Volume : 45 l Part 11 l February, 2022
Company Law Series, 2016
& ICDS Series, 2017
Ahmedabad Chartered Accountants Journal
E-mail : [email protected] Website : www.caa-ahm.org - caaahmedabad
Volume : 45 Part : 11 February, 2022
CONTENTS
To Begin with
- Vision of Life.................................................................... CA. Ashok Kataria..................... 551
Editorial ............................................................................................CA. Rutvij P. Shah.........................552
From the President............................................................................ CA. Monish Shah..........................553
Articles
Proposals Related to Trusts / Institutions in Finance Bill, 2022............CA. Atul R. Shah...........................554
Evolution Branding in E-commerce and its Protection....................... Adv. Parv U. Shah........................559
Direct Taxes
Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia....................563
From the Courts.................................................................................. CA. C.R. Sharedalal &
CA. Jayesh Sharedalal............... 565
Tribunal News.....................................................................................CA. Yogesh G. Shah &
CA. Aparna Parelkar.................. 568
Unreported Judgements...................................................................... CA. Sanjay R. Shah....................574
Controversies.......................................................................................CA. Kaushik D. Shah...................576
Judicial Analysis.................................................................................. Adv. Tushar Hemani......................578
FEMA & International Taxation
Summary of Recent Case Laws ..........................................................CA. Dhinal A. Shah &
CA. Karan Sukhramani...............584
FEMA Updates....................................................................................CA. Savan Godiawala..................586
Indirect Taxes
GST and VAT Judgments and Updates................................................ CA. Bihari B. Shah &
CA. Vishrut R. Shah.....................587
Corporate Law & Others
Corporate Law Update.......................................................................CA. Naveen Mandovara...............590
Allied Laws Corner............................................................................. Adv. Ankit Talsania.......................593
GujRERA Corner..................................................................................CA. Manan Doshi.........................596
Capital Markets.................................................................................. CA. Karan P. Vora.........................599
From Published Accounts ................................................................. CA. Pamil H. Shah..................... 603
From the Government ......................................................................CA Ashwin H. Shah &
CA. Kunal A. Shah......................606
IT Corner...........................................................................................CA. Rushabh Shah..................... 608
Association News.............................................................................. CA. Rushabh Shah &
CA. Jay Parekh...........................611
ACAJ Crossword Contest....................................................................................................................612
Ahmedabad Chartered Accountants Journal February, 2022 549
Journal Committee
CA. Rutvij Shah Members CA. Ashish Sharma
Chairman Convenor
CA. Ashok K. Kataria Ex-officio CA. Mehul Shah
CA. Mohit Tibrewal CA. Nirav J. Shah
CA. Niren M. Nagri CA. Riken Patel
CA. Monish Shah CA. Sarju Mehta
CA. Rushabh Shah CA. Jay Parekh
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Published By
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550 Ahmedabad Chartered Accountants Journal February, 2022
VISION OF LIFE CA. Ashok Kataria
[Ǘȯ Ǖ ȯȰ Ȳ ȡåȢ¢ȯ @ [email protected]
\ͪÈȲ ͪÈȯǕ Ï£ȡȲ ͪͪƨ ȡǔ×× Q ĶĶ It is important that we have a vision which is good,
noble and selfless. Such a vision allows us to see
‘That by which one sees the one indestructible oneness and identify with all. It helps us love easily
reality in all beings undivided in the divided, know and hate less. Selflessness is that state where we
that knowledge as SAATTVIKA’ work and think of the larger good without any
expectation from anyone. This is possible only
Shrimad Bhagavad Gita (18.20) where there is a common identification. If we feel
the difference, there cannot be any harmony. Be it
In life, everything we do is driven by our morals, our family, organization where we are working or
values and ideas. We are driven by a vision. We our nation. Unless there is that common goal of
may not know it but we all have a vision. This vision everyone’s happiness, there cannot be true
determines our actions, behaviour and paves the happiness. Our own families are the best example
way for our future. If the direction is faulty, life is to demonstrate this. When every family member is
miserable and when the vision is clear and higher, working for the welfare, support and happiness of
it adds meaning and purpose to our life. The more other family member, there is a sense of collective
our vision is for the greater good, the higher the joy and fulfilment. This is possible only because
ability we get to work hard and the nobler is our we identify with sense of oneness with all family
cause. members. When we see ourselves in others and
others in us, we serve them and work to make them
There can be three kinds of visions. Sattvika, happy, like our family and relatives. As the vision
Rajasika and Tamasika. grows, it extends as our love for the country where
we are able to relate every citizen of the country.
