JOURNAL DECEMBER 2025

Ahmedabad Chartered Accountant Journal December, 2025 749TMVolume : 49 Part : 09 December, 2025E-mail : [email protected] Website : www.caa-ahm.orgAhmedabad Chartered Accountant JournalIn this IssueContents Author's Name Page No.- caaahmedabadJournal CommitteeCA. Tarjani Shah CA. Shreyanshi RakhashiyaChairperson ConvenerCA. Shivang Chokshi CA. Jayesh SharedalalE. C. Representative Past PresidentMembersCA. Ashok Kataria CA. Disha Shah CA. Labdhi ShahCA. Mayur Zanjrukiya CA. Mira Shah CA. Monish ShahCA. Niket Rasania CA. Rajni Shah CA. Yash Shah - Five Drops of Divine Wisdom CA. Mayur Modha 752 Editorial CA. Tarjani Shah 754From the President CA. Rushabh Shah 755Compliance Tracker CA. Manthan Khokhani 756ArticlesPrivate Discretionary Trust CA. Kaushik D. Shah 757Taxed by Algorithm : CPC's Encoded Logic and the Erosion of CA. Shaleen Shah 761Real Intelligence in AssessmentPractical Aspects - Conducting Internal Audit of Business Operations CA. Kaushal Paresh Baxi 765From Global to Local : Structuring the Reverse Flip for Eshaan Singal (CA Student) 772Indian-Origin CompaniesDirect TaxesGlimpses of Supreme Court Rulings Adv. Samir N. Divatia 778From the Courts CA. Jayesh Sharedalal 780Tribunal News CA. Yogesh G. Shah & 784CA. Aparna ParelkarUnreported Judgements CA. Sanjay R. Shah 793Judicial Analysis Sr. Advocate Tushar Hemani 795 FEMA & International TaxationFEMA & International Taxation CA. Dhinal A. Shah & 798CA. Vibhu BhandariTM

750 Ahmedabad Chartered Accountant Journal December, 2025TMContents Author's Name Page No.FEMA Updates CA. Dr. Savan R. Godiawala 802GULF Insights CA. Sanskar Jain 803 Indirect TaxesGST and VAT Judgments and Updates CA. Bihari B. Shah & 805CA. Vishrut R. ShahAdvance Ruling under GST CA. Monish S. Shah 808Emerging Avenues for Chartered Accountants: AI and Automation CA. Hency Shah 811as The New Frontier for Chartered AccountantsCorporate Law & OthersInd AS Insights CA. Niket Rasania 815Corporate Law Update CA. Naveen Mandovara 819GujRERA Corner CA. Manan Doshi 821Capital Markets CA. Karan P. Vora 827From Published Accounts CA. Pamil H. Shah 832From the Government CA. Ashwin H. Shah & 835CA. Kunal A. ShahIT Corner CA. Tapas Ruparelia 837CSR Stories CA. Siddharth Bhatt 843Association News CA. Ashish Sharma & 844CA. Sulabh PadshahACAJ Crossword Contest 837

Ahmedabad Chartered Accountant Journal December, 2025 751TMAttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within onemonth. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Subscription for the financial year 2025-26 is ` 1500/-, single copy ` 150/- (if available).4. Please mention your membership number in all your correspondence.5. While sending Articles for this Journal, please confirm that the same are not published / not even meant forpublishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication,nor will they be sent back.6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarilyconcur with the authors / contributors.7. Life Membership/Annual Membership and Other Fees F. Y. 2025-26 Amount in `Basic GST Total1. Admission Fees 500 90 5902. Annual Membership Feesa. If Paid Prior to june 30 of each financial year :i. In case of membership (of ICAI) for a period of less than or equal to five years 750 - 750ii. In case of membership of (ICAI) for a period more than five years, 800 - 800b. If paid after june 30 of each financial year :i. In case of membership (of ICAI) for a period of less than or equal to five years, 900 - 900ii. In case of membership of (ICAI) for a period of more than five years 980 - 9803. Life Membership Feesi. In case of membership (of ICAI) for a period of less than or equal to five years 8000 1440 9440ii. In case of membership of (ICAI) for a period more than five years 10000 1800 118004. Brain Trust Membership Feesa. Individual Membership Feesi. In case of membership (of ICAI) for a period of less than or equal to five years 1000 180 1180ii. In case of membership of (ICAI) for a period more than five years 1500 270 1770b. Flexi Firm/Corporate Membership Fees*** 3600 648 4248*** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting.Additional Representatives can be nominated @1800/- plus GST per participant subject to maximum of 20 participantper firmPublished ByCA. Tarjani A. 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 40392596While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'AlliedLaws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in theprofession. Articles and reading literatures are invited from members as well as from other professional colleagues.Printed : Pratiksha Printer, Ahmedabad Mobile : 98252 62512 E-mail : [email protected]

752 Ahmedabad Chartered Accountant Journal December, 2025TMI was blessed with the opportunity to attend the GitaPanchamrut series organised by Chinmaya Mission,Ahmedabad, where the timeless wisdom of theBhagavad Gita was lucidly and inspiringly expoundedby Swami Avyayanandaji. The depth, clarity, andpractical relevance with which Swamiji unfolded theessence of the five select shlokas left a deep andlasting impression on my mind and heart. This enrichingexperience became the inspiration behind thisMananam, titled “Five Drops of Divine Wisdom”,through which I have attempted to reflect upon theseeternal teachings and relate them to daily life andprofessional responsibilities. The simplicity with whichprofound spiritual truths were connected to duty, ethics,and conscious living motivated me to pen thesereflections, with deep gratitude to Chinmaya Missionand Swami Avyayanandaji for guiding seekers like ustoward inner clarity and righteous living.Gita Jayanti is observed every year on the Ekadashiof the Shukla Paksha in the month of Margashirsha.This year, birth anniversary of the Bhagavad Gitawas on 1st December, a day also known asMokshadaEkadashi.The Mahabharata, the great epic of Dharma, containsnearly one lakh (1,00,000) shlokas, of which 700shlokas form the Bhagavad Gita, the very essenceof life’s wisdom. Gita Panchamrut refers to fiveselected shlokas from these 700, through which thecore message of the Gita can be understood andlived.The first of these shlokas lays the foundation ofself-effort and inner discipline:First Drop – Self-Upliftment (¥¢y}¢¢ïh¢Ú)The first drop teaches the fundamental principle of selfupliftment:Five Drops of Divine WisdomCA. Mayur [email protected]©hÚï΢y}¢Ý¢y}¢¢Ýæ Ý¢y}¢¢Ý}¢±„¢Î²ï¼ì J¥¢y}¢ñ± s¢y}¢Ý¢ï Ï¢‹{éÚ¢y}¢ñ± çÚÐéÚ¢y}¢Ý: JJ(Bhagavad Gita 6.5)The Gita clearly declares that one must elevate oneselfthrough one’s own effort. No one else can uplift usunless we choose to rise. The mind, when disciplinedand pure, becomes our greatest friend; but whenuncontrolled and clouded by weakness, it becomesour strongest enemy. Thus, the journey of life beginswith taking responsibility for one’s own inner growth.Second Drop – Right Action (ÜU¼üòÜU}¢ü / ÜU}¢ü²¢ïx¢)Having taught us to make the mind our friend, the Gitanext guides us on how to act rightly in life. This wisdomis given in the second drop:ÜU}¢ü‡²ï±¢ç{ÜU¢ÚS¼ï }¢¢ ÈUHï¯é ÜU΢™Ý J}¢¢ ÜU}¢üÈUHãï¼é|¢êü}¢¢ü ¼ï „Çìx¢¢ïÇSy±ÜU}¢ü燢 JJ(Bhagavad Gita 2.47)We perform two kinds of actions in life — KartavyaKarma (duty-bound action) and Kamya Karma (desiredriven action). The Gita emphasizes that performingone’s duty is essential, even if the desired result isnot guaranteed. Actions should be performed withoutexpectation, greed, or attachment to outcomes.We must act without laziness, without disappointment,and without ego. When actions are performed as anoffering, with sincerity and dedication, they purify themind and lead to inner steadiness.Third Drop – Offering All Actions to the Lord(§üEÚ¥Ðü‡¢Ï¢éçh)The third drop deepens Karma Yoga by teaching totalsurrender of actions to God:

Ahmedabad Chartered Accountant Journal December, 2025 753TM²yÜUÚ¢ïç¯ ²ÎÔA¢¢ç„ ²Á…éã¢ïç¯ ÎÎ¢ç„ ²¼ì J²œ¢ÐS²ç„ ÜU¢ñ‹¼ï² ¼yÜUéLc± }¢ÎÐü‡¢}¢ì JJ(Bhagavad Gita 9.27)The Gita instructs us to offer every action — whethereating, working, giving, or performing austerity — tothe Lord. When actions are dedicated to God, theirburden is lifted from the ego.Fourth Drop – Divine Assurance (²¢ïx¢ÿ¢ï}¢æ ±ã¢}²ã}¢ì)In the fourth drop, the Gita offers a profound assuranceof divine care for the devoted seeker:¥Ý‹²¢çp‹¼²‹¼¢ï }¢¢æ ²ï …Ý¢: вéüТ„¼ï J¼ï¯¢æ çÝy²¢ç|¢²éQU¢Ý¢æ ²¢ïx¢ÿ¢ï}¢æ ±ã¢}²ã}¢ì JJ(Bhagavad Gita 9.22)When a devotee remains constantly connected withGod, the Lord Himself takes responsibility for theirneeds and protection. This teaching removes anxietyand fills life with trust and peace.Fifth Drop – Surrender (à¢Ú‡¢¢x¢ç¼)The Fifth Drop presents the supreme teaching ofsurrender, where knowledge, devotion, and actionunite:„±ü{}¢¢ü‹ÐçÚy²Á² }¢¢}¢ïÜæU à¢Ú‡¢æ ±í… J¥ãæ y±¢ „±üТÐï|²¢ï }¢¢ïÿ¢ç²c²¢ç}¢ }¢¢ à¢é™: JJ(Bhagavad Gita 18.66)From the standpoint of knowledge, this shloka asksus to renounce false identifications — “I am the body”,“I am the mind”, “I am the intellect”. From the standpointof devotion, it calls for complete surrender to God.From the standpoint of action, it asks us to give upego-driven expectations and perform duties as aservant of the Divine.The Lord assures liberation from all bondage and asksus to be free from grief and fear.These five drops of divine wisdom — self-upliftment,selfless action, offering all actions to God, completesurrender, and the virtues of devotion — together forma complete guide for life. When reflected upon(Mananam) and practiced sincerely, they transform ourthoughts, actions, and destiny, leading us toward innerpeace and ultimate liberation.For a Chartered Accountant, professional life is acontinuous pursuit of discipline, integrity, andresponsibility, and the five drops of divine wisdomoffer timeless guidance for this journey. The Gitareminds us that self-upliftment begins within, makingcontinuous learning, ethical strength, and mentaldiscipline our personal responsibility. It teaches us toperform our duties sincerely and fearlessly, withoutattachment to outcomes or pressure, treating everyprofessional assignment as Kartavya Karma and anoffering to the Divine. By surrendering ego, shortcuts,and unethical expectations, and by placing unwaveringfaith in truth and compliance, a Chartered Accountantfinds strength even in times of scrutiny and challenge.Above all, the Gita calls upon us to live withcompassion, balance, humility, and patience, ensuringthat professional excellence is rooted in human values.When the wisdom of the Gita Panchamrut is reflectedupon and practiced, a Chartered Accountant evolvesbeyond technical expertise to become a true custodianof Dharma, serving society with clarity, conscience,and courage.

754 Ahmedabad Chartered Accountant Journal December, 2025TMHonouring Our Roots, Empowering Young Minds : Our Association at 75It is with deep gratitude and a profound sense of pride that I write this editorial as our Association steps into its 75thyear. This milestone is not merely about the passage of time. It reflects decades of dedication, discipline, andcommitment shown by generations of Chartered Accountants who believed in building the profession collectively.Being part of such an Association is an honour in itself. Having the opportunity to contribute to its knowledgejourney, especially in this landmark year, makes the responsibility even more meaningful. Our seniors laidstrong foundations through their vision, ethics, and perseverance. What we inherit today is a legacy of credibilityand trust that continues to guide us.As we celebrate 75 years, it also becomes a moment to look ahead. Legacy is not only about preserving what hasbeen built but also about preparing for what lies ahead. With this thought, the Journal has taken new initiatives thisyear. Along with experienced voices, we have consciously encouraged perspectives and articles from youngprofessionals. Their participation is a step toward shaping the future while respecting the values of the past.The profession is evolving at a rapid pace. Artificial intelligence, technology-led compliance, new advisory areas,and emerging practice domains are redefining how Chartered Accountants work. In this changing environment, thecombination of senior experience and youthful thinking becomes invaluable. Seniors bring wisdom, professionaljudgment, and years of practical insight. Young minds bring adaptability, curiosity, and a natural comfort with newtools and emerging areas. Together, they create a strong foundation for sustainable growth.As we plan not just for the next year but for the next 75 years and beyond, this balance between experience andinnovation will be key. An Association that grows with its members and welcomes diverse perspectives continuesto remain relevant and purposeful.To every reader of this Journal, I extend a heartfelt invitation. Be part of this knowledge journey. Even one article,one shared experience, or one practical insight can enrich collective understanding. Our effort is to make thisJournal increasingly knowledge-oriented and meaningful. Being part of it as a contributor adds value not only tothe Association but also to one’s own professional growth.By the time, you are holding this Journal in your hands, most of us already have our New Year resolutions inmind. Let us add one more to that list. Contribute to the Association in the best possible manner during the yearahead, in whatever way you can. As we step into 2026, I wish each one of you professional growth, continuouslearning, and fulfilment. May the year ahead strengthen our bonds and take our Association to greater heights.Warm regards,CA. Tarjani ShahCA. Tarjani [email protected]

Ahmedabad Chartered Accountant Journal December, 2025 755TMSome months mark progress. Some mark milestones. December did both for CAAA.Dear Members,As the year draws to a close, December has given us moments that will be remembered well beyond thecalendar. With the festive cheer of Diwali behind us, we returned to routine but what followed was anything butroutine for the Association.This month, CAAA entered its 75th year.Seventy-five years of legacy, credibility and contribution to the Chartered Accountancy profession. While we didnot mark the beginning of this landmark year with a formal event, its significance is deeply felt. It is a reminder thatinstitutions are not defined by celebrations alone, but by the trust they build, the standards they uphold, and therelevance they sustain over time. Entering this milestone year places a renewed responsibility on all of us tohonour the past while shaping the future.Adding to this proud moment, CAAA crossed the 2,000-member mark. This is more than a numerical achievement.It reflects the fraternity’s confidence in the Association, its programs, leadership and direction. Growth of thisnature reinforces our role as a unifying platform for learning, engagement and professional excellence.December also witnessed one of the most energetic highlights of the year - the CAAA Winter Cricket Tournament.What stood out was not just the enthusiasm or participation, but the way the tournament redefined how we cometogether beyond our professional roles. The camaraderie, discipline and sportsmanship on display showcasedthe strength of our community and added a fresh dimension to member engagement.As we now look ahead to January, the season itself invites reflection. Winter offers a natural pause - a chance tostep back, recalibrate, and invest in fitness, learning and personal growth. It is an ideal time to prepareourselves for the opportunities and responsibilities that the new year will bring, especially as we continue ourjourney through CAAA’s milestone 75th year.Let us carry forward the pride of what we have achieved, the energy of what we have experienced and the clarityof where we want to go. Because institutions like CAAA are built not in moments, but through sustained commitment,month after month, year after year.Wishing all members a reflective year-end and a purposeful start to the new year.Warm regards,CA. Rushabh ShahPresidentFrom the PresidentCA. Rushabh [email protected]

756 Ahmedabad Chartered Accountant Journal December, 2025TMDate Compliance Applicable To07-Jan-26 TDS/TCS Payment All Deductors10-Jan-26 GSTR - 7 GST TDS Deductors11-Jan-26 GSTR-1 (Monthly) Turnover > ¹ 5 Cr or opted monthly13-Jan-26 GSTR-6 Input Service Distributors (ISD)13-Jan-26 IFF (QRMP Scheme) Quarterly filers (QRMP)13-Jan-26 GSTR-5 (Non-Resident Taxable Person) Filing of GSTR-5 by Non-Resident foreign taxablepersons carrying out transactions in India for November2025.15-Jan-26 Provident Fund (PF) Filing of Provident Fund (PF) Electronic Challan cumReturn (ECR) and payment of PF contributions forNovember 202515-Jan-26 ESIC Payment Filing of Employees’ State Insurance (ESI) return andpayment of ESI contributions for November 2025.15-Jan-26 Professional Tax Employers in applicable states15-Jan-26 TCS Return Filing - Q3 Quarterly TCS return for Q3 of FY 2025-2618-Jan-26 CMP-08 Composition Tax payers20-Jan-26 GSTR-3B (Monthly) All regular GST filers20-Jan-26 GSTR-5A (OIDAR Services) Filing of GSTR-5A by non-resident providers of OnlineInformation and Database Access or Retrieval (OIDAR)services for November 2025.25-Jan-26 PMT-06 (QRMP Scheme) QRMP taxpayers31-01-2026 TDS - 26QB/26QD/26QE TDS Payment in Form 26QB (Property), 26QC (Rent),26QD (Contractor Payments), 26QE (Crypto Assets) forNovember 202531-01-2026 TDS - 26Q, 24Q and 27Q Quarterly TDS return for Q3 of FY 2025-26CA. Manthan [email protected]

