 2026, AY 2016-17Basic Facts:The assessee had received IP charges and incomeon account of sale of software. The assessee hadoffered to tax the IP charges as per Article 12 of theDTAA between India and Switzerland DTAA. Theincome on sale of software was not offered to tax onthe ground that it was business income and in absenceof PE in India the same was not taxable in India.TheAO brought to tax both the income from IP chargesand sale of software u/s 115A considering the same tobe royalty as per section 9(1)(vi) of the Act. Before theCIT(A), the assessee contended that the IP chargeswere taxable @ 10% as per DTAA and such rate wasinclusive of surcharge & cess and the sale of softwarewas not taxable in India being business income andabsence of PE. The CIT(A) held in favour of theassessee hence the department is in appeal.Issue:Whether the rate as prescribed in the DTAA wasinclusive of Surcharge & cess.Whether the income received on sale of software wasbusiness income and not royaltyHeld by Tribunalin favour of the Assessee.The Tribunal from Article 2 of the DTAA “Taxes covered”noted that the India taxes to which the DTAA appliedcovered the Income Tax including surcharge. The2
28 Ahmedabad Chartered Accountant Journal April, 2026TMTribunal also relied on the coordinate bench decisionin case of FCC Co. Ltd. v. ACIT (International Taxation)[2022] 145 taxmann.com 649 (Delhi - Trib.), wherein itwas held that Article 2 of the tax treaty defines tax inIndia as income tax including any surcharge thereon.Therefore, article 12 read with article 2 of the tax treatymakes it clear that the rate of tax at 10% wouldencompass surcharge and education cess as it is alsoin the nature of surcharge. Therefore, the tribunal inthat case held that levy of surcharge and cess overand above the taxable rate of 10% on royalty and FTSis not permissible as per the treaty provisions. Basedon Article 2 and the said decision the tribunal upheldthe plea of the assessee & the CIT(A)’s order holdingthat the treaty rate was inclusive of cess & surcharge.In respect of the income on sale of software wasconcerned, the tribunal based on the Supreme Courtdecision in case of Engineering Analysis Centre ofExcellence (P.) Ltd. v. CIT (2021) 125 taxmann.com42/281 Taxman 19/432 ITR 471, held the same to bebusiness income and not taxable in India on accountthere being no Permanent establishment in India.Bharti Nehru Kariya V ITO TS-276-ITAT-2026(Mum)]Order dated 23rd Feb 2026, Assessment Year2020-21Basic Facts:In the assessment proceedings, the AO disallowedborrowed capital in absence of bank certificate &sanction letter. AO also made addition on account ofinvestment in immovable property in absence ofdocumentary evidence supporting the contention ofloan taken. Before the CIT(A), the assessee remainedunresponsive to three notices, accordingly the CIT(A)concluded that the assessee was not interested inpursuing appeal, dismissed the appeal on meritsbased on the available records, confirming additionfor want of evidence.Issue:Whether in the facts of the case, the CIT(A) was rightin dismissing the appeal on merits?Held by tribunal in favour of the assessee.Before the Tribunal, the assessee contended that theassessee being individual with limited literacy andunfamiliarity with the nuance of digital communicationand ITBA portal was unaware of electronic notices. Theassessee maintains that the failure to comply was notadeliberate act of defiance but a consequence of thedigital divide. A prayer was made to restore the matterto allow a fair opportunity to produce the loan sanctionletters and bank certificates that weremissing duringthe assessment. The Tribunal held that the transition toa faceless and digital appellate regime is intended toenhance efficiency, but it must not become a barriertojustice for those who lack the technical proficiencyto navigate such systems. The Hon’ble Supreme courthas repeatedly emphasized that “Substantial justice”must prevail over technical lapses. If the assesseehas plausible explanation for the source of investmentand interest expenditure, merits should not stifle dueto failure to respond to electronic notices, providedsuch failure is not mala fide.In the interests of justiceand to ensure that the assessment is based on “realincome” principle, the tribunal granted the assessee afinal opportunity to substantiate its claims. The Tribunalaccordingly set aside the order of the CIT(A) and sendback the matter to the AO with a direction to verify thesanction letter, bank certificates etc., after givingopportunity to the assessee. The tribunal furthercautioned the assessee to be diligent in remandproceedings and any further failure to cooperate wouldresult in adverse inference.Jubilant Ingrevia Ltd. v. ACIT [TS-346-ITAT2026 (Del)]Order dated 11th March 2026, AssessmentYear 2021-22Basic Facts:The assessee company filed its return of income forthe assessment year 2021-22 declaring total incomeof Rs.55,07,00,800. The return filed by the assesseewas duly processed by the CPC Bangalore undersection 143(1) of the Act wherein assessee’sincomehas been enhanced to Rs. 59,36,06,080 as againstRs. 55,07,00,800 declared by the assessee in return.Aggrieved by the enhancement madeby the CPC, theassessee filed a rectification request under section154 of the Act for reversal of income to the declaredvalue. The said application was rejected by the CPC.In the draft assessment order thetotal income wasdetermined at Rs. 59,36,06,080 which was same asTribunal News34
Ahmedabad Chartered Accountant Journal April, 2026 29TMthe income determined in the intimation under section143(1) of the Act. Against the draft assessment order,the assessee preferred objections before the DRPobjecting to the enhancement made by the CPC undersection 143(1) of the Act. The DRP in its directionsstated that the adjustments made by the CPC undersection 143(1) of the Act does not emanate out of thedraft assessment order and the same would not fallwithin the ambit of variations proposed by the AO.Aggrieved by this, the assessee is in appeal beforethe tribunal.Issue:Whether intimation u/s 143(1) merges with the finalassessment orderHeld by tribunal in favour of the assessee:The tribunal noted that the AO, both in the draftassessment order as well as in the final assessmentorder, started its computation of income from theincome determined by the CPC under Section 143(1)of the Act. By this process, the intimation under Section143(1) of the Act stood merged withthe draft assessmentorder framed by the AO under Section 144C(1) of theAct. Hence the issue was certainly before the DRP,which it ought to have adjudicated. Apart from this, theassessee had even preferred rectification applicationbefore the Jurisdictional Assessing Officer (JAO).Again, the assessee also filed rectification applicationbefore the Faceless Assessing Officer (FAO). Hencethe rectification application under section 154 of theAct was pending before both the JAO and FAO. Theassessee had even filed a reminder before the FAOfor disposal of the rectification application. Theassessee even filed a detailed written submissionbefore the FAO in the rectification applicationproceedings. The assessee had even filed a letterdated 11-1-2023 clearly mentioning that it was in receiptof intimation under section 143(1) of the Act and thatthere were certain errors in the said intimation for whichrectification application was pending before the CPC.Given all these proceedings, as per tribunal the AOought to have taken cognizance of the grievance ofthe assessee in the scrutiny assessment order framedboth under section 143(3) r.w.s.144C(1) and 143(3)r.w.s.144C(13) of the Act. In view of the above, thetribunal thought it deem fit and appropriate, in theinterest of justice and fair play, to restore the entireappeal to the file of the AO for denovo adjudication inaccordance with law qua the additions made in theintimation under section 143(1) of the Act. The AO wasdirected to adjudicate each of the additions made inthe intimation under section143(1) of the Act on meritsafter duly considering the detailed explanation andreplies filed by the assessee. The assessee was alsogiven liberty to furnish fresh evidence, if any, in supportof its contentions. In the result, the appeal of theassessee is allowed for statistical purposes.Shree Swati Texdyes Pvt. Ltd. TS-415-ITAT2026 (Ahd)Order dated 12th January 2026, AssessmentYear 2020-21Basic Facts:The assessee company is engaged in the businessof manufacturing reactive dyes. In the assessmentcompleted the AO made two disallowances namelyone u/s 14A of the Act and second deduction claimedtowards Health and Education Cess. The assesseedid not prefer appeal against the disallowance madeon account of Health and Education Cess and thereforethe addition attained finality. Consequent to theaforesaid disallowance, the AO initiated penaltyproceedings under section 270A of the Act for underreporting of income. The assessee’s submissions thatclaim of deduction towards Health and Education Cesswas made based on prevailing judicial precedentsincluding the decision of the Hon’ble Bombay HighCourt in the case of Sesa Goa Ltd. v. JCIT (2020). 423ITR 426 (Bom) and therefore the claim was bona fide.It was further submitted that after the retrospectiveamendment brought by the Finance Act, 2022 clarifyingthat cess forms part of tax under section 40(a)(ii) of theAct, the assessee voluntarily withdrew the claim duringthe course of assessment proceedings. The AO,however, did not accept the explanation of theassessee since according to him the assessee hadunder-reported its income within the meaning of section270A of the Actand therefore penalty was leviable.Aggrieved by the penalty order, the assesseepreferred an appeal before the CIT(A). The CIT(A) heldthat the decision of the Hon’ble Bombay High Court inthe case of Sesa Goa Ltd. was already available whenTribunal News5
