JOURNAL JULY 2023

Ahmedabad Chartered Accountant Journal July, 2023 197 Volume : 47 Part : 04 July, 2023 E-mail : [email protected] Website : www.caa-ahm.org Ahmedabad Chartered Accountant Journal In this Issue Contents Author's Name Page No. - caaahmedabad Journal Committee Shah Rajni Mangaldas Kataria Ashok Chhugamal Shah Karan Dhirenbhai Sheth Prakash Bharatkumar Chairman Convener E. C. Representative Past President Members Shah Rutvij Pankajkumar Desai Maulik Sharadbhai Choksi Nirav Rameshbhai Shah Jignesh Jaswantlal Shah Monish Suketu Shah Rushabh Mayank - The World is What You Think It is Kusum Kataria 199 Editorial CA. Rajni M. Shah 200 From the President CA. Shivang Chokshi 202 Articles Evidentiary Value of Social Media Messages under the Income Tax Act, 1961 CA. Mukesh Dholakiya 203 Drive to Combat Bogus Billings and Fake GST Registrations CA. Yash Shah 213 Important Update CA. Atul R. Shah 216 Direct Taxes Glimpses of Supreme Court Rulings Adv. Samir N. Divatia 217 From the Courts CA. Jayesh Sharedalal 218 Tribunal News CA. Yogesh G. Shah & 223 CA. Aparna Parelkar Unreported Judgements CA. Sanjay R. Shah 229 Judicial Analysis Advocate Tushar Hemani 232 Controversies CA. Kaushik D. Shah 235 FEMA & International Taxation FEMA & International Taxation CA. Dhinal A. Shah & 236 CA. Hardik Khatri FEMA Updates CA. Dr. Savan R. Godiawala 240 Indirect Taxes GST and VAT Judgments and Updates CA. Bihari B. Shah & 242 CA. Vishrut R. Shah Advance Ruling under GST CA. Monish S. Shah 244 Corporate Law & Others Corporate Law Update CA. Naveen Mandovara 248 GujRERA Corner CA. Manan Doshi 251 Capital Markets CA. Karan P. Vora 253 From Published Accounts CA. Pamil H. Shah 258 From the Government CA. Ashwin H. Shah & 261 CA. Kunal A. Shah IT Corner CA. Rushabh Shah 263 Association News CA. Mayur H. Modha & 265 CA. Prakash B. Nandola ACAJ Crossword Contest 268

198 Ahmedabad Chartered Accountant Journal July, 2023 Attention Members / Subscribers / Authors / Contributors 1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one month. 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 2023-24 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 for publishing 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 / contributors and Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarily concur with the authors / contributors. 7. Life Membership/Annual Membership and Other Fees F. Y. 2023-24 Amount in ` Basic GST Total 1. Admission Fees 500 90 590 2. Annual Membership Fees a. 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 600 - 600 ii. In case of membership of (ICAI) for a period more than five years, 750 - 750 b. 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, 720 - 720 ii. In case of membership of (ICAI) for a period of more than five years 900 - 900 3. Life Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 4000 720 4720 ii. In case of membership of (ICAI) for a period more than five years 7500 1350 8850 4. Brain Trust Membership Fees a. Individual Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 800 144 944 ii. In case of membership of (ICAI) for a period more than five years 1200 216 1416 b. Flexi Firm/Corporate Membership Fees*** 2400 432 2832 *** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting. Additional Representatives can be nominated @1200/- plus GST per participant subject to maximum of 20 participant per firm Published By CA. Rajni M. Shah, on behalf of Chartered Accountants Association, Ahmedabad, 2nd Floor, Darshak, 14/A, Swastik Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596 While every effort has been made to ensure accuracy of information contained in this Journal, the Publisher is not responsible for any error that may have arisen. Professional Awards The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in the profession. 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]

Ahmedabad Chartered Accountant Journal July, 2023 199 There was once a man standing under the shade of a tree on a hot summer day. A window by the tree opened and a resident stretched out his neck, looking curiously at the bystander below. After staring at him for a few moments, he went back inside. When he opened the window and peered down again, he saw the stranger staring back at him, clearly agitated. “I am sorry, I was wondering if you would like some water? It is quite hot today.” The man asked. The bystander, parched due to the heat, eagerly nodded. He mentally berated himself for judging the kind man too quickly. He waited for him to bring down water for what seemed like ten minutes. Perhaps he hadn’t been too wrong, he thought. Until the man came running towards him, panting. “I am sorry,” he said. “I didn’t want to bring you just water so I made you some lemonade.” Feeling guilty for his judgment, he accepted the glass of lemonade gratefully. But the first sip told him how bitter it indeed was with not a single crystal of sugar in it. All this waiting in the heat had been for nothing but a bad-tasting glass of lemonade. “I am so sorry, I didn’t know if you consumed sugar or not,” the man explained, taking out a small pack of sugar and a spoon from his pocket. “I did not want to risk it in case you were diabetic.” The bystander couldn’t help but change his opinion once again. Kusum Kataria [email protected] The World is What You Think It is With each passing moment, we form a thought, an opinion, which ultimately leads to a prejudice and stubbornness against someone which reflects in our actions. Our world keeps getting smaller and smaller, filled with less people and more judgment. Vasudhaiva Kutumbakam just becomes an idea in the Maha Upanishad rather than an ideal to live by. It is said that the PushpakViman which took Lord Ram to Ayodhya after the exile flew at the speed of thought - which is just a testimony to how quickly our thoughts occur and change. While it is almost impossible to control our flow of thoughts, it is important to remember how those thoughts limit us and our selfless nature. A single action observed in a single moment without context sticks and we do not bother to contemplate more about the same, happy to have an excuse to think that we are superior and would never act like that. We ice out people because we refuse to change their image in our minds. The world of modern, abstract, art is very similar to our world. Completely based on our subjective perspective, it becomes what we think it is, never to change, no matter what. Thus, we should be very careful while forming opinions, because the world is exactly like that. ❉ ❉ ❉

200 Ahmedabad Chartered Accountant Journal July, 2023 Over the past few years, a trend which has picked up in our country is the youth leaving the nation either to pursue higher studies or to start their career outside India. You can name any large multinational company and it would be headed by a person of Indian origin, be it Satya Nadella, Sundar Pichai, Gita Gopinath or Parag Agrawal. According to the latest reports, around eight and a half lakhs Indians have given up their citizenship since 2015. In 2012, the number of students studying abroad was 189,000 which has increased to 13,25,000 in 2022. As compared to this number of international students studying in India in 2012 was 34,800 which has only risen to 49,438 students in 2022. Since the past few years, whenever we get to know of a news affecting countries in any part of the world, the prime news happens to be evacuation of our citizens staying abroad be it Russia, Sudan, Syria or Turkey. This is where we need to understand the reasons for so many of our own countrymen leaving the land of treasures or “Sone ki Chidiya” as it was once known. While one of the prime reason for students leaving the country happens to be lack of opportunities in a country as large as ours, tough competition to get into top universities in our country cannot be sidelined as a contributing factor. Larger population and fewer education institutes add to the burning question of brain drain. Not only students, but also the professionals face similar problems. Every year, lakhs of students pass out from colleges in search of their dream jobs only to be dissatisfied with a low paying job motivating them to leave the country in search of a high paying one. The brain goes where the money is. On a lighter note, the most spoken language in Silicon Valley these days is Hindi and Telugu. Children nowadays also don’t want to get trapped in the cycle of responsibilities which is also a prime reason for them to go and settle abroad leaving their parents and family back in the country. However, the most difficult is the life of the parents back in the country who live in emptiness inside their empty nests. It is when the parents need the children the most, they run away from the responsibilities to lead a “better life” leading to a worsened situation for the ageing souls. Blindly following the peers is also one of the reason for the children to go outside in search of a better career. While there are also a few who are really upset with the systems in our country and how difficult it is to get the work done and as a result they run away from the country in search of a better system. It is not always a bed of roses for the children going abroad and most of them are forced to do 3rd grade jobs except for extra ordinary brilliant students who are fortunate to do white collar jobs. While those children are fortunate enough to have white collar jobs, they miss out on social connections and friends/families at the cost of better earnings. Apart from this, quality of life, better civic sense, governance and discipline, better social security and health care are also some of the reasons for the quest to move out. Even several industrialists have foregone their Indian citizenship to claim outside citizenship as they are worried about the government atrocities. CA. Rajni M. Shah Editorial [email protected] Ēĸ ÿļ ĉĸĝ ĞĹ ćĸēĭ, ˢĉĸĝ ĞĹ ćĸēĭ

Ahmedabad Chartered Accountant Journal July, 2023 201 But it is not always the children who are at fault as who would not be attracted by a three times more salary package. But the problem is their education being done at concessional rates thanks to the taxpayers of this country while the fruits of their education are being earned by countries like UK, USA and Canada. The youth today have such high aspirations and expectations to achieve everything in no time which is forcing them to leave the country. Fortunately, this issue of brain drain is more prevalent for students of science stream as compared to students of our profession & also similar to our profession. It is therefore high time, we realize the problems faced by the students and budding young professionals. It is high time the leadership rises to the occasion to take steps to improve the systems and infrastructures for a better education. It is high time the government creates a better environment for businesses to operate in the country so that higher jobs may be created leading to reduced brain drain. It is time “Ease of doing business” is turned into reality rather than remaining an election winning slogan. It is time that the promise of ‘Acche Din’ is turned into action. People shall return back to their mother land only if it is able to create unique opportunities which are unmatched by other countries. Otherwise it only happens in Bollywood where the scientist Mohan Bhargava returns to ‘Swades’ with a sense of guilt and continues to stay back with a feeling of sacrifice. Let us end this piece with beautiful lines of a song from the movie Swades which aptly summarizes our feelings on our fellow countrymen, friends and family leaving the country in search of “better” jobs and education. ❉ ❉ ❉ Įđǥıøı ĞĹ ÿļ ùIJĚďij, ćij øĹ ĝĸ ĐIJĕĭĒĸúĭ ćij ýĭĞĸ øĞı ÿĭð, ćij ĕĽĂøĸ çðúĭ

202 Ahmedabad Chartered Accountant Journal July, 2023 Respected Members, I would like to start this message by wishing you all a very happy CA Day. It is the 75th year of our profession and a dedicated logo was unveiled by our ICAI President Shri Aniket Talati and it is a matter of pride and honour that a stamp was also commemorated by the Post and Telegraph department to honour our professional community on this occasion. I would also like to congratulate him on the approval of the new course which will enhance the reach of the profession globally. The month of July also kicks of the tax season for the country wherein as the CA fraternity, we give our utmost contribution to the nation by consulting to file the tax returns of the non-audited assessees. Considering the increase in the turnover and the relaxations given in the Income Tax Act, the onus of filing a tax return is of equal importance as filing an audit report. I wish my fellow members a great tax and audit season and wish that all abide by the rules and regulations of the law keeping in mind the ethics of our profession. It gives me pleasure to inform that the work of website of Ahmedabad Chartered Accountant Journal (ACAJ) is in full swing under able guidance of Vice President, CA Riken Patel and we are hoping to have the website live in the coming few months. It will host a large amount of information which was available in our journals and at finger tips of members with ease of search options. In this age of digitisation, the website will prove to be a great step in giving back to the members. ‘Tech Tuesdays’ is another brainchild of the Information Technology committee and they have committed to sending emails every Tuesday which will give information about websites, tools, AI bots etc that are beneficial to members in the work they do. We had a 100+ presence in the brain trust on Form 3CD and I urge members to participate in the upcoming seminar of brain trust on August 5th which will be on the topic of Statutory Audit. We have a lot of events planned especially the ‘Talent Evening’ on August 23rd which has already received a phenomenal response. Let us gather in large numbers to cheer the fraternity members who will participate and also take this opportunity to meet and greet fellow friends before we get back to the busy schedule of audit season. As the financial educator Joline Godfrey says “All work and no play doesn’t just make Jill and Jack dull, it kills the potential of discovery, mastery, and openness to change and flexibility and it hinders innovation and invention”. ❉ ❉ ❉ From the President From the President From the President CA. Shivang Chokshi [email protected]

Ahmedabad Chartered Accountant Journal July, 2023 203 1. INTRODUCTION 1.1 With the advent and widespread use of electronic means to facilitate business transactions, it is vital to understand the enforceability of such transactions in India’s Courts of law, more specifically, the admissibility of electronic records as evidence to establish legality of such transactions under the Income Tax Act, 1961. 1.2 The way we are communicating has drastically changed with increased use of smart devices like Smart Phone, Tablets/IPAD, wearables etc . The world has changed a lot with technological advancement of various communication devices. Internet Chat, Internet Call though VoiP like telegram Whatsapp and online meeting though various Apps have changed everything through which people interact with each other. Many businesses conduct essential meetings and business deals on platforms such as e-mail, and even on instant messaging apps such as WhatsApp and other similar applications. Schedules and minutes of meetings, essential documents, and receipts are all communicated via or on office WhatsApp groups. 2. ARE ELECTRONIC RECORDS ADMISSIBLE AS EVIDENCE UNDER THE INCOME TAX ACT,1961? 2.1 With this technological advancement, income tax department has also shifted its approach from conventional way of collecting information to digital surveillance. It is essential to be informed on how electronic records of conversations and documents shared on such platforms should be preserved and protected in the event these are to be produced as evidence in court. Keeping in mind the same, here we will discuss role of electronic and digital data analysis, surveillance at pre-search and during/post search proceedings. 3. Following are the relevant provisions of the Income Tax Act, 1961, recognising digital data as admissible evidence under that Act:- (a) Section 2(12A) -”books or books of account”includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as printouts of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device; (b) Section 2(22AA)- “document”includes an electronic record as defined in clause (t)24 of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000); It is also pertinent to consider the provision of Section 2(1)(t) Information Technology Act, 2000 which defines “electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche 4. To keep pace with the rapid developments in technology, the legislature enacted the Information Technology (“IT”) Act, 2000 and amended the Indian Evidence Act, 1872 in 2016 to recognize and include electronic records as an admissible evidence. 4.1 In accordance to Section 3 of the Indian Evidence Act, 1872, an evidence means and includes all documents including electronic records for the purpose of inspection by the Court. Evidence law in India is categorized into:- (a) primary evidence (b) secondary evidence Primary evidence being the original evidence, and secondary evidence being any number of copies or reproductions of the original. Evidentiary Value of Social Media Messages under the Income Tax Act, 1961 CA. Mukesh Dholakiya [email protected]

204 Ahmedabad Chartered Accountant Journal July, 2023 The distinction serves to impose on secondary evidence a higher threshold of authenticity in comparison to primary evidence in order to filter out any wrongdoers who may tamper with evidence. The general rule of law of evidence is that when primary evidence (i.e. the original) is not available, secondary evidence (i.e. copies) is not admissible. 4.2 The principle governing primary and secondary evidence is applicable to electronic evidence too. While the device that produces the electronic record is primary evidence, any reproduction of such electronic record (print outs, soft copy) is secondary evidence. However, due to the complexities associated with adducing primary electronic evidence, this general rule that secondary evidence is only admissible when primary evidence is available is relaxed. 4.3 All electronic documentation, therefore, falls under the category of secondary evidence. Owing to the nature of electronic records and their susceptibility to tampering, courts have adopted stringent measures while evaluating the authenticity, reliability, and relevance of all forms of electronic records, including chats on social messaging platforms, chat engines, and traditional electronic records such as email. It is pertinent to note that the slightest doubt that such record may have been tampered with is sufficient for courts to reject its admissibility altogether. 4.4 Section 65 of the Indian Evidence Act, 1872 provides for situations when a party to dispute may lead secondary evidence.Section 65A, provides that the contents of electronic records may be proved in accordance with the provisions of Section 65B. Section 65B prescribes the mode for proof of contents of electronic records. 4.5 The underlying objective of the section 65B is to sanctify proof of secondary evidence before it is used as legitimate evidence before court of law. This facility of proof by secondary evidence would apply to any computer output, such output being deemed as a document. 4.6 Accordingly, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer and to be referred to as computer output, shall also be deemed to a document.Here it is very imperative to consider very wide definition of “compute” given in Information Technology Act which reads as :- Section 2(1)(i) of that Act :”computer” means any electronic, magnetic, optical or other high-speed data processing device or system which performs logical, arithmetic, and memory functions by manipulations of electronic, magnetic or optical impulses, and includes all input, output, processing, storage, computer software or communication facilities which are connected or related to the computer in a computer system or computer network On analysis of the above definitions it is quite clear that the definition of computer given in the said act is very wide and eventually covers all such gadgets widely used by public in their day to life. Therefore apart from normal compute and laptop, smart phones, tablets/IPAD, smart watches and similar gadgets, cloud storage would also qualify as “computer” and therefore data stored of transmitted through such devices will qualify as electronic records as per Income Tax Act and Indian Evidence Act. 4.7 Whenever, assessee challenges the authenticity of the electronic records at any stage of income tax proceedings, the conditions laid down in section 65B of the Indian Evidence Act need to be satisfied by the department. The section 65B lays down certain conditions which have to be satisfied in relation to the information and the computer in question. Where those conditions are satisfied, the electronic record shall become admissible in any proceedings without further proof or production of the original as evidence of any contents of the original or of any fact stated in it. CONDITIONS FOR CONSIDERING AN ELECTRONIC RECORD The conditions which have to be satisfied so as to make a computer output as evidence are stated Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