Ahmedabad Chartered Accountant Journal December, 2025 757TMIncome Derived from Property under a PrivateDiscretionary Trust is Chargeable to Tax as under:A) Where shares of beneficiaries are determinate:1. Where trust income does not includebusiness income [Section 161(1)]i) Every presentative assessee asregards the income in respect of whichhe is a representative assessee, shallbe subject to the same duties,responsibilities and liabilities as if theincome were income received by oraccruing to or in favour of himbeneficially,ii) He shall be liable to assessment in hisown name in respect of that income;iii) However, any such assessment shall bedeemed to be made upon him in hisrepresentative capacity only, andiv) the tax shall, subject to the otherprovisions contained in this Chapter, belevied upon and recovered from him inlike manner and to the same extent asit would be leviable upon andrecoverable from the personrepresented by him.Thus, where there is only one beneficiary;orWhere there are more than one beneficiaryof a private trust and the share falling to eachof the beneficiary is determinate, theassessments are to be made on the trustee(s)Private Discretionary Trustas a representative assessee under section161.Such assessment will have to be made atthe rate applicable to the total income of eachbeneficiary. Accordingly, separateassessment for each of the beneficiary onwhose behalf the income is received by thetrustee will have to be made. However, asper section 166, the Income-tax departmenthas an option to make direct assessment inthe hands of each beneficiary entitled to theincome.The general principle is to charge all incomeonly once. The Assessing Officer shouldkeep this point in view at the time of raisingthe initial assessment either of the trust orthe beneficiary and adopt a course beneficialto the Revenue. Having exercised hisoption once it will not be open to theAssessing Officer to assess the sameincome for that assessment year in the handsof the other person. [Circular No. 157, dated26.12.1974]Judicial decisionThe assessment in the name of the trustee interms of the section 161(1) can be made intwo ways. The Assessing Officer may makeas many assessments in the name of thetrustee as there are beneficiaries and levythe tax appropriate to such income at the rateof tax applicable to the total income of eachbeneficiary. The assessing authority, in thealternative, can make a single assessmenton the trustee, but has to indicate in the orderCA. Kaushik D. [email protected]

758 Ahmedabad Chartered Accountant Journal December, 2025TMthe share income of each beneficiary and thetax attributable to it. [CIT v T.A.V. Trust (2003)264 ITR 52 (Ker)]If assessee-trust was a determinate trust,interest income earned on bank depositswould be assessed in hands of assessee’sbeneficiaries and not assessee. [CIT v TVSShriram Growth Fund (2020) 121 taxmann.com238 (Mad)]2. Where trust income includes businessincome also [Section 161(14)]:Notwithstanding anything contained in section161(1), where the income of the beneficiaryin the hands of trustee being representativeassessee consists of or includes profits andgains of business, tax shall be charged onthe whole of the income in respect of whichsuch person is so liable at the maximummarginal rate.Although, section 161(1A) states that tax shallbe charged on the whole of the income inrespect of which such person is so liable atthe maximum marginal rate but the Kerala HighCourt in the following case has held that taxshall be charged at the maximum marginalrate only on that part of income which is byway of profits or gains of business and noton the whole of the income in respect ofwhich such person is so liable.(1)”: in other words, it does not say“notwithstanding anything contained in thisAct”. Thus, though the provisions of subsection (1A) override the provisions of subsection (1) of section 161, it does not havethe effect of overriding the other provisionsof computation of total income under otherheads like sections 22 to 25 (or say sections45 to 55A or sections 56 to 59).Consequently income under each otherhead has to be computed separately. Asalready noted, as per sub-section (IA),Private Discretionary Trustwhere any income in respect of which arepresentative assessee is liable consistsof, or includes, income by way of profits orgains of business, tax shall be charged onthe whole of the income in respect of whichsuch person is so liable at the maximumrate. The income so liable referred to in thesaid sub-section is only the businessincome of the trust and not any other income.Any other interpretation, according to us, isagainst the very scheme of the Act and furthersuch an interpretation will make theprovisions of sub-section (1A) of section 161unconstitutional. It is a well settled positionthat if two constructions of a statute arepossible, one of which would make it intravires and the other ultra vires, the court mustlean to that construction which would makethe operation of the section intra vires. [CITv T.A.V. Trust (2003) 264 ITR 52 (Ker)]3. Where maximum marginal rate of tax shallnot be chargeable (Proviso to section161(14)]:The maximum marginal rate in the above caseshall not be chargeable if such profits andgains are receivable under a trust:- declared by any person by will- exclusively for the benefit of any relativedependent on him for support and- maintenance and such trust is the onlytrust so declared by him.B) Where shares of the beneficiaries are indeterminate or unknown [Section 164(1)]1. Total income of the trust (whether itincludes business income or not) to becharged at maximum marginal rate[Section 164(1)]Where any income, (in respect of which thetrustee(s) is liable as representativeassessees) or any part of such income is

Ahmedabad Chartered Accountant Journal December, 2025 759TMnot specifically receivable on behalf or forthe benefit of any one person.orWhere the individual shares of the personson whose behalf or for whose benefit suchincome or such part thereof is receivable areindeterminate or unknown (“such income”,“such part of the income” and “such persons”being hereafter in this section referred to as“relevant income”, “part of relevant income”and “beneficiaries”, respectively), then taxshall be charged on the “relevant income”or “part of relevant income” at the maximummarginal rate.2. Maximum marginal rate of tax not to applyin certain cases [First proviso to section164(1)]:The maximum marginal rate of income-tax willnot apply in the following cases:i) Where none of the beneficiariesa) has taxable income exceeding theexemption limit as applicable to anassociation of persons, orb) is a beneficiary under any otherprivate trust;ii) Where the relevant income or part of therelevant income is receivable under atrust declared by any person by will andsuch trust is the only trust so declaredby him; oriii) Where the trust, yielding the relevantincome or part thereof was created by anon-testamentary instrument before1.3.1970 and the Assessing Officer issatisfied that it was created bonafideexclusively for the benefit of the relativesof the settlor, or where the settlor is aHindu Undivided Family, exclusively forthe benefit of members family incircumstances where such relatives ormembers were mainly dependent on thesettlor for their support and maintenance;oriv) Where the relevant income is receivableby the trustees on behalf of a providentsuperannuation fund, gratuity fund,pension fund or any other fund createdbonafide by a person carrying on abusiness or profession exclusively forthe benefit of his employees.If the case falls within any of the above fourexceptions, the “relevant income”or”part of therelevant income” of the trust is to be taxed atthe rate applicable to an association ofpersons, i.e., the slab rate which is same asapplicable in case of individual of less than60 years old, HUF, etc.Important Note. The first proviso to section164(1) shall apply only when the income ofthe trust does not include business income.For exception to first proviso see secondproviso in para (3) below.Judicial decisionWhere the share of beneficiaries was notknown, but the trust passed a resolutionwhereby it decided to disburse the incomeof the relevant assessment year to one of itsbeneficiaries and gave the income to suchbeneficiary, it was held that a mere resolutioncannot convert nature of trust fromdiscretionary to specific. Hence, trust shallbe liable to pay tax on his income as adiscretionary trust instead of the beneficiary.[CIT v Ambalal Sarabhai D. Trust (2004) 269ITR 119 (Guj)]3. Maximum marginal rate of tax shall not bechargeable even though the total incomeof the trust includes business income(Second proviso to section 164(1)]Private Discretionary Trust

760 Ahmedabad Chartered Accountant Journal December, 2025TMWhere any income (in respect of which thetrustee(s) is liable as representative assesconsists of, or includes, profits and gains ofbusiness, the above first proviso (relatingto trust to be taxed at the rate applicable toan association of persons) shall apply onlyif-- such profits and gains are receivableunder a trust declared by any person bywill- such trust is exclusively for the benefit ofany relative dependent on him forsupport and maintenance, and- such trust is the only trust sodeclared by him.Summation:Recently, the Department has taken a view thatMaximum Marginal rate of Income Tax will not applyonly if first proviso to Section 161(14) is satisfied whichreads as under:The maximum marginal rate of income-tax will not applyin the following cases:i) Where none of the beneficiariesa) has taxable income exceeding the exemptionlimit as applicable to an association ofpersons, andb) is a beneficiary under any other private trust;orii) Where the relevant income or part of the relevantincome is receivable under a trust declared byany person by will and such trust is the onlytrust so declared by him; oriii) Where the trust, yielding the relevant income orpart thereof was created by a non-testamentaryinstrument before 1.3.1970 and the AssessingOfficer is satisfied that it was created bonafideexclusively for the benefit of the relatives of thesettlor, or where the settlor is a Hindu UndividedFamily, exclusively for the benefit of membersfamily in circumstances where such relatives ormembers were mainly dependent on the settlorfor their support and maintenance; oriv) Where the relevant income is receivable by thetrustees on behalf of a provident superannuationfund, gratuity fund, pension fund or any other fundcreated bonafide by a person carrying on abusiness or profession exclusively for the benefitof his employees.If the case falls within any of the above four exceptions,the “relevant income”or”part of the relevant income” ofthe trust is to be taxed at the rate applicable to anassociation of persons, i.e., the slab rate which issame as applicable in case of individual of less than60 years old, HUF, etc.Important Note. The first proviso to section 164(1) shallapply only when the income of the trust does not includebusiness income. For exception to first proviso seesecond proviso in para (3) below.As per the opinion of the department two conditionsare to be read as ‘and’ and not as ‘or’ for example:i) Where none of the beneficiariesa) has taxable income exceeding the exemptionlimit as applicable to an association ofpersons, orb) is a beneficiary under any other private trust;In view of the above, it is submitted that if thebeneficiary is beneficiary under any other Private TrustOR whether relevant income is receivable under a trustdeclared by any person by will and such trust is onlytrust so declared by him.Thus, either of the condition should be satisfied to getout pf the problem now created by the Income TaxDepartment.Private Discretionary Trust

Ahmedabad Chartered Accountant Journal December, 2025 761TMAs India prepares to welcome 2026 and a new IncomeTax law, the country’s tax administration stands at aninflection point shaped not merely by legislativereform but by the exponential advance of artificialintelligence and algorithmic governance. In the lastcouple of years, AI has revolutionised taxcompliance—automating data matching, risk profilingand return processing at a scale and speedunimaginable to earlier generations of officers andtaxpayers. That revolution shows no sign of slowing;if anything, the trajectory suggests that within a fewyears, most routine tax determinations will be madenot by human Assessing Officers deliberating overfiles, but by algorithms executing encoded rules. Thisshift brings undeniable efficiency gains, but it alsointroduces a structural tension: tax law, with itslabyrinthine provisos and context dependentexceptions, does not translate neatly into the binarylogic that machines require. Taxpayers navigating thisnew landscape increasingly find themselves notarguing with an officer who can be persuaded orcorrected, but contesting a demand generated bycode—code they cannot see, cannot question, andoften cannot understand. Until tax governanceframeworks evolve to keep pace with AI’s capabilitiesand limitations, taxpayers must brace for a reality inwhich their legal positions are adjudicated at theprocessing stage by systems that lack the contextualjudgment the statute still presumes. The CentralizedProcessing Centre at Bengaluru exemplifies this shift,and examining its role and limitations offers a windowinto the broader question of what “assessment” willmean in an algorithmically governed tax system.Statutory status of CPC and CIT(CPC)The Centralized Processing Centre at Bengaluruoperates as a core component of India’s income taxadministration, functioning as a processingmechanism created under the CentralisedProcessing of Returns Scheme, 2011, read with theenabling provisions in section 143(1A) of the IncomeTax Act, 1961, and the Board’s powers under sections119 and 120. Despite its central role in processingmillions of returns annually, CPC is not itself namedanywhere in the Act as an “income tax authority,” noris “CPC” included in the definition of “AssessingOfficer” in section 2(7A). Section 2(7A) is exhaustive:an “Assessing Officer” means the AssistantCommissioner or Deputy Commissioner or AssistantDirector or Deputy Director or the Income tax Officervested with jurisdiction by an order under section120, and in some situations Additional/JointCommissioners when specifically directed. Aprocessing centre or an algorithmic engine does notfall within this list.The Commissioner of Income tax (CentralizedProcessing Centre), Bengaluru – usually styled “CIT(CPC), Bengaluru” in notifications – is anadministrative designation at the Commissioner levelwithin the departmental hierarchy. Commissioners arehigher supervisory authorities appointed undersection 117; they are distinct from the cadre of“Assessing Officers” enumerated in section 2(7A) anddo not become Assessing Officers merely by virtueof their rank.CBDT’s Notification No. 155/2025 authorises theCommissioner of Income tax, CPC Bengaluru toexercise concurrent powers to: (a) rectify mistakesapparent from the record under section 154 in casesprocessed through the CPC–AO interface, and (b)issue notices of demand under section 156 for suchrectified cases. The notification further permits theCommissioner to delegate these operations toTaxed by Algorithm : CPC'sEncoded Logic and the Erosion ofReal Intelligence in AssessmentCA. Shaleen [email protected]

762 Ahmedabad Chartered Accountant Journal December, 2025TMAdditional or Joint Commissioners, who in turn mayauthorise Assessing Officers to perform the actualrectifications and issue related orders. This structureis important: it presupposes that the Commissioner(CPC) sits above, and may empower, AssessingOfficers – it does not purport to redefine theCommissioner as an Assessing Officer under section2(7A). The general assessment powers of scrutinyunder section 143(3), the power to issue notices undersection 143(2), or to reopen under sections 147/148,remain tied to the statutory “Assessing Officer,” not toCIT(CPC).Within that frame, CPC is best characterised as acentralised, largely automated processing set upoperating under schemes and notifications, while the“proper officer” for assessment in the sense of the Actremains the jurisdictional Assessing Officer defined insection 2(7A) and notified under section 120.Processing vs assessment: where CPC should stopThe Act itself draws a sharp line between processingof returns under section 143(1) and assessmentunder section 143(3), and that line is central toevaluating CPC’s role. Processing under section143(1) is designed as a summary, largely mechanicalstep. The return is subjected to automated checksfor arithmetical errors, internal inconsistencies,incorrect claims apparent from information on the faceof the return, disallowance of losses or specifieddeductions in late filing situations, and mismatcheswith third party data such as Form 26AS, AIS or TIS.The output is an “intimation” determining tax or refund,with a notice of demand deemed under section 156where tax, interest or fee is payable. No enquiry isundertaken, no evidence is called, and no opinionis expressed on the substantive correctness of thereturned figures.Assessment under section 143(3) is of a differentcharacter. It is preceded by a statutory notice undersection 143(2) and may be supported by furtherrequisitions under sections 142(1), 131 or 133(6). Here,the Assessing Officer examines books, hearsexplanations, evaluates documents and third partyinformation, and then determines total income and taxby a reasoned order. In ACIT v. Rajesh Jhaveri StockBrokers (P) Ltd., the Supreme Court emphasised thatan intimation under section 143(1) “could not be treatedto be an order of assessment,” and that at this stage“no opinion is formed” by the department on thereturned income. Processing is thus not assessmentin the strict sense.A live example shows how critical this boundary is.Consider a discretionary family trust created undera Will, which is the only trust under that Will. Onthose facts, the scheme of section 164, read with itsprovisos, generally contemplates that such atestamentary trust enjoys an exception from themaximum marginal rate and may be taxed atappropriate slab rates in the representative capacity,subject to the specific conditions being satisfied. Inthe case at hand, the return of income correctlyreflected the trust’s income and claimed taxation atthe appropriate rate. CPC, while processing thereturn, retained the income figure but recomputedtax at the maximum marginal rate, issued a demand,and thereby treated the trust as if it fell outside thetestamentary exception and squarely within thediscretionary trust regime.That adjustment is not an arithmetic correction or aremoval of an obvious internal inconsistency. It involvesa series of legal and factual judgments: whether thetrust is indeed created by a Will, whether it is the onlytrust so created, whether beneficiaries and their sharesare determinate, and how the provisos to section 164(1)apply to those facts. These are questions that theTribunal in similar cases has remanded to theAssessing Officer for verification of the Will and trustdeed before deciding the applicable rate, recognisingthat they require an evaluative, quasi judicialdetermination. When CPC, through an automated rule,unilaterally applies the maximum marginal rate to sucha trust at the processing stage, it is no longer“processing” in the sense of section 143(1); it is, insubstance, attempting an assessment level decisionon how section 164 should operate in that fact pattern,without the procedural safeguards or the jurisdiction ofan Assessing Officer.Taxed by Algorithm : CPC's Encoded Logic and the Erosion of Real Intelligence in Assessment

Ahmedabad Chartered Accountant Journal December, 2025 763TMThe same pattern appears in other areas. In capitalgains cases, CPC has made additions under section50C by substituting stamp duty valuation for declaredsale consideration while processing under section143(1), without examining whether the assessee hasgrounds to invoke the statutory mechanism forreference to a valuation officer, or whether theconsideration actually received is fully supported bybanking records—issues that the Mumbai ITAT inPrabha Anil Gandhi v. ADIT held are beyond CPC’sscope at the processing stage and requireassessment level inquiry. In cases involving carriedforward losses, CPC has disallowed set off purelyon the ground that the return was filed after the duedate, or without distinguishing whether the loss relatesto speculation business or to business where differenttiming rules may apply, and without evaluatingexplanations that an Assessing Officer could haveconsidered in regular assessment; tribunals havetreated such mechanical disallowance asinappropriate where factual verification and legalinterpretation are required. Similarly, in TDS creditmismatch situations, CPC has denied credit whereForm 26AS shows a different PAN or figure, withoutconsidering cases where tax was deducted butdeposited with an incorrect identifier, or where thedeductor’s statement contains errors—scenarios thatcall for verification and correction at the deductor’sand Assessing Officer’s level, rather than permanentdenial of credit through an automated 143(1)adjustment.In each of these scenarios, the common feature is thatCPC’s algorithms have been used to makedeterminations that involve interpretation of statutoryprovisions, evaluation of supporting evidence, orresolution of factual disputes—functions that section143(1) does not contemplate and that the Act reservesfor assessment under section 143(3). That is wherethe statutory distinction between processing andassessment becomes outcome determinative: themore CPC steps into these interpretative and evidentialdecisions, the more it assumes a role that belongs tothe Assessing Officer.Algorithms, illogical tax law, and the need for realintelligenceThe examples above sit at the intersection of twothemes: the legal limits of section 143(1), and thepractical reality that CPC’s decisions are primarilydriven by software rules. Tax professionals often jokethat tax law is illogical—or at least, that it is full ofprovisos, exceptions, deeming fictions and contextdependent carve outs that do not follow linear,computer science logic. Coding, by contrast, isuncompromisingly logical: an algorithm lives on “if–then–else” paths and binary flags. Bridging a body oflaw that frequently says “X is taxable, unless A, exceptwhere B, subject to C, deemed as D” with a machinethat needs crisp decision trees inevitably requires realhuman intelligence to interpret, sequence andsometimes temper those instructions.CPC, by design, embodies pure logic. Its work flowsare coded to say, in effect, “if trust return shows statusX and answer Y in this schedule, apply rate Z,” or “ifdeduction exceeds statutory cap, disallow excess,”or “if Form 26AS shows higher receipts than ITR, raisea mismatch.” Where the law itself is clear andmechanical—such as a hard monetary cap or a misseddue date—this kind of coding maps well onto the statute.The difficulty arises when the legal rule being encodedis not a clean “if–then,” but an “if–then–unless–subjectto–deemed as” chain that presupposes an officerreading the deed, the Will, the banking records, orthe surrounding facts and, sometimes, the history ofthe provision.Judicial insistence on application of mind now hasto be read against this technological and logicalbackdrop. In Mantra Industries Ltd. v. NFAC, theBombay High Court treated a faceless assessmentorder that simply reproduced the draft order, withoutgrappling with the assessee’s detailed reply, as nonest, emphasising that such mechanical reproductionevidenced absence of application of mind andviolated the mandatory faceless procedure. In othercases, High Courts have set aside orders that blandlyasserted “no reply has been received” when repliesTaxed by Algorithm : CPC's Encoded Logic and the Erosion of Real Intelligence in Assessment