30 Ahmedabad Chartered Accountant Journal April, 2026TMthe assessee filed its original return of income andtherefore the explanation offered by the assessee wasnot acceptable. The CIT(A) further held the withdrawalof the claim during the course of assessmentproceedings could not be treated as voluntary as thesame was done only after the AO had proposeddisallowance. The CIT(A) held that the assessee’s casewas not covered by the exception provided undersection 270A(6) of the Act. Accordingly, the CIT(A)upheld the levy of penalty. The assessee is in appealbefore Tribunal.Issue:Whether in the given facts CIT(A) was right inconfirming the penalty u/s 270A of the Act.Held by tribunal in favour of the Assessee:The Tribunal noted that the assessee had disclosedall material facts relating to the claim in the return ofincome as well as during the course of assessmentproceedings. There was no allegation that theassessee had concealed any income or furnished inaccurate particulars of income. Insuch circumstances,the mere disallowance of a claim made on the basisof prevailing legal interpretation cannot lead to levy ofpenalty under section270A of the Act. The tribunalreferred to the Bombay High Court in CIT v. YahooIndia (P.) Ltd.(2013) 33 taxmann.com 332 (Bom) whereinhigh court had held that where a claim is made on thebasis of a bona fide interpretation of law and all materialfacts are disclosed, penalty cannot be imposed merelybecause the claim is disallowed. The Hon’ble Courtobserved that the very fact that the law was amendedwith retrospective effect indicates that the issue wasdebatable and therefore penalty cannot be sustained.The Tribunal further noted that Coordinate Benches ofTribunal at Ahmedabad on identical facts held in favourof assessee in case of The Ahmedabad District Cooperative Bank Ltd. v. DCITITA No.1108/Ahd/2024,order dated 24.04.2025 & Koshambh Multitred Pvt. Ltd.v. DCIT, ITA No.1031/Ahd/2025, order dated 21.08.2025while observing that “It is not denied that when the claimwas made by the assessee there were decisions of theHon’ble High Courts of Bombay and Rajasthan ruling infavour of the assessee in Sesa Goa Ltd. (supra) andChambal Fertilizers (supra). It was only by virtue of aretrospective amendment to section 40(a)(ii) by FinanceTribunal NewsAct, 2022 that the claim became disallowable and theassessee surrendered the claim during the assessmentproceedings. In such circumstances the assesseecannot be said to have under-reported its income forthe purpose of levy of penalty under section 270A.” TheTribunal further observed: “When the legislature itselfhas recognized the debatable nature of the issue andprovided a mechanism under section 155(18) enablingassessees to surrender suchclaims, the levy of penaltyin respect of a bona fide claim made prior to theretrospective amendment cannot be justified.” Thetribunal also relied on the Pune Bench decision in thecase of Capgemini Technology Services India Ltd. vs.Assistant Commissioner of Income-tax [2025] 180taxmann.com 854 (Pune - Trib.) & Karnataka High Courtdecision in case of IIFL Samasta Finance Ltd. v. Dy.CIT [IT Appeal No. 1054 (Bang.) of 2024, dated 27-9-2024], deleting penalty on this issue with similarobservations.Basis the above decisions on identicalfacts, the tribunal held that the claim made by theassessee towards deduction of Health and EducationCess was based on judicial precedents prevailing atthe relevant time and therefore the same was bonafide. The assessee had disclosed allmaterial factsbefore the tax authorities and had voluntarily withdrawntheclaim during the course of assessment proceedingsafter the retrospective amendment was introduced. Insuch circumstances, the case of the assessee fallswithin the scope of section 270A(6)(a) of the Act whichprovides that under-reported income shall not includeany amount in respect of which the assessee offers abona fide explanation and has disclosed all materialfacts. Accordingly, the tribunal held that the penaltylevied under section 270A of the Act is not sustainablein law. In the result, the appeal of the assessee isallowed.Eversendai Construction (P.) Ltd. v. DCI 184taxmann.com 62 (Chennai - Trib.)Order dated 9th January 2026, AssessmentYear 2011-12Basic Facts:The assessee was incorporated in 2009 and is a whollyowned subsidiary of a Singapore AE ultimately heldby a Malaysian parent, was engaged in engineering,design, detailing, steel fabrication and developmentof residential and commercial buildings. AY 2011-126
Ahmedabad Chartered Accountant Journal April, 2026 31TMwas its first full-fledged year of operations. It enteredinto international transactions with its AEs andbenchmarked EPC and EDS segments under TNMMas the most appropriate method, excluding purereimbursements. The TPO accepted TNMM as MAMbut rejected assessee’s transfer pricingdocumentation, carried out fresh comparabilityanalysis, modified comparables, and deniedeconomic adjustments including idle-capacityadjustment and working-capital adjustment, resultingin upward adjustment of about Rs. 3.24 crore in EPCsegment. On appeal, CIT(A) upheld TNMM as MAM,allowed working-capital adjustment, but rejected idlecapacity adjustment. Consequential order reducedtransfer pricing adjustment in EPC segment to aboutRs. 1.85 crore. On appeal to Tribunal, assesseecontended that being in its first full year of operations ithad under utilized resources and incurred higher fixedcosts in anticipation of future projects, warranting idlecapacity adjustment, and further submitted that whilegiving effect to CIT(A)’s order, TPO wrongly excludedunbilled revenue, prepaid expenses, advances fromcustomers, advance recoverables and inventoriesfrom working-capital computation despite revisedcomputation furnished by assessee.Issue:Whether the denial of the idle capacity adjustmentwas sustainable.Whether the working capital adjustment shouldinclude all relevant operating current assets andliabilities.Held by tribunal in favour of the Assessee:Adjustment – Idle CapacityThe Tribunal noted that under TNMM, comparability mustaccount for differences in functions, assets and risks.Idle capacity, particularly in early years of ramp-up,can distort net margins if not adjusted. Several Tribunalshave upheld idle capacity adjustments where a testedparty incurs disproportionate fixed costs in start-upyears or experiences underutilization affectingprofitability. The Tribunal found that the assessee’sTribunal Newsevidence shows a clear capacity and operational rampup in financial year 2010-11 with a dramatic improvementin cost absorption in financial year 2011-12 and atransparent and documented methodology. Therevenue had not demonstrated that the methodologywas unreasonable, nor identified specific comparableswith superior capacity utilization justifying denial ofadjustment. The tribunal therefore allowed Idle capacityadjustment. The AO/TPO were directed to grant thisadjustment in the EPC segment in accordance withthe methodology furnished and validated by theassessee.Adjustment – Working CapitalAs per tribunal, working capital adjustment under TNMMmust reflect the tested party’s actual operating cycle.Key principles include inclusion of all relevant operatingcurrent assets and liabilities. Exclusion should applyonly to non-operating or financial elements notconnected with the core business. Consistency withaccepted accounting and transfer pricing practice wasrequired. Unbilled revenue reflects earned but notbilled receivables and was correctly included inoperating current assets. Similarly, prepaid expensesand advances impact liquidity and should not beexcluded when material to the working capital cycle.The assessee’s revised working capital adjustmentwas supported by detailed computation and acceptedaccounting treatment and case laws. Hence, the AO/TPO was directed to recompute working capitaladjustment including all relevant operating currentassets and current liabilities, in accordance with lawand judicial precedents. The resultant transfer pricingadjustment should be reworked and assessedaccordingly.❉ ❉ ❉