Ahmedabad Chartered Accountant Journal July, 2023 205 in sub-section (2) of Section 65B. They are as follows: 1. The computer output containing the information was produced by the computer during the period over which the computer was used regularly to stores or process the information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer; 2. The information contained in the electronic record is of the kind which was regularly fed into the computer in the ordinary course of its activities; 3. The computer should have been operating properly during the periods of the data feeding or if it was not operating properly during that period or was out of operation, that gasp was not such as to affect the electronic record of the accuracy of its contents; 4. The information contained in the electronic record was derived or is reproduced from the information fed into the computer in the ordinary course of its activities. 4.8 When a statement has to be produced as evidence under this section, it should be accompanied by a certificate which should identify the electronic record containing the statement and describe the manner in which it was produced, give the particulars of the device involved in the production of the electronic record showing that the same was produced by a computer and showing compliance with the conditions of sub-section (2) of section 65B.The statement should be signed by a person occupying a responsible official position in relation to the operating or management of the relevant activities. Such statement shall be evidence of the matter stated in the certificate. It should be sufficient for this purpose that the statement is made to the best knowledge and belief of the person making it. 5. Despite the mandatory nature of these conditions, earlier, the law had been applied inconsistently. For instance, earlier the certificate of authenticity has not always been filed with the electronic records in legal proceedings. To throw more light on the issue on hand, following judicial pronouncements need to be analysed :- 5.1 FIRST VIEW OF HON’BLE SUPREME COURT The Supreme Court in State (NCT of Delhi) v. Navjot Sandhu, (2005) 11 SCC 600 had held that courts could admit electronic records such as printouts and compact discs as prima facie evidence without authentication. This case dealt with the proof and admissibility of the records of mobile telephone calls. The accused made a submission that no reliance could be placed on the mobile telephone records because the prosecution had failed to produce the relevant certificate under section 65B(4) of the Evidence Act and that the procedure set out in section 65B of the Evidence Act was not followed. In that case hon’be apex court concluded that a cross examination of the competent witness acquainted with the functioning of the computer during the relevant time and manner in which the printouts of the call records were taken was sufficient to prove the call records. As a result, the printouts and CDs were not compared to the original electronic record or certified at the time of adducing it as evidence. The Court concluded that the requirement of certificate under Section 65B is not always mandatory and irrespective of the compliance of the requirements of Section 65B, there is no bar to adducing secondary evidence under other provisions of the Evidence Act. 5.2 SECOND VIEW OF HON’BLE SUPREME COURT The Hon’ble Supreme Court had taken different view from aforesaid case, in the case of Anvar P.V. Vs. P.K. Basheer 2014 (9) SC J 1, and redefined the evidentiary admissibility of electronic records to correctly reflect the letter of the Evidence Act by re-interpreting the application of Sections 65 and 65B of the Evidence Act. In this casethe Honl’ble Apex Court, refused to accept the view that the Courts could admit electronic Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

206 Ahmedabad Chartered Accountant Journal July, 2023 records as prima facie evidence without authentication. It was held that in the case of any electronic record, it should be accompanied by the certificate in terms of section 65B obtained at the time of taking the document, without which, the secondary evidence pertaining to that electronic record is inadmissible. The Supreme Court held that the purpose of these provisions is to sanctify electronic evidence and the requirement of giving an electronic certificate under Section 65B pertaining to any electronic evidence or electronic record is mandatory for treating such an evidence as admissible in law. 5.3 Thereafter the Supreme Court in Shafhi Mohammad v. State of H.P. (2018) 2 SCC 801, held that the requirement of the certificate under Section 65B of the Evidence Act as per the judgment of Anvar P.V. is not required in the following two situation :- (a) A party who is not in possession of device from which the document is produced cannot be required to produce certificate under Section 65-B(4) of the Evidence Act (b) The applicability of requirement of certificate being procedural can be relaxed by the court wherever interest of justice so justifies. 5.4 LARGER BENCH OF SUPREME COURT ON CERTIFICATE In order to settle the two different interpretations between Anvar P.V. and Shafhi Mohammad, the mater was referred to larger Bench of Hon’ble Supreme Court of India in the case of Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal & Ors, Civil Appeal Nos. 20825-20826 of 2017, decided on 14 July 2020. The Supreme Court held that the certificate required under Section 65B of the Indian Evidence Act, is a condition precedent for the admissibility of any electronic evidence. The Court clarified that the certificate under Section 65B(4) is unnecessary if the original document itself is produced. If the owner proves a laptop, computer, computer tablet or a mobile phone owned or operated by him brings the same in the witness-box, on which the original information is first stored, the requirement of the certificate under Section 65B(4) is unnecessary. It was observed that the certificate required under Section 65B(4) is a condition precedent to the admissibility of evidence by way of electronic record, as correctly held in Anvar P.V. (supra). Oral evidence in the place of such certificate cannot possibly suffice as Section 65B(4) is a mandatory requirement of the law. It was held that Oral evidence in the place of such certificate cannot possibly suffice as Section 65B(4) is a mandatory requirement of the law. It was held that Section 65B(4) of the Evidence Act clearly states that secondary evidence is admissible only if lead in the manner stated and not otherwise. To hold otherwise would render Section 65B(4) ineffectual. The Court held that the following directions shall be followed by the Court dealing with electronics evidence till rules and directions under Section 67C of Information Technology Act and data retention conditions are formulated for compliance by telecom and internet service providers: “…general directions are issued to cellular companies and internet service providers to maintain CDRs and other relevant records for the concerned period (in tune with Section 39 of the Evidence Act) in a segregated and secure manner if a particular CDR or other record is seized during investigation in the said period. Concerned parties can then summon such records at the stage of defence evidence, or in the event such data is required to cross-examine a particular witness.” Hence, strict compliance with section 65B is now mandatory for persons who intend to rely any electronic record before the courts in India. 6. WHATSAPP MESSAGE AS AN EVIDENCE DELHI HIGH COURT The Delhi High Court in National Lawyers Campaign For Judicial Transparency And Reforms &Ors Versus Union Of India &Ors, W.P. (C) 447/ Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

Ahmedabad Chartered Accountant Journal July, 2023 207 2017, decided on 22 May 2017 held that a merely WhatsApp post does not qualify as valid legal evidence under the Evidence Act, when neither the original nor a copy of the original document is produced. MUMBAI HIGH COURT On the contrary, the Bombay High Court held SMS/ WhatsApp messages to be admissible under the Court of law under Section 65 of Indian Evidence Act in the case of SBI Cards & Payment Services Pvt Ltd. vs. RohidasYadav, Execution Application No. 1196 of 2015, decided on 11 June 2018. The Court held that legal notice or messages sent though WhatsApp messenger are to be considered as legal evidence under the law and the blue tick in WhatsApp is a valid proof that the Respondent has accepted the physical copy of communication. NATIONAL COMPANY LAW APPALATE TRIBUNAL The NCLAT in the matter of Bhandari Hosiery Exports Ltd. & Ors vs. In-Time Garments Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 143 of 2019, decided on 1 March 2019, took on record a text message sent over WhatsApp messenger by a corporate debtor to an operational creditor complaining about the quality of goods supplied. On basis of this WhatsApp message, the Court held that there was a ‘preexisting dispute’ under Section 9 of the Code and accordingly Insolvency Application could not be admitted on account of a pre-existence dispute. Further, the NCLT, Chennai Bench in Val-Met Engineering Pvt. Ltd. vs. Trusted Aerspace Engineering Pvt. Ltd., CP/922/IB/2018, decided on 21 June 2019, relied on the decision of the NCLAT in BhandariHoseiry Exports and held that there is no bar on relying on WhatsApp messages exchanges between the parties as the same are admissible under Section 65 B of the Evidence Act. The Tribunal concluded that the WhatsApp messages exchanges between the parties amounted to an acknowledgement of debt. On the contrary, recently, the Allahabad NCLT Bench in GP CaptAtul Jain vsTripathi Hospital Pvt. Ltd., CP No. (IB) 457/ALD/2019, decided on 25 June 2020, sympathised with the Petitioner for the loss but rejected to admit its claim on the ground that the he did not furnish any supporting documents.The Tribunal held that WhatsApp messages between the parties that were attached as a proof to establish the debt cannot be considered as an evidence to establish existence of debt. 7. APPLICABILITY OF INDIAN EVIDENCE ACT,1872 IN INCOME TAX PROCEEDINGS: Provisions in the Income-tax Act, 1961, where a specific reference is made of the Indian Evidence Act, 1872. (i) Section 131, Power regarding discovery, production of evidence, etc: (ii) Section132:Search and seizure (iii) Section 132(4A): Presumption–Books of account, documents etc- (iv) Section 132A: Power to requisition books of account, etc (v) Section 132B: Application of seized or requisitioned assets. (vi) Section 133A: Power of survey. (vii) Section.136. Proceedings before income-tax authorities to be judicial proceedings. (viii) Section 142. Enquiry before assessment. (Viii)Section 143(3): Assessment (ix) Section 250(4):CIT(A)- Rule 46A- Additional evidence. (x) Section 254(1): Appellate Tribunal (xi) Section 278E: Presumption as to culpable mental state. (xii) Section 292C : Presumption as to assets, books of account, etc In backdrop of above we will discuss the evidentiary value of electronic records, more Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

208 Ahmedabad Chartered Accountant Journal July, 2023 particularly, whatsapp, telegram and similar messages in income tax proceedings. 7.1 It is important to consider the Interplay between Indian Evidence Act and Income -tax Act, 1961. For this, ratio decidendi in the case of Chuharmal v. CIT (1988) 172 ITR 250 (SC) needs to be discussed. In that case, it is observed by the hon’ble apex court that what was meant by saying that the Evidence Act did not apply to proceedings under the Income -tax Act, 1961, was that the rigour of the rules of evidence contained in the evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so. That all that Section 110 of the Evidence Act, 1872, did was to embody a salutary principle of common law jurisprudence, viz., where a person was found in possession of anything, the onus of proving that he was not its owner was on that person. This principle could be attracted to a set of circumstances that satisfy its conditions and was applicable to taxing proceedings. 7.2 It has been consistent principle that addition cannot be made merely on the basis of WhatsApp chat unless there are corroborative evidences in relation to happening of the transaction alleged in WhatsApp chat. In case of Shri Manchukonda Shyam [TS-491-ITAT-2020(VIZ)], Visakhapatnam ITAT holds that addition made merely on the basis of WhatsApp messages is not sustainable; AO made addition of Rs.1.05 Cr as undisclosed income in the hands of the assessee based on WhatsApp messages allegedly found on the phone of the person whose premises were searched which suggested that cash loan was given by assessee. The ITAT observed that in the search proceedings in the residence of Shri Anil Kumar, no evidence with regard to unaccounted investment or expenditure representing the loan supposed to be taken from the assessee was found. ITAT remarked that ”Merely on the basis of the statement given by Shri Lanka Anil Kumar, which was subsequently retracted, the AO made the addition on the presumption that the assessee had advanced the sums to Shri Lanka Anil Kumar without bringing any evidence on record.”; Thus, held that there is no reason to disbelieve the statement given by the assessee that the payments were given for meeting petty cash or miscellaneous expenses which were in the range of Rs.5,000/- to Rs.10,000/- only, therefore, held that the addition made by the AO was unsustainable. The latest judgement is of A. Johnkumar, TS-384- ITAT-2022 (CHNY) where the Chennai ITAT deleted the addition towards alleged cash distribution of Rs.17 Cr. over assembly election contested by Mr. Narayana Swamy (Former Chief Minister, Puducherry) as unexplained expenditure under Section 69C and held WhatsApp messages and other incriminating material insufficient to sustain additions in absence of any finding by the Election Authorities and inadmissibility under Section 65B of Evidence Act. The Taxpayer (presently MLA, Nellithope Assembly Constituency in Puducherry) was subjected to post-search assessment for AY 2017-18 that led to additions on different counts including Rs.17 Cr. as ‘election expenses’ over by-election contested by Mr. Narayana Swamy after Taxpayer resigned as MLA, Nellithope in 2016. ITAT noted that the sole basis for the said additions under Section 69C was photo identity cards issued by M/s Johnkumar Trust and WhatsApp message sent from Taxpayer’s mobile phone to Mr. Somu alias Somasundaram S/o Mr. Narayana Swamy; Observed that, ”WhatsApp messages cannot be considered as a conclusive evidence to draw an adverse inference against the assessee, unless those WhatsApp messages are supported by corroborative evidences to indicate that those messages and contents represents undisclosed income of the assessee”. ITAT analysed the messages and observed that the messages were not readable in terms of any income or expenditure and remarks that Revenue neither tested the admissibility of WhatsApp messages as evidence under Section 65B of Evidence Act, nor examined Mr. Somasundaram, the recipient of messages. ITAT found that that Revenue failed to demonstrate Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

Ahmedabad Chartered Accountant Journal July, 2023 209 from which person, the Taxpayer has received cash and to whom the Taxpayer distributed the cash but abruptly concluded in his own understanding of the messages that the Taxpayer has received and paid cash for votes of Rs.17 Cr. ITAT further observes that the Taxpayer did not contest for the said election for which allegedly cash is paid for votes, thus opined that, ”the question of assessee spending such huge money to distribute to voters does not arise”. ITAT also noted that Revenue has made inference that the Taxpayer has paid a sum of Rs.4,000/- to each photo identity cards holder, however has not found any physical cash distribution to voters and not examined any of the photo identity card holder to ascertain the fact that cash was distributed to them. In ITAT’s opinion, the Revenue arrived at conclusion that such messages are meant for distribution of cash and the assessee has spent a sum of Rs.17 Cr. for election expenses, without carrying out necessary enquiries and examination of the concerned persons. ITAT, thus, held that Revenue’s findings are purely on suspicion without any evidences to justify its findings and deleted the addition made in the hands of the Assessee on both substantive and protective basis towards alleged cash distribution for election amounting to Rs.17 Cr. 7.3 AtulTantia, Kolkata vsDcit, Cen. Cir.-3(1), Kolkata on 28 March, 2023- I.T.A. No. 492/Kol/ 2021[Assessment Year: 2018-19] “3. Facts in brief are that, the assessee filed return of income on 31/08/2018 declaring total income of Rs.58,45,250/- after claiming deduction under chapter VIA of Rs.4,60,000/ -. A search and seizure u/s 132 of the Act was conducted on 12/09/2017 on GPT Group of cases including I.T.A. No. 492/Kol/2021 Assessment Year: 2018-19 AtulTantia the assessee. During the course of search and seizure, mobile data was retrieved and printout of SMS were taken out from the mobile of ShriAtulTantia. As per the mobile messages, unaccounted cash transactions were carried out between concerns of GPT Group and others. The SMS and WhatsApp printouts were suggestive of instructions of ShriShivratan Sharma and ShriAtulTantia. Thereafter, statements were recorded of ShriAtulTantia, in which he never admitted that the money either belonged to him or exchanged hands at his instructions. The Assessing Officer finally added the same to the income of the assessee as undisclosed income u/s 68 of the Act as the assessee did not offer any plausible explanation in the assessment framed u/s 143(3) of the Act dt. 30/12/2019. ………. 6. We, further note that in the WhatsApp messages, it was never stated that the money belonged to the assessee but it was stated to be transactions between the concerns/ parties of GPT Group and others. In our considered view the addition cannot be sustained as it based on the SMS or WhatsApp messages without any corroborative evidences. Considering these facts of the case, and the decisions of the Co-ordinate Benches of the ITAT, we are inclined to set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition. 7. In the result, appeal of the assessee is allowed…” 7.4 M/s.Vetrivel Minerals, (V V Minerals) v/s ACIT W.P(MD)Nos.11261, 11271, 11272, 11273 and 11765 of 2021 judgement dated 03-08-2021 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT- The Hon’ble Court has inter alia observed as under: - “….. 5. Further, the counsel for the petitioners also contended that the entire assessment on the petitioners was framed on the basis of the alleged secondary evidence of electronic records such as, Excel Sheet, Excel work sheet, Excel note book, Excel files, e-mail communication and Whatsapp conversation and the so called statement of the persons recorded under Section 132(4) of the Income Tax Act. The counsel for the Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