764 Ahmedabad Chartered Accountant Journal December, 2025TMwere in fact on record, treating the contradiction asproof that the decision maker had not actuallyexamined the file. These outcomes do not merelycriticise poor drafting; they reflect a deeperexpectation that when the law vests power in anofficer, some genuine, case specific reasoningshould sit behind its exercise.Seen in this light, the tension is not between humansand machines in the abstract, but between anillogically structured legal text and a logicallystructured codebase. Tax law tolerates, and oftenrequires, exceptions based on purpose, history andequitable considerations; code does not. Atestamentary family trust that squarely fits a provisoto section 164 but has an innocuous field left untickedmay look identical, to an algorithm, to a fullydiscretionary private trust. A capital gain that reflectsgenuine consideration but triggers a section 50C flagbecause of a higher stamp valuation may beindistinguishable, to a rule engine, from an underreported sale value warranting addition. A humanAssessing Officer, reading the Will, the sale deed,the bank statements and the provisos, would at leastrecognise the need to resolve such ambiguitiesbefore making an adjustment; a rules engine cannot.That mismatch has governance consequences. Asmore of the system becomes automated, there is areal risk that the centre of gravity of decision makingshifts from officers to algorithms, while the law andthe case law continue to speak in terms of what “theAssessing Officer” has believed, formed, consideredor satisfied himself about. The more CPC style enginesare entrusted not just with computation but withinterpretative moves – whether on trust rates, capitalgains valuations, loss carry forwards or TDS credits –the more courts are likely to be confronted, in concretedisputes, with the question whether an intimation ordemand backed only by code, and not by anydiscernible human application of mind, meets thestandards the Act and the Constitution still assume.Conclusion / My viewOn the face of the statute, the answer to whether CPCis a “proper officer” for anything beyond apparent,mechanical matters lies in two anchors: who the Actdefines as an Assessing Officer in section 2(7A), andwhat the Act allows to be done under section 143(1)as opposed to 143(3). CPC and CIT(CPC) operatewithin the framework of schemes and notifications tiedprimarily to section 143(1) and rectification provisions;they are not recast as Assessing Officers by thoseinstruments, nor are they given a free hand to resolvedebatable issues or rate disputes at the processingstage. The examples discussed—whether trusttaxation, capital gains valuations, loss carry forwards,or TDS credit disputes—illustrate how easily a rulesdriven system can move from acceptable automationinto decisions that, in substance, belong in anassessment order after some examination of therelevant documents and the applicable statutoryexceptions.As automation deepens, these boundary cases arelikely to become more frequent rather than less. Thelaw at present still assumes that when a taxpayer’slegal position is accepted or rejected, it is becausean Assessing Officer has thought about it, howeverbriefly, and that such thinking can later be scrutinisedin appeal or judicial review. The growing role of CPCand similar engines introduces an additional layerbetween the text of the Act and the taxpayer’sexperience: the layer of encoded logic. How far thatlayer can be allowed to carry decisions that go beyondarithmetic without some visible imprint of realintelligence is an issue the statute does not yet answerexplicitly, but which live disputes are already beginningto pose in concrete terms.Taxed by Algorithm : CPC's Encoded Logic and the Erosion of Real Intelligence in Assessment

Ahmedabad Chartered Accountant Journal December, 2025 765TMExecutive SummaryIn the current scenario, the rapidly changing businessenvironment as well as complexities of businesstransactions have tremendously increased theresponsibilities of Internal Audit function. Fast-pacedtechnological advancements and automation inbusiness processes are adding more challenges tothat. Therefore, the Internal Audit function assumesutmost importance in establishing, evaluating andstrengthening the overall organizational governanceand processes.Internal Audit today, is not restricted tothe financial aspects only, rather penetrates deep intothe operational aspects of the business as well.This Article will elaborate the practical aspects to beconsidered keeping in view the relevant ICAIpronouncements while conducting Internal Audit ofvarious operational areas of a business organization.Read on…BackgroundDefinitionof Internal Audit – as given in “Frameworkgoverning Internal Audits” issued by the ICAIInternal audit is an independent management function,which involves a continuous and critical appraisal ofthe functioning of an entity with a view to suggestimprovements thereto and add value and strengthenthe overall governance mechanism of the entity,including the entity’s strategic risk management andinternal control system.”Internal Audit is aimed at:- Evaluating the operating effectiveness of InternalControl system in place- Identifying weakness/es in the existing controls andrecommending corrective actions- Providing constructive suggestions for improvedoperational efficiency- Ensuring compliance with applicable laws andregulationsAs we understand, a business organization is a blendof various interdependent operational and functionalactivities. The collaborative efforts of these differentfunctions are directed towards achieving of commonorganizational objectives.The Internal Audit hasexpanded to include in its ambit critical appraisal ofvarious operational activities of an organization inaddition to the traditional approach of reviewing financialand accounting information.The Internal Audit function, with a view to ascertaining:- Efficiency and effectiveness of overall operations- Optimum utilization of available resources- Adherence to Standard Operating Procedures andCode of Conduct of the Organization- Safeguard of organization’s assets and financialrecords- Achievement of competitive edge in the dynamicmarket placeEncompasses different operational areas of abusiness.The key operational areas of a business generallyinclude:· Organizational Governance and Overall ControlFramework· Human Resources· Procurement of Goods and Services· Inventory and Stores Management· Property, Plant & Equipment· Information TechnologyBelow paragraphs will elaborate the important practicalaspects to be considered while applying the AuditPractical Aspects - Conducting InternalAudit of Business OperationsCA. Kaushal Paresh [email protected]

766 Ahmedabad Chartered Accountant Journal December, 2025TMProcedures in conducting audit of various operationalareas of a business organization.Pre-Audit requirementsBeforecommencingthe Audit, Internal Auditor will haveto acquaint himself thoroughly with the:· Business model of the organization· Organizational hierarchy· Business practices and Operational intricacies· System of Internal Controls in placeetc. aspects.Gaining in-depth knowledge of above aspects is apre-requisite for an effective and fruitful Internal Audit.This will also help the auditor obtain a larger perspectiveabout the control systems,potential risk indicators andRisk Management process in the organization, whichin turn help implement appropriate audit proceduresduring the audit.In assessing the potential risks and internal controls inthe organization, auditor shall consider Standards onInternal Audit (SIA) issued by the ICAI.Standard on Internal Audit (SIA)130 – “RiskManagement” states the following responsibilities ofInternal Auditor with reference to Risk Management.- Where management has implemented a riskmanagement framework, the Internal Auditor shallplan and perform audit procedures to evaluate thedesign, implementation and operatingeffectiveness of the organisation’s risk managementframework- Where no formal risk management frameworkexists, the Internal Auditor shall design and conductaudit procedures with a view to highlight anyexposures arising from weak or absent riskmanagement, make recommendations toimplement and strengthen related processes andthereby improve risk management- Adhering of risk management concepts to ensurethat the audits are prioritised in areas of importance,appropriate resources are allocated effectivelywhere needed most, audit procedures aredesigned to give due attention to important mattersand issues identified and reported are significantin natureFurther, Standard on Internal Audit (SIA) 120 –“Internal Controls” states the following responsibilitiesof Internal Auditor with reference to Internal Controls.· The Internal Auditor shall ensure that the entity hasdesigned, implemented and maintained effectiveand efficient Internal Controls.· The Internal Auditor shall review the risk assessmentexercise to establish a basis of evaluating whetheradequate and appropriate Internal Controls are inplace to address the Organizational risks.· Audit procedures would primarily be directed tocover high and medium risk Internal Controls andadequate documentation (e.g., a Risk ControlMatrix) should be in place to confirm the linkage ofthe audit procedure with the respective risks.Planning the Internal AuditAfter an understanding of the business entity, theenvironment in which it operates andassessment ofRiskand Controls, Internal Audit Plan is prepared anddocumented.As per Section 138 of the Companies Act, 2013 andRule 13 of Companies (Accounts) Rules, 2014 - theInternal Auditor shall audit the Functions and Activitiesof the company.As per Explanation (2) to Rule 13 of the Companies(Accounts) Rules, 2014, the Audit Committee or theBoard of Directors of the company shall, in consultationwith the Internal Auditor formulate the scope, functioning,periodicity and methodology for conducting the InternalAudit.In formulating Internal Audit plan, due regard shall begiven to the Standard onInternal Audit (SIA) 220 –“Conducting Overall Internal Audit Planning” and”Standard on Internal Audit (SIA) 310 – “Planning theInternal Audit Assignment” issued by the ICAI.SIA 220 is concerned with overall and comprehensiveinternal audit plan for the entity as a whole, generallyfor the entire Financial Year. This overall plan shall bereviewed and approved by the highest governing bodyresponsible for internal audits viz., Audit Committeeor the Board of Directors.SIA 310 is concerned with second level plan, for auditof any particular area / part of the entity.It is a sub-setPractical Aspects - Conducting Internal Audit of Business Operations

Ahmedabad Chartered Accountant Journal December, 2025 767TMof the Overall Internal Audit plan and specific in nature.SIA 310 underlines the following important aspects,which the auditor should consider with reference toplanning Internal Audit in different operational areas:- Risk based Audit plan with system and processfocus- Adopting control review methodology in a way thatthe depth of coverage goes beyond the basiccompliances- Identifying matters having significant effects onEntity’s financials and operations- Undertaking independent risk assessment andaligning the same with risk assessed by theManagement, to prioritize and focus high risk areas- Use of adequate IT tools, data mining and analyticalprocedures- Documenting the Internal Audit plan and relevantdocuments viz., checklists, summary of meetings,Risk assessment & Risk mitigating controls,information gathered about entity’s business andoperationsInternal Audit Procedures in different operationalareasThe key aspects of different operational / functionalareas of an organization, which the auditor shouldconsider in examination during the course of applyinginternal audit procedures, are discussed hereunder:1) Organizational Governance and Overall ControlFrameworkInternal Auditor should assess the overallorganizational governance and control frameworkin place. Following aspects are to be considered:- Review of Management Structure, Organogram– defining Corporate and department levelhierarchy, Clear Delegation of Authority andResponsibility in pursuit of overallorganizational objectives- Review of Board approved “Code of Conduct”in place for Members of Board and SeniorManagement, adequacy thereof- Review of Board approved “Risk ManagementPolicy”covering Risk identification, RiskManagement Framework, Risk assessmentand monitoring etc. aspects- Review of Minutes of Board and committeeMeetings, adequacy of contents recorded inMinutes books, ensuring compliance toSection 118 of the Companies Act, 2013regarding maintenance of Minutes- Review of overall Compliance Tracker,adequacy and procedure of implementationthereof with reference to Regulatory changes /updates affecting business, financial conductor reporting requirements etc.- Review of Overall Organizational StandardOperating Procedures (SOP) Manual in place,process of periodical review and upgradationthereof in the light of prevailing circumstancesand on-going developments- Review of Management-Information-System(MIS) in place, its effectiveness, controls andtimeliness of information provided to theManagement2) Human ResourcesHR is an important function in the organization,which takes care of and manages the life cycle ofemployees. Auditor should evaluate and ascertainthe effectiveness and efficiency of HR Departmentin performing various assigned functions, whichshall include:- Review of Board approved Standard OperatingProcedure (SOP), its completeness andadequacy with reference to coverage of variousfunctions viz.,o General Code of Conduct for Employeeso Organizational Structureo Selection, Recruitment& on-boarding ofEmployeeso Grading & Pay Structureo Working hours, Overtime, Attendance &Leave Managemento Employee Trainings, performance reviewand appraisalso Employee separation and Full & FinalSettlementPractical Aspects - Conducting Internal Audit of Business Operations

768 Ahmedabad Chartered Accountant Journal December, 2025TM- Review of Manpower Recruitment Cost –Budgeted vs Actual, analysis and reporting onadverse variances (if any)- Review of documentation and adherence toSOP for newly joined employees- Review of documentation and adherence toSOP for employee exit and Full & Finalsettlement- Review of Procedures and Controls in placeover Pay-Roll processing – Ascertain extentof Human Intervention in process, risk of error(s)in data processing,controls over ensuringconfidentiality of employee data- Review of Employee Master Database –Controls over Creation and Modifications toMaster data, Restrictions on Access rights forupdating Personal and Payroll information,Accuracy and Completeness of informationtherein- Segregation of duties within the team,adherence to Maker-Checker controls3) Procurement of Goods and ServicesProcurement is a vital business function that canhelp increase profitability of the business whenmanaged efficiently. Internal Auditor shouldunderstand, analyse and assess the Procurementfunction to ascertain its effectiveness in ensuringstreamlined and well-organized businessoperations. This includes:- Review of Board approved SOP forProcurement functions, adequacy andcompleteness thereof covering areas such as– Purchase Methodology, ManagingProcurement / Service Contracts, VendorManagement, Delegation of Authority- Review of End-to-End Procedure ofProcurement and controls wrt:o Raising Purchase Indent/Requisition andits approvalo Obtaining quotations, negotiation &selection of Vendoro Creating Purchase Order and its approval,Placing PO with Vendoro Receipt & Inward of goods, Quality ControlCheck (QC), preparing Goods ReceiptNotes (GRN), Storage of goods- Data Analytics, which shall include:o High value materials being procured froma single vendoro Trend / Rate analysis for net price paid forthose materials which comprise ofsignificant value of total purchase,identifying and reporting instances ofadverse price variances (if any)o Purchase Requisitions remaining pendingfor conversion into Purchase Order forabnormal timeo PO raised on weekly offs / holidays /through an unapproved channel ormechanismo Unauthorized / unfavourable terms of PO- Review of Vendor Master with reference to:o Controls over Creation and Modification ofVendor Masterso Completeness of Vendor documentationo Multiple Vendors with same contact details/ PAN / GSTo Inoperative Vendor Accountso Missing information – address / email /telephone / registration no4) Inventory Management- Review of Board approved SOP for InventoryManagement function- Review of Controls over in/out movement andstorage of inventory – physical as well assystem controls- Review of Ageing of inventory – analysis andreporting on Non-moving / Slow-movinginventories, expired / near expiry items ofinventory- Review of Procedure in place for periodicalPhysical verification of inventories byManagement, adequacy of such procedure andPractical Aspects - Conducting Internal Audit of Business Operations

Ahmedabad Chartered Accountant Journal December, 2025 769TMcompliance as to the requirement Paragraph3(ii)(a) of The Companies (Auditor’s Report)Order, 2020- Review of adequacy of Insurance coveragefor inventories – Sum Insured as well as typesof risks covered under insurance policy- Review of adequacy of infra facilities and Safetymeasures in place for storage of inventory(Deploying security guards, CCTV, Fireprotection / Alarm systems, specialarrangements for storing perishable goods etc.)5) Property, Plant & Equipment (PPEs)It represents the Capital Expenditure (Capex)incurred by the organization for investments in thetangible and Intangible Properties. Capexgenerally includes long-term expenditure incurredby the organization to achieve increasedeconomic benefits from the existing owned assetsand assets proposed to be owned/acquired.Acquisition, valuation, maintenance/upgradationand disposal of Property, Plant and Equipmentare important and critical functions for theorganization. Auditor to examine following aspectsin Capex function:- Review of Board Approved Capex Budget inplace – Examine:o Whether the acquisitions are within thebudgeted costso Approval / procedure followed foracquisitions wherein the actual costs haveexceeded the budgeted costs- Review of Board approved SOP for Property,Plant & Equipment (PPE) – its adequacy andcoverage of various aspects including Assetsacquisition, valuation, maintenance /upgradation and disposal- Maintenance of records and physicalverificationo Review maintenance and adequacy ofrecords relating to all items of Property,Plant and Equipment (Tangible andIntangible Assets) – Ensuring compliancewith requirements of Paragraph 3(i)(a)(A)and 3(i)(a)(B) of The Companies (Auditor’sReport) Order, 2020o Review procedure for physical verificationof PPEs by the Management, intervals ofsuch verification, documentation,discrepancies (if any) and its subsequentrectification in books – ensuringcompliance with requirements of Paragraph3(i)(b) of The Companies (Auditor’s Report)Order, 2020- Review of Assets purchase & Accountingprocess:o Requisition for Assets and its approvalo Assets Purchase (must be passing throughsame stages as purchase of goods /services)o Inward, storage, valuation and Accountingof Fixed Assets- Review of system / procedure for Maintenanceof Assetso Adherence to Preventive MaintenanceSchedules for Equipmento Availability of adequate quantity of criticalspares / insurance spares for CriticalEquipment, check for instances of stockout / available quantity falling below theminimum required quantityo Adherence to Annual / periodicalmaintenance contracts with Vendors forservicing, maintenance and replacementof spares / equipment- Review of procedure for disposal of assets:o Check whether a technical evaluation /assessment is done and reasons arerecorded for discard of assetso Check whether assets are discarded afterproper approvals6) Information Technology ControlsInformation Technology is the backbone of anyOrganization. Information Security is of paramountPractical Aspects - Conducting Internal Audit of Business Operations