A person with a Tamasika vision gets attached to This only amplifies as our love grows and vision
the materialistic world and considers it as the whole. expands to include every living being.
He does not look beyond that world and aims for
temporary happiness, understanding it to be People remain united due to such a vision. It
permanent. One with a Rajasika vision differentiates upholds, sustains and connects everyone. It
between everything and everyone and only sees determines the life we will lead. A noble life and
differences. He is unable to see commonness in all. vision will bring peace and contentment to us and
This results in impulsive actions. to those around us. The Sattvika vision put into
action brings eternal bliss. It is about knowing what
On the other hand, Sattvika Vision is pure, holistic, is right and wrong and if we should pursue an action
noble and sees the Truth in all. It does not or not, if it is our duty or not. A vision like that,
discriminate and puts selfless love and service despite obstacles, will not let us quit. It will make
before all. When someone puts service above self, us work harder and with more devotion.
his will to work, determination and devotion towards
the cause increases multiple folds. He finds his This applies even in all organisations as well, small
happiness in others’ happiness. or big. If the owner or management of the company
is only looking for its own growth, the history of the
Vision, in simple words, also refers to the way we corporate world proves that such organisations are
see things, our perspective. It is said ȡ Ǻǔç ȡ ǔǙ ç. short lived. However, on the other hand where the
We see the world as our vision is. management or in fact even in case of proprietary
concern, have a vision of a collective growth of each
Our scriptures declare the world is nothing but the and every employee the company, the performance
projection of our mind. Our mind is the cause of and success of such organisations are unparalleled.
how we view the world. If our response is Such organisations function like extended families.
pessimistic, all we will see is negativity and
experience sorrow. We will miss out on the As a human being it should be our goal to rise above.
opportunity to learn from our difficult experiences. To go from Tamasika to Rajasika to Sattvika, where
If we are positive, even our worst experiences will we rise above all differences and each one functions
teach us something new. for the collective happiness of every one making
this world more beautiful.
❉❉❉
Ahmedabad Chartered Accountants Journal February, 2022 551
Editorial
CA. Rutvij Shah
[email protected]
At last, 3rd wave of Corona Pandemic has receded in India. Thankfully it was not as deadly as
it was in first two phases. Epidemiologically speaking, the pattern of cases and hospitalisation
in the COVID-19 third wave in India is different from the previous two waves. Reasons for
that are combination of factors, including natural infections in the last two years, vaccination
of the adult population (nearly 90 percent of the adult population has received at least one
shot and 70 percent both shots and, the country has administered a total of 1.57 billion
COVID-19 vaccine doses in one year), and high transmissibility but less virulence of the
Omicron variant. The data indicates that COVID-19 vaccines are very effective in modifying
the outcome of infections and continue to prevent an individual from suffering severe disease,
hospitalisation, and death. The ongoing wave is a testimony to the effectiveness of COVID-
19 vaccines.We must congratulate and complement our government for its efforts to vaccinate
the whole population free of cost.
Third wave of pandemic has limited adverse impact on economy and it should bounce back in
a very short period of time.
It has been almost 2 years now when we were exposed to Corona Virus and still the world does
not know what is the source of this pandemic and how it started. China has stonewalled all
efforts to investigate its origin. The whole world has paid a very heavy price and China has
escaped scrutiny and sanction for its mis-deeds.
Recently elections of ICAI were held and 2 representatives have been elected to Central Council
and 3 to Regional Council from Ahmedabad. They are leaders of our profession from
Ahmedabad and I congratulate all the elected members and wish them a very successful tenure.