32 Ahmedabad Chartered Accountant Journal April, 2026TMIn this issue, we are giving gist of the recent decisionrendered by ‘B’ Bench of I.T.A.T., Ahmedabad in thecase of Pinkal Rajeshbhai Patel, wherein, in thereasons for reopening, the information given was thatthe assessee had entered into accommodation entryas fictitious loan from bogus concerns managed andcontrolled by the accommodation entry provider i.e.Sanjay Shah and Jignesh Shah; whereas the ultimateaddition made in the assessment order was in respectof bogus Long Term Capital Gain on account of sale ofconsideration received on sale of shares asunexplained credit u/s.68 of the Act.The Tribunal on finding that, there was variance betweenthe reasons for which the assessment was reopenedand the ultimate addition made in the assessment orderdeleted the addition.We hope the readers would find the same useful.In the Income Tax Appellate Tribunal“B” Bench, AhmedabadBefore Dr. B.R.R. Kumar, Vice-PresidentandMs. Suchitra R. Kamble, Judicial MemberITA No.99/Ahd/2025Assessment Year: 2015-16Pinkal Rajeshbhai Patel Vs. Income Tax Officer,Ahmedabad. Ward 3(3)(2),(PAN: AHMPP4790P) Ahmedabad.(Appellant) (Respondent)Appellant by : Shri Vipul Khandhar, ARRespondent by : Shri Abhijit, Sr. DRDate of hearing : 19.02.2026Date of pronouncement : 07.04.2026CA. Sanjay R. [email protected] OnlyFacts of the Case:1. In this case, the reasons recorded for reopeningclearly state that the assessee had receivedaccommodation entries in the nature of fictitiousloans amounting to Rs.49,74,275/- from concernsmanaged by Jignesh Shah and Sanjay Shah.However, in the reassessment order, theAssessing Officer made addition on an entirelydifferent allegation, namely that the assessee hadearned bogus LTCG through penny stocktransactions in shares of Naisargik Agritech (India)Ltd. and it was, therefore, contended that theAssessing Officer had changed the basis ofreopening, which is not permissible in law.2. The assessee-appellant raised additional groundchallenging the entire reassessment proceedingsas bad in law, which is required to be set aside asthe Assessing Officer has changed his ground forreassessment subsequently which is notsustainable in the interest of law and justice.Further, the Assessing Officer had changed thereason vide show cause notice dated 24.03.2022which was also after 31.03.2021 and thereby thesaid proceeding is considered as time-barred andrequired to be quashed.Finding of Tribunal:3. The Tribunal went through the reasons recordedfor reopening of assessment, which read as under:“1. The assessee has filed Return of Income forA.Y. 2015-16 declaring total income of Rs.8,33,240/-.2 As per the information available, a search u/s.132 of the Act was carried out on 11.09.2018
Ahmedabad Chartered Accountant Journal April, 2026 33TMUnreported Judgementsin the case of Sanjay Shah and Jignesh Shahof Ahmedabad (JSSS hereinafter). The searchresulted into seizure of unaccounted cash of19.37 Crores (related to accommodationentries and commission earned thereon) alongwith incriminating digital as well asdocumentary evidences. Clandestine record ofunaccounted cash, synchronized trading,proving bogus LTCG in various BSE listedscrips and transport of such cash throughangadiyas was found to be maintained.2.1 During search at residential premises ofJignesh Shah, on analysis of seized material,it has been found that:-• Company does not exist at its address.Therefore, it lacks identity as well asgenuineness.• During investigation, it has been found thatJignesh S. Shah is managing andcontrolling multiple companies andconcerns. One of the most crucialevidences is in the form of MS ExcelSheet. In this sheet, clandestine record ofunaccounted cash, synchronized trading,proving bogus LTCG in various BSE listedscrips and transport of such cash throughangadiyas was found to be maintained. Inthis secret and coded file, delivery(received) and movement (throughangadiya etc.) of cash is recorded againsttransactions of shares on BSE platform.Furthermore, the receipt of commission inform of cash is also recorded under thehead “LTCG COMMISSION”. Theevidences manifest that this is the recordof accommodation entries of LTCG againstreceipt of cash. Such sensitive andconfidential information cannot be inpossession of Jignesh Shah unless he haslive link and close nexus with all theseconcerns, and he is in control of suchconcerns. The duo also admitted beinginvolved in providing accommodationentries including bogus LTCG andcontrived losses.• Other kind of Digital Data includingincriminating MS Excel files, incriminatingWord Files, Whatsapp Chats/Images anddocuments including Khata-Bahis were alsofound.2.2. The details of transactions made by theassessee with the parties/company/concernmanaged and controlled by Jignesh Shah andSanjay Shah during the A.Y. 2015-16 attachedin Excel Sheet as Annexure “4”. The assesseehas entered into accommodation entries asfictitious loan to the tune of Rs. 49,74,275/-via bank account maintained with DCB Bankwhich is managed and controlled by JigneshShah and Sanjay Shah during the A.Y. 2015-16. The assessee is a beneficiary of suchaccommodation entries as fictitious loan.3. After analysis of the information with the factsavailable on record, it is found that theassessee has entered into accommodationentries as fictitious loan from bogus concernsmanaged and controlled by theaccommodation entry provider duo i.e. SanjayShah and Jignesh Shah to the tune of Rs.49,74,275/- Therefore, it can be concluded thatthe transaction done by the assessee with theconcern/company parties managed andcontrolled by Jignesh and Sanjay Shah wasonly accommodation entries as fictitious loanand as a result of which the assessee hasbenefitted to the tune of Rs. 49,74,275/-.4. ITBA/ITD data available in this office, has beenverified. (i) As per PAN data base the case ofthe assessee is found to belong to the territorialjurisdiction of this ward. (ii) The assessee is abeneficiary of accommodation entries asfictitious loan.5 The assessee has entered intoaccommodation entry through M/s Apar Bizz/M/s Venus Trade/M/s Aa Plus Broking Pvt Ltd/M/s Bhavsar Enterprises and via various bankaccounts which are managed and controlledby the entry provider duo i.e. Jignesh Shahand Sanjay Shah. The Proprietors/director(s)
34 Ahmedabad Chartered Accountant Journal April, 2026TMof these concerns has/have filed affidavit inwhich it is inter alia deposed that theseconcerns are engaged in business of arrangingfacilitating/providing accommodation entriesthrough its bank accounts. Jignesh Shah inhis statement has admitted that bank accountsof this person/firm have been used for providingaccommodation entries.6. By omission on the part of the assessee todisclose fully and truly all the material factsnecessary for the A.Y. 2015-16 and in view ofthe above facts, I have reason to believe thatincome exceeding to the tune of Rs. 49,74,275/- (More than Rs.1 Lakh) which is chargeableto tax has escaped assessment within themeaning of section 147 of the I.T. Act andhence I am satisfied that it is a fit case forreopening the assessment under section 147of the IT Act…….”Decision of Tribunal:4. The Tribunal found that the assessee filed his returnof income on 30.09.2015 declaring total incomeof Rs.8,33,240/-, after claiming deduction underChapter VI-A of Rs.2,18,438/-. He also declaredexempt agricultural income of Rs.1,10,051/- andexempt Long Term Capital Gain of Rs.54,52,613/-. The Assessing Officer issued notice u/s.148dated 31.03.2021 for reopening of the assessment.In response to which, the assessee filed return ofincome on 28.05.2021 declaring the same income.The Assessing Officer thereafter issued notice u/s.143(2) and u/s.142(1) and sought certain detailsfrom the assessee. The Assessing Officer alsorelied upon information received from theInvestigation Wing that a search action u/s.132 wasconducted on 11.09.2018 in the case of JigneshShah and Sanjay Shah, who were allegedlyUnreported Judgementsengaged in providing accommodation entriesincluding bogus LTCG through various listed pennystock companies and based on the saidinformation, the Assessing Officer alleged that theassessee had obtained accommodation entriesthrough share transactions of Naisargik Agritech(India) Ltd. and claimed bogus LTCG.Consequently, the Assessing Officer treated theentire sale consideration of Rs.49,19,403/-received on sale of shares as unexplained creditu/s.68 of the Act and added the same to the totalincome.5. The Tribunal further held that, perusal of thereasons recorded for reopening clearly shows thatthe Assessing Officer had formed a belief that theassessee had received accommodation entriesin the nature of fictitious loans amounting toRs.49,74,275/- from concerns allegedly controlledby Jignesh Shah and Sanjay Shah. However, theaddition finally made in the reassessment orderwas on account of alleged bogus LTCG from saleof shares of Naisargik Agritech (India) Ltd. whichwas considered as unexplained credit u/s.68 ofthe Act. The Tribunal further held that, it is evidentthat the reason recorded for reopening and theaddition ultimately made are entirely different, andtherefore, held that the reassessment proceedingsinitiated under Section 147 of the Act are invalid inlaw and consequently, the reassessment orderdated 30.03.2022 was quashed.❉ ❉ ❉