770 Ahmedabad Chartered Accountant Journal December, 2025TMconcernin today’s era. Digitization and automationof business processes, use of advanced toolsand technology in business functions etc. hasgreatly increased the need for a robust informationtechnology environment and controls in theorganization. Auditor to examine followingaspects:- Review of Board approved IT SOP withreference to various functions including:o User Access Management and Controls(Access Privileges, Administrator Account,temporary access, activation / deactivationof user accounts, periodic review ofAccess rights etc.)o Password Management (Guidelines onStrong / weak passwords, instructions forprotecting and changing passwords etc.)o User Email ID Management and controlso Guidelines for Internet usage and controls- Review of Network Security controlso Updated version of Antiviruso Use of licensed versions of softwareo Firewall Protection, review of firewall logson regular basis and documentationthereof- Data back-up, storage and retrieval – Processof daily back-up in India as per MCA notificationdated 05th August, 2022 – Companies(Accounts) Fourth Amendment Rules, 2022- Availability of documented Business ContinuityPlanning and Disaster Recovery Planning andadequacy thereofStandards on Internal Audit (SIAs) issued by the ICAIIn performing the Internal Audit, Auditor to apply theprinciples and broad guidelines laid down by the“Standards on Internal Audit (SIAs)” issued by the ICAIfrom time to time.For this purpose, the audit can be divided in following3 stages. The SIAs that are relevant and applicableduring each stage of audit, which the auditor needs toconsider in performing the audit, are discussedhereunder:1) Planning the Internal Audit2) Conducting Internal AuditSIA 220 Conducting Overall Internal AuditPlanningFormulating and documenting overall internal audit planfor the entity as a whole covering all Auditable functions,business units and locations SIA 310 Planning the Internal AuditAssignmentSubset of Overall internal audit plan. Audit Plan Coveringa particular Auditable function, business unit andlocationSIA 320 Internal Audit Evidence Obtaining sufficient and appropriate audit evidence,which can form the basis for audit findings and allowreliable conclusions to be drawn from these findings.SIA 330 Internal Audit Documentation Internal Auditor to ensure complete and sufficientdocumentation of audit procedures performed tosupport the identification of findings, formulatingobservations and drafting of report.SIA 350 Review and Supervision of AuditAssignmentsExamination and oversight of the audit activitiesincluding audit procedures performed, audit evidenceobtained and documented and conclusions drawntherefrom. SIA 360 Communication withManagementSIA 250 Communication with ThoseCharged with GovernanceInternal Auditor to ensure effective two-waycommunication with the Management. Thecommunication may be made wrt any importantmatters / significant observations arising out of Audit atvarious stages of Audit process.Practical Aspects - Conducting Internal Audit of Business Operations

Ahmedabad Chartered Accountant Journal December, 2025 771TM3) Audit conclusion and ReportingNote: The above Standards on Internal Audits (SIA) are applicable at present. The Internal Audit StandardsBoard (IASB) of ICAI is in the process of revising these Standards. The Board had also released an ExposureDraft on the Proposed Revised Standards on Internal Audits during October ‘25, which was open for submittingcomments by various stakeholders till 23rd October, 2025. The Standards, when they are approved and issuedby the IASB, shall become applicable for Internal Auditors from the date notified by the Council.SIA 240 Using the Work of an Expert Internal Auditor to seek assistance and support ofTechnical Expert in conducting audit of a complex orspecialised area/field. Auditor to validate theindependence and objectivity of the Expert and decidethe extent of reliance to be placed on his work relevantto his audit. SIA 520 Conducting Internal Auditing inan Information TechnologyEnvironmentInternal Audit in IT environment aims to evaluate anorganization’s IT risks and ascertain whether IT controlsare adequate to achieve organization’s businessobjectives. Auditor shall obtain understanding of ITenvironment and its corresponding impact on businessoperations. Auditor shall test the design, implementationand operating effectiveness of IT controls.Internal Auditor shall issue a clear, well-documentedInternal Audit Report based on work completed. It shouldinclude following key elements:1) Overview of scope, objectives and audit approach2) Executive Summary of Key observations3) Summary of corrective actionsSIA 390 Monitoring & Reporting of PriorAudit IssuesInternal Auditor shall verify the implementation ofcorrective steps and report to the Management andAudit Committee, the status of prior audit issues,generally in the form of “Action Taken Report”. InternalAuditor shall provide details of Closure of issues, ageingof issues pending and reasons for delays.SIA 370 Reporting ResultsConclusionOrganizations today operate in an economically,politically and socially charged environment. Further,the last several years have seen novel businessmodels being employed by the organizations to selltheir products and services in the global market. Thedecision making process for modern dayorganizations, is therefore, normally done in anenvironment which is constantly changing and fraughtwith a lot of uncertainty and risk.To strengthen the decision making process and to hedgeagainst the risk arising on account of uncertainty, internalaudit is being increasingly considered as playing pivotalrole in Enterprise Risk Management System.A critical examination of important elements ofBusiness operations and processes as elucidated inabove paras will enable the Auditor to deep dive intothe intricacies of business operations. This in turn willhelp Internal Audit function become a paramount andpragmatic tool for Managerial Decision making in theorganizations thereby carving itself out as an importantand effective contributor for persistent organizationalgrowth.References:1) Standards on Internal Audit - https://icai.org/new_post.html?post_id=597&c_id=1452) Compendium on Standards of Internal Audit -72109iasb58064.pdf (icai.org)3) Preface to the Framework and Standards on Internal Audit -52725iasb-preface-sia-1.pdf (icai.org)4) Framework Governing Internal Audits - 52726iasb-framework2.pdf (icai.org)5) Basic Principles of Internal Audit - 52727iasb-basicprinciples3.pdf (icai.org)Practical Aspects - Conducting Internal Audit of Business Operations

772 Ahmedabad Chartered Accountant Journal December, 2025TMOver the past decade, the Indian startup ecosystemhas come a long way—from hustling in co-workingspaces to commanding billion-dollar valuations. In itsearly stages, however, the Indian startup scene lackeddeep domestic capital pools, regulatory flexibility, andsophisticated exit options. Founders, driven byinvestor requirements and international ambitions,chose to incorporate their startups abroad — a practiceknown as “flipping”.Typically, the operating company would remain in India,but the parent or holding company would beincorporated in Singapore, Delaware (USA), theNetherlands, or Mauritius. These jurisdictions offeredbetter legal certainty, intellectual property protection,and a friendly exit environment for venture capital andprivate equity funds.But as India’s economy, markets, and regulatorysystems have matured, there’s been a slow but steadyreversal of this trend — aptly termed “reverse flipping.”This article seeks to explore reverse flipping from acomprehensive lens — real-life examples, legalstructuring, tax consequences, regulatory hurdles, andcommercial considerations.What is Reverse Flipping?Reverse flipping refers to the strategic restructuring ofa corporate group whereby the ownership of a foreignparent company is transferred and consolidated intoits Indian subsidiary. Effectively, this results in the Indianentity becoming the holding company and theepicenter of operations, with the erstwhile foreign parentbecoming its subsidiary.This shift signifies a growing confidence in India’s legal,regulatory, and investment environment, and signalsFrom Global to Local :Structuring the Reverse Flip forIndian-Origin Companiesa trend towards re-domiciliation—a move increasinglyfavored by Indian-origin companies seeking long-termvalue, operational efficiency and alignment withdomestic capital market aspirations.Key Drivers Behind Reverse FlippingGrowing Confidence in the Indian EcosystemIndia today is home to a vibrant domestic investorbase, better compliance tools, stronger regulatoryoversight, and an increasing number of tech-focusedIPOs. Domestic capital markets offer not just liquidity,but also valuation appetite for new-age businesses.Moreover, regulators like SEBI and DPIIT are moreattuned to startup realities and have created enablingframeworks.IPO Readiness and SEBI ComplianceCompanies seeking to list in India need an Indianparent. SEBI’s regulations do not allow direct listing offoreign companies on Indian exchanges. And whileIndia is considering enabling direct overseas listings,the legal framework is still evolving. In the interim, areverse flip becomes essential for companies planninga domestic IPO.Simplifying Governance and Tax StructuresOperating via foreign holding companies complicatesgovernance and regulatory compliance — particularlywith FEMA, transfer pricing, and foreign exchangereporting. Reverse flipping helps unify the group’sstructure within a single legal regime, making oversightand compliance easier.Prominent Indian startups like Pepperfry, Groww,PhonePe, PineLabs, and Zepto have alreadycompleted or initiated the reverse flipping process.Others, including Razorpay, Meesho, UrbanLadder,Eshaan Singal (CA Student)[email protected]

Ahmedabad Chartered Accountant Journal December, 2025 773TMFrom Global to Local : Structuring the Reverse Flip for Indian-Origin Companiesand Livspace, are actively exploring internalisationstrategies.Legal Structures for Reverse FlippingReverse flipping refers to the process of re-domicilinga business that was previously incorporated abroadback to India. This is becoming increasingly relevantas Indian-origin companies that initially flipped theirstructures overseas (to access global capital orregulatory benefits) now seek to return, driven byIndia’s maturing regulatory environment andincreasing investor confidence. Two commonmethods to execute a reverse flip are throughInbound Mergers and Share Swap Transactions—each with distinct legal, regulatory, and taximplications.In an Inbound Merger, the foreign holding company(H Co.) merges into its wholly owned Indian subsidiary(S Co.), with the shareholders of H Co. receiving sharesin S Co. This structure is governed by Sections 234and 233 of the Companies Act and the RBI’s CrossBorder Merger Regulations. A recent amendment(September 2024) now permits fast-track mergers forsuch structures, reducing reliance on NCLT and shiftingapproval to the Central Government. However, RBIapproval remains mandatory, and if the foreigncompany is from a country sharing a land border withIndia, additional disclosures under the NDI Rules arerequired.Tax implications for inbound mergers depend onmeeting conditions under Section 2(1B) of the IncomeTax Act. If met, the merger is exempt from capital gainstax under Sections 47(vi) and 47(vii). However,challenges may arise around the carry-forward oflosses under Section 72A (especially if H Co. is notan industrial undertaking) and the possible lapse oftax losses under Section 79 due to change inshareholding, unless exempted (as in the case ofrecognized startups). Cross-border tax issues in theforeign jurisdiction of H Co. also warrant carefulanalysis.In contrast, a Share Swap Transaction involves HCo.’s shareholders exchanging their shares for sharesin a new Indian entity (N Co.), which then becomes HCo.’s holding company. Following the swap, H Co.is liquidated and its Indian assets (shares of S Co.)are distributed to N Co. This route triggers morecomplex tax events: the share swap is treated as atransfer under Indian tax law, potentially taxable underSection 9(1), unless relief is available under taxtreaties. Liquidation may also result in deemeddividend taxation and capital gains. The structure alsonecessitates compliance with ODI regulations, pricingguidelines, sectoral caps, and restrictions underPress Note 3 for bordering nations. Thus, whileflexible, this method demands careful regulatory andtax planning.Case Study: Reverse Flipping in Action1. The PhonePe ExperienceOne of the most prominent examples of reverseflipping in India is PhonePe, a digital payment andfintech company that successfully transitioned itscorporate domicile back to India from Singaporein late 2022.Background and Rationale for the Flip- Founded in India in 2015, PhonePe wasacquired by Flipkart in April 2016. As part ofthe acquisition, the company flipped itsstructure to Singapore, aligning with theFlipkart Group’s international corporatestructure.- Following Walmart’s acquisition of Flipkart in2018, PhonePe continued to operate as aSingapore-domiciled company.- However, in October 2022, PhonePeannounced the reversal of its flip, shifting itsdomicile back to India — a move that reflectedits strategic vision to operate with a sharperdomestic focus.

774 Ahmedabad Chartered Accountant Journal December, 2025TMKey motivations driving this reverse flipincluded:- Market alignment: PhonePe’s operations areoverwhelmingly India-focused. Redomicilingallowed for better responsiveness to theregulatory, business, and customerlandscape in India.- Regulatory ease: With increasing regulatoryscrutiny on digital payments and fintechentities, domestic incorporation providedgreater ease of compliance with Indian laws.- IPO preparedness: The company aims to gopublic in India in the coming years. Domicilingin India positions PhonePe moreadvantageously in terms of regulatoryapproval, valuation, and investor access.Key Structural and Legal Steps Taken- The entire business and all subsidiaries ofPhonePe Singapore were transferred to anewly incorporated Indian entity — PhonePePrivate Limited.- A fresh ESOP scheme was implemented atthe Indian entity level. All group employeeswere migrated to the new plan, with revisedvesting terms.- IndusOS, a subsidiary previously held inSingapore, also shifted operations to theIndian parent.Significant Consequences of the Reverse Flip- Forfeiture of Tax Losses: As a result ofredomiciling, PhonePe reportedly forfeitedUSD 900 million (~INR 7,380 crore) ofaccumulated business losses in Singapore.Under Section 79 of the Income-tax Act, 1961,these losses could not be carried forward dueto the substantial change in beneficialshareholding that occurred during therestructure.- ESOP Reset: Employees faced a reset ofvesting status under the new Indian ESOPscheme, with a minimum 1-year cliff. Thiseffectively nullified all prior vesting and starteda new cycle under the domestic plan.- Capital Gains Tax by Investors: Therestructuring involved investors, led byWalmart, exiting the Singapore structure andreinvesting in the Indian entity. This transactiontriggered a capital gains tax event in India,reportedly resulting in a tax payout of nearlyINR 8,000 crore.Lessons and Strategic TakeawaysPhonePe’s reverse flip illustrates the practicalrealities and trade-offs involved in transitioning aglobal corporate structure back to India. While thecompany incurred substantial tax and financialcosts, the strategic upside — better alignment withregulatory expectations, Indian IPO access, andmarket positioning — outweighed the short-termlosses.It also signals to the broader startup ecosystemthat the Indian regulatory and financial environmentis maturing enough to support high-value, investorbacked companies that wish to base their longterm operations domestically.2. Groww – Aligning Structure with GeographyBackground and Rationale for the FlipGroww, a popular wealth management andinvestment platform, was originally launched inIndia but had flipped its holding structure to theUnited States early in its growth phase to attractglobal venture capital and facilitate potentialoverseas listing opportunities.Despite its India-centric operations and user base,the US-based parent entity was retained for severalyears. However, by mid-2023, Groww undertooka reverse flip, moving its parent holding companyand group structure back to India.From Global to Local : Structuring the Reverse Flip for Indian-Origin Companies

Ahmedabad Chartered Accountant Journal December, 2025 775TMKey motivations driving this reverse flipincluded:India-focused business model: Groww’sproducts and services—mutual fund investments,stock broking, and financial education—wereentirely geared towards Indian retail investors,making an Indian domicile more operationallyrelevant.IPO Readiness in India: As Groww eyes adomestic listing in the next few years, a localcorporate structure enables easier regulatoryclearances, valuation benchmarking, and accessto domestic institutional investors.Simplified compliance: With tighter regulatoryoversight in the fintech space, the managementpreferred to be governed directly by Indianregulators (like SEBI and RBI) rather thanmanaging a dual compliance burden between Indiaand the U.S.Key Structural and Legal Steps TakenA new Indian holding company was incorporated,and shareholding was reorganized such that thisentity took over all underlying subsidiaries andoperations previously held by the US entity.Investors in the US parent exchanged their sharesfor equivalent equity in the Indian entity, effectuatinga share swap.Groww also restructured its ESOP plan underIndian tax and labor law, aligning its employeecompensation more closely with domesticregulatory frameworks.Significant Consequences of the Reverse FlipTax Costs: The share swap and liquidation of theU.S. entity likely triggered capital gains taxliabilities for non-resident investors in India underSection 9 of the Income-tax Act, 1961, althoughthe precise financial impact remains undisclosed.Regulatory Disclosures: Groww had to comply withboth FEMA’s ODI and NDI norms and Press Note3 conditions while receiving shareholder approvalsand RBI clearances for foreign investment structurere-alignment.Lessons and Strategic TakeawaysGroww’s decision reflects a broader shift insentiment among Indian fintech unicorns towardbuilding enduring value within India’s maturingregulatory and capital markets ecosystem. Thecosts associated with restructuring and potentialtax triggers were outweighed by strategicbenefits—particularly IPO-readiness, simplifiedlegal structures, and investor preference for Indiandomiciled companies.It underscores that for consumer-facing startupswith fully domestic operations and scale, reverseflipping may provide better long-term alignmentwith business goals, regulators, and capitalmarkets.3. Razorpay: Reverse Flip in ProgressBackground and Rationale for the FlipRazorpay, one of India’s leading paymentgateways and fintech platforms, originally flippedto a U.S. holding company structure early in itsfundraising journey to tap into the global VCecosystem and streamline potential future exitopportunities.In 2023, Razorpay publicly announced its decisionto reverse flip and re-domicile in India. Althoughthe process is still underway, this move representsone of the most anticipated reverse flips in theIndian fintech ecosystem.Key motivations driving this reverse flip include:Regulatory imperative: With Razorpay operatingin a highly regulated space—handling payments,banking APIs, and credit facilitation—remainingunder a foreign holding structure posed increasingfriction with Indian regulators like RBI.Domestic IPO aspirations: Razorpay aims to gopublic on Indian bourses in the near future. AnFrom Global to Local : Structuring the Reverse Flip for Indian-Origin Companies