210 Ahmedabad Chartered Accountant Journal July, 2023 writ petitioners contends by placing reliance on the judgment of the Supreme Court in the case of Anwar PV reported in (2014) 10 SCC 473 and also in the case of Arjun Pandit Rao reported in 020 7 SCC 1 that since the mandatory requirement of Section 65B of the Indian Evidence Act has not been complied with in respect of any of the electronic records relied upon by the respondent, they being not admissible in evidence, the assessment orders being passed on the same, cannot be sustained in the eye of law.… 24.As contended by the writ petitioners, when the entire assessment has been framed only on the basis of the so-called electronic record which are said to be copies of Excel Sheet, Excel work note book etc., non-compliance of Section 65(B) of the Indian Evidence Actrenders the document inadmissible in the eye of law as held by the Supreme Court in the judgment reported in Anvar P.V vs. P.K.Basheer and others reported in (2014) 10 SCC 473.” 7.4 Chetan Gupta v. ACIT [2013] 34 taxmann.com 306 (Delhi - Trib.)/[2013] 144 ITD 344 (Delhi - Trib.)/[2014] 160 TTJ 9 (Delhi - Trib.) In this case, assessee, inter alia, argued as under : VI. Violation of Information Technology Act, 2000 Indian Evidence Act, 1872: 3.10. Annexure II of the Information Technology Act, 2000 contains amendments made in the Indian Evidence Act, 1872 for legal recognition of electronic documentation as well as security thereof and access thereto. Sections 65A and 65B were inserted into the Indian Evidence Act, 1872 relating to admissibility of computer generated evidence. By virtue of the provisions of Section 65A, the contents of electronic records may be proved in evidence by the parties in accordance with the provisions of Section 65B. Sub-clause 1 of Section 65B stipulates that any information contained in electronic record shall be deemed to be a document and shall be admissible in evidence without further proof or production of the originals, if the conditions mentioned in the said Section are satisfied in relation to the information and computer in question. 3.11. The Apex Court in State (NCT of Delhi) v. Navjot Sandhu [2005] 11 SCC 600, while examining the provisions of newly added Sections 65B, held that Section 65B enables secondary evidence of the contents of a document to be adduced if the requisite conditions as contained in section 63 are complied with and the electronic record in original satisfies the conditions of admissibility as contained in section 65B. A similar view has been taken by the Delhi High Court in Societe Des Products Nestles v. Essar Industries [2006] 33 PTC 469 following the Supreme Court judgment cited above. 3.12. Applying the statutory provisions of the I.T. Act 2000 as well as Evidence Act including section 65B and the interpretation thereof by the apex court and Delhi High Court as above. It is submitted that the printouts supplied by the VB have no sanctity value as evidence. Section 65B of the Evidence Act lays down the presumptions regarding the integrity and authenticity of electronic record. In the present case these presumptions do not apply since electronic record is not “secure record” in terms of section 16 of the IT Act, 2000 read with section 2(1)(ze) thereof. Electronic record in the pen drive which in handled or reproduced without the presence of witnesses is secondary evidence which in the instant case does not satisfy the condition as per section 63 of the Indian Evidence Act. The printouts do not fulfil the conditions as per section 63, and 65 B of the Evidence Act. Since there exist demonstrative discrepancies in the seizure of pen drive and its reported by police one day prior date of seizure by said Rakesh Kumar and Gurcharan Singh, the evidence which is mired in admitted discrepancies cannot be used in income tax proceedings. 3.13. It was submitted that the VB has flouted the basic tenets of cyber forensics laws relating to collection, recovery and analysis of electronic evidence. Basic code of rules on the legal admissibility of electronic records so as to preserve authenticity, integrity, identity, and reliability of electronic record has been grossly violated by the VB while preparing the CD from the pen drive thus accessing the electronic record in violation of Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

Ahmedabad Chartered Accountant Journal July, 2023 211 section 16 and section29 of the I.T. Act, 2000 as well as section 65B of the Evidence Act. For creating a “bit image copy” of the suspect hard disk (pen drive in the instant case). It is essential that a hash code is created for the “original” being copied so that the original can be preserved and not tempered with. Clone can then be subjected to analysis. Hard Drive Duplication Technology has normally the facility that a report is generated along with the hash code which can be jointly authenticated by the system owner and the investigator to avoid any disputes .on the integrity of data transfer. The Hon’ble ITAT had observed as under :- 6.2 Income Tax proceedings are non-adversarial in nature and the entire exercise is directed to ensure a fair and proper assessment on the assessee. It is trite law that technical rules of Evidence Act and Cr. P. C. are not applicable to these proceedings. An evidence which indicates the income of the assessee is admissible in Income Tax proceedings. From the record it emerges that many of the entries mentioned in the pen drive belonged to various business concerns of the assessee in which he is associated in the capacities of director or partner. Similarly many entries pertained to his bank accounts and other persons. They are explained by the assessee though on prejudice basis, but the fact remains that the entries have correlation with assessees activities. In this view of the matter the contents of the pen drive become admissible evidence in Income Tax proceedings and form a basis for investigations and additions. Consequently we hold that pen drive and print outs thereof constitute admissible evidence in these proceedings. The reasons for reopening were recorded on the basis of these contents. In view of the fore goings the reasons recorded for escapement of income and the material available on record with AO have a live link with each other. Thus, we hold that the reasons for reopening the assessments were properly recorded by AO. This question is answered against the assessee However, the aforesaid decision were rendered before in the case of ArjunPanditraoKhotkar v. KailashKushanraoGorantyal&Ors, Civil Appeal Nos. 20825-20826 of 2017, decided on 14 July 2020 by hon’ble supreme court supra [in nonincome tax proceedings]. Though the rigour of Indian Evidence Act may not be applied to Income Tax Proceedings, the aforesaid decision of hon’ble apex court settled the law of admissibility of any digital evidence to be used against any party to proceedings. Earlier, when ITAT has observed in aforesaid case that contents of the pen drive become admissible evidence in Income Tax proceedings, the hon’ble apex court,in Shafhi Mohammad v. State of H.P. (2018) 2 SCC 801, held that the requirement of the certificate under Section 65B of the Evidence Act as per the judgment of Anvar P.V. is not required. However, larger bench reversed that decision and held that certificate u/s 65B of Indian Evidence Act is mandatory condition to be fulfilled to consider any digital evidence as valid to be used against any party. Therefore, whenever any possibility of tempering of digital evidence relied upon by income taxdepartment to be used against assessee, the authentication or some sort of forensic report can be asked byasseessee. 7.5 The Hon’ble Supreme Court of India on July 14, 2021 in A2Z Infraservices Ltd. Versus Quippo Infrastructure Ltd. (Now Known As Viom Infra Ventures Ltd.) SLP(C) No. 8636/2021played a significant part in yet again enlightening us on the question of evidentiary value of WhatsApp chats/ conversations. The complexities arises as only the printouts of the conversations may be presented in court, the nature of WhatsApp chats is largely secondary. However, the Indian Evidence Act requires that any “electronic record” be presented in the main form of evidence or that the document is proven by primary evidence before it may be admitted as evidence.The Courts have time and again answered the question of whether WhatsApp Chats have any evidentiary value or not and have emphasized and ruled that WhatsApp chats cannot be used as evidence without a certificate under Section 65B of the Evidence Act. Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

212 Ahmedabad Chartered Accountant Journal July, 2023 A bench of Hon’ble the then Mr. Chief Justice N V Ramana and Hon’ble Mr. Justice A S Bopanna and Hon’ble Mr. Justice Hrishikesh Roy said, “What is the evidential value of WhatsApp messages these days? Anything can be created and deleted on social media these days. We don’t attach any value to the WhatsApp messages.” “Prima facie we are not satisfied with the HC direction for depositing the money in an escrow account. We are not considering the purported admission in WhatsApp messages. If it is not late, then go before the arbitrator and parties would be bound by the arbitrator’s award.” 8. CONCLUSION: - 8.1 Rules of Evidence and Indian Evidence Act are applicable to proceedings in the Courts before the judges and the Magistrates. They apply to judicial proceedings 8.2 The AO is conducting quasi – judicial proceedings and is not a Court. However, u/s. 131 and a few other provisions the Civil Procedure Code is made applicable to the Income tax proceedings. 8.3 The CIT(A) and the ITAT also are quasi-judicial. The Rule of Evidence and the provisions of the Indian Evidence Act do not apply strictly to the proceedings under the Income Tax Act. The proceedings however are to be concluded based on evidence only. 8.4 Rules appealing to common sense in any case have to be applied in leading evidences in support of the case and in relying thereon to adjudicate the case IT Act being the law of taxation, a statute, shall also be governed by Rules of Evidence though not by the strictest application of the Indian Evidence Act. 8.5 However, in case of use of digital evidence against the assessee, following points need to be noted:- (a) Addition proposed in the hands of person from whose device whatsapp message recovered:-if department relies on any whatsapp/telegram or similar messages to add the income in the hands of assessee, then the statement of the assessee becomes very important. If he accepts the contents of the message and concede the income then addition can be based on such message. In case assessee denies the sanctity of the such message, then burden lie of department to bring corroborative evidence in support of conversation mentioned in such message to prove that said message has some bearing on total income of the assessee. (b) Addition in the hands of third party:- if department relies on any whatsapp/telegram or similar messages recovered from the mobile/computer of third party, to add the income in the hands of assessee, then assessee has right to check the authenticity of such digital evidence and can ask for appropriate authentication regarding genuineness of such message. Assessee can also ask for cross examination of the person from whose device such message is claimed to have been recovered. The burden of proof lies on department to prove with some corroborative evidence that such message is actually genuine and has bearing on total income of the assessee. Recently, the similar view was taken by Hon’ble ITAT Visakhapatnam, in the case of ACIT Vs Shri Manchukonda Shyam [ITA No. 87/Viz/2020, Dt 23/09/2020] and others cases supra, wherein it is held that addition was made merely on the basis of WhatsApp messages and the statement recorded u/s.132(4) of third party(which was subsequently retracted), is unsustainable. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular facts and circumstances. ❉ ❉ ❉ Evidentiary Value of Social Media Messages under the Income Tax Act, 1961

Ahmedabad Chartered Accountant Journal July, 2023 213 The recent guidelines issued for the Special All-India Drive against fake registrations mark a significant step towards curbing menace, enhancing transparency, and improving the efficiency of the tax system.Unscrupulous entities exploit loopholes in the registration process to create fictitious businesses with the sole intention of evading taxes or engaging in fraudulent activities.These small enterprises often leverage the flexibility and cost-effectiveness of co-working spaces and shared warehouses to run their operations smoothly. Effective dates: - 16 May 2023 to 15 July 2023 The authorities: - Central and state tax authorities. The challenges that will be faced by these sellers, - Those operating from VPOBs, by providing clarity in the verification process, promoting digital record-keeping, and collaborating with online marketplaces. - Small businesses relying on e-commerce platforms to sell their goods. - People operate through co-working spaces or shared warehouses. This practice might make it difficult for them to prove the authenticity of their registrations, potentially leading to complications or delays in verification. Drive to Combat Bogus Billings and Fake GST Registrations CA. Yash Shah [email protected] Display GST Registration According to Rule 18 of GST Laws, every registered person is obligated to prominently display their GST registration. Failure to comply with this requirement may lead to penalties under Section 125, amounting to Rs. 50,000. While no specific format has been prescribed for displaying the GST number, businesses should ensure that it is clearly visible to customers, either on the premises or on relevant documents. Demarcate Multiple GST Registrations For businesses with multiple GST registrations at the same address, it is essential to demarcate the designated areas. This demarcation helps establish clarity and prevents any confusion regarding the registration and compliance of each registration. By clearly identifying and distinguishing the different areas, businesses can ensure accurate reporting and facilitate effective compliance management. Register Additional Places of Business It has been observed that some registered persons conduct business operations from places other than their principal place of business without registering these additional locations. To avoid non-compliance and potential legal issues, it is recommended that all such places of business are registered as "Additional Place of Business." Registering these additional locations ensures proper reporting and transparency within the GST system. Authenticate Aadhaar Businesses that have not yet authenticated their Aadhaar details with the GST portal should do so immediately. Aadhaar authentication is a mandatory process for certain individuals, and non-compliance may result in penalties or restricted access to certain GST facilities. By authenticating Aadhaar information, businesses contribute to maintaining accurate records and enhancing the credibility of their registrations. Stock Reconciliation To ensure accurate reporting and combat discrepancies, businesses should conduct regular stock taking and reconcile their stock as per books of accounts and physical verification. Any differences identified during this process should be noted and reconciled promptly. This practice promotes transparency and helps prevent fraudulent activities related to fake registrations. Important action points to aid businesses in their drive against fake registrations.

214 Ahmedabad Chartered Accountant Journal July, 2023 Implications of Non-Compliances: While non-compliances such as non-declaration of GSTIN on the company’s name board, non-display of GST certificate, or non-updating of GST certificate should not lead to the automatic determination of a GSTIN as fake, it is important to recognize that these non-compliances have their own implications in terms of the respective GST provisions. Non-compliance can lead to penalties under Section 125 of the GST Act. Specifically, a penalty of Rs. 50,000 may be imposed for failing to display the GST registration number as per Rule 18. It is important for businesses to understand the implications of non-compliance and take necessary measures to avoid penalties. One significant aspect to note is that there is no specific format prescribed for displaying the GST number. However, businesses are expected to prominently display their GST registration number in a manner that is easily visible to customers and stakeholders. This could include displaying the GST number on invoices, business premises, websites, or any other appropriate location. While the format may not be specified, it is essential to ensure the number is clearly visible and legible. Objective and provisions involved: The government has clarified that the Fake Registration Drive is aimed at identifying and eliminating entities engaged in fraudulent practices, including fake GST registrations and bogus billings. Provisions playing vital roles have been mentioned below Section 71, Section 168(1), Rule 25, Rule 86A, Section 83, Section 56, and Rule 35. Under the Goods and Services Tax (GST) system, there are provisions that address non-compliances and impose penalties for various violations. It is important to note that non-compliances such as non-declaration of GSTIN on the company’s name board, non-display of GST certificate, or non-updating of GST certificate should not automatically lead to the determination of a GSTIN as fake. Let’s explore some relevant sections that deal with penalties for non-compliances without automatically assuming the GSTIN is fake: Drive to Combat Bogus Billings and Fake GST Registrations Other Penal provisions for non- compliances Section 122 The penalties specified are applicable to various violations under the GST law, such as failure to furnish information, obstruction of an officer, evasion of tax, etc. The penalties prescribed are based on the severity of the offense and may include monetary fines or a percentage of the tax amount involved, as determined by the tax authorities. Section 125 General Penalty Section 125 of the CGST Act, 2017 specifies a general penalty provision for non-compliance with any provisions of the GST law, where a specific penalty is not already provided. Under this section, a penalty of up to Rs. 25,000 may be imposed for any violation that does not have a separate penalty prescribed. Section 126 General Penalty for Contraventions Where Specific Penalties Are Not Provided Section 126 of the CGST Act, 2017 provides a general penalty provision for contraventions where specific penalties are not expressly provided. The penalty under this section can be up to Rs. 10,000 or 10% of the tax amount involved, whichever is higher.