Ahmedabad Chartered Accountant Journal April, 2026 35TMCA. Kaushik D. [email protected] a Tenant Bequeath Tenancy Rights, or Doesthe Rent Act Override Testamentary Freedom?The IssueA frequently debated issue in tenancy and successionlaw is whether a tenant can pass on tenancy rightsthrough a Will. At a conceptual level, this appearssimple, a person should be free to dispose of whathe possesses. However, tenancy does not neatly fitinto the category of “property” in the traditional sense.Unlike ownership, tenancy is a statutorily regulatedright of occupation, shaped and restricted by rentcontrol laws. The Maharashtra Rent Control Act, 1999provides a structured mechanism governing thedevolution of tenancy rights upon the death of a tenant.Section 7(15) defines a “tenant” to mean a person bywhom rent is payable and, importantly, extends thisdefinition to include certain successors after the tenant’sdemise.In the first instance, the statute gives precedence tomembers of the tenant’s family. In the case of residentialpremises, such member must have been residing withthe tenant at the time of death. In relation to premisesused for educational, business, trade, or storagepurposes, the requirement shifts from residence tousage, and the family member must have been activelyusing the premises for the relevant purpose.Only in the absence of such a qualifying family memberdoes the question of succession by heirs arise. Evenin such cases, the devolution is not automatic but maybe subject to determination by a competent court,particularly where there is no governing agreementbetween the parties.This statutory scheme is not confined to the originaltenant alone but continues to apply to subsequenttransmissions of tenancy as well, thereby creating acontrolled and continuous framework for successionto tenancy rights.This creates a direct issue between two competingprinciples:- the freedom to dispose of one’s estate through aWill, and- the statutory control over tenancy succession.Therefore, issue centres around a fundamentalquestion:Does tenancy form part of a person’s disposableestate, or is its devolution exclusively governed bythe Rent Act?View in Favour of BequeathabilityThe case for allowing tenants to bequeath tenancyrights draws strength from general principles ofinheritance and judicial recognition of tenancy as atransferable interest.The Supreme Court in Gian Devi Anand vs. JeevanKumar (1985) 2 SCC 683 recognised that tenancy rightsare heritable and do not automatically extinguish uponthe death of the tenant. This acknowledgment placestenancy within the broader framework of inheritableinterests.Once it is accepted that tenancy survives death, itlogically follows that such rights form part of the tenant’sestate. A Will, being merely a mechanism ofsuccession, should therefore operate upon such rightsunless specifically prohibited.This reasoning finds further support in State of WestBengal vs. Kailash Chandra Kapur (1997) 2 SCC 387,where it was observed that leasehold rights may betransferred through a Will in the absence of restrictiveprovisions.Controversies
36 Ahmedabad Chartered Accountant Journal April, 2026TMAdditionally, the concept of “family” under rent lawshas not been rigidly confined. In Ramubai vs. JiyaramSharma (AIR 1964 Bom 96), the term was interpretedbroadly to include a wide spectrum of relationsconnected by blood or marriage.From a practical standpoint, tenancy particularlyprotected tenancy often carries substantial economicand commercial value. Long-standing possession,business goodwill, and investment in the premisescreate a strong argument that the tenant should have asay in determining its devolution.Accordingly, this view asserts that tenancy, thoughlimited in nature, is still a valuable and inheritableinterest and should, in principle, be capable oftestamentary disposition unless expressly restrictedby law.View Against BequeathabilityThe contrary view, which has found stronger acceptancein statutory interpretation and judicial reasoning, treatstenancy not as an absolute proprietary right but as aregulated statutory entitlement.The Maharashtra Rent Control Act lays down a carefullystructured mechanism that prioritises continuity ofoccupation rather than free transferability. The focus isnot on legal heirs in the traditional sense but on thosewho were actually connected with the tenancy in a realand functional manner.Thus:- In residential premises, the emphasis is on coresidence.- In commercial premises, the emphasis shifts toactive participation in the business carried on fromthe premises.This distinction reflects a conscious legislative intentto ensure that tenancy remains with those who weregenuinely benefiting from it.In Vasant Pratap Pandit vs. Dr. Anant Trimbak Sabnis(1994 SCC (3) 481), the Supreme Court emphasisedthat tenancy protection is meant for those familymembers who were part of the tenant’s household orbusiness and were deriving benefit from the tenancyduring the tenant’s lifetime.Similarly, Pushpa Rani vs. Bhagwanti Devi (AIR 1994SC 774) reinforced the principle that in commercialtenancies, the right continues only with the person whoactually carries forward the business, excluding otherswho may otherwise qualify as heirs.Courts have also resisted attempts to expand tenancyrights beyond statutory limits. In Vasant Sadashiv Joshivs. Yeshwant Shankar Barve (WP 2371/1997), it washeld that tenancy is a personal right attached to aspecific individual and cannot extend to an entire jointfamily structure.Likewise, in Vimalabai Keshav Gokhale vs. AvinashKrishnaji Binjewale (2004 (1) Bom CR 839), theinterpretation of “any member of the family” wasconfined to a single eligible individual rather thanmultiple claimants.The distinction between rent law and generalsuccession law was further clarified in Urmi DeepakKadia vs. State of Maharashtra (2015 (6) Bom CR354), where it was held that rent legislation operates inits own domain and validly restricts succession in waysthat differ from general inheritance principles.Even in determining heirs, courts have adopted anuanced approach. While Ganesh Trivedi vs. SundarDevi (2002) 2 SCC 329 recognised certain relations asheirs, Durga Prasad vs. Narayan Ram Chandaani (SC)demonstrated that succession may still be restricteddepending on the source and nature of the tenancy.Most importantly, courts have directly addressed thevalidity of testamentary disposition of tenancy rights.In Bhavarlal Labhchand Shah vs. Kanaiyalal NathalalIntawala, it was held that tenancy rights in non-residentialpremises cannot be bequeathed to a strangerunconnected with the business.Further, in Vasant Pratap Pandit (supra), the SupremeCourt rejected the notion that a legatee under a Willcould be treated as an heir for the purpose of rentlegislation, observing that such an interpretation woulddefeat the legislative intent by permitting entry ofstrangers.Finally, GaivDinshaw Irani vs. Tehmtan Irani (2014) 8SCC 294 consolidated the position by holding thatControversiesContinued to page 40
Ahmedabad Chartered Accountant Journal April, 2026 37TMDividend distribution tax versus Treaty Benefits: Ananalysis of divergent Bombay High Court rulings inthe Colorcon and Foseco1. BackgroundThere is a long-standing controversy arises fromthe interaction between the Dividend DistributionTax (DDT) under section 115-O of the Income-taxAct, 1961 and the concessional rates underDouble Taxation Avoidance Agreements (DTAAs).At its core lies a fundamental question:is DDT atax on the company’s profits, or effectively a taxon shareholder dividend income, with collectionmerely shifted to the distributing company?The answer determines whether non-residentshareholders can access treaty benefits typically10 - 15% tax under Articles 10 or 11 of DTAAs inplace of the higher statutory DDT rate.This issue has led to a split within the BombayHigh Court. In Colorcon Asia Pvt. Ltd. v. DCIT, (TaxAppeal No.5 of 2024) the Goa Bench upheld DTAAsupremacy, treating DDT as a shareholder leveltax and allowing treaty rate caps to apply. Incontrast, the Mumbai Bench in Foseco India Ltd.v. ACIT (Income Tax Appeal No. 1049 of 2025) inApril 2026 expressed prima facie view that DDTto be a tax on corporate profits. It further termedColorcon potentially per incuriam2. The Legislative Architecture of the DividendDistribution TaxPrior to 1997, India followed the classical systemof dividend taxation, where dividends were taxedin the hands of shareholders and companies withheld tax at source. This aligned with OECD- andUN-based tax treaties, which allocate taxing rightsbetween source and residence states subject torate caps.The Finance Act, 1997 replaced this regime byintroducing section 115-O, shifting the tax burdento domestic companies through an additionalincome-tax on distributed profits, while exemptingdividends in shareholders’ hands under section10(33) (later Section 10(34)). This avoidedeconomic double taxation.FEMA & InternationalTaxationCA. Dhinal A. [email protected]. Sunil [email protected] component Functional Implication and Relevance to the DTAA vs. DDTof section 115-O Legal Mechanics ControversyThe Non-Obstante Clause The provision begins with Revenue authorities argue that this clausesection 115-O(1) “Notwithstanding anything contained in keeps DDT separate from section 90,any other provision of this Act...” making it an independent corporate taxestablishing an overriding statutory that cannot benefit from DTAA rate capscharge.Charge on the The tax is defined as an additional Supports that DDT is a corporate tax basedDistributing Company income-tax levied specifically on the on distributed surplus, completelydomestic company, not as a with independent of the non-resident recipient’sholding tax on the shareholder. identity or treaty status.