776 Ahmedabad Chartered Accountant Journal December, 2025TMIndian holding company makes SEBI clearancesand investor engagement significantly moreefficient.Simplified compliance and governance: Managingoperations from within India reduces thecomplexity of foreign holding structures, especiallywhen dealing with sensitive sectors like paymentsand lending.Key Structural and Legal Steps Being TakenRazorpay is reportedly engaging with both Indianand U.S. authorities to finalize the legal roadmapfor liquidation of its U.S. entity and transfer of controlto a newly created Indian parent entity.The transaction is expected to involve a shareswap between U.S. shareholders and the Indiancompany, followed by a dissolution of the foreignentity.The company is also revisiting its group ESOPplans and structuring new employee incentiveschemes aligned with Indian tax and laborregulations.Anticipated Consequences of the Reverse FlipTax and regulatory burden: The restructuring islikely to trigger capital gains taxation for investorsas well as transfer pricing disclosures. Thecompany must also seek RBI approval andcomply with Press Note 3 restrictions if anyaffected shareholders are from land-borderingcountries.Potential loss of foreign tax benefits: Domicilingin India may reduce certain tax benefits Razorpaycould earlier avail in the U.S., especially relatedto investor exit planning or global M&A strategies.Increased domestic control: The shift will placekey governance and compliance under directoversight of Indian regulators, which will be crucialfor future banking or NBFC licenses.Lessons and Strategic TakeawaysRazorpay’s ongoing reverse flip signals that evenhighly globalised Indian startups with foreignholding companies recognize the long-termimportance of local alignment—both regulatoryand strategic. In sensitive sectors like fintech,having an Indian parent company improves notjust regulatory clarity but also inspires greaterconfidence among domestic institutionalinvestors.The case also exemplifies the complexity ofredomiciling from the U.S., requiring carefulnavigation of tax law, FEMA guidelines, andshareholder agreements. It reinforces that reverseflipping is not merely a compliance or legaldecision but a strategic repositioning for futuregrowth within India’s financial and regulatoryecosystem.Alternative Structures for Reverse FlippingIn the context of reverse flipping, while inboundmergers and share swaps are the most commonlyused methods, several alternative structures haveemerged that offer flexibility, efficiency, andregulatory alignment. These options can beespecially useful when the standard structures arecommercially unviable or legally complex,allowing companies to tailor their flip-back strategyto meet specific investor, operational, andjurisdictional considerations.One such alternative is the capital reduction routeby the foreign holding company. In this structure,the foreign parent reduces its capital bydistributing shares of its Indian subsidiary directlyto its shareholders, thereby eliminating its rolein the corporate hierarchy. The Indian entity thenbecomes the direct parent. While this simplifiesthe group structure, it entails regulatorycompliance in the foreign jurisdiction, valuationcomplexities, and tax consequences (such ascapital gains or withholding taxes) both overseasand in India. This route is especially suitable whenFrom Global to Local : Structuring the Reverse Flip for Indian-Origin Companies

Ahmedabad Chartered Accountant Journal December, 2025 777TMthe foreign entity has outlived its strategic utilityand stakeholders wish to re-centralize control inIndia.Another method involves setting up a new, cashrich Indian entity to acquire the foreign parentcompany. This route allows greater flexibilitycompared to mergers or share swaps and maybe operationally simpler. However, it brings itsown set of challenges—such as meeting theOverseas Investment Rules under FEMA,conducting due diligence on the foreigncompany and ensuring that the acquisition pricingmeets RBI’s fair valuation norms. This approachcan be particularly useful when founders orinvestors prefer a straight forward acquisitionwithout complex cross-border restructuring.A more strategic and future-facing option is toestablish a legal base in GIFT IFSC (GujaratInternational Finance Tec-City). GIFT IFSC offerssignificant tax advantages—such as income taxexemptions, no capital gains tax on certain sharetransfers and liberalised exchange controlnorms—making it an attractive jurisdiction forreverse flipping. Entities set up in IFSC can alsoaccess global capital markets and list on foreignexchanges. However, establishing presence inGIFT IFSC requires IFSCA registration, adherenceto sector-specific norms and thorough evaluationof operational, governance and tax implications,especially when migrating IP or workforce.The Indian government is expected to introducefurther relaxations in the upcoming Union Budgetto make reverse flips through GIFT IFSC moreappealing. These may include safe harbourvaluation rules, simplified migration procedures,and clarified tax treatment for IP transfers andinvestor exits. If implemented effectively, suchreforms could make GIFT IFSC a preferred routefor Indian start-ups seeking to return home whilemaintaining their global competitiveness andinvestor appeal.ConclusionThe trend of reverse flipping represents a pivotal shiftin the globalization strategy of Indian start-ups. As Indiaevolves into a robust and self-reliant economicpowerhouse with favourable legal, tax, and regulatoryframeworks, many founders are reconsidering themerits of maintaining foreign holding structures.With regulatory developments such as the fast-trackmerger regime, relaxation of FDI norms, and greaterinvestor confidence in Indian markets, reverse flippingis becoming a compelling option for many companies.That said, the process involves a nuancedunderstanding of corporate structuring, foreignexchange laws, and cross-border taxation. A tailoredstrategy—considering both Indian laws and foreignjurisdiction implications—is essential for a successfuland compliant reverse flip.As India cements its place in the global economicnarrative, the trend of “coming home” is not onlysymbolic but also strategic.Disclaimer:The views and opinions expressed in this article arethose of the author in his personal capacity and do notconstitute legal or professional advice. The contentsare intended for general informational purposes only andshould not be construed as a substitute for legal or taxconsultation. The case studies discussed herein havebeen analyzed based on information available in thepublic domain and may not reflect the full scope of factsor developments.From Global to Local : Structuring the Reverse Flip for Indian-Origin Companies

778 Ahmedabad Chartered Accountant Journal December, 2025TM“One has to be careful in choosing the wordswhile expressing his feelings.To express and speak is an invaluable fundamental rightof an individual guaranteed under Articles 19 and 21 ofthe Constitution to all the citizens which is the soul ofdemocracy. The law of defamation is one of legallyacceptable reasonable restrictions in the Indian legalsystem. To oppose, deny, reject, defend, etc. are theways of expression. It manifests emotional status andthinking process. However, it should not lead to harm,damage, which is a rider to the freedom of expression.Thus, one can disclaim, refuse, deny, reject certaincharges or allegations made against him or her publiclywith restrained words. Ultimately, it is a choice of wordswhich may constitute the offence of defamation.Consumer Act - Company purchasingautomation software to maximise profits andreduce costs not a ‘consumer...The Court stated that the identity of the person makingthe purchase, or the value of the transaction, is notconclusive to determine whether the transaction oractivity is for a commercial purpose. What is to beseen is the dominant intention or dominant purposefor the transaction i.e. whether it is to facilitate somekind of profit generation for the purchaser or theirbeneficiary. If the dominant purpose is for a commercialpurpose, then it might have to be considered whetherit is for generating livelihood by means of selfemployment. However, the same is not required incase of personal use. The Court further clarified thatthere is a difference between a self-employedindividual and a corporation. The goods purchasedby a self-employed individual for generating livelihoodwould fall within the explanation of the definition of‘consumer’ under Section 2(1)(d) of ConsumerProtection Act, even if activity of that person is togenerate profits for its livelihood. However, where a22Advocate Samir N. [email protected] ofRulingscompany purchases a software for automating itsprocesses, the object is to maximise profits and,therefore, it would not fall within the Explanation ofSection 2(1)(d) of the Consumer Protection Act. TheCourt stated that in the present case, the appellant isan established company, which bought the productlicense to automate its processes. In suchcircumstances, the object of the purchase was not togenerate self-employment but to organize itsoperations to maximise its profits. Such purchase waseventually linked to generation of profit and in as muchthe automation of business is undertaken, not just forbetter management of the business but also to reducecosts and maximise profits. Thus, the Court stated thatthe transaction of purchase of goods/ services has anexus with generation of profits and, therefore, theappellant’s transaction cannot be considered aconsumer as defined in Section 2(1)(d) of the ConsumerProtection Act. The Court stated that the StateCommission as well as the National Commission werejustified in holding that the goods/services purchased/availed by the appellant were for a commercial purposeand accordingly, dismissed the appeal....[Poly Medicure Ltd. v. Brillio Technologies (P)Ltd., [ 2025 SCC OnLine SC 2443, decided on 13-11-2025.].Tribunals Reforms Act, 2021 provisions onappointment, tenure; ...The Impugned Act directly contradicts binding judicialpronouncements that have repeatedly clarified thestandards governing the appointment, tenure, andfunctioning of tribunal members. The Court stated thatmerely reproducing the very provisions which wereearlier struck down, amounts to a legislative override,which is an attempt to nullify binding judicial directionswithout addressing the underlying constitutionalinfirmities. Accordingly, the Court struck down theSUPREME COURT2324

Ahmedabad Chartered Accountant Journal December, 2025 779TMimpugned provisions as unconstitutional. The Courtfurther granted the Union of India a period of four monthsto establish a National Tribunals Commission, whichmust adhere to the principles concerningindependence from executive control, professionalexpertise, transparent processes, and oversightmechanisms that reinforce public confidence in thesystem....The repeated re-enactment of the same provisions,which have been struck down, shows that the “form ofthe administration” is being made “inconsistent” withthe spirit of the Constitution. Expressing its disapprovalof the manner in which the Union has repeatedlychosen to not accept the directions of this Court, theCourt stated that it is unfortunate that instead of givingeffect to the well-established principles, the legislaturehas chosen to re-enact the provisions that re-open thesame constitutional debates. In a judicial systemalready burdened with a staggering pendency, thecontinued recurrence of such issues consumesvaluable judicial time that could otherwise be used toadjudicate matters of public and constitutionalimportance....Madras Bar Assn. v. Union of India,[ 2025 SCC OnLine SC 2498, decided on 19-11-2025]...Negotiable Instruments (Amendment) Act,2015 - Jurisdiction of CourtWhile considering this petition wherein the issue waswhether after the enactment of the NegotiableInstruments (Amendment) Act, 2015 (Amendment Act,2015), the court within whose local jurisdiction thedrawee bank is situated, has the jurisdiction to try acomplaint under Section 138; the Division Bench heldthat jurisdiction to try a complaint filed under Section138 in respect of a cheque delivered for collectionthrough an account, i.e., an account payee cheque, isvested in the court within whose local jurisdiction thebranch of the bank in which the payee maintains theaccount, i.e., the payee’s home branch, is situated..Relying on relevant precedents, it was stated that theCourt used to view the question of jurisdiction strictlyfrom the lens of ‘territoriality of offences’. In other words,the payee could not select the jurisdiction for trial ofan offence under Section 138 by presentation of theGlimpses of Rulingscheque at a location of his choosing. Though thepresentation of cheque at any branch of the payee’sbank is permitted by the NI Act for the purposes ofcommercial convenience, yet it could not be said thatsuch act of presentation confers jurisdiction on the courtwithin whose territorial jurisdiction the said bank branchmay be situated. Since an offence under Section 138could be said to be committed upon dishonour ofcheque by the drawee bank, it was held that suchoffence would be localised at the place where thedrawee bank is situated. Therefore, only the court withinwhose territorial jurisdiction the drawee bank is situated,was empowered to proceed against an accusedperson under Section 138. On the question of positionof law as regards jurisdiction of courts after theenactment of the Amendment Act, 2015, the Courtnoted that bare textual reading of the amended Section142 indicates that the jurisdiction to try the offence underSection 138 has been specified in two circumstances:first, when the cheque is delivered for collectionthrough an account, and secondly, when the chequeis presented for payment otherwise through anaccount. It was noted that the Explanation to Section142(2)(a) further clarifies the question of jurisdiction bytaking into account the realities of negotiating by wayof cheques and the technological advancement in thefield. “However, this Court as well as the High Courtshave been divided over the conjoint reading of Section142(2)(a) and the Explanation thereto”. The Courtpointed out that the “making” of a cheque is completeonly upon delivery of the same by the drawer. The actof “delivery” thus, creates a relationship between thedrawer and the payee. Such relationship is whatdescribes the entitlement of the payee to the amountof money for which the cheque is drawn and enablesthe payee to encash the same. Perusing Section142(2)(a), the Court opined that terms “delivered” and“for collection through an account” are to be read insuch a manner that the latter describes the nature ofdelivery. Therefore, the nature of the cheque becomescrystallized as an account payee cheque once thedrawer delivers it to the payee who further delivers itto the bank in which he maintains his account. Oncethe cheque is delivered by the payee to his bank, the“making” of the cheque is said to be complete. The25Continued to page 797

780 Ahmedabad Chartered Accountant Journal December, 2025TMTax computation u/s 115BAA in absence ofForm 10IC.Pr. CIT v/s. Faster Commodeal Pvt. Ltd.(2025) 479 ITR 121 (Cal)Issue:Whether the tax computation u/s 115BAA can beallowed in absence of Form 10-IC under specialcircumstances?Held: Head Notes:“Held, that the assessee had filed the return of incomefor the assessment year 2020-21 on or before the duedate specified under section 139(1) and that theassessee had opted for taxation under section115BAA. This conduct of the assessee undoubtedlyshowed that the assessee had intended to opt to paytax under the simplified tax regime as also acceptedin the circular issued by the Central Board of DirectTaxes. During the relevant period there was covidpandemic which also led to certain other difficulties forthe assessee to upload the form along with the returnwithin the extended time thereof. The assesseespecifically stated that they had certain difficulties inuploading the form in the Department’s portal. In thecase of a Hindu Undivided Family opting under thenew taxation scheme under section 115BAC, the portalrequired management number of form 10-IE as amandatory column, but such facility was not providedwhen returns of income were filed by companies. Thepeculiar facts and circumstances showed that the errorwas an inadvertent procedural error and the conductof the assessee showed that they had opted fortaxation under section 115BAA. The order passed bythe Tribunal need not be interfered with accordingly,the Assessing Officer was to permit the assessee tofile the report in form 10-IC. [Matter remanded.] (paras7,8,9,10).”Reassessment based on information derivedfrom report of investigation wing.Sanjay Kaul v/s. Income Tax Officer andOthers (2025) 479 ITR 146(Del)Issue:Whether the “information” that the shares are pennystock could be the sufficient reason to believe thatincome has escaped the assessment?Held: Head Notes:“Held, allowing the petition, that mere purchasing andselling of the shares by the assessee would not initself lead to the conclusion that the transactions werefraudulently contrived to secure accommodationentries for evading tax liability for the assessment year2014-15. The conclusion arrived at by the AssessingOfficer based on the suspicion created by theinformation that the shares of IIS and SRK were pennystocks. Such information could not be sufficient reasonfor the Assessing Officer to believe that the assessee’sincome for the assessment year 2014-15 had escapedassessment since it lacked specific material regardingthe escapement of income. The notice under section148 was issued based on general information derivedfrom the report of the investigation Wing and thestatement of the searched entity’s director, but nospecific information regarding the assessee’sinvolvement in the alleged arrangement for evadingtax liability for the assessment year 2014-15. Thematerials based on which the report was prepared havealso not been placed on record by the department.The concluded assessment could not be reopenedmerely based on suspicion and there was no tangiblematerial to form the “Reason to believe” that theassessee’s income had escaped assessment. The“reason to believe” could not be conflated with “reasonto suspect” in arriving at the conclusion that theassessee’s income had escaped assessment for theassessment year 2014-15. (paras 20, 30, 31).”CA. Jayesh C. [email protected] the Courts82

Ahmedabad Chartered Accountant Journal December, 2025 781TMDismissal of SLP filed by department:Disallowance of operating expenses anddepreciation before commencement ofmanufacturing and sales.Deputy CIT v/s. Daimler India CommercialVehicles Pvt. Ltd. (2025) 479 ITR 221 (SC)Issue:Whether operating expenses and depreciation areallowable prior to manufacture and sales if facts showthat business has already commenced?Held: Head Notes:“For the assessment year 2010-11, the Tribunal upheldthe disallowance of the operating expenses, financialexpenses and depreciation claimed by the assesseeon the ground that the commercial operation ofmanufacture and sale of commercial vehicle had notcommenced so far and therefore, the business of theassessee had not been set up. The High Courtreversed the Tribunal holding that merely becausemanufacture and sale of vehicles had not taken place,the business of the assessee could not be held not tohave been set up, and that the assessee on showingthat it had commenced several of the activities forwhich it was incorporated would qualify for deductionof the expenditure incurred by it under the headoperating expense, financial expenses anddepreciation (see Diamler India Commercial VehiclesPvt. Ltd. v/ Dy. CIT [2019] 416 ITR 343 (Mad), 2019SCC OnLine Mad 39083).On a petition for special leave to appeal to the SupremeCourt: The Supreme Court dismissed the petition.”Reassessment: Additions made on differentgrounds not forming part of reasonsrecorded.Principal Commissioner of Income Tax v/s.Jaguar Buildcon Pvt. Ltd.(2025) 479 ITR 345 (Delhi)Issue:Whether further additions could be made when theprincipal grounds on which reassessment u/s 147 wasproposed were dropped? [ITAY2011-12]From the CourtsHeld: Head Notes:“The assessee was issued notice under section 148of the Income Tax Act, 1961 for reopening theassessment under section 147 on the basis ofinformation relating to accommodation entry receivedfrom an entity TVH. No addition was made in theassessment order on this account since the amounthad already been added in an order under section153A. However, addition was made under section 68in respect of amounts received from five persons whichdid not form part of the reasons recorded for reopeningof the assessment. The Tribunal upheld theCommissioner (Appeals)’ order deleting the addition.On appeal:Held, dismissing the appeal, that the Tribunal had reliedon judicial precedents to hold that once the principalgrounds on which reassessment under section 147was proposed were dropped, no further additionscould be made even by taking recourse to Explanation3, its order deleting the additions made under section68 was not erroneous. (para 5).”Power to direct deduction of tax can beexercised vis-à-vis application u/s 197 onlyif income is chargeable to tax.Manjeet Singh Chawla v/s. DeputyCommissioner of Income Tax (TDS) andothers (2025) 479 ITR 1 (Karn)Issue:Whether rejecting the application u/s 197 was justifiedif the payment does not constitute income?Held: Head Notes:“Held, allowing the petition, (i) that the one-timecompensatory payment received by the assesseedue to reduction of the value of the stock options didnot constitute income chargeable to tax but was acapital receipt being onetime voluntary compensationreceived and did not satisfy taxability in accordancewith the charging section. Such onetime voluntarycompensatory payment was against the fall in value ofstock options allotted to the assessee which was theprofit-making structure of the assessee and therefore,the payment was of capital receipt in nature and notamendable to tax. The order passed by the PrincipalChief Commissioner rejecting the application filed by848385