Ahmedabad Chartered Accountant Journal July, 2023 215 To strike a balance between curbing fake registrations and addressing genuine taxpayer concerns, the following suggestions may be considered: - Clarity in Guidelines: The government should provide explicit guidelines to differentiate between intentional fraud and unintentional non-compliances, ensuring that genuine taxpayers are not unduly affected. - Opportunity for Rectification: Genuine taxpayers should be given an opportunity to rectify non-compliances within a reasonable timeframe, allowing them to comply with the prescribed provisions and fulfill their obligations. - Educational Initiatives: The government should undertake extensive educational initiatives to raise awareness about compliance requirements, ensuring that genuine taxpayers understand their responsibilities and take appropriate action. - Transparent Dispute Resolution Mechanism: Establishing a transparent and efficient dispute resolution mechanism would enable genuine taxpayers to present their case and seek fair treatment in situations where non-compliances have occurred inadvertently. Drive to Combat Bogus Billings and Fake GST Registrations Continued to page 228

216 Ahmedabad Chartered Accountant Journal July, 2023 Change in Taxation of Charitable Trust: Section 115 BBI and its impact Up to Assessment year 2022-23 i.e Financial year 2021-22, all the trust having approval under section 10(23C) or registration under section 12A\12AA or 12AB, income applied for the object of the trust, income accumulated upto 15% of the total income, income accumulated to be spent in the next financial year or in the year of receipt and filed the Form 9A for the same and income accumulated for the specific object to be spent within next 5 financial years and filed the Form 10, were allowed as a deduction form the total income. Where the balance income after allowing the above deductions exceeded Rs. 250000/- was liable to be taxed as per the slab rate applicable to an Individual. As per the newly inserted Section 115BBI, on and from Assessment year 2023-24 i.e. Financial year 2022-23, where the total income of the trust includes any “specified income” as defined in the section will be tax @ 30%. One of the “specified income” includes, income accumulated or set apart in excess of 15% of the income, where such accumulation is not allowed under any specific provision of the Act. Hence any accumulation in excess of 15%, other than accumulation as prescribed under Explanation 1 to section 11(1) {Form 9A} and accumulation as prescribed uder section 11(2) {Form 10},will be liable to be taxed @ 30% plus surcharge. EXAMPLE: Asst. Year 2022-23 Asst. Year 2023-24 GROSS RECEIPT 10,00,000 10,00,000 Less: Income applied for the object 5,00,000 5,00,000 Income accumulated upto 15% 1,50,000 1,50,000 ——————— ——————— Taxable Income 3,50,000 3,50,000 Tax 5% in excess of Rs. 250000/- (Slabrate) 5,000 Tax @ 30% Surcharge & Cess 1,05,000 TIME LIMIT TO FILE FORM 9A AND 10: Time limit to file the Form 9A and Form 10 is at least 2 months prior to the due date specified under section 139(1) for furnishing the return of income i.e. 31st August of the relevant Assessment Year. However, By circular no. 6 of 2023 dated 24.05.2023, it is clarified that accumulation application of income shall not be dined to a trust, if the statement of accumulation of income in Form 9A or Form 10 is furnished on or before the due date of furnishing the return as provided in section 139(1). i.e. 31st October of the relevant assessment year. ❉ ❉ ❉ Important Update CA. Atul R. Shah [email protected]

Ahmedabad Chartered Accountant Journal July, 2023 217 Assessment – Faceless assessment – validity – Assessment order declared non est by High Court for failure to follow procedure in sec.144B(9) but leaving it open to department to take steps in accordance with law – Special leave petition by department – Pursuant ot order of High Court, Fresh proceedings initiated against assessee – Special leave petition disposed of in view of subsequent development with liberty to department to revive special leave petition in case of difficulty – Income-tax Act, 1961, s. 144B(9). Addl..CIT vs Tatwajnana Vidyapeeth (453 ITR 217) (SC). Benami transactions – change of law – Amendments brought in 2016 – Have prospective effect – Benami transactions (Prohibition) Act, 1988, s. 2(9)(A), (C) – The court followed decision in case of Ganpati Dealcom Pvt. Ltd. (447 ITR 108). Asstt. CIT and Others vs Nexus Feeds Ltd. and Others (453 ITR 459) (SC) Income or capital – club – entrance fees Entrance fees paid by member – High Court holding correct test applied by Tribunal to hold receipt of capital nature and no question of law arises – no interference – Income-tax Act, 1961, s.4 Pr. Commissioner of Income-tax v Royal Western India Turf Club Ltd. (453 ITR 460) (SC) Glimpses of 12 Advocate Samir N. Divatia [email protected] Search & Seizure – Retraction of statement – effect The Hon’ble court observed that no case was made out to interfere with the impugned judgment and orders passed by the High Court : The statement recorded u/ s 132(4) and later confirmed in statement recorded u/s 131 of the Act cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to the notice of the Higher Officials by filing duly sworn affidavits or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in a cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assume significance. Roshan Lal Sanchiti v Pr.CIT (452 ITR 229) ❉ ❉ ❉ 13 Rulings 15 14

218 Ahmedabad Chartered Accountant Journal July, 2023 Period for which the Interest payable under section 220(2) when the assessment is set aside: PCIT v/s. At & T Communication Services (India) Pvt. Ltd. (2023) 451 ITR 0092 (Delhi) Issue: Whether the interest under section 220(2) is payable from the date of Original Order or the fresh assessment Order when an assessment is aside to the file of the AO? Held: “Para 2.1 of the said Circular expressly states that if the assessment order is ‘set aside’ by the appellate authority, no interest under Section 220(2) of the Act can be charged pursuant to the original demand notice. The judgment of the Rajasthan High Court in Commissioner of Income tax v. Rajesh Kumar Dinesh Kumar, [2009] 221 CTR 78 (Rajasthan) relied upon by the learned counsel for the Assessee also refers to the said Circular to hold that no interest is payable on the demand raised by the original order when the original order of the AO is set aside by the appellate authority and a fresh assessment order is passed. Similarly, the Bombay High Court in the case of Commissioner of Income-tax-1, Mumbai v. Chika Overseas (P.) Ltd., [2012] 23 taxmann.com 315 (Bom.) held that an Assessee is liable to pay interest under Section 220(2) of the Act from the end of the period mentioned under Section 220(1) of the Act i.e., thirty (30) days after service of the notice of the fresh assessment order.”. Revival of a “struck of company” and its effect on reassessment proceedings: Ravinder Kumar Aggarwal Vs. Income Tax Officer (2023) 451 ITR 0100 (Delhi) Issue: Whether the restoration of a struck of company will validate the notice of reassessment when it was issued during the period after the company was struck off but before it was revived by the Order of NCLT? Held: “1. The Petitioner herein is the director of RKA International Pvt. Ltd., a company incorporated under the provisions of the Companies Act, 1956 (‘the Company’). The Company was struck off by the Registrar of Companies, Delhi and Haryana (‘ROC’), from its register of companies, under Section 248 of the Companies Act, 2013 (‘Companies Act’) on 30th June, 2017, in pursuance of the proceedings initiated by Ministry of Corporate Affairs through the office of ROC, due to the defaults of the Company. 2. The present petition has been filed by the Petitioner seeking quashing of the notice dated 28th March, 2019 (impugned notice), issued under Section 148 of the Income Tax Act, 1961 (‘the Act’) for Assessment Year (‘AY’) 2012-13 on the ground that the said notice is null and void, as it has been issued in the name of the struck off company. 3. The Respondent has filed its counter affidavit, placing on record the order dated 25th September, 2019, passed by the National Company Law Tribunal, New Delhi (‘NCLT’), allowing the petition filed by the Income Tax Department (‘the Department’) under Section 252 of the Companies CA. Jayesh C. Sharedalal [email protected] From the Courts 31 32

Ahmedabad Chartered Accountant Journal July, 2023 219 Act, 2013, for restoration of the name of the Company in the register of companies, maintained by the ROC Delhi. Learned Counsel for the Respondent states that since the Company now stands restored, the present writ petition which is premised on the sole ground that the impugned notice was issued in the name of a struck off Company, does not survive any more and the entire petition has become infructuous.” “17. In the present proceedings, the Company has admittedly been restored and as it has been observed above that statutorily upon restoration, the Company under Section 252(3) of the Companies Act, 2013, is deemed to not have been struck off from the register of companies at all. Accordingly, the impugned notice dated 28th March, 2019, is valid and not non-est on the grounds urged in the present petition.” Depreciation on Intellectual Property rights – brands, patents, trade mark: CIT Vs. Daikin Shri Ram Aircon Pvt. Ltd. (2023) 451 ITR 0133 (Delhi) Issue: When the intellectual property rights like brand, patents, trademark etc which have been purchased for a consideration can the depreciation thereon be disallowed only since the same had not been transferred or registered in the name of the assessee? Held: “5. The Assessee also separately purchased the manufacturing business of M/s SIEL Aircon Ltd. (‘SAL’) vide an agreement dated 08th August, 2000, which included intellectual property rights such as brand name, logo, patents and trademarks (IP rights) for a sum of Rs. 10,93,00,000/-. The Assessee for AY 2001-02 claimed depreciation of Rs. 2,73,25,000/- at the rate of 25% as prescribed in this schedule of rates in respect of intangible assets. Depreciation of Rs. 2,04,93,750/ - was claimed on this account for the AY 2002-03. 7. The AO also disallowed the depreciation of Rs. 2,73,25,000/- claimed by the Assessee on account From the Courts of purchase of IP rights from SAL only for the reason that the said rights had not been transferred or registered in the name of the Assessee, as recorded by the auditor in Note no. 6 of the audited accounts. The AO held that since trademarks are registered under the Trademarks Act, 1999, in the absence of such a registration, the Assessee is not entitled to claim depreciation on these IP rights.” “10. Similarly, the ITAT also concurred with the finding of the CIT(A) and held that with respect to the agreement dated 8th August, 2000 with SAL, the Assessee had acquired ownership of the IP rights on payment of valuable consideration and it was therefore, an intangible asset as per Section 32(1)(ii) of the Act on which the Assessee was entitled to claim depreciation. The relevant finding of the ITAT reads as under:- “10. We have considered the rival submissions. A perusal of the purchase price consideration as per the business purchase agreement entered into between the assessee and SAL shows that the consideration has been paid for the intellectual property rights. Intellectual property rights are immovable asset. It is also an intangible asset as per the provisions of section 32 (1) (ii) of the Act. It is also undisputed that the assessee has used the intellectual property rights in its business and there has been no claim against the assessee for the use of the said trademarks. In fact as per the agreement in clause 8.1(a)(i) it has been specifically agreed that on completion duly executed instruments of transfer, assignment etc. as the assessee may reasonably be required to complete the transfer, assignments and conveyance of the asset in accordance with the provisions of this agreement shall be delivered to the assessee at a place nominated by the assessee. This clearly shows that once the completion of the agreement is done by payment of the consideration as on the completion date 33

220 Ahmedabad Chartered Accountant Journal July, 2023 specified in the agreement the assessee would be in possession of the duly executed instruments of transfer, assignment and Conveyances of the assets as specified in the agreement which are basically the intellectual property rights and the fixed assets. This being so, as also the principles as laid down by the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. referred to supra and reaffirmed the decision of Dalmia Cements, it would have to be held that the assessee was the owner of the property and the assessee having used the same in its business was entitled to depreciation on the same. In the circumstances, the finding of the ld. CIT(A) on this issue stands confirmed.” (Emphasis supplied)” “16. Similarly, with respect to the acquisition of IP rights from SAL, the learned counsel for Revenue does not dispute the nature of the rights acquired and the limited contention raised is with respect to confirmation of the payment of consideration recorded in the agreement. The said contention raised by Revenue is firstly a question of fact, which objection is not borne out from the record and secondly, learned Senior Counsel for the Assessee has stated that the said agreement was executed under the aegis of BIFR, since SAL was a sick company and there was no doubt raised by Revenue with respect to the payment of consideration. The ownership of the IP rights of the Assessee stands proved on record, its use by the Assessee is also not disputed and therefore the appellate authorities have rightly held that the Assessee is entitled to claim deprecation under Section 32(1)(ii) of the Act on the said IP rights. 17. The facts as well as the law were properly and correctly assessed by the CIT(A) and the ITAT. We, therefore, answer the question of law framed in these appeals against the Revenue and in favour of the Assessee.” Validity of a notice without affixation of a signature: Prakash Krishnavtar Bhardwaj Vs. Income Tax Officer (2023) 451 ITR 0027 (Bom) Whether a notice under section 148A(b) without affixation of the signature of the Assessing Officer is an invalid notice? Held: “21. We are, therefore, of the considered opinion that in the present case, the notice u/s.148 dated 02.04.2022 having no signature affixed on it, digitally or manually, the same is invalid and would not vest the Assessing Officer with any further jurisdiction to proceed to reassess the income of the petitioner. Consequently, the notice dated 02.04.2022 u/s.148 of the Act issued to the petitioner being invalid and sought to be issued after three years from the end of the relevant assessment year 2015-16 with which we are concerned in this petition, any steps taken by the respondents in furtherance of notice dated 21.03.2022 issued under clause (b) of section 148A of the Act and order dated 02.04.2022 issued under clause (d) of section 148A of the Act, would be without jurisdiction, and therefore, arbitrary and contrary to Article 14 of the Constitution of India. Consequently, we quash and set aside the notice dated 02.04.2022 issued by the respondents u/ s.148 of the Act, order dated 02.04.2022 under clause (b) of section 148A of the Act and notice dated 21.03.2022 issued under clause (b) of section 148A of the Act.” Reassessment proceedings u/s 148A not permissible for a “change of opinion” Kamlesh Keswani v/s ACIT (2023) 451 ITR 0153 (Delhi) Issue: Whether the concept of “change of opinion” will apply under the reassessment proceedings under section 148A? Held: “Sale of the residential house by the Assessee and purchase of the New Property by the Assessee within From the Courts 34 35

Ahmedabad Chartered Accountant Journal July, 2023 221 the stipulated time is admitted by Revenue. It is further admitted that the entire sale consideration for the New Property as well as the stamp duty has been paid by the Assessee.”(para 8) ”Revenue has not disputed that this information was available and scrutinised by the AO during the assessment proceedings which resulted in the assessment order, and the AO was satisfied with respect to the claim of the LTCG of the Assessee. ”Re-assessment has been initiated on thebasis of change of opinion, which is not permissible. There is no new information available with the Revenue to re-assess the LTCG claim. The AO had considered the same documents during the earlier assessment proceedings and was satisfied with the claim of LTCG made under Section 54.”(para 10) “…Order under Section 148A(d), and notice, issued under Section 148 by the Revenue with respect to the Assessment Year 2015-16 are set aside. Assessee’s petition allowed”(para 11) Inclusion of wife’s name the purchase documents of new property and deduction u/s 54 Kamlesh Keswani v/s. ACIT (2023) 451 ITR 0153 (Delhi) Issue: Whether the deduction under section 54 will be allowable when the name of wife is included in the purchase documents of the new house when the entire investment is made by the husband? Held: “Sale of the residential house by the Assessee and purchase of the New Property by the Assessee within the stipulated time is admitted by Revenue. It is further admitted that the entire sale consideration for the New Property as well as the stamp duty has been paid by the Assessee.”(para 8) “Assessee is entitled to claim exemption under Section 54 on these admitted facts, as the conditions stipulated in Section 54 stand fulfilled. The New Property would be treated as the property purchased by the Assessee in his name and merely because he has included the name of his wife and the property has been purchased in the joint names, it would not disentitle the Assessee from claiming the exemption under the statutory provisions. Order under Section 148A(d), and notice, issued under Section 148 by the Revenue with respect to the Assessment Year 2015-16 are set aside. Assessee’s petition allowed” (para 11) Benami Transactions (Prohibition) Amendment Act 2016 Rajesh Katyal v/s. Income Tax Department 451 ITR 455 (Delhi) Issue: Whether the law applies to transactions of the period prior to 1st November 2016? Held: “The Supreme Court in the judgement of Union of India v/s. Ganpati DealcomPvt. Ltd. [2022] 447 ITR 108 (SC) has recorded the concession made by the Union of India that the offence under section 53 of the Benami Transactions (Prohibition) Amendment Act, 2016 is prospective and would apply only to those transactions which were entered into after amendment came in to force, i.e. November 1, 2016 and has held that the Act of 2016 which contains the criminal provisions is applicable only prospectively and quashed the prosecution proceedings. Held accordingly, allowing the petition, that the benami transactions with respect to purchase of lands by the company A.K. between the period from 2007 to 2010 and transfer of shares held by the assessee in the company on May 31, 2014 undertaken by the petitioner were entered into prior to November 1, 2016. The notice issued under section 53 of the Prohibition of Benami Property Transactions Act, 1988 as amended by the 2016 Act was quashed”. Inadvertent offer of a receipt for tax: Pr. CIT v/s Ansal Properties And Infrastructure Limited (2023) 116 CCH 0303 (Delhi) Issue: Can tax be levied on income which has been inadvertently shown as taxable income? 36 From the Courts 37 38