38 Ahmedabad Chartered Accountant Journal April, 2026TMFEMA & International TaxationStatutory component Functional Implication and Relevance to the DTAA vs. DDTof section 115-O Legal Mechanics ControversyStrict Liability Regardless The tax is payable even if no regular Taxpayers argue this proves DDT is not aof Profitability corporate income tax is payable by tax on the company’s operating profits, but(Section 115-O(2)) the domestic company on its total rather a targeted tax triggered solely bycomputed income for the year. the event of transferring wealth (dividends)to shareholders.Prohibition of Tax The statute commands that the tax Courts often rely on this provision to clearlyCredits (Section paid by the company shall be treated separate the company’s DDT liability from115-O(4)) as final, and no further credit shall be the shareholder’s tax positionclaimed by the company or by anyother person (the shareholder).Due to the difficulties DDT created for foreigninvestors who often couldn’t claim foreign taxcredits since the tax was levied on the Indiancompany the government abolished DDT throughthe Finance Act, 2020. From 2021, India returnedto taxing dividends in the hands of shareholderswith standard withholding tax.The Revenue argues that DDT is a corporate-leveltax meant to capture tax at the source. So, applyingDTAA rates meant for shareholder taxation wouldgive unintended treaty benefits and distort theagreed framework.Taxpayers, however, argue that DDT is effectivelya tax on shareholders, with the company onlypaying it for convenience. They say, defeats thepurpose of DTAAs and leads to double taxationwhen foreign shareholders are taxed again in theirhome country without getting credit for DDT paidin India.3. The Domestic Primacy: The Godrej & BoycePrecedentThe Revenue’s core argument and the basis forthe Foseco Court’s skepticism of the Colorconruling rests on the binding precedent laid downby the Bombay High Court and later affirmed bythe Supreme Court in Godrej & Boyce Mfg. Co.Ltd. v. DCIT.It is highly critical to note that the Godrej & Boycelitigation did not arise from a cross-border treatydispute or an application of a DTAA. Instead, itinvolved a purely domestic computationmechanism under section 14A of the Income-taxAct. Section 14A mandates the disallowance ofexpenditure incurred by an assessee in relationto income that does not form part of their totaltaxable income (i.e., exempt income).The Judicial Characterization of the LevyIn Godrej & Boyce, the Court formulated severalcritical legal postulates that have since become thebedrock of conservative tax jurisprudence in India:- A Tax on Corporate Profits, Not Dividends:The High Court ruled that the charge undersection 115-O is on the profits of the company,specifically that component of the profitswhich is declared, distributed, or paid by wayof dividend. The Court stated categorically:This is not a tax on dividend income.- Recognition of Distinct Taxable Entities:Drawing upon general principles of corporatelaw, the Court emphasized that a companyand its shareholders are entirely distincttaxable entities. The domestic company paysthe DDT in the discharge of its own statutoryliability. It does not act as an agent of theshareholder, nor does it pay the tax on behalfof the shareholder.- Absence of With holding Character: TheCourt stated that the DDT has no elementwhatsoever of being a withholding tax. Thestatutory prohibition encapsulated in Section115-O(4) against the shareholder claiming any
Ahmedabad Chartered Accountant Journal April, 2026 39TMtax credit for the DDT paid further severs anyconceptual or legal link between thecompany’s tax liability and the shareholder’sincome profile.When this decision was appealed, the SupremeCourt of India affirmed the High Court’s view in 2017.The apex court noted that even if one were toconceptually assume that the DDT is an additionaltax on the dividend rather than on the distributedprofits, section 115-O(4) and section 115-O(5) makeit abundantly clear that no further benefit of suchpayments can be claimed by either the dividendpaying company or the recipient assessee.4. The Protocol Argument and the India-HungaryDTAA Anomaly in ruling of Mumbai ITAT inDCIT v. Total Oil India Pvt. Ltd. (2023).A key plank of the Special Bench ruling in case ofTotal Oil was a comparative analysis of India’s taxtreaties. The Tribunal observed that where Indiaintends to extend treaty protection to DDT, it doesso explicitly. It cited the India–Hungary DTAAprotocol, which deems dividend distribution taxto be taxed in the hands of shareholders and capsit at 10%.In contrast, most treaties including those with theUK, France, Germany, and the US contain no suchclause. The Bench treated this omission as adeliberate policy choice, rejecting attempts toimport benefits through interpretative expansion.It also held that since dividends were exempt inIndia under Section 10(34), no juridical doubletaxation arose domestically to justify DTAA relief.5. The Treaty Override Paradigm: The ColorconAsia JudgmentDespite the judicial hurdles posed by theSupreme Court in Godrej & Boyce and the SpecialBench in Total Oil, the taxpayer achieved a victorybefore the Bombay High Court (at Goa) inDecember 2025 in the case of Colorcon Asia Pvt.Ltd. v. The Joint Commissioner of Income Tax.The factual matrix of the case was Colorcon AsiaPvt. Ltd. (The Appellant), an Indian subsidiary, paidcumulative dividends in excess of Rs. 365 crore toits UK-based parent company, Colorcon Limited,spread over the financial years 2015-16, 2016-17,2017-18, and an interim dividend for 2018-19.Alongside this disbursement, Colorcon India paidthe DDT at the statutory domestic rate (exceeding15% with surcharges) as mandated by section 115-O.Seeking clarity and a potential refund of the excesstax paid over the treaty rate, the taxpayer filed anapplication under Section 245Q of the Income TaxAct with the Board for Advance Rulings (BFAR).The primary question posed was whether ColorconIndia would be entitled to restrict the tax rate onthe dividends distributed to its UK parent to 10%,as strictly prescribed under Article 11 (Dividends)of the India-UK DTAA.The BFAR, relying on the view by the Total OilSpecial Bench, rejected the application, ruling thatthe DDT was squarely outside the scope of theDTAA, that DDT did not fall within Taxes coveredunder Article 2 of the treaty, and that the 10%withholding cap had no merit. The taxpayersubsequently challenged this impugned rulingbefore the High Court via a writ petition.Before the Division Bench of the High Court, thecore argument was that the DDT is nothing but atax on dividend income whose incidence wasshifted to the company purely for administrativeconvenience. The Colorcon court scrutinized thelegislative history of Section 115-O, particularlyanalyzing the explanatory memorandaaccompanying the Finance Acts of 1997, 2003,and the grossing-up amendments of 2016. TheCourt observed that while the statutory incidenceof the tax was shifted, there was no change in thesubstantive rule or fundamental concept of thedividend being taxed.A key insight in the Court’s reasoning is theemphasis on economic substance over statutoryform in the context of treaty interpretation. TheCourt noted that even where a company has notaxable income or incurs losses, it is still requiredto pay DDT under Section 115-O(2) if it declaresdividends from accumulated reserves.This demonstrates that DDT is not a tax on ongoingcorporate profits, but a levy triggered by the eventFEMA & International Taxation
40 Ahmedabad Chartered Accountant Journal April, 2026TMof profit distribution. On this basis, the Court heldthat although paid by the company, DDT is, insubstance, a tax on shareholder dividend incomeArticle 31 of the Vienna Convention on the Law ofTreaties (“VCLT”) mandates that treaties beinterpreted in good faith in accordance with theirordinary meaning and in light of their object andpurpose. The Colorcon bench applied thisstandard to Article 11 of the India-UK DTAA. Article11 contains four elements to trigger its application:a) the payment must be a dividend;b) it must be paid by a resident of one state(India);c) it must be paid to a resident of the other state(UK); andd) if beneficially owned by the resident of theother state, the tax rate cannot exceed 10%.The Court reasoned that Article 11 triggers a ratecap based purely on the nature of the income(i.e., dividends) being paid. The legal identity ofthe entity discharging the administrative tax liability(the company versus the shareholder) is anirrelevant and extraneous consideration for theapplication of the treaty.The Court rejected the Revenue’s position,holding that a sovereign cannot alter domestic taxmechanics to shift incidence and then use thatshift to defeat treaty obligations. Allowing Section115-O to override Article 11 of the DTAA, itobserved, would breach India’s good faithobligations under international lawRelying on Section 90(2), which gives precedenceto more beneficial treaty provisions, the Court heldthat the DDT rate must be capped at 10%. It furthernoted that retaining excess tax would violate Article265 of the Constitution, which permits taxation onlyby authority of law.In contrast, the Mumbai Bench in Foseco IndiaLtd. v. ACIT (Income Tax Appeal No. 1049 of 2025)in April 2026 expressed prima facie view that DDTto be a tax on corporate profits. It further termedColorcon potentially per incuriamObserving that it is an interesting case, SupremeCourt decides to hear Revenue’s SLP in Colorconon DDT vs DTAA tax rate controversy; SC postsmatter for hearing on May 13.❉ ❉ ❉FEMA & International TaxationContinued from page 36 Controversiestenancy succession is generally governed by statutoryprovisions favouring family members, and only in theabsence of restrictions would general succession lawapply.Accordingly, it can be concluded that tenancy is astatutorily protected right with restricted transferability,and its devolution cannot be altered through a Will incontravention of the Rent Act.ConclusionThe interplay between testamentary freedom andstatutory tenancy continues to remain a contestedspace, with statutory provisions often narrowing whatwould otherwise be a broader right of succession.While tenancy rights exhibit certain characteristics ofproperty and are heritable to a limited extent, theirdevolution is not governed by unrestricted personalchoice. The Rent Control Act establishes a controlledframework that:- prioritises actual occupants over formal heirs,- limits succession to defined categories, and- prevents indirect transfer to outsiders throughtestamentary devices.In effect, the ability of a tenant to bequeath tenancyrights is shaped less by general principles ofsuccession and more by the contours of the applicablerent legislation.Yet, the debate persists, particularly in cases wherethe statutory framework leaves room for interpretation,thereby continuing to blur the line between proprietaryautonomy and legislative control.❉ ❉ ❉