782 Ahmedabad Chartered Accountant Journal December, 2025TMthe assessee under section 197 for issuance of Nil taxdeduction certificate was illegal, arbitrary and contraryto law and facts and hence quashed and theDepartment was directed in issue the certificate undersection 197 in favour of the assessee. (para 7(i), (ii),(iii)).”Dismissal of SLP filed by department:Subscription fees received by Singapore taxresident.CIT v/s. Salesforce.com Singapore Pvt. Ltd.(2025) 479 ITR 219 (SC)Issue:Whether the subscription fees received by a Singaporetax resident from customers in India is assessable inIndia?Held: Head Notes:“The assessee, a tax resident of Singapore, providedcustomer relationship management related servicesthrough a business application. The Tribunal held thatthe income derived from the subscription fee whichthe assessee received from customers in India forthese services was not assessable in India. The HighCourt held that since the copyright in the applicationwas never transferred nor vested in a subscriber, thefees were not assessable under section 9 of theIncome Tax Act, 1961 and that since the customer wasmerely accorded access to the application and it wasthe subscriber which thereafter input the requisite datatook advantage of the analytical attributes of thesoftware, this would not fall within the ambit of article12(4)(b) of the Double Taxation Avoidance Agreementbetween Singapore and India (1994) 209 ITR (St) 1)and that therefore, the amount was not assessable inIndia”.“The Supreme Court dismissed the petition”.Judicial Property: Decision of jurisdictionalCourt versus other court.Kings Pride Infra Projects Pvt. Ltd. v/s. DCIT(2025) 479 ITR 651 (Telangana)Issue:What is the judicial propriety when there is a decisionof the same high court?Held:“25. The entire basis of the learned Additional SolicitorGeneral of India seems to be the judgment of theDelhi High Court in the case of T.K.S. BuildersPvt. Ltd. v/s. ITO. However, since there is anauthoritative decision on the said issue by thisvery High Court, the judicial propriety requires forthis Bench to honour the view taken by the DivisionBench of this High Court itself.26. The Hon’ble Supreme Court in the case of CIT v/s. G.M. Mittal Stainless Steel Pvt. Ltd. dealing withan issue of not following the judgment of thejurisdictional High Court, held at paragraph 9 asunder (paras 258 of 263 ITR).‘Apart from the language of section 263 of the IncomeTax Act, if we were to accept the submission of theappellant that the Revenue authorities within the Statecould refuse to follow the jurisdictional High Court’sdecision on the ground that the decision of some otherHigh Court was pending disposal by this court, it wouldlead to an anarchic situation within the state. If at thetime when the power under section 263 was exercisedthe decision of the jurisdictional High Court had notbeen set aside by this court or at least had not beenappealed from, it would not be open to thecommissioner to have proceeded on the basis thatthe High Court was erroneous and that the AssessingOfficer who had acted in terms of the High Court’sdecision had acted erroneously’.”Reassessment change of Opinion:Lupin Ltd v/s. Dy. CIT(2025) 479 ITR 667 (Bom)Issue:In absence of any fresh tangible natural with theAssessing Officer, whether reassessment ispermissible on the very same material filed in originalassessment?Held: Head Notes:“The assessee’s case was selected for scrutinyassessment for the assessment year 2016-17 andvarious details were called for by issuing notices ondifferent dates which were replied to by the assessee.An assessment order under section 143(3) was passedFrom the Courts868788

Ahmedabad Chartered Accountant Journal December, 2025 783TMaccepting the claims made by the assessee undersection 35AC and deductions under section 80G. Lateron, a notice under section 148 was sent to reopen theassessment under section 147. The reasons recordedstated that in the computation of income the assesseehad added a donation amount of Rs. 24,87,02,795,which included corporate social responsibilityexpenses of Rs. 14,89,06,832 and Rs. 3,11,00,000 andclaimed deduction under section 35AS and 80Gresulting in escapement of income. The assessee filedobjections, which were rejected. On a writ petition:Held, allowing the petition, that there was no tangiblefresh material based upon which the Assessing Officercould have reason to believe that income had escapedassessment under section 147. The queries particularto the issue were raised by the Assessing Officer andwere answered by the assessee and uponconsideration of all these materials, an assessmentorder was passed under section 143(3). On the groundthat some other view was possible, the AssessingOfficer could not have changed his earlier opinion andbased upon such change of opinion, issued the noticeunder section 148 seeking to reopen the assessment.The notice and the order rejecting the assessee’sobjections were set aside.”Old is GoldContract of Partnership and position underother laws.CIT v/s. Bhagyalakshmi & Co.(1965) 55 ITR 660 (SC)Issue:What is the relation of a partner with other partners visà-vis a partnership firm?Held: Head notes:“Except where there is a specific provision of theIncome Tax Act which derogates from any otherstatutory law or personal law, the provision will have tobe considered in the light of the relevant branches oflaw.A contract of partnership has no concern with theobligation of the partners to others in respect of theirshares of profit in the partnership. It only regulates therights and liabilities of the partners. A partner may beFrom the Courtsthe Karta of a joint Hindu family; he may be a trustee;he may enter into a sub partnership with others; hemay, under an agreement, express or implied, be therepresentative of a group of persons; he may be abenamidar for another. In all such cases he occupiesa dual position. Qua the partnership, he functions ishis personal capacity; qua the third parties, in hisrepresentative capacity. The third parties, whom oneof the partners represents, cannot enforce rightsagainst the order partners nor can the other partnersdo so against the said third parties. Their right is onlyto share in the profits of their partner-representative inaccordance with law or in accordance with the termsof the agreement, as the case may be.”Embezzlement of cash in a Bank.CIT , UP v/s. Nainital Bank Ltd.(1965) 55 ITR 707 (SC)Issue:Whether theft of cash from a bank is a trading loss?Held: Head notes“Under section 10(I) of the Indian Income Tax Act, 1922,the trading loss of a business is deductible incomputing the profit earned by the business. But everyloss is not so deductible unless it is incurred in carryingout the operation of the business and is incidental tothe operation. Whether loss is incidental to theoperation of a business is a question to be decidedon the facts of each case, having regard to the natureof the operations carried on and the nature of the riskinvolved in carrying them out. The degree of the riskor its frequency is not of much relevance but its nexusto the nature of the business is material.Cash is the stock in trade of a banking business andits loss in the course of the business under varyingcircumstances is deductible as a trading loss incomputing the total income of the business.The retention of moneys in the premises of a bank tomeet the demands of its constituents, which is a partof the operation of banking, carries with it the ordinaryrisk of being subject to embezzlement, theft, dacoityor destruction by fire etc. Such risk of loss is incidentalto the carrying on of the operations of bankingbusiness.”8990

784 Ahmedabad Chartered Accountant Journal December, 2025TMMaharishi Education Corporation P. Ltd v.ITO 179 Taxmann.com 698 (Del)Order dated 24th October 2025, AssessmentYear 2021-22Basic FactsThe assessee, a domestic company, had exercisedthe option u/s 115BAA by filing Form 10IC for FY 2019-20 and subsequent years. For AY 2021-22, it filed areturn declaring income of about Rs. 14.98 lakhscomprising a loss of about Rs. 0.20 lakhs and LongTerm Capital Gain (LTCG) of about Rs. 15.18 lakhs onsale of land and computed tax at 20% u/s 112 on theLTCG. The return was processed u/s 143(1) on30.12.2023; the AO recomputed tax by applying a 22%rate u/s 115BAA on the returned income and raised anadditional demand of about Rs. 0.60 lakhs. Theassessee filed an appeal before the CIT(A) challengingapplication of the 22% rate; the CIT(A) passed an orderupholding the applicability of tax at 22% on capital gain.On appeal to the Tribunal.Issue:Whether where assessee had opted for applicabilityof section 115BAA, the tax on the long-term capitalgain would be @ 20% or 22%.Held:The solitary dispute in the instant appeal was the rateof tax applicable. According to the AO, since theassessee had opted for taxation u/s. 115BAA of theAct, the rate of tax applicable for the impugnedassessment year was 22%. Whereas according to theassessee the rate of tax applicable on LTCG wouldbe 20%. As per Tribunal since the assessee had optedfor taxation u/s. 115BAA of the Act, hence, the rate oftax applicable in respect of total income of theassessee company would be 22%. Hence, the tribunalfound no reason to interfere with the order of the CIT(A).Consequently, the CIT(A)’s order was upheld.Oxbow Energy Solutions B.V. v. DCIT TS1465-ITAT-2025 (Mum)Order dated 4th November 2025, AY 2021-22Basic FactsThe assessee is a foreign company having a LiaisonOffice (LO) in India carrying on limited activities aspermitted by the Reserve Bank of India (RBI). Theassessee filed the return of income for the yeardeclaring a total income of NIL. The case was selectedfor scrutiny. The assessee submitted before the AOthat it is merely a LO in India which incurred expensesonly for salaries, officer rent, travel and normal officerunning expenses. The role of the liaison office was toliaise between the Indian parties the group companiesthe liaison office operated from a rented office andemployed two persons and one Secretarial staff all ofwhom are resident Indian citizens. The liaison officedid not undertake any business activity and earnedno income in India. Its expenses were only for salaries,office rent. travel and normal office running expenses.All the liaison office expenses were met from a singlebank account which received inward remittance fromthe head office. The liaison office personnel had norole in Oxbow’s decision making and have no authorityto sign any business documents such as contract oragreements. The liaison office or Oxbow Group donot have any agents in India. It does not hold anystocks or inventory and do not provide any service tocustomers. The AO did not accept the submissions ofthe assessee with regard to existence of PE in Indiafor the reason that the assessee employed highlyqualified people in India and the services cannot beheld as merely auxiliary and preparatory work. TheAO further held that the assessee did not provide thedetails of trade carried out with Indian parties and alsodid not submit details about the engagement of LOwith Indian subsidiary. Accordingly, the AO attributed52CA. Yogesh G. [email protected]. Aparna [email protected] News53

Ahmedabad Chartered Accountant Journal December, 2025 785TM50% of income/profit to the LO. Aggrieved, theassessee raised objections before the DRP. The DRPdismissed the various objections of the assessee butgave partial relief by reducing the attributionpercentage to 12.27%. The assessee was in appealbefore the Tribunal.Issue:Whether Liaison Office constituted PE of its parent.Held:The tribunal noted that the assessee was having asubsidiary in India, which was dormant, and no activitywas carried on. Therefore as per Tribunal unless therevenue was able to establish that the informationcollected by the LO was used by the subsidiary (whichis a PE) and that the LO’s activity was complimentaryfunction that are part of a cohesive business operationin India, the activities of the LO would fall within theexception as provided in Article 5(4) read with the MLIwould apply to assessee’s case. As per tribunal theAO’s view that the activities of the assessee were notpreparatory or auxiliary on the ground that the LO hadbeen carrying its activities for a long time and that LOwas not merely gathering information as not tenable,since neither the LO nor the subsidiary was concludingany business activity in India using the informationcollected. Further the employees of the LO were notauthorized to conclude any business contracts nor hadany signing authority. The tribunal noticed that the AOhad recorded a finding that the assessee failed tofurnish details of parties with which business has beenconducted in India without considering the submissionthat the assessee that it had not conducted anybusiness in India. The requirement as demanded bythe AO would mean substantiating a negative fact whichcould not be done and accordingly the conclusiondrawn based on the said finding as per the tribunalcould not be sustained. The Tribunal referred to theHon’ble Supreme Court decision in the case of UOI v.U.A.E. Exchange Center [2020] 116 taxmann.com 379/273 Taxman 122/425 ITR 30 (SC) in which SC observedthat the LO was permitted to undertake only thoseactivities which were specified in the approval grantedby the Reserve Bank of India (RBI). It was noted thatthe said permission contained a clear stipulationprohibiting the LO from rendering any consultancy orTribunal Newsother services, either directly or indirectly, and whetherfor consideration or otherwise. The Court furtherobserved that the activities carried out by the LO inIndia were confined strictly to the scope of the RBIpermission and were of a preparatory or auxiliarynature. It was, therefore, held by the SC that suchactivities would fall within the ambit of Article 5(3)(e) ofthe DTAA. Consequently, the fixed place of businessused by the assessee as its Liaison Office in Indiacould not be regarded as constituting a PermanentEstablishment within the meaning of Articles 5(1) and5(2) of the DTAA, having regard to the non-obstanteand deeming provisions contained in Article 5(3)thereof. During the course of hearing it was submittedby the assessee before the tribunal that the activitiesof LO were within the scope of what was permitted byRBI to a LO in India and therefore as per Tribunal therewas merit in the claim that the ratio laid down by theApex Court in the above case was applicable to theassessee. The Tribunal also noted that the LO of theassessee has been carrying on activity for a long timewhich was also accepted by the AO and the returnshave been accepted without any adjustment till date.Considering the overall facts and circumstances of thecases and the legal position, the tribunal was of theview that the LO of the assessee cannot be treated asa PE within the meaning of Article 5 of India NetherlandsDTAA and accordingly the adhoc addition made in thatregard was deleted.Surbhi Anand v. ACIT 179 Taxmann.com 609(Agra)Order dated 9th October 2025, AssessmentYear 2023-24Basic Facts:The assessee had invested in 8 per cent RBI Bondsthrough SHCIL in cumulative and non-cumulativeoptions and in 7.75 per cent taxable GOI bonds throughHDFC Bank. On maturity, proceeds including interestwas credited and TDS was deducted under section193. The assessee had offered interest income onthese bonds on accrual basis in assessment years2018-19 to 2022-23 and paid taxes thereon and offeredthe balance interest in assessment year 2023-24. Inthe return for assessment year 2023-24, aggregate TDSclaim was made including the TDS on maturity interest.54

786 Ahmedabad Chartered Accountant Journal December, 2025TMThe CPC, while processing the return under section143(1), accepted the returned income but did not allowcredit of the TDS claimed. The rectification orders undersection 154 also upheld the restriction based on rule37BA. On appeal, the CIT(A) dismissed the assessee’sappeal treating it as infructuous on the ground that theintimation under section 143(1) had merged with therectification orders and remedy lay against rectificationorder. On appeal to the Tribunal:Issue:Whether Assessee is entitled to credit of TDS in theyear of actual receipt of interest income on interestincome offered to tax on accrual basis in the earlieryears.Held:The Tribunal considered the CIT(A)’s order and didnot agree with the decision of the CIT(A) in dismissingthe appeal of the assessee for the reasons stated inthe said order. The passing of the order under section143(1), dated 11-12-2023 by the CPC was a separateorder giving rise to a grievance to the assessee,against which the present appeal was filed. Therefore,it was the duty of the CIT(A) to adjudicate the saidgrievance, by passing an order and giving reasonseither accepting the claim of the assessee or rejectingthe claim of the assessee instead of dismissing itmerely on technical ground, which was not sustainablein the eyes of the law. In this case, the assesseeclaimed to have offered the interest income receivedon maturity of the RBI bonds over the years i.e. fromassessment year 2018-19 to 2023-24, on an accrualbasis in terms of section 145, and paid taxesthereupon, as per the chart submitted by the assessee.Apparently, the offering of such income and paymentof due taxes, accordingly, by the assessee had beenaccepted by the department. On perusal of thecomputation of income filed by the assessee forassessment years 2018-19 to 2022-23, it was seen thatthe assessee has already paid taxes over therespective assessment years, as per the interestincome offered by it on accrual basis on the aforesaidRBI bonds, after claiming proportionate credit of theTDS received from SHCIL and HDFC Bank, as the casemay be. Therefore, after giving thoughtfulconsideration, the tribunal viewed that in the given factsof the case, the AO was directed to allow the TDScredit on the said bonds, as claimed by the assesseein the assessment year 2023-24 after due verificationin term of rule 37BA(3)(ii), and determine the taxpayable or refundable, and pass the order accordingly.The appeal of the assessee was accordingly allowed.ACIT v. ALFA LAVAL INDIA (P.) LTD 179taxmann.com 418 (PUN)Order dated 10th October 2025, AssessmentYear 2018-19Basic Facts I:During the course of assessment proceedings, theAO noted that as per the Tax audit report the assesseehad made total payment of Rs. 4.29 crores which wereliable for disallowance at the rate of 30 per cent undersection 40(a)(ia). Further, he noted that the assesseemade payment of Rs. 49.93 lakhs to non-residentswithout deduction of TDS which were liable fordisallowance under section 40(a)(ia) at the rate of 100per cent. The AO noted that the assessee made totaldisallowance of Rs. 1.78 crores under section 40(a)(ia)and disallowance of Rs. 49.93 lakhs under section40(a)(i) in the ITR filed for assessment year 2018-19.However, in computation of total income the assesseemade disallowance of Rs. 67 lakhs only instead of Rs.1.78 crores. Thus, there was difference of Rs. 1.11crores. The assessee submitted that the provision forexpenses on which TDS was not deducted for earlieryears was reversed against the actual expenditurebooked during the year i.e. assessment year 2018-19. However, in absence of any documentary evidencefiled by the assessee regarding the actual expenditureincurred against such provision during the assessmentyear 2018-19, the AO rejected the contention of theassessee. He noted that these expenses weredisallowed for non-deduction of TDS in assessmentyear 2017-18 as per assessee’s own submissions.He further noted from the audit report and ITR forassessment year 2017-18 that the auditor haddisallowed these expenses on account of nondeduction of TDS which had been duly disallowed inthe ITR on account of non-deduction of TDS under theprovisions of section 40(a)(ia). The AO, therefore, heldthat these were the actual expenses incurred duringthe assessment year 2017-18 and not the provisionTribunal News55