222 Ahmedabad Chartered Accountant Journal July, 2023 Held: “16. Besides this, in our view, it is more than wellestablished that merely because the assessee inadvertently offers a receipt for levy of tax, tax cannot be levied by the revenue if it is not otherwise constitute income of the assessee. Every receipt is not an income chargeable to tax under the provisions of the Act.” Reassessment and Change of opinion: (Old Law) Nila Infrastructures Limited Vs. ACIT 451 ITR 283 (Guj) Issue: What is the validity of a reassessment notice when on facts of a case it would be ‘a change of opinion’? Held: “18. Thus, it would emerge from the aforesaid discussion that there is no whisper in the impugned order as regards any failure on the part of petitioner to disclose fully and truly all material facts and as such it is not possible for this Court to infer any such failure on the part of the assessee from the reasons recorded. Petitioner had made adequate disclosures during assessment proceedings which is now sought to be reopened and particularly with reference to ground Nos.1 and 2 on which the respondent authority has proposed to reopen the assessment. 19. The first three grounds on which the Assessing officer has proposed to reopen the assessment as could be discerned from the assessment order, was part of the scrutiny during the assessment and Assessing officer having consciously taken a particular decision, the change of opinion cannot form the basis for reopening the assessment that too based on same set of facts. In fact, it would be apt and appropriate to note at this juncture that during the course of the assessment proceedings, assessee has submitted three communications dated 16.12.2013, 09.01.2014 and 03.02.2014 (Annexure-F) with reference to the first three issues based on which the assessment is sought to be reopened by highlighting the facts as more specifically stated therein which has gone into the decision making process at the time of passing assessment orders or in other words, the Assessing officer took note of these facts and has formed an opinion, which opinion is now sought to be substituted and made as a ground for reopening of the assessment which is impermissible as change of opinion cannot be the basis for reopening the assessment.” Interpretation: Function of a ‘Proviso’: Association of Old Settlers of Sikkim And Ors. Vs. Union of India andAnr. 451 ITR 213 (SC): Issue: How should a ‘Proviso’ be interpreted? Held: “54. The normal function of a proviso is to except something out of the provision or to qualify something enacted therein which, but for the proviso, would be within the purview of the provision. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule. In other words, a proviso qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main provision. Further, a proviso cannot be construed as nullifying the provision or as taking away completely a right conferred by the enactment. If it does so and is discriminatory then it falls foul of the equality clauses of the Constitution of India.” ❉ ❉ ❉ From the Courts 39 40

Ahmedabad Chartered Accountant Journal July, 2023 223 NAVBHARAT CHARITABLE TRUST v.ITO 150TAXMANN.COM 311 (SURAT) Assessment Year:2017-18 to 2019-20, Order dated:28th February 2023 BASIC FACTS The assessee was a public charitable trust engaged in imparting education. It was registered under section 12A aswell as was recognition under section 80G(5).The assessee filed its return of income claiming exemption under section 11/12, which was disallowed by the CPC/ AO. The only reason for disallowance of claim of exemption under sections 11 and 12 was non-furnishing the audit report in Form-10 alongwith return of income or before filing of return of income.On appeal, the CIT(A) confirmed the action of CPC/AO and dismissed the appeal of the assessee by holding that the assessee had not furnished any application for seeking condonation of delay in filing Form 10B from Commissioner (Exemption) nor furnished the order condoning the delay if any.On appeal to the Tribunal by the assessee. ISSUE: Whether where assessee trust had substantially satisfied all conditions for availing benefit of exemption under section 11/12, exemption could not have been denied for belated filing of audit report in Form No. 10B HELD The Tribunal noted that the Jurisdictional High Court in a recent decision in the case of Trust For Reaching The Unreached Through Trustee v. CIT (Exemptions) [2021] 126 taxmann.com 77/279 Taxman 229 (Guj.) held that when the assessee trust substantially satisfied the condition for availing benefit of exemption as trust, exemption cannot be denied merely on bar of limitation in furnishing audit report in Form-10. Considering the aforesaid factual and legal discussion, the tribunal found that the assessee had substantially satisfied all the conditions for availing the benefit of exemption under section 11/12 and except for filing audit report in Form 10B, which was filed belatedly, thus respectfully following the decision of the High Court, the grounds of appeal raised by assessee were restored back to the file of AO to verify the contents of Form 10 for all the assessment years and grant necessary exemptions by passing the order in accordance with law. In the result, this appeal of the assessee is allowed for statistical purposes. [Para 8] ALLSTATE INDIA PRIVATE LIMITED V DCIT [TS-298-ITAT-2023 (Bang) Assessment Year: 2018-19,Order dated: 31st May 2023 BASIC FACTS The assessee company is engaged in providing software development services including testing, infrastructure support and other related services. The assessee company also provides information technology enabled services to Allstate group companies. In the assessment proceedings, the AO observed that the assessee is eligible for claim of exemption u/s 10AA of the Act only on the profits derived from export of IT & IT enabled services. The interest received on short term fixed deposits parked in the bank is to be treated as income from other sources and the income must be directly connected with the export of IT & ITeS. The AO referred to the judgement of Hon’ble Supreme Court of India in the case of Liberty India Vs. CIT reported in (2009) 317 ITR 218 and he distinguished the judgement relied by the assessee in the case of jurisdictional High Court in Hewelett Packard. Accordingly, the assessed income 19 CA. Yogesh G. Shah [email protected] CA. Aparna Parelkar [email protected] Tribunal News 20

224 Ahmedabad Chartered Accountant Journal July, 2023 denying exemption u/s 10AA to the interest income. Aggrieved from the above order, the assessee filed appeal before the CIT(A) and the CIT(A) also upheld the order of the AO and dismissed the appeal of the assessee. Aggrieved from the above order, the assessee filed appeal before the tribunal. ISSUE Whether the interest income earned by the Assessee from short-term deposits is eligible for deduction under section 10AA of the Act HELD ITAT analyzed the Assessee’s books of account and observed that the fixed deposits under the category of maturity periodupto 3 months showed an opening balance of Rs.26.29 Cr, which became nil at the end of the year,indicating that Assessee’s short term fixed deposits were temporary in nature; Relies on jurisdictional HCFull Bench ruling in Hewlett Packard, wherein it was held that the Assessee was entitled to 100%exemption under Section 10A in respect of the interest income earned by it on the deposits with thebanks in the ordinary course of its business and such interest income would not be taxable as ‘Incomefrom other Sources’ under Section 56; Observes that even though the aforementioned jurisdictional rulingpertains to Section 10A read with Section 10B and the present case is with regards to exemption claimedunder Section 10AA, the ratio laid down in section 10 or 10AA is similar for computing income, thus theaforementioned ruling is applicable to the present case; Thus, allows the Assessee’s claim for exemptionunder Section 10AA with respect to interest received on temporary fixed deposits; Allows M/s. PURANI HOSPITAL SUPPLIES V DCIT TS-303-ITAT-2023 (CHNY) Assessment Year:2017-18, Order dated: 31st May 2023 BASIC FACTS The appellant company is engaged in the business of distribution of pharmaceutical goods, surgical and diagnostics goods. The case was selected for scrutiny to verify large value cash deposit during demonetization period and high value receipt of cash Tribunal News from third parties in response data. The AO noticed that the assessee has made huge deposits during demonetization period in specified bank notes as well as new currency notes amounting to Rs. 1,82,57,000/ -. However, the closing cash balance available with the assessee as on 09.11.2016 is Rs. 20,000/- only. Although, the assessee claims to have received cash in specified bank notes from debtors and furnished the list of parties from whom the cash collection has been made, but as per the Gazette notification dated 09.11.2016, the assessee company was not permitted to accept specified bank notes and is not in exempt category to transact in the specified bank notes. Therefore, the Assessing Officer opined that the assessee could not justify availability of cash in hand to explain cash deposits to bank account during demonetization period in specified bank notes. Therefore, rejected arguments of the assessee and made additions towards total cash deposits in specified bank notes amounting to Rs. 1,82,37,000/- as unexplained investment u/s. 69 of the Act and levied tax u/s. 115BBE of the Act. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A), after considering relevant submissions of the assessee and also taken note of relevant GOs issued by the Government of India and RBI to deal with specified bank notes on or after 08.11.2016, opined that although the assessee has filed necessary evidences to prove that it has collected cash from sundry debtors towards sales made before demonetization period, but as per notification of RBI and Government of India, the assessee is not an eligible assessee to collect or transact with specified bank notes on or after The CIT(A), further observed that there is no dispute with regard to the fact that the assessee has filed details of sales prior to demonetization period and also list of parties from whom cash was collected after demonetization period. However, fact remains that when the legal tender of demonetized notes was declared as illegal, the assessee cannot accept those demonetized notes and deposit into bank account. Therefore, rejected arguments of the assessee and sustained additions made by the AO towards cash deposit during demonetization period u/s. 69 r.w.s. 115BBE of the Act. The assessee is before the Tribunal 21

Ahmedabad Chartered Accountant Journal July, 2023 225 ISSUE Whether considering the business model of the assessee, the CIT(A) was right in upholding the disallowance u/s 68 read with section 115BBE HELD ITAT comparatively analysed the amount collected out of sales for FY 2015-16 & 2016-17 and details of cash deposited into bank for said years, opines that there was no deviation of cash sales and cash deposits when compared to earlier financial year and demonetisation period; Further states that Assessee is dealing in essential commodities, where majority of sales is in cash, because doctors, hospitals and medical shops mainly deals with cash and the agents of the Assessee come and collect cash from parties and directly deposit to bank account of the Assessee, therefore “from the business model of the assessee and trade practice there was no doubt what so ever with regard to the explanation offered by the assessee that it has collected cash from debtors towards sales made in cash before demonetisation period.”; Thus, holds that Assessee had satisfactorily explained source for cashdeposit made during demonetisation period in specified bank notes and Revenue erred in making addition under Section 69. As regards Revenue’s reliance on GO/notification issued by the RBI and Government of India, to deal with specified bank notes, ITAT states that no doubt specified bank notes of Rs.500 and Rs.1000 has been withdrawn from circulation and RBI/Government of India has issued various notifications and SOP to deal with specified bank notes allowing certain category of persons to accept and to deal with specified banknotes up to Dec 31, 2016; However, points out that there is no clarity on how to deal with demonetized currency from the date of demonetisation and up to Dec 31, 2016 and under those circumstances, some persons continued to accept and transact the specified bank notes; Thus, holds that “merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected…”; Also refers to CBDT Circular clarifying that in a case where cash deposit found in business cases, the Revenue needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc., states that when there is no significant change in cash deposits during demonetisation period, then merely for the reason that the Assessee has accepted specified bank notes in violation of circulation/notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected and accordingly deletes the addition. New Globe Logistik Pvt Ltd (Now known as New Globe Logistick LLP) V ITO TS-305- ITAT-2023 (Mum) Assessment Year 2014-15, Order dated 25th May 2023 BASIC FACTS: assessee company is engaged in the business of freight forwarding for import and export cargo by air and sea and provide logistic support to its client during the year. The company was converted into Limited Liability Partnership (LLP) which has taken over all assets and liabilities from 09.04.2013. The AO noted that the assessee had paid subscription of Rs. 22,60,000/- on 08.04.2013 i.e. last date of business operation of the company to Cricket Club of India. (M/s. CCI). According to the AO, since the assessee had closed/wound up its business on 08.04.2013, there was no necessity (business) to incur such an expenditure and therefore it cannot be allowed. So, he added the same as income of the assessee. Aggrieved, assessee preferred an appeal before the CIT(A) to confirmed the action of the AO on the ground that the director of the assessee company Shri Anand Didwania got Membership in the category of “Member’s Son Category’ which is in the category of individual membership therefore the expenditure was not allowable. Ld. CIT(A). Aggrieved, the assessee is before us. ISSUE: Whether the club membership fees paid to CCI for Director in his individual capacity was allowable as business expenditure HELD: Tribunal News 22

226 Ahmedabad Chartered Accountant Journal July, 2023 ITAT found that the Assessee could not have got the corporate membership since it did not qualify the criteria of being a corporate member prescribed by CCI and accordingly, the question of obtaining the corporate membership does not arise. Further as per the Tribunal merely because the membership is taken in the name of the director, it cannot be said that Assessee won’t get the benefit of the membership of the director. The Tribunal relied on the SC ruling in United Glass (Civil Appeal No. 6447 of 2012) dated 12/9/2012 and observed that expenditure incurred for sponsoring the membership in CCI is an allowable deduction since Assessee’s interest would be protected by the director/partner who would utilize his membership for the benefit of Assessee’s growth. The facilities of the club would be utilized by the director for meeting and interacting with other members of CCI and thus would ultimately benefit the Assessee (even though converted into LLP). The Tribunal also relied on Kolkata ITAT ruling in MKJ Traderx and observes that since the Assessee functions through the director and even though converted into LLP, still will be functioning through the key persons and in the presentcase, membership was in the name of Assessee’s director and subsequently became partner post conversion to LLP. Accordingly, allowed the Assessee’s appeal. M/s.INTIMATE FASHIONS (INDIA) PVT LTD V DCIT/JCIT TS-341-ITAT-2023 (CHNY)-TP Order dated 31st May 2023, Assessment Year 2009-10, 2011-12 & 2014-15 BASIC FACTS: The assessee is JV between entities from Sri Lanka, Liechtenstein & USA. Thecompany is engaged in the business of manufacturing and saleof intimate garments, lingerie, briefs, swimwear and other related items and primarily exports the manufactured garments to USA JV partner. The assessee entered into agency agreement with Liechtenstein JV partner. Subsequently it also entered into agency agreement with it Sri lankan JV partner for sale made outside India. The payment of commission under these agreements was bench marked against comparable uncontrolled price method (CUP). The assessee also alternatively benchmarked the transaction under TNMM method. The TPO rejected the bench mark approach adopted by the assessee and concluded that agencycommission paid by the assessee to Liechtenstein &Sri Lanka AEs, at ‘nil’ on the basis that the assessee could not furnish necessary evidences to prove rendering of services by the AEs and need for such payment. Since, the entire sales were made to USA AE, one of the jointventure partners and shareholders of the assessee company, the TPO concluded that since no independent party would be willing to pay such commission as per CUP, the ALP of the transaction was determined at ‘NIL’. The DPR/ Ld.CIT(A) upheld the downward adjustment made by the TPO/AO towards agency commission paid to AEs on the ground that except furnishing few samples, email correspondence between assessee’s company and AEs, no credible evidence has been submitted to prove rendering of services, and payment of agency commission, which is commensurate with services rendered by the AE. Aggrieved by the order of the DRP/Ld.CIT(A), the assessee is in appeals before the Tribunal. ISSUE: Whether TPO/DRP were right to hold ALP for agency commission at NIL on ground that no services were rendered. HELD: ITAT notes that assessee could not file any credible evidence to prove whatservices Sri Lankan & Leichtenstein AEs provided to the assessee in connection with sales made toAmerican AE. With respect to email correspondence produced by assessee, ITAT notes that the same is general correspondence regarding followup on orders and delivery, production planning, and capacity assessment introduction of a newmodel, etc; Observes that these emails do not throw any light on the services rendered by AEs; Holdsthat TPO had rightly benchmarked ALP at NIL, noting that it is not a case of the assessee that salesagents (AEs) have rendered services in connection with achieving sales targets, identifying newcustomers, collection follow up, etc. The assessee could not even furnish any evidence to prove thatthere are negotiations between the assessee and the AEs with regard to marketing strategy, salestargets, credit period, etc. The tribunal found no reason to apply Tribunal News 23