Ahmedabad Chartered Accountant Journal April, 2026 41TMForeign Exchange Management (Borrowingand Lending) (First Amendment)Regulations, 2026The Reserve Bank of India had released draftamendment to Foreign Exchange Management(Borrowing and Lending) Regulations, 2018 pertainingto changes in the External Commercial Borrowing(ECB) Framework on October 03, 2025 for publicfeedback. The Foreign Exchange Management(Borrowing and Lending) (First Amendment)Regulations, 2026 dated February 09, 2026 have nowbeen published in the official gazette on February 16,2026. Authorised Dealer Category I banks are directedto be guided by the amended Regulations whilefacilitating borrowing and lending transactionsgoverned by these Regulations.Provisions pertaining to ECB contained in MasterDirection – External Commercial Borrowings, TradeCredits and Structured Obligations and relatedprovisions pertaining to borrowing in Indian Rupees(INR) by persons resident in India contained in MasterDirection – Borrowing and Lending transactions in IndianRupee between Persons Resident in India and NonResident Indians/ Persons of Indian Origin have beenreviewed and consolidated in the Regulations.In view of the above, the following amendments arebeing made to the aforesaid master directions andFrequently Asked Questions (FAQs):(a) Para 1 to 12 of Master Direction – ExternalCommercial Borrowings, Trade Credits andStructured Obligations shall be deleted;(b) Para 2 of Master Direction – Borrowing and Lendingtransactions in Indian Rupee between PersonsResident in India and Non-Resident Indians/Persons of Indian Origin shall be deleted; and(c) Part I of FAQs on External Commercial Borrowings(ECB) and Trade Credits shall be deleted.Source: RBI/2025-26/221A.P. (DIR Series) Circular No.22 dated February 16, 2026For full text refer:https://rbidocs.rbi.org.in/rdocs/notification/PDFs/22APDIR160220265A80967793994EF9850D8E35EDDF7D45.PDFExternal Commercial Borrowings and TradeCreditsFAQs (Updated as on February 16, 2026)PART II: TRADE CREDITS (TC)44. Can SBLC be issued by AD banks on behalf oftheir customers for availing short term trade financefrom overseas lenders in foreign currency?AD banks can issue SBLC on behalf of theircustomers for availing short term trade credit fromoverseas lenders in foreign currency subject tosuch SBLCs complying with the provisionscontained in Department of BankingRegulation Master Circular No. DBR. No. Dir.BC.11/13.03.00/2015-16 dated July 1, 2015 on“Guarantees and Co-acceptances”, as amendedfrom time to time.45. As per the new guidelines AD banks are requiredto report permissions granted for settlement ofdelayed import dues as per the applicableprocedure. AD banks are also required to reportpermissions granted for settlement of delayedimport dues by Regional offices of Reserve Bankon a similar basis. Is the mandated reporting onlyfor approvals accorded for extensions up to oneyear/three years for non-capital/capital goodsrespectively?AD banks are required to report all permissionsgranted by the AD banks/Regional offices ofReserve Bank for settlement of delayed importdues irrespective of the tenures of extensionsought.Source: https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=1999❉ ❉ ❉CA. Dr. Savan R. [email protected] Updates2
42 Ahmedabad Chartered Accountant Journal April, 2026TMWhy Your UAE Free Zone Company May Not Qualifyfor 0% Tax in 2026For years, the perception around the United ArabEmirates was simple that set up a Free Zone companyand enjoy 0% tax.That narrative is now outdated.With the introduction of the UAE Corporate Tax Law,the UAE has transitioned from a “tax free jurisdiction”to a compliance driven, substance based economy.While the 0% tax regime still exists for Free Zoneentities, it is no longer automatic.In fact, a large number of businesses set up by Indianpromoters may fail to qualify for 0% tax by 2026 notdue to aggressive structuring, but because of basicmisunderstandings.Let’s break down the reality in small points. In my belowarticle, I have tried to provide clarity for themisconceptions people have in their mind.1. The Biggest Misconception: Free Zone = 0% TaxSetting up in a Free Zone does not guarantee 0%tax.To avail the benefit, a company must qualify as aQualifying Free Zone Person (QFZP) under thelaw. Failing this, the entity will be taxed at 9%, justlike a mainland company.People still ask me that in Dubai there is 0% taxright then I have to explain that conditions forqualifying to be 0% tax and if that do not followthat the entity will be taxed at 9%.2. Not All Income is “Qualifying Income”Even if your entity is in a Free Zone, only specifictypes of income qualify for 0% tax, such as:- Transactions with other Free Zone entities- Certain international business activities- Exportoriented servicesHowever, income from mainland UAE customersis generally taxable unless structured carefully.Also, there is a 5% De Minimis Rule Trap thatexplains that if nonqualifying revenue (e.g., incomefrom mainland individuals or certain excludedactivities) exceeds 5% of total revenue or AED 5million (whichever is lower), the entire companyloses its 0% status for that year.Reality: Many Indian businesses are alreadygenerating mainland revenue withoutunderstanding the tax impact.3. Mainland Business Without Proper StructuringOne of the most common and costly mistakes weare seeing is that a Free Zone company directlyinvoicing customers in the UAE mainland.At first glance, this looks operationally convenient.But from a tax and regulatory perspective underthe UAE Corporate Tax Law, this approach cancompletely undermine the 0% tax position.This can disqualify 0% benefit and in addition tothat Trigger full 9% tax liability.Correct approach may involve:Use of distributors+ Separate mainland entity + Structured contracting4. Substance Requirements Are Real (NotCosmetic)The days of treating the United Arab Emirates asa “paper company jurisdiction” are clearly over.With the introduction of the UAE Corporate TaxLaw and increasing regulatory alignment withglobal standards, substance is no longer achecklist but it is the foundation of your taxposition.To qualify for the 0% regime as a Free Zone entity,a business must demonstrate that it is genuinelyCA. Sanskar [email protected]
Ahmedabad Chartered Accountant Journal April, 2026 43TMoperating from the UAE, and not merelyregistered there.This means having adequate employees who areactually involved in the core incomegeneratingactivities, not just administrative or nominal staff.It requires physical office space that reflects thescale and nature of the business, not just aflexidesk or shared facility used for compliancepurposes. Most importantly, it demands that keymanagement and commercial decisions aretaken within the UAE, supported bydocumentation such as board minutes, contracts,and operational records.In practice, many structures fall short on theseparameters.A common scenario we see is where the businessis effectively controlled from India, clients aresourced from India, negotiations are handled fromIndia, and strategic decisions are taken outsidethe UAEwhile the Free Zone entity merely issuesinvoices. In such cases, even if the legal structureexists in the UAE, the commercial substancedoes not.Another frequent gap is the mismatch between thescale of operations and the infrastructure in the UAE.For instance, a company reporting significantrevenues but operating with no dedicated team,minimal office presence, and outsourced functionsraises immediate questions. Authorities areincreasingly focusing on whether the value creationis actually happening within the jurisdiction.It is also important to understand that substance isnot evaluated in isolation. It is assessed holisticallythrough banking patterns, employee profiles,contractual arrangements, and evencommunication trails. If the overall picture suggeststhat the UAE entity is merely a pass through, therisk of disqualification increases significantly.From a practical standpoint, businesses shouldstart thinking of substance as an investment ratherthan a cost. Hiring the right team, maintaining afunctional office, and ensuring that decision makingis genuinely based in the UAE not only strengthensthe tax position but also enhances credibility withbanks, clients and regulators.In 2026, the question will no longer be whetheryou have a company in the UAE butit will be whether you have a real business in theUAE.5. Transfer Pricing is Now a Serious RiskWith corporate tax comes transfer pricingcompliance.Transactions between:- UAE Free Zone and mainland entities- UAE entity and Indian group companiesmust follow arm’s length principles.Failure may reclassify income or Lead to taxadjustments. I have seen many Indian groupswhich are completely unprepared for this but thisis a practical perspective.6. Mixing Qualifying and Non Qualifying IncomeIf your company earns both Qualifying income(0%) and non qualifying income (9%)Improper segregation can Contaminate the entiretax position and also lead to loss of preferentialtreatment7. Ignoring Compliance = Losing the BenefitTo retain 0% status, you must:- Maintain audited financials- File tax returns- Comply with regulatory disclosuresNon-compliance can result inLoss of QFZP (Qualifyfree zone person) status8. Passive Structures Without CommercialPurposeA large number of Free Zone structures set upover the past few years were driven by a simpleobjective of routing profits or holdinginvestments in a tax efficient jurisdiction likethe United Arab Emirates.While this may have worked in a low regulationenvironment earlier, under the UAE Corporate TaxLaw, such passive or artificial structures areincreasingly coming under scrutiny.GULF InsightsContinued to page 49