Further it is a matter of great pride for all of us that one of our members, CA. Aniket Talati has
been elected as Vice President of our Institute. I am sure that with his dedication and self-less
service, he will be a great asset for our council and help for President of our Institute.
In this issue of our Journal, we have taken up photographs of Company Law Series and ICDS
Series on title page. Such series are regularly held on different topics and basics of various
laws with practical aspects are taught for benefit of young chartered accountants.
❉❉❉
552 Ahmedabad Chartered Accountants Journal February, 2022
From the
President
CA. Monish Shah
[email protected]
Dear Members,
The shortest month of the year February is also celebrated as the love month of the year because of the
Valentine Day that falls on 14th of the Month. It is named after a saint: St. Valentine. Many believe the
Valentine’s Day tradition can be traced back to a Roman fertility festival known as Lupercalia. Some
people also think that Valentine’s Day marks the death anniversary of Saint Valentine, who died on 14th
February in 270 AD.
It gives me immense pleasure to write that our member CA Aniket Talati has been appointed as Vice
President of ICAI . We congratulate him and the entire Talati Family. Talati Family has been serving the
professions since three generations. The Ahmedabad Branch of WIRC will be going through the election
to form the Committee for 2022-2026. I wish the new MCM my heartiest best wishes.
The Audit and the return season is over and now Bank Branch Audit is something that we all Chartered
Accountants wait for will soon be allotted. The Association will be conducting necessary in-depth
programme for new members and refreshing it for our valued senior. The onus and liability has increased
on our professional shoulder so we must all be ultra-cautious while conducting Bank Branch Audit
This month we did an extensive series on real estate, from both direct and indirect tax angle.
As the world gears up for the end of the financial year closure, the tension between Russia and Ukraine
has taken world by surprise. The price of crude because of this May hit anall-time high, the impact of
this on the business and economy of the world will have to be seen.
The offline Education has begun at schools and most Students will now be attending physical school.
It will be great for kids now as they will be able to meet and make new friends at school/ college.
Now, it seems that the threat we have experienced of Corona virus has lessened and everything is
coming back to normalcy. We hope that same prevails and that finally we are back to our normalcy.
However, those are yet to be vaccinated or those who can get booster dose should take one and help
Government in this vaccination drive before it becomes mandatory.
#Stay Healthy #Stay Safe
CA. Monish S. Shah
President
❉❉❉
Ahmedabad Chartered Accountants Journal February, 2022 553
Proposals Related to Trusts /
Institutions in Finance Bill, 2022
CA. Atul R. Shah
[email protected]
The Finance Minister Smt. Nirmala Sitharaman, 3. Maintains such corpus as separately
presented her 4th consecutive Union Budget for the identifiable and
year 2022-23 on 01.02.2022. In the budget there
are several proposals relating to taxation of a 4. Invests or deposits such corpus in the forms
charitable trust and there are in all twenty three and modes specified u/s. 11(5).
amendments relating to taxation of trusts. Important
amendments are covered in this article. In case of violation of any of one or more
conditions, the sum treated and claimed as
1. Voluntary contribution be treated as corpus corpus donation will be deemed to be the
donation income of the trust of the previous year in which
the violation takes place.
[Section 10(23C) Explanation 1A, 1B and
Section 11(1) Explanation 3A, 3B] The following amendments are w.e.f. AY
2023-24
Any voluntary contribution received with or
without a direction to form a part of a corpus, 2. Accumulation of income in excess of 15%:
is an “Income” [section 2(24) (iia)]. Voluntary
contribution received with a direction to form [Clause (a) of first Proviso to Section 10(23C)].