Ahmedabad Chartered Accountant Journal July, 2023 227 rule of consistency, observes that though issue was being litigated from 2001-02 (qua allowability u/s 37), issue has been examined in light of TP provisions only from AY 2009-10 onwards; Also rejects assessee’s argument against TPO’s benchmarking approach. UK Grid Solution Ltd.V DCIT 149 Taxmann.com 209 Order dated 12th April 2023, Assessment Year 2018-19 BASIC FACTS: The assessee is a company incorporated in United Kingdom (UK) and a tax resident of UK in terms of Article 4 of India-UK tax treaty. The assesee is engaged in the business of designing, engineering, manufacturing and supply of electric equipment that help in the transmission and distribution of power, commissioning and servicing of transmission and distribution systems on turnkey basis.During the AY 2018-19, the assessee earned income from various Indian customers which the assessee claimed as not taxable, as income was from offshore supplies only. During assessment proceedings, the AO observed that the assessee was awarded a contract by an Indian company for setting up a terminal in India. There were three contracts First contract’, also called ‘offshore contract’ was for supply of plant and equipment including spares outside India, type test and training to be conducted outside India. ‘Second’ and ‘third contract’ were ‘onshore supply contract’ and ‘onshore service contract’ which were assigned to an Indian associate enterprise (I Co). The AO held that it was a case of artificial division of composite contract into three special contracts by the assessee while all the responsibilities and liabilities of the project were with the assessee. I Co was actively involved in soliciting business for the taxpayer while also taking Indian leg of the composite contracts. Thus, there was a dependent agent permanent establishment (PE) in India. The assessee had business connection under section 9(1)(i) the Act and a construction PE under the provisions of Article 5(2) of the India-UK tax treaty. Therefore, the business profits of the PE of the taxpayer were taxable in India as per the provisions of Article 7(2) of the India-UK tax treaty i.e., at arm’s length. Accordingly, applying the provisions of section 44BBB of the Act, AO proceeded to attribute business income to PE in India. Aggrieved, the assessee filed objections before the DRP but without relief hence n appeal against the final order of the AO before the Tribunal. ISSUE: Whether there was artificial division of the contract and whether assessee had a dependent agency PE/ construction PE in India. HELD: From perusal of major clauses of agreements and contracts, notification of award of offshore contract and other bidding documents, the Tribunal found that I Co was proposed and confirmed as an Associate for the purpose of executing the onshore supply and service contracts in the bid itself. Having I Co was an integral part of the bid and not introduced at the discretion of the assesee. The ‘scope of contract’ of the offshore contract was limited to, “Design, engineering, manufacture, testing at manufacturer’s works and CIF3 supply of all offshore equipment and materials from country(ies) outside India including type testing and training to be conducted outside India.” Thus, there was not one scope of contract under which the assessee and I Co were working together. I Co was awarded a contract under a separate notification of award for onshore supply contract and onshore service contract. The offshore contract specifically mentioned that I Co was made part of the contract as part of proposal at the bid stage itself and that I Co was independent contractor of A Co on the terms and conditions laid down in the bidding document. I Co had given written unequivocal consent to work as the independent contractor of Indian Co. I Co had joined the taxpayer in terms of the requirement of the bid. There was a collaborative effort of the assessee and I Co and as such there was not actually a consortium to which one contract was awarded with bifurcation at level of the members of consortium. Three different contracts were awarded, and three different contracts were signed and executed. Only the ‘first contract’ was executed between the assessee. In view of the above, the ITAT held that there was neither an artificial split of contract nor was there one inseparable, indivisible, and Tribunal News 24

228 Ahmedabad Chartered Accountant Journal July, 2023 composite contract. As there was no artificial split of contract and it was established that the taxpayer had entered into the ‘First contract’ in its independent capacity, it could not be said that I Co was actively involved in soliciting business for the assessee. In the bidding structure of present nature, there could not be a question of someone soliciting the business, as it was a case of open bid to which Indian and foreign entities, both were eligible to make offer. Further, there was no question of any agent and principal relationship between the assessee and I Co, as Indian company had treated I Co to be its ‘Independent Contractor’ in its contract documents. Hence there was no Dependent agency PE in India. The taxpayer was merely liable to make offshore supplies under the ‘First contract’. Thus, the assessee was not engaged in any construction project in India. Its revenues were outcome of the offshores supplies and services rendered offshore. Tribunal News Thus, there was no question of constitution of the construction PE as per Article 5(2) of the India-UK tax treaty. The application of section 44BBB of the ITA on the premises that the assessee was involved in the end to end execution of the project in India was not correct. The revenue derived by the assessee were on the basis of offshore supplies and not out of any construction, erection, testing or commissioning activities of a turnkey power project in India. Thus, the application of section 44BBB of the Act to such revenue, which was not per se taxable in India, was not sustainable. ❉ ❉ ❉ Continued from page 215 Article : Drive to Combat Bogus Billings and Fake GST Registrations CASE DIGEST: In a significant judgment, the Allahabad High Court ruled in the case of M/s Apparent Marketing Private Limited that the cancellation of a GST registration cannot be solely based on the characterization of a firm as “bogus.” The court held that a mere allegation of a firm being bogus is not sufficient grounds for canceling its GST registration. This ruling by the Allahabad High Court provides clarity and safeguards for businesses facing allegations of being bogus. The judgment sets an important precedent and underlines the significance of a fair and transparent approach in dealing with GST registration cancellations. It ensures that businesses are given a fair chance to defend themselves and protects them from unwarranted cancellations solely based on unproven claims of being bogus. Conclusion Fake registrations and bogus billings not only harm government revenue but also undermine the integrity of the GST framework and pose challenges to genuine businesses. The implementation of measures such as mandatory electronic invoicing, verification of supplier’s GST registration, and strict penalties demonstrates the commitment of GST authorities to combat these fraudulent practices. The recent Special All-India Drive against fake registrations is a crucial step towards curbing such activities and improving the transparency and efficiency of the tax system. It is hoped that these efforts will yield positive outcomes, ensuring a level playing field for businesses, protecting government revenue, and fostering trust in the GST ecosystem. ❉ ❉ ❉

Ahmedabad Chartered Accountant Journal July, 2023 229 In this issue, we are giving gist of a recent decision rendered by the I.T.A.T., Ahmedabad in the case of DCIT vs. Baroda Medicare Pvt. Ltd. in ITA No.469/Ahd/ 2020 for the Asst. Year 2012-13, wherein the issue about deduction u/s.80IB(11C) available to the hospitals and also the issue about disallowance u/s.14A when there is no exempt income earned by the assessee during the year have been thoroughly discussed. In the case of deduction u/s.80IB(11C) in respect of hospitals, the issue was whether the profit earned by inhouse pharmaceutical stores is entitled to deduction under the said section. We hope the readers would find the decision useful. Annexure In the Income Tax Appellate Tribunal “D” Bench, Ahmedabad Before Shri Waseen Ahmed, Accountant Member and Shri Siddhartha Nautiyal, Judicial Member ITA No.469/Ahd/2020 Assessment Year: 2012-13 The DCIT, Vs. Baroda Medicare Pvt. Ltd. Vadodara Vadodara. (Appellant) (Respondent) Assessee by : Shri Alok Shah, A.R. Revenue by : Shri Atul Pandey, Sr. D.R. Date of hearing : 04.07.2023 Date of pronouncement : 19.07.2023 Gist Only (A) FACTS RELATING TO DEDUCTION U/S. 80IB(11C): 1. The brief facts in relation to this ground of appeal are that the assessee is engaged in the business of running multi-specialist hospital. The assessee claimed deduction of Rs. 28,27,384/- u/s. 80IB(11C) of the Act being profits from operating and maintaining hospital. During the course of assessment, the Assessing Officer observed that these profits included profits of Rs. 2,47,82,051/- from trading in medicines surgical equipments from in house medical store. Thus, the Assessing Officer observed that the assessee had suffered losses to the tune of Rs. 2,19,54,667/- (Rs. 28,27,384/- - Rs. 2,47,82,051/-) from the business of running hospitals and it claimed deduction u/s. 80IB(11C) after merging profits/losses from both the activities i.e. running hospitals and trading in medicines and surgical equipments. Thus, the assessee claimed deduction u/s. 80IB(11C) on profits of Rs. 2,47,82,051/- from trading in medicines etc. and no such deduction was available in respect of activities of operating and maintaining hospitals as no profit was actually earned from this activity. After taking the submission of the assessee on record, the Assessing Officer held that the assessee is not eligible for claim of deduction u/s. 80IB(11C) since on a plain reading of statutory provision, the deduction is provided in respect of profits “derived from” business of operating and maintaining eligible hospital only and not for all the profits “attributable to” such business. Thus, the deduction is restricted strictly to the extent of profits earned from the limited activities which are essential for operating and maintaining hospital and not any other ancillary activity. The Assessing Officer placed reliance in the case of Hon’ble Supreme Court in the case of Cambay Electronic Supply Industrial vs. CIT 113 ITR 84 (SC), wherein the Supreme Court held that expression “attributable to” is certainly wider in scope than the expression “derived from”. CA. Sanjay R. Shah [email protected] Unreported Judgements

230 Ahmedabad Chartered Accountant Journal July, 2023 2. In appeal, the CIT(A) allowed the appeal of the assessee by following the decision of Hon’ble ITAT, Nagpur Bench in the case of M/s Eureka Medicare Private Limited in ITA Nos.90 and 153/ Nog/2017 dated 01.08.2018. The CIT(A) also relied upon the fact that as per Clinical Establishment Act 2010, 100 bedded hospital falls under Level2 Hospital. As per Clinical Establishment Act Level2 Hospital is mandatorily required to have pharmacy. As statutorily required, assessee hospital has pharmacy division which caters to supply of medical and surgical consumables required by patients in the hospital. Though hospital is not defined under the provisions of Income Tax Act 1961, the meaning provided under Clinical Establishment Act would be relevant for giving meaning for the purpose of 801B(11C) of I.T. Act. 3. Against the order of CIT(A) granting relief to the assessee, Department filed appeal before the Tribunal and during the course of hearing, contended that since the words used in section 80IB(11C) are “derived from” and not “attributable to”, the profit out of running of inhouse pharmacy cannot be said to have been derived from the business of hospital, and hence, benefit of section 80IB(11C) cannot be granted in respect of the profit from such inhouse pharmacy. 4. On the other hand, the Appellant submitted that assessee is a multi-specialist hospital having over 100 beds. In such cases, running of inhouse pharmacy is essential for running of hospitals since substantial medicines are required on day-to-day basis in treating the patients. A hospital of such large operations cannot run unless and until there is inhouse pharmacy to cater to the needs of inhouse patients. The assessee also relied upon Nagpur Bench decision in the case of Eurka Medical Pvt. Ltd. referred ‘supra’. DECISION: 5. The Tribunal, after considering the facts and the decision of Nagpur Bench, held as under: “6. We have heard the rival contentions and perused the material on record. In our considered view, we find no infirmity in the Unreported Judgments observations made by the ld. CIT(A), while allowing the appeal of the assessee on this issue. Further, respectfully following the observations made by Nagpur ITAT in the case of Eureka Medical Pvt. Ltd. supra, we are of the considered view that the assessee is eligible to claim deduction u/s. 80IB(11C) of the Act in respect of inhouse pharmacy maintained by the assessee within the premises of hospital. We are in agreement with the documents taken by the counsel for the assessee that in case of multi-speciality hospital having over 100 beds, it is not feasible to efficiently run the hospital, without having an inhouse pharmacy to cater to the needs of inhouse patients.” (B) FACTS REGARDING ISSUE OF DISALLOWANCE U/S.14A OF THE ACT: 6. The brief facts in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed that assessee had invested in equities of private companies of its own group but it had not disallowed any expenditure in respect of these investments, which would result in exempted income. Accordingly, the Assessing Officer made disallowance u/s. 14A of the Act amounting to Rs. 19,25,400/-. The ld. CIT(A) allowed the appeal of the assessee on the ground that during the year under consideration, the assessee had not earned exempt income during the year under consideration. DECISION OF THE TRIBUNAL: 7. The Tribunal, after considering several judgments, held that when there is no exempt income earned by the assessee during the year under consideration, no disallowance u/s.14A can be made. The Tribunal also negatived the contention of the Department that the explanation, which is inserted by the Finance Act, 2022, is clarificatory in nature and would apply for the past assessment years also. Since the Tribunal has referred to so many decisions, the decision rendered by the Tribunal in para 10 is reproduced for the benefit of readers.

Ahmedabad Chartered Accountant Journal July, 2023 231 “10. We have heard the rival contentions and perused the material on record. We are of the considered view that there is no infirmity in the order of ld. CIT(A) as during the year under consideration no exempt income was earned by the assessee. In a recent ruling passed by the Delhi High Court in the case of Era Infrastructure India Ltd. 141 taxman.com 289 (Delhi High Court), it has been held that the amendment brought in by the Finance Act, 2022, to section 14A by inserting a non-obstante clause and Explanation will take effect from 01-04- 2022 and cannot be presumed to have retrospective effect. Therefore, for assessment year 2013-14, no disallowance could be made u/s. 14A if no exempt income was earned by the assessee. Also in the case of Lodha Developers Ltd 143 taxmann.com 442 (Mumbai - Trib.), the Mumbai ITAT held that amendment made by Finance Act, 2022 to section 14A would take effect from 1-4- 2022 and would be prospective in nature. Further, various High Courts and Tribunals have held, on similar facts that no disallowance could be made u/s. 14A r.w.r. 8 if no exempt income was earned by the assessee. We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt. The Hon’ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon’ble Supreme Court in the case of Chettinad Logistics (P.) Ltd.[2018] 95 taxmann.com 250 (SC) dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80 (Delhi) held that section 14A would not be applicable if no exempt income was received or receivable during relevant previous year. The Delhi High Court in the case of Amadeus India (P.) Ltd. [2022] 145 taxmann.com 311 (Delhi), held that section 14A envisages that there should be an actual receipt of income which is not includible in total income; hence, section 14A will not apply where no exempt income is received or receivable during relevant previous year. The Ahmedabad ITAT in the case of Edelweiss Financial Advisors Ltd. [2021] 124 taxmann.com 361 (Ahmedabad - Trib.) held that disallowance of expenses under section 14A read with rule 8D could not exceed amount of exempted income. The Ahmedabad ITAT in the case of Addlife Investments (P.) Ltd. [2021] 124 taxmann.com 572 (Ahmedabad - Trib.) held that disallowances made under section 14A read with rule 8D could not exceed amount of exempt income earned by assessee during year. In the case of Asian Grantio India Ltd [2020] 113 taxmann.com 445 (Ahmedabad - Trib.), the Ahmedabad ITAT held that Disallowance of expenses under section 14A read with rule 8D of 1962 Rules cannot be made in absence of exempt income. Further, as observed by the Delhi High Court in the case of Era Infrastructure supra amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 01-04-2022 and cannot be presumed to have retrospective effect and therefore will not apply to the impugned assessment year under consideration.” 8. The other issue, being not of that significance, is not discussed here. ❉ ❉ ❉ Unreported Judgments

232 Ahmedabad Chartered Accountant Journal July, 2023 No disallowance u/s 36(1)(iii) if “interest free funds” and not necessarily “own funds” are available. CIT v. Reliance Industries Ltd. [2017] 86 taxmann.com 24 (Bombay) xxx… 33. We do not see how when the Assessing Officer’s views are that in cases of the interest free loans and interest given by the assessee to its subsidiary companies are in the above sums, still, the principle laid down by this Court that if there are funds available to them interest free and overdraft or loans taken, would not apply. This view of the Assessing Officer is ex facie contrary to the settled principle that a presumption would arise that the investment would be out of the interest free funds generated or available with the company. Then, the borrowed capital in hand in that case and interest expenditure was deductible under Section 36(1)(iii) of the I.T. Act, 1961. The Tribunal held that the interest free fund available to the assessee is sufficient to meet its investment. It can be presumed that investments were made from interest free funds available with the assessee. This position clearly emerges from the record and for the current assessment year as well. We do not see how a different view in the facts and circumstances can be taken. If the Tribunal had followed the earlier view and on facts, then, there is no perversity when nothing contrary to the factual material was brought on record by the Revenue. In such circumstances, the concurrent view on disallowance of interest was reversed and the appeal of the assessee to that extent was partly allowed. We do not see any substantial question of law arising from such a view of the Tribunal. 7 Advocate Tushar Hemani [email protected] Judicial Analysis CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52 (SC) 1. Delay condoned. 2. Exemption from filing certified copy of the impugned judgment granted. 3. Leave granted. 4. These appeals have arisen from the judgment of the Bombay High Court dated 22 & 23 August,2017 for Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07. 5. The High Court has passed a common order for all the Assessment Years. Learned counsel for the assessee states that all the questions which have been framed do not necessarily arise for each Assessment Year. A chart has been tendered, explaining the position. The chart is taken on the record. 6. The appeals by the Revenue raise the following questions: 1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short ‘the Act’) when the interest would not have been payable to banks, if funds were not provided to subsidiaries; xxx… 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient 8