44 Ahmedabad Chartered Accountant Journal April, 2026TM[I] IMPORTANT CASE LAWS:[1] Issue:Bank account attachment quashed as orderslacked reasons despite detailed objections inhousing redevelopment GST dispute : HCCase Law:Bajaj International Realty (P.) Ltd. v. State ofMaharashtra [2026] 184 taxmann.com 142 (Bom.)Facts:The petitioner, a real estate developer undertakingredevelopment of a co-operative housing society,executed a project involving free handover of flatsto members and sale of remaining flats. During theinvestigation into alleged tax evasion on such freehandovers, it denied liability, accepted minordiscrepancies, and filed detailed objections to thepre-show cause notice; however, the jurisdictionalofficer under the GST provisionally attached its bankaccounts and rejected objections filed in Form DRC22A without assigning reasons, followed by asubsequent attachment. It was contended that suchnon-speaking rejection violated statutoryrequirements and principles of natural justice. Thematter was accordingly placed before High Court.Held:The High Court held that Section 83 of the CGSTAct, read with Rule 159 of the CGST Rules,mandates a reasoned order while dealing withobjections to provisional attachment. It wasobserved that failure to record reasons, despitedetailed objections, amounted to a breach of astatutory duty and a denial of effective hearing,rendering the action unsustainable. The Court heldthat the jurisdictional officer under GST must applymind and provide cogent reasons while confirmingor rejecting attachment. Accordingly, theimpugned attachment and rejection orders wereCA. Vishrut R. [email protected]. Bihari B. [email protected] and VAT Judgmentsand Updatesquashed, and the matter was remanded for a freshdecision after granting a proper hearing.[2] Issue:Non-speaking order alleging excess availment ofITC quashed as no finding on utilization; matterremanded for fresh adjudication: HCCase Law:Hoscar System (P.) Ltd. v. Asstt. Commissioner(ST) [2026] 184 taxmann.com 263 (Mad.)Facts:The petitioner, a registered taxpayer, facedretrospective cancellation of GST registrationpursuant to issuance of a show cause notice (SCN).Subsequently, a SCN in Form GST DRC-01 wasissued proposing the demand on account ofalleged excess availment of ITC. In the absenceof any reply from the petitioner, an order in FormGST DRC-07 was passed determining the liabilityand noting the non-response. It was contendedthat the impugned order failed to specify whetherthe alleged excess IGST ITC had been utilised orremained unutilized, and lacked a clear factualdetermination on this point, rendering itunsustainable. The matter was accordingly placedbefore the High Court.Held:The High Court held that a valid demand underSection 16 read with Section 73 of the CGST Actrequires a clear finding regarding the nature andutilisation of ITC. It was observed that the impugnedorder did not disclose whether the excess IGSTITC had been utilised, which is a material factor indetermining liability. The Court further noted thatthe absence of a speaking order and the lack ofspecific factual findings vitiated the adjudicationprocess. Accordingly, the impugned order wasquashed, the matter was remanded for fresh
Ahmedabad Chartered Accountant Journal April, 2026 45TMGST and VAT - Judgements and Updatesadjudication on merits within a stipulated period,and all recovery proceedings were directed toremain in abeyance pending such de novoproceedings.[3] Issue:Seized cash to be released with interest as reasonto believe not recorded and no statutory noticeissued within six months post-seizure: HCCase Law:Smurti Waghdhare v. Jt. Director DirectorateGeneral of GST Intelligence [2026] 184 taxmann.com 243 (Bom.)Facts:The petitioner, a GST-registered proprietorengaged in trading of metals and scrap, wassubjected to search proceedings at multiplepremises, including her office and residence.During the search, cash amounting to k1 crore wasseized from her premises and her parents’residence under seizure orders issued in FormGST INS-02. Parallel searches were alsoconducted at the premises of another personallegedly involved in fake ITC activities. Thedepartment justified the seizure on the basis ofalleged involvement in a fake invoicing racket andcontended that cash constituted a “thing” liable forseizure under Section 67(2) of the CGST Act. Thepetitioner challenged the seizure on the groundsthat cash is not covered under the scope ofSection 67(2), that no “reason to believe” wasrecorded, and that no notice was issued withinsix months as required under Section 67(7).Held:The High Court held that the seizure of cash wasperverse, arbitrary and without authority of law. Itobserved that the mandatory requirement ofrecording “reason to believe” under Section 67(2)was not fulfilled and that cash was not shown tobe relevant or necessary for any proceedings.The Court further held that non-issuance of noticewithin six months under Section 67(7) vitiated theseizure and mandated return of the seizedamount. It was also noted that the ownership ofcash was established in favour of the petitionerand that there was no power under the CGST Actto transfer such seized cash to the Income TaxDepartment. Accordingly, the seizure orders werequashed, and the respondents were directed torelease the cash along with applicable interest.[4] Issue:Regular bail granted in ITC fraud case asinvestigation completed and liberty principlesfavoured applicant: HCCase Law:Jaydeep Mukeshbhai Virani v. State of Gujarat[2026] 184 taxmann.com 349 (Guj.)Facts:The applicant filed an application for regular bailin connection with proceedings. The allegationsrecorded by the investigating authorities, includingthe Directorate General of GST Intelligence (DGGI)were that the applicant, being an active partner,had availed fraudulent ITC on inward supplies from38 firms whose GST registrations had beencancelled ab initio on the ground of being nonexistent. It was submitted that the applicant hadbeen arrested and remained in judicial custody,and that the investigation had been completed anda complaint had already been filed before thecompetent authority. The matter was accordinglyplaced before the High Court.Held:The High Court held that since the investigation hadbeen completed and the complaint had alreadybeen filed, no reasonable grounds existed to justifycontinued custody of the applicant. It was observedthat the maximum punishment prescribed underSection 132 of the CGST Act had been taken intoconsideration. The Court analysed the principlesgoverning bail, including the principles of personalliberty and the presumption of innocence, and foundthat these considerations weighed in favour of theapplicant. Accordingly, Court exercised its discretionto grant regular bail to the applicant, subject toprescribed conditions.[5] Issue:Composite notices for multiple years undersection 73/74 unsustainable as each year requiresseparate SCN:HC