Ahmedabad Chartered Accountant Journal December, 2025 787TMfor expenses on which TDS was not deducted.Rejecting the various explanations given by theassessee the AO made addition of Rs.1.11 croresunder section 40(a)(ia). On appeal, the CIT(A) deletedthe addition made by the Assessing Officer. On appealto the Tribunal:Issue:Whether the 40(a)(ia) disallowance made by theassessee was in order.Held:The Tribunal noted from the details furnished by theassessee that it had claimed deduction in respect of“amount disallowed u/s 40 in any preceding previousyear but allowable during the previous year amountingto Rs.1,11,75,451/-” which has been disallowed inassessment year 2017-18 under the Schedule-BP. TheTribunal further found that the provisions of year endon which TDS has not been deducted have beensubsequently reversed in the month of April and theexpenses have been booked against the provisiononce the invoices were received from the partysubsequently. Under these circumstances, the tribunaldid not find any infirmity in the order of the Ld. CIT(A)and accordingly, the grounds raised by the Revenuewas dismissed.Basic Facts II:The AO noted that the auditors in their Tax Audit Reporthad reported net increase in profit of Rs. 48.58 croreson account of application of ICDS. However, theassessee had shown net increase in the profit due toICDS of Rs. 41.90 crores which was shown in ITR as‘’any other item or items of addition’’ under section 28to 44DA and the remaining amount of Rs. 6.03 croreswas on account of amount directly credited to theretained earnings. The AO, therefore, made additionof Rs. 7.51 crores on account of ICDS adjustment notdisclosed by the assessee. On appeal, the CIT (A)deleted the addition made by the AO. On appeal tothe Tribunal:Issue II:Whether the Assessee had given proper effect to theprovisions of ICDS as mentioned in the Tax Auditreport.Held II:It is found that the AO in the instant case made additionof Rs. 7.51 crores being the income of the assesseeon account of not disclosing the increase in profit dueto ICDS adjustment as reported in audit report in FormNo. 3CD. The CIT(A) deleted the addition whileobserving that the expenses which has been debitedto P & L should only be considered as addition toICDS and expenses giving effect to the retainedearning should not be added to income. There is noinfirmity in the order of the CIT(A) on this issue. Theassessee in the instant case has clearly demonstratedthat it has correctly computed and disclosed theincrease in profit in ICDS adjustment. The assesseealso demonstrated by drawing attention to the variousdisclosures made in the audited accounts and thecomputation statement. The revenue could notcontrovert the details given by the assesseesubstantiating the adjustment as per Indian AccountingStandard, its impact, working and documentaryevidence to justify its claim of ICDS adjustment.Therefore, in absence of any distinguishable featuresbrought on record by the revenue there is no infirmityin the order of the CIT(A) on this issue. Accordingly,the same is upheld. The ground raised by the revenueon this issue is accordingly dismissed.Basic Facts IIIDuring the year, the assessee had disallowed certainamount on account of liquidated damages, provisionfor doubtful debts and project provision cost.Subsequently, during the year under consideration,the reversal of liquidated damages, provision fordoubtful debts and project provision cost was claimedas deduction as earlier offered to income. The AO wasnot satisfied with the submissions made by theassessee in absence of complete details to hissatisfaction. He, thus, made additions on account ofreversal of liquidated damages, provision for doubtfuldebts and project provision cost. On appeal, the CIT(A)deleted the addition made by the AO. On appeal tothe Tribunal:Issue:Whether the Assessee had properly claimeddeduction of the provisions reversed during the yearas the same had been offered to tax in earlier yearsTribunal News

788 Ahmedabad Chartered Accountant Journal December, 2025TMHeld:The Tribunal noted that the factual finding given by theCIT(A) that the assessee-company is consistentlyfollowing the policy of disallowing incremental provisionand claims deduction for decrease in net provision,could not be controverted by the revenue. Further,the CIT(A) had also given a finding on verification ofthe computation of income that the assessee-companyhad disallowed the provision of these expenses inearlier years. The revenue had not brought any materialto negate the factual finding given by the CIT(A). Thefinding of the CIT(A) that similar treatment was given toproject provision costs, liquidated damages andprovision for doubtful debts in assessment year 2021-22 which has been accepted by the AO in theassessment order also could not be controverted bythe revenue. In view of the above and in view of thedetailed factual finding given by the CIT(A) on this issue,the tribunal did not infirmity in the order of the CIT(A)onthis issue. Accordingly, the same was upheld and theground raised by the revenue was dismissed.Canon India (P.) Ltd. v. DCIT 180taxmann.com 306 (Del)Order dated 10h October 2025, AssessmentYear 2003-04 & 2005-06Basic Facts I:The assessee-company was engaged in trading anddistribution of imaging and optical products. Duringassessment year 2003-04, assessee earned incomefrom its operations in Japan, on which taxes werewithheld in Japan in accordance with domestic tax lawsof that jurisdiction. The assessee filed its return,claiming Foreign Tax Credit (FTC) under section 90,read with Article 23 of the India-Japan DTAA. The AOdisallowed the FTC on ground that in same year, incomecorresponding to Japanese receipts was either exemptunder section 10A or neutralized by brought-forwardbusiness losses, resulting in no tax liability in India.The DRP upheld said disallowance. On appeal to theTribunal:Issue I:Whether Assessee was entitled to credit of taxes paidin Japan when its income is exempt u/s 10A of theAct under Income Tax Act.Tribunal NewsHeld I:The Tribunal noted that the question whether theassessee is entitled to claim Foreign Tax Credit (FTC)in India for taxes withheld in Japan, even though theincome was exempt under section 10A or neutralizeddue to brought-forward losses, resulting in no Indiantax liability and thereby resulting into a refund, has beendecided in favour of the assessee by the decision ofthe Delhi ITAT in the case of assessee itself [ITA No.468/Del/2021], wherein the Tribunal, relying onKarnataka High Court’s decision in the case of WiproLtd. v. DCIT [2015] 62 taxmann.com 26/[2016] 236Taxman 209/382 ITR 179 (Karnataka), allowed theappeal and held that the assessee is eligible for entirecredit of foreign taxes deducted in Japan, even if thetaxability was nil consequent to the deduction undersection 10A brought forward losses. Whereas therevenue relied on the statutory provisions of the Act,the express language of Article 23 of the India-JapanDTAA, and Mumbai ITAT’s decision in the Bank of Indiav. Asstt. CIT [2021] 125 taxmann.com 155 (Mumbai -Trib.) where the revenue tried to distinguish the WiproCase by stating that in the case of Wipro, the taxpayerhad substantial Indian tax liability on non-exemptincome, and the FTC claimed was only a small part ofthe overall tax paid in India hence was in accordancewith the requirement of Clause 2 of Article 23, and thecredit was capped at the amount of Indian tax payable.The revenue contended that in the instant case, as notax was payable in India due to the operation of section10A and the set-off of brought-forward losses, hence,there was no Indian tax liability against which the foreigntaxes withheld in Japan can be credited. The Tribunalnoted that while the Mumbai Tribunal in the Bank ofIndia case grappled with the question of following anon-jurisdictional High Court being not binding judicialprecedent, and arrived at a contrary decision, theassessee has referred to the decision of the DelhiHigh Court in the case of Pr. CIT v. HCL ComnetSystems and Services Limited [IT Appeal NO. 546 of2022, dated 23-11-2023] which has agreed with thedecision of Karnataka High Court in the Wipro Ltd case.The Tribunal held that a jurisdictional High Courtdecision in the case of HCL Comnet Systems andService Limited (supra) was before them and hencethe question of following the binding judicial56

Ahmedabad Chartered Accountant Journal December, 2025 789TMprecedence or not, no longer existed. In the HCLComnet case, the question which are similar to thequestion in the case under consideration, the DelhiHigh Court has given a clear acceptance to thedecision of Karnataka High Court in Wipro Ltd., In viewof the Delhi High Court decision in HCL Comnet (supra),the tribunal held that the issue under consideration isno longer res integra. In view of the judicial precedents,the tribunal held that the assessee would be grantedcomplete credit of taxes paid by it in Japan on exportrevenues from sale of software and not restricted owingto nil tax liability on account of business losses or 10Adeduction under the Income Tax Act, 1961.Basic Facts II:The assessee filed its original return of incomedeclaring an income of Rs. 10,17,88,599/-, howevertaxable income was NIL after setting off B/F lossesunder normal provisions of Act and Tax of Rs.14,08,332/- was paid on MAT u/s 115JB of the Actclaiming Foreign Tax Credit of Rs. 14,08,332/-. TheITR was revised declaring an income of Rs.10,01,61,438/-, however taxable income was NIL aftersetting off B/F losses under normal provisions of Actand Tax of Rs. 1,02,768/- was paid on MAT u/s 115JBof the Act claiming Foreign Tax Credit of Rs. 1,02,768/-. The assessee has filed an application u/s 237 whereinit has claimed refund of the entire amount withheld inJapan, basis the India Japan Double TaxationAvoidance Agreement (DTAA) read with section 90(2)of the Income Tax Act, 1961 on account of total taxesof Rs. 4,47,81,650/- with held in Japan, out of whichthe assessee claimed credit of Rs. 1,02,768 only in itsrevised return of income. The assessee filed crossobjects to the Tribunal seeking interest u/s 244A of theAct based on the decision of Hon’ble Bombay HighCourt in case of CIT v. Tech. Mahindra Limited [2016]69 taxmann.com 402 [2016] 240 Taxman 143 [2017]397 ITR 748 (Bombay).Issue II:Whether assessee would be entitled to interest u/s244A of the Act on refund arising out of foreign taxcredit.Held II:The tribunal noted that other than the FTC there is nofurther tax paid; no further advance tax has been paidTribunal Newsto the Indian exchequer; no further TDS has beendeducted by Indian deductor; no further tax has beencollected at source u/s 206C nor any tax or penaltyhas been paid by the assessee in India. The tribunalfrom the reading of the aforesaid decision in case ofTech Mahindra noted that it was abundantly clear thatthe assessee is entitled to interest u/s 244A on refundon account of excess tax paid into the IndianExchequer. The hon’ble High Court has clearly held inparagraph 8 and 9 that in the case before them, theinterest, which was being paid, was in respect of theadvance tax and TDS which has been paid by therespondent assessee in India to the Indian State andthe same is found to be in excess after giving credit interms of the DTAA. The fact in the instant case showsthat the assessee has not paid any tax. It has merelydetermined tax payable of Rs 1,02,768/- on MAT u/s115JB and has offset the same with Foreign Tax Creditof Rs 1,02,768/-. There was no excess Advance tax/TDS/TCS/tax paid to the Indian exchequer, after takinginto account the Foreign Tax Credit. The tribunalaccordingly was of the considered view that no interestu/s 244A of the Act was available to the assessee onthe Foreign Tax Credit in the instant year. The CO wasaccordingly dismissed.Malanadu Farmers Society V DCIT(Exemption) TS-1552-ITAT-2025 (COCH)Order dated 11th November 2025,Assessment Year 2016-17 and 2023-24Basic Facts :The assessee is a charitable society registered underthe Travancore-Cochin Literary, Scientific and CharitableSocieties Registration Act, 1955(Act No. Xll of 1955)and also registered u/ s 12A of the Act . The primaryobject of the assessee is to conduct social activitiesaimed to for improving the living conditions and welfareof the poor and marginal section of the society. Theassessee filed his return for impugned assessmentyear claimed exemption u/s 11 by declared totalincome Nil. The notice u/ s 148A was issued andassessee’s case was reopened on the ground thatthe assesseeis not a charitable organization but thebusiness community. It was observed by the AO thatthe major activities of the assessee was trading andprocessing of milk. The assessee has declared totalsell of milk of Rs. 107.96 crore and the net profit of Rs.57

790 Ahmedabad Chartered Accountant Journal December, 2025TM13.93 crore against the trading and processing activitiesof milk. Thus, the AO decided that the assessee wasnot participated in any activities for relief of the poor,but the trading activities are carried out by the society.Finally, the assessment was completed and assesseewas denied the exemption u/s 11 of the Act and theaddition was confirmed amount of Rs. 13.93 croresrelated to profit earned by trading milk. The aggrievedassessee filed the appeal before the CIT(A). The CIT(A)upheld the order of AO. Being aggrieved, the assesseefiled the appeal before tribunal.Issue:Whether the assessee is entitled to exemption u/s11 for activities of milk procurement for small andmarginal farmers can be said to be relief of poor.Held:The tribunal noted that the assessee has demonstrated,with supporting documents, that milk procurement isnot a standalone profit-oriented business, but anincidental and inseparable activity directly connectedto its charitable object of providing fair andremunerative prices to small and marginal farmers,thereby protecting them from exploitation bymiddlemen. The Tribunal referred to the CBDT CircularNo. 11/ 2008 dated 19.12.2008 which categoricallyclarified that the newly inserted proviso to Section 2(15)does not apply to the first three limbs of the definitionof “charitable purpose”—namely (i) relief of the poor,(ii) education, and (iii) medical relief. This circular furtherclarified that “relief of the poor” includes a wide rangeof welfare activities benefiting small and marginalfarmers, and that entities engaged in such objects arenot disentitled merely because they are incidentallycarry-on commercial activities, provided the conditionsof Section 11(4A) are satisfied. In the present case,the tribunal found that the assessee maintains separatebooks of account and the activity is demonstrablyincidental to its charitable objects. Further, thecoordinate bench of the ITAT, Cochin, in assessee’sown case for AY 2017-18, ITA Nos. 632 & 633/ Coch/2022 (supra), has already held that the assessee’sdominant purpose is “relief of the poor” and that itsmilk-related operations are incidental to its charitablepurpose. This finding, based on identical facts, wasbinding in absence of any material change in facts orlaw. Strong support also emerges from the judgmentof the Hon’ble Kerala High Court in Biowin AgroResearch [2025] 171 taxmann.com 337 (Kerala) dateof order 24/ 01/ 2025 wherein activities very similar tothe present assessee for procurement and sale ofagricultural produce from small farmers which were heldto constitute “ relief of the poor” , and it was emphasizedthat incidental business activity does not underminecharitable character where the dominant purpose iswelfare of the poor. The Tribunal also referred to theHon’ble Supreme Court decision in Ahmedabad UrbanDevelopment Authority (449 ITR 1) which furtherreinforced the restrictive proviso to Section 2(15) doesnot apply to “per se charitable categories” such asrelief of the poor, which are not subject to commercialactivity restrictions, unlike the residual GPU category.As per the tribunal, the assessee has clearlydemonstrated that its dominant purpose is relief of poor,small and marginal farmers; milk procurement andprocessing activities are merely incidental andinseparable from its charitable objectives; farmersreceive higher prices compared to cooperativebenchmarks, which directly contributes to theirupliftment; and conditions under Sect ion 11(4A) areduly complied with. In view of the consistent judicialposition, binding ITAT order in assessee’s own case,CBDT Circular 11/ 2008, and holistic appreciation offacts, the tribunal held that the assessee’s activitiesfall squarely within the definition of “relief of the poor”under Sect ion 2(15). The AO’s conclusion that theassessee is engaged in commercial business activitywas factually and legally unsustainable. Accordingly,the tribunal held that the denial of exemption underSection 11 by the AO and confirmed by the CIT(A) wasunjustified. The assessee was held to be entitled toexemption under Sections 11 and 12. The addition ofRs.13.93 crores was therefore directed to be deleted.DCIT V Indianic Infotech Ltd [TS-677-ITAT2025 (Ahd)-TP]Order dated 19th November 2025,Assessment Year 2014-15Basic Facts :During the assessment proceedings, the TransferPricing Officer (TPO) examined the internationaltransactions entered into by the assessee with itsAssociated Enterprise (AE) and found that the58Tribunal News

Ahmedabad Chartered Accountant Journal December, 2025 791TMassessee had adopted the Profit Split Method (PSM)as the Most Appropriate Method (MAM). The assesseecontended that both the entities contributed to thedevelopment and commercialization of the softwareand therefore PSM was the correct method. However,the TPO observed that the assessee had not submittedadequate documentary evidence to substantiate theuse of PSM. After examining the FAR analysis and thetransfer pricing report, the TPO held that the assesseealone undertook the software development activitiesand carried the associated risks, while the AEperformed merely marketing functions withoutcontributing any unique intangibles. On this basis, theTPO concluded that PSM was not appropriate in thiscase. The TPO further stated that PSM is meant forsituations where the operations are highly integratedand comparable data is not available, whereas in thepresent case the availability of comparable companiesmade the Transactional Net Margin Method (TNMM)more suitable. The TPO therefore rejected the PSMand applied TNMM as the MAM. On applying TNMM,the TPO selected six comparable companies andcomputed an average PLI of 22.73%, as compared tothe assessee’s margin of 4.89%. Since the differencewas beyond the permissible tolerance limit, the TPOproposed an upward adjustment. The AO acceptingthe TP order completed the assessment making anaddition. The assessee carried the matter in appealbefore the CIT(A), challenging both the rejection of PSMand the selection of comparable under TNMM. Theassessee argued that the TPO had accepted PSM inthe immediately preceding year on identical facts andtherefore the principle of consistency required that thesame method be followed. The assessee relied onseveral judicial precedents including RadhasoamiSatsang v. CIT and decisions of the Delhi ITAT in caseswhere PSM had been accepted as the MAM undersimilar factual circumstances. The assessee alsosubmitted that the AE undertook significant marketingfunctions, which were integral to the earning of revenue,and therefore the contribution of both entities warrantedthe adoption of PSM. The assessee submitted thateven though the TPO himself had applied a turnoverfilter of Rs. 1 crore to Rs. 500 crores, he had selectedthree companies—Mindtree Ltd., Tech Mahindra Ltd.and L&T Infotech Ltd.—whose turnover exceeded Rs.500 crores by a very large margin. The assesseeargued that these companies were not comparableon turnover criteria and were functionally different. Theassessee also objected to the inclusion of R.S.Software (India) Ltd., which was mainly engaged in epayment gateway and cyber-security-related software,and to the inclusion of Cigniti Technologies Ltd., whichwas primarily involved in software testing andpublishing of readymade software. The assesseefurther submitted that the PLI of CG Vak Software wasincorrectly computed as the standalone financials wereused instead of consolidated financials, and that on acorrect computation, its margin would be within thetolerance range. Considering these submissions, theCIT(A) called for a remand report from the AO. In theremand proceedings, the TPO admitted that theselection of the three high-turnover companies wasinadvertent and that they should indeed be excluded.The TPO recomputed the PLI using the remaining threecompanies and arrived at a revised average marginof 20.69%. The assessee filed detailed rejoindersobjecting even to these comparable. After examiningthe assessment order, the submissions, and theremand report, the CIT(A) held that R.S. Software (India)Ltd. was not comparable because its turnover was morethan 15–20 times higher than that of the assessee andits business was highly specialized. Similarly, CignitiTechnologies Ltd. was found to be functionallyincomparable because it was engaged in softwaretesting and publishing of standardized softwareproducts, which was fundamentally different from theassessee’s software development activities. Withrespect to CG Vak Software, the CIT(A) agreed withthe assessee that the correct PLI on a consolidatedbasis was 5.45% and not 10.86% as used by the TPO.Since this PLI was within the allowable range of theassessee’s own margin of 4.89%, the CIT(A) held thatno adjustment was required. In light of these findings,the CIT(A) held that the TPO was not justified in rejectingPSM, especially when the same method was acceptedin the immediately preceding year. The CIT(A) thereforedeleted the entire upward adjustment under section92CA(2), holding that even under TNMM no validcomparable remained to justify the addition. The CIT(A)also considered the assessee’s challenge to theaddition towards notional interest on outstandingTribunal News