Ahmedabad Chartered Accountant Journal July, 2023 233 to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. CIT v. Brigade Enterprises Ltd. [2021] 124 taxmann.com 237 (Karnataka) xxx… 8. We have considered the submissions made by learned counsel for the parties and have perused the record. For the reasons assigned by us in the judgment dated 22-9-2020 in Commissioner of Income Tax v. Brigade Enterprises in I.T.A. Nos. 54/2013 and 55/2013, the substantial question of law Nos.3 and 4 are answered against the revenue and in favour of the assessee. Now we may deal with the substantial question of law No. 5. The Assessing Officer in his order dated 28-12-2011 while dealing with the claim of the assessee under section 14A of the Act after recording the submission made by the assessee in para 12 has recorded its satisfaction in para 13, which reads as under: “The submissions of the assessee is concerned and it is seen that the disallowance under section 14A is mandatory and has to be worked out with respect to the tax exempt investments. The tax exempt investments have been held to be inclusive of investments made in subsidiary companies also. This has been upheld in the case of Maxopp Investments Ltd. v. CIT (TS-668-HC2011 (HC) by the Hon’ble Delhi High Court following the decision of Hon’ble Bombay High courting the case of M/s Godrej & Boyce Manufacturing Company Ltd.” 9. The tribunal has taken note of the claim made by the assessee before the Assessing Officer that no expenditure had been incurred to earn exempt income. However, it has been held that the Assessing Officer has not rendered any finding with regard to incorrectness of the claim of the assessee either with regard to its accounts or with regard to the fact that he is not satisfied with the claim of the assessee in respect of such expenditure in relation to exempt income as is required in accordance with section 14A(2) of the Act for making a disallowance under rule 8D. Thus, from perusal of the relevant extract of the order passed by the Assessing Officer, the tribunal has rightly concluded that the Assessing Officer has not recorded the satisfaction with regard to the claim of the assessee for disallowance under section 14A read with rule 8D(2) of the Act. For the aforementioned reasons, the substantial question of law No. 5 is also answered against the revenue and in favour of the assessee. xxx… 11. The CIT v. Reliance Utilities and Power Ltd. [2009] 178 Taxman 135/313 ITR 340 (Bom), the Bombay High Court has held that where interest free funds exceed the value of investments, it can safely be inferred that investments have been made out of interest free funds and no disallowance under section 14A towards any interest expenditure can be made. Similar view was taken in CIT v. HDFC Bank Ltd. [2014] 49 taxmann.com 335/226 Taxman 132 (Mag.)/366 ITR 505 (Bom). The aforesaid decisions were followed by a bench of this court in Goldmen Sachs Services (P.) Ltd. case (supra). In the light of the aforesaid legal position, we may advert to the findings recorded by the Commissioner of Income-tax (Appeals). In para 4.5, the Commissioner of Income-tax (Appeals) has held that there is no material on record to show that Judicial Analysis 9

234 Ahmedabad Chartered Accountant Journal July, 2023 overdraft amount has directly been used for tax exempt investments. It has also noted that in fact, tax free investments have come down to Rs. 34,78,31,000/- as on 31-3-2009 from Rs. 405,21,54,000/- as on 31-3-2008. On perusal of the balance sheet the finding has been recorded that assessee has received an amount of Rs. 146.52 Crores as advances from customers, which are interest free and the reserves and surpluses are to the tune of Rs. 882.67 Crores. Thus, it has been held that all the aforesaid amounts are interest free funds and are sufficient to make tax free investments and therefore, the finding of the Assessing Officer that overdraft facility was directly used for making tax exempt investments have been reversed. The tribunal has affirmed the aforesaid finding in para 8.4.3 of its order. Thus, concurrent findings of fact have been recorded on the aforesaid issue, which could not be demonstrated to be perverse. Therefore, no interference is called with the aforesaid concurrent findings of fact in this appeal under section 260A of the Act. [See: Syeda Rahimunnisa v. Malan BI BY L.RS. [2016] 10 SCC 315 and Pr. CIT v. Softbrands India (P.) Ltd. [2018] 94 taxmann.com 426/406 ITR 513 (Kar.). 12. Thus, the first substantial question of law is also answered against the revenue and in favour of the assessee. 13. This takes us to the second substantial question of law. The Supreme Court in Munjal Sales Corpn. v. CIT [2008] 168 Taxman 43/298 ITR 298, has held that where the assessee had sufficient funds and has given loan to sister concern out of its Judicial Analysis own funds, the assessee is entitled to deduction of interest on loan. Similar view has been taken by this court in Brindavan Beverages (P.) Ltd. (supra). The Commissioner of Income-tax (Appeals) in para 5.6 has held that the subsidiaries of the assessee are special purpose vehicle companies and as the assessee is involved in the real estate business, the advances were paid in the normal course of business. The assessee had to pay advances to the land owner for the purposes of entering into Joint Development Agreement for development of real estate projects, therefore, the advances are business advances and cannot be treated as non-business or capital advances. The tribunal in para 10.5.1 has held that reserves and surplus earned by assessee-company is approximately to the extent of Rs. 994.92 Crores as against total advances and deposits of Rs. 248.24 Crores. Thus, the tribunal has found that the assessee’s own fundare far in excess of advances and deposits made during the year and has held that Commissioner of Income-tax (Appeals) has rightly deleted the disallowance of interest to the extent of Rs. 76,66,638/-. The aforesaid concurrent findings of fact are based on meticulous appreciation of evidence on record and by no stretch of imagination can be said to be perverse. ❉ ❉ ❉

Ahmedabad Chartered Accountant Journal July, 2023 235 CA. Kaushik D. Shah [email protected]. Controversies Issue Whether personal expenses incurred by a company eligible for deduction under the Income Tax Act, 1961? Proposition According to the relevant provisions of the IncomeTax Act, 1961 (“Act”) any expenditure (not being capital expenditure)incurred wholly and exclusively for the purpose of business or profession shall be allowed as deduction in computing income chargeable from the same. Hence, it is proposed that expenses that are not wholly attributable to the business are not allowed as deduction the Act. View against the proposition Extract of the provision - As per Section 37 of the Actin order for an expenditure to be eligible for deduction under this section the expenditure must have been laid down wholly and exclusively for the purpose of business/profession and it must not be personal in nature. In the case of Arpit Marbles (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle-5, Jaipur [2017] 78 taxmann.com 52 (Jaipur - Trib.)[11-03-2016], the assessee had claimed deduction for telephone, vehicle repair and travel expenses. Assessing officer allowed 90% deduction and disallowed 10% on basis that expenses were not fully verifiable. However, assessing officer brought nothing on record which proved a relevant basis for such disallowance and hence disallowance was deleted. Disallowances cannot be sustained in eye of law on ground of adhoc nature. Subsequently, in the case of A. Commissioner of Income-tax, Circle 63(1), New Delhi v. Vanesa Cosmetics[2021] 127 taxmann.com 499 (Delhi - Trib.) Assessing Officer made addition on adhoc basis at rate of 10 per cent on account of interest expenses on car having element of personal use, tour and travelling expenses and conveyance expenses respectively. However, it was found that assessee had claimed expenses on basis of its audited financials which had not been disputed by Assessing Officer. Here Assessing Officer has made the aforesaid disallowances without assigning any reason to it and hence aforesaid disallowances are not sustainable in the eyes of law. View in favour of the Proposition Section 37 of the Act is a residuary provision which provides deduction in relation to expenditure that cannot be claimed as deduction in any other Section. For this the expenditure should relate and should be for the purpose of the business. In the case of JBM Industries Ltd. v. Commissioner of Income Tax, New Delhi assessee-company claimed expenditure on account of educational expenses of director’s daughter. It was found that there was no did not have any scheme for training of the employees. As nexus between educational expense and the business of the company could not be established the entire expenditure was rightly disallowed. Further, in the case of Deputy Commissioner of Income-tax, Central Cir-24, Mumbai v. Salman Khan [2011] 130 ITD 81 (Mumbai) assessee was a film actor by profession. He incurred legal expenses and claimed deduction of same from his business income. Later on it was found that these legal expenses were incurred for making payment to eminent criminal lawyers for defending assessee for criminal proceedings. However, no evidence was filed before the Assessing Officer or even Commissioner (Appeals) Continued to page 241

236 Ahmedabad Chartered Accountant Journal July, 2023 Solving the riddle - Nuances of transactions undertaken by head office and branch office (Part 1 – Inter-se transactions between head office and branch office) In this article, the authors have delved into the intricacies of transaction undertaken between head office and branch office. Further, the authors have also tried to summarize corporate tax and transfer pricing implications with regard to such transactions. Hope you find this article helpful in your professional practice. 1. Background : · Multinational Companies (MNCs) usually prefer to have local set-up by way of branch office (BO) for undertaking time bound projects in source country. Further, such set-up may be required to avail any incentives which may be available in the source country by having domestic country presence only. Similarly, Indian headquartered groups may also incorporate BO outside India for undertaking international projects. · BOusually provide flexibility to unwind the operations quickly and acts an aid to undertake the projects in well-organised manner through domestic presence. · It is pertinent to note that taxability in respect of transactions entered into between head office (HO) and BO have been a subject matter of litigation before tax authorities since long. The issue caught fire, particularly, in respect of banking industry where the Indian BO of foreign company made interest payment to HO without deduction of taxes and claimed that such interest is not taxable in the hands of foreign HO since HO and BO are the one and the same entity and a singular taxable unit. Further to this, the Indian BO of foreign bank claimed tax deduction of interest expenditure paid to foreign HO by resorting to Double Taxation Avoidance Agreement (DTAA). · Considering that there area severaljudicial precedents which have dealt with the said issue, it seems that the dust has settled to some extent, however, still there remains certain ambiguities with respect to peculiar tax aspects in respect of transactions undertaken between BO and HO. · In this article, we shall delve into some of the key issues which may be relevant for taxpayers in the context of transactions undertaken between HO and BO. 2. Key points to be considered in respect of transactions between HO and BO : 2.1 Whether BO in India can be regarded as Permanent Establishment (PE) of foreign entity: o As per the provisions of clause (i) to sub-section (1) of section 9 of the Income-tax Act, 1961 (the Act), any income accruing or arising through or from “business connection” in India (whether directly or indirectly) is taxable in India. o The term “business connection” is as such not defined under the Act. However, the term has been interpreted by Hon’ble Supreme Court in the landmark judgment of CIT vs. R.D. Aggarwal and Co. (Civil Appeals Nos. 808 and 809 of 1963). Hon’ble Supreme Court held that the expression “business connection” postulates a real and intimate relation between trading activity carried on outside the taxable territories and trading FEMA & International Taxation CA. Dhinal A. Shah [email protected] CA. Hardik Khatri [email protected]

Ahmedabad Chartered Accountant Journal July, 2023 237 activity within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading capacity. o Applying the said ratio, it may be fair to conclude that branch office of non-resident in India which contributes to the earning of non-resident postulating a close connection with the business of the taxpayer undertaken outside India can be as “business connection” of such foreign company in India. o Further, if reference is made to OECD Model Tax Convention on Income and on Capital: Condensed Version 2017 (OECD MTC), “branch office” is specifically included as PE. o Considering the provisions of the Act and DTAA, it may be reasonable to regard an Indian branch office of foreign company as PE of foreign company in India. 2.2 Whether Indian Branch office is required to withhold taxes in respect of interest paid by Indian Branch office to foreign head office : o As per section 195 of the Act, any person responsible for paying to a non-resident any interest or any other sum chargeable under the provisions of the Act is required to deduct at rates in force.The provisions of section 195, thus, are attracted when interest / any other sum paid to a non-resident is chargeable to tax under the Act. o With regard to issue on hand is would be worthwhile to refer to landmark judgment of Mumbai Tribunal in the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT (136 ITD 66). In this case, the Indian branch of foreign bank made payment of interest to HO without deduction of taxes. The taxpayer argued that interest payable by PE is not chargeable to tax in India as per the domestic law in the hands of the HO abroad and accordingly, there is no requirement of deduction of tax. o The Hon’ble Tribunal, in nutshell, held that the foreign HO and Indian BO are one and the same FEMA & International Taxation person under the Act. Further, the Tribunal held that since HO and BO are considered to be the singular taxable unit, the payment of interest made by the Indian BO to the foreign HO cannot give rise to any income which is chargeable to tax in India as per the domestic law. Accordingly, the Tribunal held that the India BO was not required to withhold taxes in respect of payment made to foreign HO.The proposition that one cannot make profit from self is also supported by the judgment of Hon’ble Supreme Court in the case of Sir Kikabhai Premchand v. CIT (24 ITR 506). o At this juncture, one mayalso note the judgment of Hon’ble Calcutta High Court in the case ofABN Amro Bank, N.V. vs. CIT (198 Taxman 376).In this case, Hon’ble Calcutta High Court was concerned with similar issue of tax deduction at source in respect of interest payment made by branch office to head office. It appears that the Calcutta High Court referring to the judgment of Hon’ble Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. [2007] 291 ITR 482 (SC)held that in the case of Hyundai Heavy Industries Co. Ltd., the Supreme Court had laid down principle of apportionment of profits of company between the head office and permanent establishment. Therefore, considering the said judgment and DTAA, the head office and branch cannot be treated as one entity for the purpose of deduction of tax under section 195(1). Having said so, Hon’ble Calcutta High Court held that withholding is not required since the income is not chargeable to tax in the hands of HO under the DTAA. 2.3 Whether BO can claim deduction of expenditure / payments made to HO : o The proposition of claiming deduction of interest expenditure (in the above case) on payment of interest expenditure to HO would require a thoughtful consideration. This is for the reason that the taxpayer in respect of applicability of withholding would take a position that HO and BO are one and the same entity and therefore,

238 Ahmedabad Chartered Accountant Journal July, 2023 claiming deduction of interest expenditure paid by BO to HO (being payment made to self) can pose a challenge. o In this regard, again, reference may be made to the judgment of Special Bench of Hon’ble Mumbai Tribunal in the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT (136 ITD 66) whereinthe Hon’ble Mumbai Tribunal has dealt with similar issue and alloweddeduction of interest expenditure paid by BO to HO. The crux of the judgment has been summarized as under : § There is no dispute that such deduction is not permissible under the Act (domestic law) being the payment made to self. § A combined reading of articles 7(2) and 7(3) of India-Japan DTAA makes it clear that for the purpose of computing the profits attributable to the PE in India, the said PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of PE whether in India or elsewhere barring the amount paid by a PE to the HO or any other offices thereof except where the enterprise is a banking institution. § Interest expenditure payable by the branch in India to the HO abroad on the moneys lent being undisputedly the expenditure incurred for the purpose of PE should be allowable as deduction while computing the profits of the PE in India as per Articles 7(2) and 7(3) of the DTAA read with Paragraph No. 8 of the Protocol to the DTAA. o The above conclusion of Mumbai Tribunal cannot be regarded as conclusive for all the cases since the claim of expenditure is dependent on the DTAA.For understanding this, one may refer the case of Standard Chartered Grindlays Pty Ltd. [2017] 80 taxmann.com 99 (Delhi - Trib.). In this case, the taxpayer claimed deduction of interest expenditure paid to HO relying on the judgment of Mumbai Tribunal in the case of Sumitomo Mitsui Banking Corpn. o In the case of Standard Chartered Grindlays Pty Ltd. (supra), the Delhi Tribunal denied the claim of interest expenditure by interpreting the provisions of India-UK DTAA. The Tribunal found that as per India-UK DTAA there is a stipulation that the deductions shall be subject to limitation of domestic tax law, whereas, as per article 7(3) of India-Japan DTAA, deduction of expenses is allowable and there is no such stipulation. As a result, limitation under the Act on deductibility of interest paid by BO to HO (being the payment made to self), the interest expenditure is not deductible under the Act. Consequently, such expenditure may not be deductible under the DTAA as well. 2.4 Whether transfer pricing provisions are applicable in respect of transactions between HO and BO : o Section 92B of the Act provides the meaning of term “international transaction”. The opening portion of section 92B of the Act provides that an “international transaction” means a transaction between two or more associated enterprises, either or both, of whom are non-residents. Clause (iii) of section 92F of the Act defines the term “enterprise”. Section 92F provides that “enterprise” means a person (including a permanent establishment of such person) engaged in prescribed activities. o On first blush combined reading of section 92B read with section 92F(iii), it appears that the transactions between HO and BO may be subject to transfer pricing. o Similar issue came up before Hon’ble Delhi Tribunal in the case of Aithent Technologies Pvt. Ltd. (ITA No.6446/Del/2012). In this case, the issue before Delhi Tribunal was with respect to applicability of transfer pricing provisions on transactions undertaken between Indian Company FEMA & International Taxation