46 Ahmedabad Chartered Accountant Journal April, 2026TMCase Law:Accountants Service Society v. Union of India[2026] 184 taxmann.com 112 (Ker.)Facts:Proceedings were initiated against the petitioners,who were registered persons under the CGST Actand the Kerala GST Act, through show cause noticesissued under sections 73 and 74 covering multiplefinancial or assessment years by way of a singlecomposite notice. In certain instances, the properofficer also passed consolidated adjudicationorders on the basis of such notices. The petitionerschallenged the competence of the proper officerto issue composite notices and pass orderscovering multiple years, contending that the statutoryscheme required separate proceedings for eachyear. It was further submitted that consolidationcaused prejudice in relation to limitation and predeposit requirements since the period for initiationand completion of proceedings operatedindependently for each year. The matter wasaccordingly placed before the Kerala High Court.The Kerala High Court held that the statutoryframework of sections 73 and 74 of the CGST Actdid not permit the issuance of composite showcause notices or adjudication orders coveringmultiple years. The Court observed that the limitationfor initiation and completion of proceedings wasdetermined with reference to the due date of theannual return for each year, and therefore,proceedings had to be undertaken year-wise. It washeld that the consolidation of proceedings couldcause serious prejudice as it curtailed theadjudication period available for later years andincreased the burden of pre-deposit by leading toa consolidated order. The Court further clarified thatnon-speaking dismissal of special leave petitionsagainst a contrary view did not constitute bindingprecedent. Accordingly, the impugned compositenotices and adjudication orders were quashed, withliberty granted to the department to initiate freshproceedings by issuing separate notices for eachyear, excluding the period during which the writpetitions remained pending for computing limitation.[6] Issue:Plea to convert sec. 74 order to sec. 73 to berejected as petitioner failed to produce documentssubstantiating ITC claims: HCCase Law:R B Pandey and Sons v. Asstt. Commissioner,Central CGST and Central Excise [2026] 184taxmann.com 140 (Guj.)Facts:Proceedings were initiated against the petitionerunder section 74 of the CGST Act and the GujaratGST Act on the allegation of wrongful availmentand utilization of input tax credit (ITC). Theadjudicating authority passed an order in theoriginal recording that the petitioner had failed toproduce documents prescribed under Rule 36,including tax invoices, debit notes, bills of entryand input service distributor invoices in supportof the ITC claimed. The authority further concludedthat the petitioner had availed and utilized ineligibleITC without receipt of goods or services.Aggrieved by the order, the petitioner filed a writpetition seeking a direction to treat the orderpassed under section 74 as one under section73 so as to claim the benefit available in casesnot involving fraud. The matter was accordinglyplaced before the Gujarat High Court.Held:The Gujarat High Court held that conversion of anorder passed under section 74 to one under section73 could not be granted in the absence ofdocumentary evidence substantiating the claim ofinput tax credit. The Court observed that theadjudicating authority had recorded categoricalfindings regarding fraudulent availment and utilizationof ineligible input tax credit without receipt of goodsor services. It was held that in such circumstancesthe authority had rightly proceeded under section74 of the CGST Act and there was no justification toreclassify the proceedings as falling under section73. The Court further noted that the petitioner hadfailed to place any material warranting interferencewith the findings recorded in the adjudication order.Accordingly, the prayer seeking conversion of theproceedings from section 74 to section 73 wasrejected.(SOURCES: CORPORATE PROFESSIONALS TODAY)❉ ❉ ❉GST and VAT - Judgements and Updates
Ahmedabad Chartered Accountant Journal April, 2026 47TMITC ADMISSIBLE ON FOUNDATION ANDSTRUCTURAL SUPPORT FOR PLANT ANDMACHINERY: GUJARAT AAR – The Case of M/s.Cadila Pharmaceuticals Ltd.Advance Ruling No. GUJ/GAAR/R/2026/10 dated 03-04-2026 in the case of M/s. Cadila PharmaceuticalsLimitedBrief Facts:- M/s. Cadila Pharmaceuticals Limited (the Applicant),registered under the Goods and Services Tax lawwith GSTIN 24AAACC6251E1Z5, is engaged in themanufacture and supply of Active PharmaceuticalIngredients (API). In order to enhance operationalefficiency and achieve cost optimization, theApplicant undertook the installation of a SolventRecovery Plant (SRP) for recycling solvents and aMobile Effluent Treatment Plant (METP) for treatmentand disposal of wastewater generated duringmanufacturing processes.- For the installation and functioning of the SRP andMETP, the Applicant procured various plant andmachinery such as reactors, distillation columns,heat exchangers, storage tanks, pumps, chillers,and cooling systems. These machines, due totheir operational complexity, load-bearingrequirements, and vibration factors, necessitatedthe construction of specialized ReinforcedCement Concrete (RCC) foundations andstructural steel supports to ensure stability,alignment and safety.- Accordingly, the Applicant engaged contractorssuch as Uma Infra Project Co., Parth Construction,and Kirti Infrastructure Ltd. for executing foundationand structural works. GST was charged on suchworks contract services, and the Applicant availedInput Tax Credit (ITC) amounting to ` 94.24 lakhson these services.- The Applicant contended that such foundation andstructural supports form an integral part of “plantand machinery” as defined under theExplanation to Section 17 of the CGST Act, 2017and therefore ITC should be admissible. Reliancewas placed on statutory provisions, CBIC CircularNo. 219/13/2024-GST and judicial precedentsincluding the decision in the case of KEIIndustries Ltd.Question:Whether the Applicant is eligible to avail Input TaxCredit on input services used for construction offoundation and structural support for plant andmachinery installed within its factory for recoveryof solvents and treatment of wastewater used inthe manufacture of APIs, in terms of Section17(5)(c) of the CGST Act, 2017?Findings and Arguments:- The Authority examined the interplay betweenSection 16 (which allows ITC on inputs and inputservices used in the course or furtherance ofbusiness) and Section 17(5) (which restricts ITCin specified cases, including works contractservices used for construction of immovableproperty).- It was observed that the works contract servicesin question pertained to construction of RCCfoundations and structural supports for installingheavy machinery forming part of SRP and METP.These structures were not independent civilconstructions but were specifically engineered tosupport and stabilize machinery essential formanufacturing operations.- The Authority analyzed the definition of “plant andmachinery” under the Explanation to Section 17,which includes apparatus, equipment, andCA. Monish S. [email protected]
48 Ahmedabad Chartered Accountant Journal April, 2026TMmachinery fixed to earth by foundation or structuralsupport, and explicitly includes such foundationand structural supports, while excluding land,buildings and other civil structures.- Based on the functional and technicalcharacteristics of the installations, it was held that:o The equipment installed qualifies asapparatus/machinery used for makingoutward taxable supplies.o The RCC foundations and structural steelsupports are integral and indispensable tothe functioning of such machinery.o Such supports are not general civil structuresbut are custom-designed engineeringstructures for operational stability.- The Authority also relied on:o CBIC Circular No. 219/13/2024-GST, whereinducts and manholes used in Optical FiberCable networks were held to be part of plantand machinery.o The Gujarat AAAR ruling in KEI IndustriesLtd., which clarified that foundation andstructuralsupports are distinct from “othercivil structures” and are eligible for ITC whenthey are integral to plant andmachinery.- Further, the Chartered Engineer’s certificationconfirmed that:o Machinery cannot function without suchstructural support;o Foundations are designed to absorbvibrations, manage dynamic loads andensure safety;o The structures exist solely to supportmachinery and not as standalone immovableproperty.- The Authority rejected the contention that such workswould fall under blocked credit for immovableproperty, emphasizing that once such structuresqualify as part of plant and machinery, they falloutside the restriction of Section 17(5)(c) and (d).Ruling:- The Gujarat Authority for Advance Ruling held thatInput Tax Credit is admissible on input servicesused for construction of foundation and structuralsupport for plant and machinery installed withinthe factorypremises.- It was ruled that such foundation and structuralsupports qualify as part of “plant and machinery”under the Explanation to Section 17 of the CGSTAct, 2017.- Accordingly, the restriction under Section 17(5)(c)relating to works contract services for constructionof immovable property does not apply, since theconstruction pertains to plant and machinery andnot to independent civil structures.- The Applicant was therefore held eligible to availITC on GST paid on such input services used forSRP and METP installations.Comments:- This ruling marks an important clarification in theevolving jurisprudence surrounding Input Tax Crediton construction-related activities under GST Act,particularly in the context of industrial andmanufacturing setups. The Gujarat AAR has drawna clear and technically sound distinction betweengeneral civil constructions, which continue to attractrestriction under Section 17(5) and specializedfoundation and structural supports that are intrinsicallylinked to plant and machinery. By recognizing thatsuch structures are not standalone civil assets butare engineered solely to enable the functioning,stability, and safety of heavy machinery, the Authorityhas reinforced the legislative intent embedded inthe Explanation to Section 17.- The ruling assumes significance in light of therecurring disputes on whether RCC foundationsand structural frameworks constitute “immovableproperty” or form part of “plant and machinery.” Inadopting a functional and engineering-orientedapproach, supported by technical certification andfactual analysis, the Authority has emphasized thatwhere such structures are indispensable to theoperation of machinery and have no independentutility, they merit inclusion within the ambit of plantand machinery. This interpretation also findsconsistency with earlier clarifications issued bythe tax authorities and appellate precedents,thereby strengthening its persuasive value.Advance Ruling under GST