792 Ahmedabad Chartered Accountant Journal December, 2025TMreceivables from the AE. The assessee argued thatoutstanding receivables were part of the maininternational transaction and not a separate transaction,and therefore no separate adjustment could be made.The CIT(A), however, held that in view of the legalposition laid down by various courts, outstandingreceivables constituted a separate internationaltransaction and were liable to be benchmarkedindependently. At the same time, the CIT(A) acceptedthe assessee’s factual contention that if all receivablesfrom the AE were realized within 180 days, no notionalinterest could be imputed. The AO was thereforedirected to verify this factual position and restrict theadjustment, if any, only to amounts outstanding beyond180 days. The Department is in appeal before thetribunal against the order of CIT(A).Issue:Whether in the given circumstances Profit SplitMethod was the Most Appropriate method.Held:The tribunal was of the view that the CIT(A) has passeda detailed and well-reasoned order, and they did notfind any infirmity in the findings of the CIT(A) that wouldwarrant any interference from them. On the issue ofthe MAM, they noted that the assessee had appliedthe PSM, which had been accepted by the TPO in theimmediately preceding assessment year on identicalfacts. The principle of consistency, as laid down bythe Hon’ble Supreme Court in Radhasoami Satsang v.CIT (1992) 193 ITR 321 (SC), requires that in theabsence of any material change in facts or law, thesame view should ordinarily be followed. The CIT(A),after examining the FAR analysis, correctly observedthat both the assessee and its AE contributed to theoverall revenue generation—the assessee throughsoftware development and the AE through crucialmarketing and client acquisition functions and thereforePSM could not be rejected without demonstrating anyfactual distinction. They found no error in thisconclusion. Even assuming TNMM to be the MAM,they found that the CIT(A) had correctly held that thecomparable selected by the TPO were fundamentallyinappropriate. The TPO himself admitted during theremand proceedings that Larsen & Toubro Infotech Ltd.,Mindtree Ltd. and Tech Mahindra Ltd. were wronglyselected due to their extraordinarily high turnoversrunning into thousands of crores, which is contrary tothe TPO’s own turnover filter of Rs. 1 crore to Rs. 500crores. The exclusion of entities with huge turnover issupported by the decisions of the Hon’ble BombayHigh Court in CIT v. Pentair Water India Pvt. Ltd. (2016)69 taxmann.com 180 (Bom) and the Hon’ble KarnatakaHigh Court in PCIT v. Obopay Mobile Technology IndiaPvt. Ltd., ITA No. 586/2016 (Kar HC), both holding thatcompanies with disproportionately high turnover cannotbe compared with small or midsize softwaredevelopment service providers. The tribunal agreedwith the CIT(A) that R.S. Software (India) Ltd. is not avalid comparable as it is engaged in specializedactivities relating to e-payment gateway and cybersecurity, catering primarily to the financial sector withturnover nearly 20 times higher than that of theassessee. Similarly, Cigniti Technologies Ltd., beingengaged in software testing and outsourced productdevelopment, is functionally distinct and enjoys brandvalue as a listed entity. The exclusion of suchfunctionally dissimilar companies is supported by theprinciples laid down by the Hon’ble Delhi High Courtin Rampgreen Solutions Pvt. Ltd. v. CIT (2015) 60taxmann.com 355 (Del). In respect of CG-Vak Software& Exports Ltd., the CIT(A) had correctly observed thatthe PLI must be computed using consolidatedfinancials, and on such correct computation the marginis only 5.45%, which is within the tolerance band of theassessee’s margin of 4.89%. Furthermore, CG-Vakhad no international transactions with its AE, and theHon’ble Bombay High Court in CIT v. Tata Power SolarSystems Ltd. (2017) 77 taxmann.com 326 (Bom) andthe Hon’ble Punjab & Haryana High Court in QuarkSystems India Pvt. Ltd. (2011) 11 taxmann.com 427(P&H) have held that entities with no controlledtransactions cannot be treated as comparable forbenchmarking controlled transactions. On these facts,the tribunal found that the CIT(A) has correctly held thatonce all wrongly selected comparable are excluded,no valid comparable remain under TNMM to justify anyadjustment, and therefore the deletion of the entireadjustment under section 92CA (2) was held fullyjustified.Tribunal News

Ahmedabad Chartered Accountant Journal December, 2025 793TMIn this issue, we are giving gist of the decision renderedby ‘SMC’ Bench of I.T.A.T., Ahmedabad in the case ofMalini Jignesh Doshi, relating to taxability of cashdeposits made in the bank account during thedemonetization period u/s.69A of the Act. Though asimilar view has been held by the Tribunal and theHigh Courts in various cases, since the present casediscusses several of those decisions, the same isencapsulated over here for the purpose of knowledgeof the members.We hope the readers would find the same useful.In the Income Tax Appellate Tribunal“SMC” Bench, AhmedabadBefore Dr. DR. BRR Kumar, Vice PresidentandShri Siddhartha Nautiyal, Judicial MemberITA No.755/Ahd/2025Assessment Year: 2017-18Malini Jignesh Doshi Vs. Income Tax Officer,Ahmedabad. Ward- 5(3)(1),(PAN: AGZPD5058Q) Ahmedabad(Appellant) (Respondent)Appellant by : Shri Ankit Choksi, ARRespondent by : Shri Ravindra, Sr. DRDate of hearing : 03.11.2025Date of pronouncement : 06.11.2025GIST Only1. The grounds raised by the Appellant-Assesseeare as under:“1. Ld. CIT(A) erred in law and on facts inconfirming the addition made by the AO ofRs. 17,63,000/-, representing the cashdeposits made in bank accounts of appellantduring the demonetization period, u/s 69A ofthe I.T. Act.CA. Sanjay R. [email protected]. The AO and Ld. CIT(A) erred in law and actedagainst the principles of natural justice in notconsidering the documentary evidencessubmitted by appellant during theassessment proceeding which had effect ofproving the source of the said cash depositsof Rs. 17,63,000/-.3. The Appellant reserves the right to add, alter,amend and withdraw any of the abovegrounds of appeal.”2. There was a delay of 313 days in filing the appeal,for which necessary explanation was filed in formof Affidavit and the same was condoned.Facts of the case:3. The assessee is an individual, who filed herreturn of income declaring total income of Rs.3,51,900/-. In the limited scrutiny assessment, theAssessing Officer observed that there was a cashdeposit of Rs.17,63,000/- in her bank accountsmaintained with ICICI Bank and The Mahila VikasCooperative Bank during the demonetizationperiod. He treated the same as unexplainedmoney u/s.69A and taxed the same u/s.115BBEby assessing the assessee at Rs.21,14,900/-.Before CIT (Appeals), the assessee failed tosubmit necessary explanations and the order ofthe assessment was confirmed by the CIT(Appeals). Before the Tribunal, the Appellantexplained that the case deposit of Rs.17,63,000/-made during the demonetization period were fullyexplainable and arose from (i) earlier cashwithdrawals of Rs. 10,00,000/- from the MahilaVikas Cooperative Bank prior to November 2016,and (ii) accumulated savings and incomedisclosed in earlier years amounting toRs.7,63,000/-.

794 Ahmedabad Chartered Accountant Journal December, 2025TM4. It was further pointed out that the assessee hadconsistently filed income tax returns in precedingyears declaring regular sources of income suchas tuition fees, rent, and interest, all of which werein cash and duly disclosed to the Income TaxDepartment. Further, there is no finding by theAssessing Officer that cash withdrawn by theassessee in June and July 2016 for Rs.10,00,000/- had been utilized elsewhere or has been spentaway by the assessee. The Counsel of theassessee relied on the judicial precedentsmentioned as under:“Ajit Bapu Satam v. DCIT [2023] 147 taxmann.com222 (Mumbai - Trib.), Ajay Data v. ACIT [2025]171 taxmann.com 308 (Jaipur - Trib.), and M/s.Murlidhar Ice Cream & Sweet Parlour v. ITO (ITANo. 531/Ahd/2012, ITAT Ahmedabad), wherein itwas held that when cash deposits are traceable toearlier withdrawals and there is no evidence ofalternate utilization, such deposits cannot be treatedas unexplained under section 69A. The Counselalso drew attention to CBDT Instruction No.3/2017dated 21.02.2017, which directs Assessing Officersto verify claims of redeposits of earlier withdrawalsand past savings in a reasonable manner keepingin view normal human conduct.”5. The DR relied on the order of the lower authorities.Decision:6. The Tribunal, after considering rival submissions,held as under:“9. We have heard the rival contentions andperused the material on record. It is evidentfrom the records that the assessee had madesubstantial cash withdrawals aggregating toRs.10,00,000/- from her Mahila VikasCooperative Bank account prior to thedemonetization period. The Assessing Officerhas not disputed these withdrawals nor hashe brought any material to show that such cashwas utilized for any other purpose. Therefore,the assessee’s explanation that thesubsequent deposits during thedemonetization period were made from suchearlier withdrawals cannot be brushed asidewithout any contrary material. The legalposition in this regard is well settled. TheHon’ble ITAT Ahmedabad in M/s. MurlidharIce Cream & Sweet Parlour v. ITO (ITA No.531/Ahd/2012) held that where cash depositsin a bank account are made out of earlierwithdrawals and there is no evidence of theiralternate use, such deposits cannot be treatedas unexplained. Similar view has been takenin Ajit Bapu Satam v. DCIT [2023] 147taxmann.com 222 (Mumbai - Trib.) and AjayData v. ACIT [2025] 171 taxmann.com 308(Jaipur - Trib.). In all these cases, the principleapplied is that unless the Assessing Officerdemonstrates that the earlier withdrawn cashwas used elsewhere, the redeposit thereofcannot give rise to addition under section 69Aof the Act.10. Further, the CBDT Instruction No.3/2017 dated21.02.2017 also supports this approach,directing officers to consider claims ofredeposits from earlier withdrawals and pastsavings after due verification. In the presentcase, the assessee has been regularly filingreturns and offering her income from tuition,rent, and interest to tax. Her explanation thatthe remaining Rs.7,63,000/- was fromaccumulated household savings and disclosedincome of preceding years is reasonable andsupported by record. Considering thesmallness of income, the modest backgroundof the assessee, and the absence of anymaterial to suggest otherwise, the explanationoffered deserves acceptance.11. In view of the above facts and the judicialprecedents discussed, we are of theconsidered opinion that the addition ofRs.17,63,000/- made under section 69A of theAct is unsustainable. Accordingly, the sameis directed to be deleted.12. The appeal of the assessee is allowed, andthe addition of Rs.17,63,000/- made undersection 69A of the Act is hereby deleted.13. In the result, the appeal filed by the assesseeis allowed.”Unreported Judgements

Ahmedabad Chartered Accountant Journal December, 2025 795TMSr. Advocate Tushar [email protected] Analysisobservations of this Court in The South IndiaCorporation (P.) Ltd., v. The Secretary, Board ofRevenue, Trivandrum and Anr., (1964) AIR SC 207at 215-[1964. 4 SCR 280.Vishin N. Khanchandani v. VidyaLachmandas Khanchandani [2002] 123Taxman 227There is no doubt that by non-obstante clause theLegislature devices means which are usually appliedto give overriding effect to certain provisions oversome contrary provisions that may be found either inthe same enactment or some other statute. In otherwords such a clause is used to avoid the operationand effect of all contrary provisions. The phrase isequivalent to showing that the Act shall be noimpediment to measure intended. To attract theapplicability of the phrase, the whole of the section,the scheme of the Act and the objects and reasons forwhich such an enactment is made has to be kept inmind.ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006]67 SCL 383 (SC)34. Section 529-A of the Companies Act no doubtcontains a non-obstante clause but in construingthe provisions thereof, it is necessary to determinethe purport and object for which the same wasenacted....36. The non-obstante nature of a provision althoughmay be of wide amplitude, the interpretativeprocess thereof must be kept confined to thelegislative policy....37. A non-obstante clause must be given effect to, tothe extent the Parliament intended and not beyondthe same.Some useful judgments on ‘non-obstante’ clauseState of West Bengal v. Union of India AIR1963 SC 1241The Court must ascertain the intention of the legislatureby directing its attention not merely to the clauses tobe construed but to the entire statute; it must comparethe clause with the other parts of the law and the settingin which the clause to be interpreted occurs.Union of India v. G.M. Kokil AIR 1984 SC1022It is well-known that a non-obstante clause is alegislative device which is usually employed to giveoverriding effect to certain provision over some contraryprovision that may be found either in the sameenactment or some other enactment, that is to say, toavoid the operation and effect of all contrary provisions.Chandavarkar Sita Ratna Rao v. Ashalata S.Guram [1986] 4 SCC 44767. A clause beginning with the expression“notwithstanding any thing contained in this Act orin some particular provision in the Act or in someparticular Act or in any law for the time being inforce, or in any contract” is more often than notappended to a section in the beginning with aview to give the enacting part of the section incase of conflict an overriding effect over theprovision of the Act or the contract mentioned inthe non-obstante clause. It is equivalent to sayingthat in spite of the provision of the Act or any otherAct mentioned in the non-obstante clause or anycontract or document mentioned the enactmentfollowing it will have its full operation or that theprovisions embraced in the non-obstante clausewould not be an impediment for an operation ofthe enactment. See in this connection the2223242526

796 Ahmedabad Chartered Accountant Journal December, 2025TMJudicial AnalysisCentral Bank of India v. State of Kerala [2009]4 SCC 94103.A non-obstante clause is generally incorporatedin a statute to give overriding effect to a particularsection or the statute as a whole. While interpretingnon-obstante clause, the Court is required to findout the extent to which the legislature intended todo so and the context in which the non obstanteclause is used. This rule of interpretation has beenapplied in several decisions.State Bank of West Bangal v. Union of India[1964] 1 SCR 37168...the Court must ascertain the intention of thelegislature by directing its attention not merely tothe clauses to be construed but to the entirestatute; it must compare the clause with the otherparts of the law and the setting in which the clauseto be interpreted occurs.H.H. Maharajadhiraja Madhav Rao Jiwaji RaoScindia Bahadur v. Union of India [1971] 1SCC 85The non obstante clause is no doubt a very potentclause intended to exclude every consideration arisingfrom other provisions of the same statute or other statutebut “for that reason alone we must determine the scope”of that provision strictly. When the section containingthe said clause does not refer to any particularprovisions which it intends to override but refers to theprovisions of the statute generally, it is not permissibleto hold that it excludes the whole Act and stands allalone by itself. A search has, therefore, to be madewith a view to determining which provision answersthe description and which does not.R.S. Raghunath v. State of Karnataka [1992]1 SCC 335... The non-obstante clause is appended to a provisionwith a view to give the enacting part of the provisionan overriding effect in case of a conflict. But the nonobstante clause need not necessarily and always beco- extensive with the operative part so as to have theeffect of cutting down the clear terms of an enactmentand if the words of the enactment are clear and arecapable of a clear interpretation on a plain andgrammatical construction of the words the non-obstanteclause cannot cut down the construction and restrictthe scope of its operation. In such cases the nonobstante clause has to be read as clarifying the wholeposition and must be understood to have beenincorporated in the enactment by the legislature byway of abundant caution and not by way of limiting theambit and scope of the Special Rules.A.G. Varadarajulu v. State of Tamil Nadu[1998] 4 SCC 231It is well settled that while dealing with a non-obstanteclause under which the legislature wants to giveoverriding effect to a section, the court must try to findout the extent to which the legislature had intended togive one provision overriding effect over anotherprovision. Such intention of the legislature in this behalfis to be gathered from the enacting part of the section.In Aswini Kumar Ghose v. Arabinda Bose, (1952) AIRSC 369, Patanjali Sastri, J. observed:“The enacting part of a statute must, where it is clear,be taken to control the non obstante clause where bothcannot be read harmoniously;”’Amar Jewellers Ltd. v. ACIT [2022] 137taxmann.com 249 (Gujarat)46. A non-obstante clause is generally appended toa section with a view to give the enacting part ofthe section, in case of conflict, an overriding effectover the provision in the same or other Actmentioned in the non- obstante clause. It isequivalent to saying that inspite of the provisionsor Act mentioned in the non-obstante clause, theprovision following it will have its full operation orthe provisions embraced in the non-obstanteclause will not be an impediment for the operationof the enactment or the provision in which the nonobstante clause occurs. [See: Principles ofStatutory Interpretation, 9th Edition by Justice G.P.Singh Chapter V, Synopsis IV at pages 318 and319]47. Normally the use of the phrase by the Legislaturein a statutory provision like notwithstandinganything to the contrary contained in this Act isequivalent to saying that the Act shall be noimpediment to the measure [See: Law Lexiconwords notwithstanding anything in this Act to the272829303132