Ahmedabad Chartered Accountant Journal July, 2023 239 and its Canadian branch. The Tribunal held that when the definition of “international transaction”is considered in juxtaposition to the definition of “enterprise”, the position which prima facie appears is that all the transactions between the branch office and the general enterprise shall be subjected to the transfer pricing provisions. o Having said so, the Tribunal stated that this, prima facie, impression loses its substance when the general enterprise (i.e., Head Office) is an Indian entity and the branch office is located outside India. This is for the reason that the final accounts of foreign branch office, including all the items of income, expenses, assets and liabilities are merged with the accounts of Indian HO and the accumulated income so determined is liable to tax in India. When the sale made by the Indian HO is considered as purchase of the foreign branch office and the figures of head office and branch office are consolidated, any under or over invoicing becomes tax neutral.On aggregation of the accounts of the Head office and branch office, such income of the HO would be set off with the equal amount of expense of the BO, leaving thereby no separately identifiable income. o Accordingly, from the said judgment one may deduce that while the transactions between Indian HO and foreign BO may not be subject to transfer pricing (conservatively, one may consider reporting such transactions in Form 3CEB), the same may not hold true for vice-versa transactions (i.e., it appears that transfer pricing may be applicable in respect of transactions between foreign HO having BO in India). Accordingly, if a foreign HO has a branch office in India, such Indian branch office will be considered as an “enterprise”under section 92F(iii) and the transactions between the foreign HO and the Indian BO will be and “International transaction” in terms of section 92B. The total income of a non-resident in terms of section 5(2) includes all income from whatever source derived which is received or is deemed to be received in India, accrues or arises or is deemed to accrue or arise to him in India during such year. Therefore, in a vice-versa scenario (where foreign BO is having a branch in India), any under invoicing / over invoicing would have direct impact on taxability of branch profits which are taxable in India and hence, transfer pricing may be applicable in such scenarios. 3. Concluding thoughts : · As summarized above, the transactions between HO and BO requires evaluation from various perspectives (i.e., with holding, transfer pricing, expense deductibility etc.). The relevant provisions are not to be read in isolation but with applicable DTAA and other regulatory laws (such as exchange control regulations etc.). This article is for information purpose only and not a conclusive appraisal of all advancements in the legislation. This article is written with a view to incite the thoughts of a reader who couldhave different views of interpretation. Disparity in views, would only result inbetter understanding of the underlying principles of law and lead to a healthydebate or discussion.While judicious upkeep has been ensured, reliance should not be placed on the contents of this article without obtaining fact specific consultation from the advisors. ❉ ❉ ❉ FEMA & International Taxation

240 Ahmedabad Chartered Accountant Journal July, 2023 Levy of charges on forex prepaid cards/store value cards/travel cards, etc. RBI/2023-24/29 The Reserve Bank of India issued the following directions with respect to relevant instructions contained in A.P. (DIR Series) Circular No. 46 dated June 14, 2005 and A.P. (DIR Series) Circular No. 102 dated April 02, 2012, regarding use of International Debit Cards/ Store Value Cards/Charge Cards/Smart Cards or any other instrument that can be used to create a financial liability, as ‘currency’. It was observed that a few Authorised Persons were levying certain fees/charges, which are payable in India on such instruments, in foreign currency. It is advised that fees/charges payable in India must be denominated and settled in Rupees only.The directions have been issued under sections 10 (4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law. Source:RBI/2023-24/29A.P. (DIR Series) Circular No. 04, dated May 9, 2023 For full text refer:https://www.rbi.org.in/Scripts/ BS_CircularIndexDisplay.aspx?Id=12502 LIBOR Transition The Reserve Bank of India issued the following directions with respect to the Reserve Bank advisory on “Roadmap for LIBOR Transition” dated July 08, 2021 wherein banks/FIs, inter-alia, were (i) encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference London Interbank Offered Rate (LIBOR) as a benchmark and instead use any widely accepted Alternative Reference Rate (ARR), as soon as practicable and in any case by December 31, 2021 and (ii) urged to incorporate robust fallback clauses in all financial contracts that reference LIBOR and the maturity of which was after the announced cessation date of the LIBOR settings. With the concerted efforts of banks/FIs as well as industry associations like the Indian Banks’ Association, a smooth transition with respect to LIBOR settings that have ceased to be published/become nonrepresentative after December 31, 2021, has been achieved. The transition away from LIBOR was also facilitated by the continuing publication of US$ LIBOR settings in five tenors which provided a longer transition period particularly for the insertion of the fallback clauses in legacy financial contracts that reference LIBOR. New transactions are now predominantly undertaken using ARRs such as the Secured Overnight Financing Rate (SOFR) and the Modified Mumbai Interbank Forward Outright Rate (MMIFOR). At the same time, there have been instances of a few US$ LIBOR linked financial contracts undertaken/facilitated by banks/FIs after January 1, 2022. Also, while banks have reported that substantial progress has been made towards insertion of fallback clauses, the process is yet to be completed for all contracts where such fallbacks are required to be inserted. After June 30, 2023, the publication of the remaining five US$ LIBOR settings will cease permanently. While certain synthetic LIBOR settings will continue to be published after June 30, 2023, the Financial Conduct Authority (FCA), UK, which regulates the LIBOR, has made it clear that these settings are not meant to be used in new financial contracts. The MIFOR, a domestic interest rate benchmark reliant on US$ LIBOR, will also cease to be published by Financial Benchmarks India Pvt. Ltd. (FBIL) after June 30, 2023. CA. Dr. Savan R. Godiawala [email protected] FEMA Updates 6 7

Ahmedabad Chartered Accountant Journal July, 2023 241 Banks/FIs are advised to ensure that no new transaction undertaken by them, or their customers rely on or are priced using the US$ LIBOR or the MIFOR. Banks/FIs are also advised to take all necessary steps to ensure insertion of fallbacks in all remaining legacy financial contracts that reference US$ LIBOR (including transactions that reference MIFOR). Fallbacks in such contracts should be inserted at the earliest so as to ensure that transition of any remaining US$ LIBORlinked contracts is completed well before the deadline of end June 2023 and any disruptions due to a lastminute rush to insert fallbacks is avoided. Banks/FIs are advised not to rely on the availability of synthetic LIBOR rates as a substitute for fallbacks in legacy contracts. Banks/FIs are expected to have developed the systems and processes to manage the complete FEMA Updates transition away from LIBOR from July 1, 2023. Continued efforts in sensitising customers on the steps to be taken to manage the associated risks will enable a smooth completion of the final leg of the transition. The Reserve Bank will continue to monitor the efforts of banks/FIs for ensuring a smooth transition from LIBOR. Source: RBI/2023-24/30CO.FMRD.DIRD.01/14.02.001/ 2023-24, dated May 12, 2023 For full text refer:https://www.rbi.org.in/Scripts/ BS_CircularIndexDisplay.aspx?Id=12503 ❉ ❉ ❉ Controversies to show that criminal complaint arose outof the film shooting. Hence these were personal complaints that had been lodged against assesseewhich had got nothing to do with his professional activities and so, suchexpenditure could not be allowed against income from business and profession. Summation Considering the above judgements, personal expenses were allowed where the Assessing officer as made disallowances without any evidence to confirm it which was not sustainable in the eyes of law. Further, cases where personal expenditure incurred in relation to business deduction for the same is permissible under law on proportionate basis. However, where there is no nexus between expenditure incurred and business then such expenditure cannot be claimed as deduction. Relance on the same can be placed by referring to Continued from page 235 Commissioner ofIncome-tax v. SambandamSpg. Mills (P.) Ltd.,assessee claimed the medical and travelling expenses incurred for providing medical aid to its managing director in the U.S. The managing director himself had no expectation of getting amount of medical treatment from company and even if the medical and travelling expenses were not borne by the company, it would not have affected company’s business. Hence, it was held that the same could not be allowed as deduction. In view of above, in my humble opinion, Assessee is not eligible to claim deduction for personal expenses while computing personal income. ❉ ❉ ❉

242 Ahmedabad Chartered Accountant Journal July, 2023 [I] IMPORTANT JUDGMENT (SUPREME COURT): [1] Issue: Transfer of natural gas from one State to another held not as Inter-State Sales as argued by the Revenue but held as stock transfer as claimed by the assessee(Central Sales Tax, 1956) Case Laws: The State of Gujarat V. Gas Authority of India Ltd. & Ors. [2023-VIL-48-SC] Facts: The assessee is a dealer registered under the Act. The assessee purchased natural gas on concessional forms on the undertaking that the goods so purchased will be transferred to its branches outside the State. The assessee accordingly transferred such natural gas to its branches in various states. However, the assessing officer took the view that impugned transactions were not stock transfer transactions but were inter-state sales to ultimate buyer. The Tribunal held such transactions as stock transfer transactions. The High Court also affirmed the view. Decision of the Gujarat High Court: The Gujarat High Court held that from the material on record and the transactions by GAIL, it appears that the respondent after purchasing the gas on payment of local sales tax in State of Gujarat, takes it to its Hazira premises from where after carrying out certain process including compression puts in HBJ pipeline. That thereafter the HBJ pipeline goes to other states. At the time of putting gas in the HBJ pipeline it is not appropriated towards any of the consumers at the relevant time vis-àvis any particular quantity and the movement of gas has not occasioned towards any contract of sale. After supplying gas at Vaghodia in Gujarat, the balance quantity moves further to Madhya Pradesh and to Uttar Pradesh where after removing LPG, propane, pentene, naphtha, C2C3 etgc. on which appropriate excise duty is paid, the remaining lean gas is then supplied to its various consumers through the pipeline installed by the respondent and from its own station. Thus, from the beginning till the gas is supplied to the consumers, the gas remains in the custody and ownership of the respondent. It can also be observed that till the gas reaches at Gas Metering Station at the premises of the consumer and the consumer takes the delivery of gas, no appropriation takes place. Thus movement of gas pursuant to the contract of sale with the particular consumer takes place only when the consumer assents to take delivery of gas of particular quality and quantity and the gas thereafter moves further from metering station. Therefore, the learned Tribunal has rightly held that the transactions in question are Branch Transfer / Stock transfer and cannot be said to be inter-state sale. The Appellate Tribunal is a statutory Tribunal specifically constituted under the Act to decide taxability of transactions either under the Sales Tax Act or CST Act and is, therefore, conferred with the appellate powers to examine the factual and technical aspects involved in the transactions. The findings recorded by the learned Tribunal are on appreciation of evidence which are neither perverse nor contrary to the evidence on record. Revenue appeals came to be dismissed. Considering the issue involved, the High Court held that it cannot be said that the dispute is interstate disputes between two states, Dispute is between GAIL. A dealer and the State of Gujarat. GST and VAT Judgments and Updates CA. Vishrut R. Shah [email protected] CA. Bihari B. Shah [email protected]

Ahmedabad Chartered Accountant Journal July, 2023 243 GST and VAT - Judgements and Updates Dispute between the parties is whether the transactions in question and supply of gas by GAIL can be said to be a Branch / Stock Transfer or in the course of Inter-State sale. Section 19 amended shall be applicable only in a case where dispute is between two states and the Central Sales Tax Appellate Authority is conferred with the power to settle inter-State sale. That is not the case here. Under the circumstances, the objections raised on behalf of the appellant on the jurisdiction of the Gujarat Sales Tax Appellate Tribunal has no substance and are hereby rejected. It is required to be noted that even subsequently by Act No.3 of 2006, section 25 of the CST Act has been amended and the Tribunal is again vested with the jurisdiction even to decide the issue inter-State. Therefore, at the time when the learned Tribunal has passed the impugned order, the learned Tribunal was having and/or the learned Tribunal was vested with the jurisdiction. Aggrieved by the High Court Order, State filed the appeal before the Supreme Court. Decision of the Supreme Court: The Supreme Court held that in the facts and circumstances of the case, the view taken by the High Court cannot be said to be erroneous. Appeal special leave petitions came to be dismissed, however, the question of law was kept open. [II] IMPORTANT CASE LAWS (HIGH COURT): [1] Issue: Adjudication order passed without affording personal hearing to petitioner to be set aside: HC: Case Laws: Concord Tieup (P) Ltd v. State of Madhya Pradesh [2023) 151 taxmann.com 41 (MP) Facts: In the instant case, the Petitioner has filed writ petition against the order passed under section 74 of CGST Act, 2017 on the ground that the order passed without affording personal hearing to petitioner. It was contended that notice mentioned about the personal hearing but no date, time and venue for personal hearing was shown in the notice Held: The Hon’ble High Court noted that the intention of the department was to give personal hearing to the petitioner as required under the law, but in the table given in the notice captioned as ‘Details of personal hearing etc.’ no Date, Time and Venue of personal hearing was shown. Therefore, it would be sufficient to infer that no personal hearing was given to the petitioner before passing the impugned order. Thus, it was held that the impugned order was liable to be quashed and matter was remanded to Adjudicating Authority to pass order afresh after giving personal hearing. [2] Issue: Interest is payable in case of inordinate delay in disbursing refund even if statutory provision is not available: HC : Case Laws: Sesame Workshop Initiatives (India) (P) Ltd. v. Union of India [2023] 151 taxmann.com 52 (Delhi) Facts: In the present case, the petitioner filed petition seeking interest on delayed refund. It was contended that refund of SGST was processed but the refund of CGST and IGST was not processed despite the refund order. Therefore, it was argued that interest would be payable as there has been an inordinate delay in disbursing the refund. Held: The Hon’ble High Court noted that in the instant case, refund of SGST was processed but the refund if CGST and IGST was processed after filing of writ petition. The interest would be payable in case of inordinate delay in disbursing refund even in cases where statutory provision is not available for payment of interest. However, in the instant case, the statute itself provides to pay 6% rate of interest in case of delay in processing refund by Continued to page 257

244 Ahmedabad Chartered Accountant Journal July, 2023 1) ITC Proportionately to the extent of financial / commercial credit note issued by supplier AAR No.05/AP/GST/2023 Dated 26.05.2023 Facts: - M/s Vedmutha Electricals India Private Limited is engaged in business of supply of various electronic items. The applicant purchases various electronic items from M/s. Gold Medal Electricals Private Limited - The Supplier issued Tax invoices in terms of Rule 46 of CGST Rules, 2017, and charged GST on such taxable value, calculated in terms of section 15 of CGST Act, 2017. - The applicant submits that, supplier paid GST and filed GSTR-3B for the relevant tax period and reported details of supplies GSTR-1. - Applicant has received the goods and made the payment of consideration as per tax invoices for the goods received from suppliers. - The applicant has received various incentives. In the nature of discounts from its suppliers, viz. Turnover Discount, Quantity Discount, Cash Discount, Additional Scheme Discounts, 3 Months regular scheme discounts, etc. year wise from effective date of registration till date. All the above discounts are in the form of after sale discounts. For the above-mentioned discounts, the supplier has raised financial/ commercial credit note without GST for accounting purpose only. The financial credit notes were accounted for by the Applicant and also disclosed by distributor in their Income Tax returns. Further, supplier does not reduce its output tax liability in respect to said Financial / Commercial Credit Notes , as Section 15 doesn’t permit to exclude “Post supply Discount” from transaction value. Supplier also filed an affidavit stating that they don’t reduce GST liability on account of financial / commercial credit note. Question - Whether the applicant is duly eligible to take full credit of GST Charge in Tax invoice issued by supplier and GST was paid by such supplier to government even though later commercial / financial credit note is issued for part amount of invoice ? - Whether the applicant is required to reverse the ITC proportionately to the extent of financial / commercial credit note issued by supplier ? Discussion and Finding - The applicant submits that Section 16 of CGST Act, 2017, which deals with eligibility to avail credit of input Tax paid by the recipient of goods of services on inward supplies with the fulfillment conditions are satisfied in the present case. - The main issue is to decide whether the applicant is eligible to take full credit of GST charged in tax invoice issued by supplier when GST was paid by supplier to the Government even though later commercial / financial credit notes was issued. We will examine the language of 15(3) of the CGST Act, 2017 firstly. - The above said provision states that the discount value shall not be included, as per 15(3) (b), when CA. Monish S. Shah [email protected]