a part of a corpus is not to be included in the
total income of the previous year Section A trust or institution approved u/s. 10 (23C)
11(1) (d). For the first time, with effect from (iv), (v), (vi), or (via), is allowed to accumulate
AY 2021-22, any voluntary contribution in excess of 15% of its income vide clause (a)
received, without any direction to form as of First Proviso to Section 10(23C), and the
corpus donation by a trust, approved u/s. only condition laid down was accumulation is
10 (23C) (iv), (v), (vi), or (via) or registered required to be utilised within 5 years. Now, an
u/s. 12AA or 12AB, having in its property any Explanation 3 is sought to be added to govern
temple, mosque, gurudwara, church or other the excess accumulation, and the conditions laid
place notified as to be of historic, archaeological down are:
or artistic importance or to be a place of public
worship of renown throughout any State or 1. Trust has to furnish a statement (to be
States Notified u/s. 80G (2)(b), now can be prescribed), stating the purpose of
treated as corpus donation, at the discretion of accumulation and the time period for
the trustees and will be eligible to get the which it is to be accumulated, on or before
deduction u/s. 11(1) (d) with the conditions that the due date stated u/s.139(1).
the trust:
2. Money so accumulated, be invested in the
1. Applies such corpus only for such form or mode specified u/s. 11(5).
renovation or repairs.
An Explanation 4 is also sought to be added to
2. Does not make any contribution or treat the excess accumulation as income where:
donation to any person out of such corpus.
1. The trust ceases to remain invested in form
or mode specified u/s. 11(5), be deemed
to be the income of the previous year in
which it ceases.
554 Ahmedabad Chartered Accountants Journal February, 2022
Proposals Related to Trusts / Institutions in Finance Bill, 2022
2. It is not utilised for the purpose for which one or more specified violation during year
it is accumulated, be deemed to be the or
income of the previous year in which it is
so utilised. b. A reference has been received from the
assessing officer under second proviso to
3. It is credited or paid to any other trust, be section 143(3) or
deemed to be the income of the previous
year in which it is so credited or paid. c. Such case has been selected in accordance
with the risk management strategy.
4. Time period stated in the statement
furnished has expired and the accumulated Principal Commissioner or Commissioner
income is not utilised, be deemed to be the shall:
income of the previous year in which such
time period has expired. 1. Call for such documents or information or
make such inquiry in order to satisfy
3. Maintenance of books of accounts and himself about occurrence of specified
audit: violation.
[Proviso 10 to Section 10(23C) and Section 2. Pass an order in writing, cancelling the
12A (1) (b)] approval or provisional approval or
registration or provisional registration of
A trust or institution approved u/s. 10 (23C) such previous year and all subsequent
(iv), (v), (vi), or (via) or Registered u/s. 12AA previous years, after giving reasonable
or 12AB, is allowed exemption of its income, opportunity of being heard.
if it get its accounts audited and furnish the audit
report in Form 10BB/10B,before the specified 3. Pass an order in writing, refusing to cancel
date referred to in section 44AB. However, the the approval or provisional approval or
section did not provide a form and manner of registration or provisional registration.
books of accounts and other documents and
place at which it should be kept. These trusts 4. Forward a copy of the order to Assessing
are now required to keep such books of account officer and the Trust.
and other documents in such form and manner
and at the place, as may be prescribed by the Specified violation is defined as under:
Government.
1. Any income is applied, other than for the
4. Cancellation of approval or registration: object of the trust.
[15th Proviso to Section 10(23C) and Sub 2. Trust is running business, which is not
Section (4) and (5) of Section 12AB] incidental to the attainment of its objective
or separate books of accounts are not
It is proposed to substitute 15th Proviso to maintained for the business which is
Section 10(23C) and Sub Section (4) and (5) incidental to the attainment of objectives.
of Section 12AB so as to provide the procedure
to be adopted, reasons to be satisfied and time 3. Any part of the income is applied for
limit to pass an order of cancellation or refusal private religious purpose which does not
to cancellation. enure for the benefit of public(only
applicable for the trust registered or
Once the approval or provisional approval u/s. provisionally registered u/s. 12AA/
10(23C) or registration or provisional registration 12AB).
has been granted u/s. 12A and subsequently:
4. The trust established for charitable purpose
a. The Principal Commissioner or after commencement of this Act and has
Commissioner has noticed occurrence of applied any part of its income for any
particular community or caste.
Ahmedabad Chartered Accountants Journal February, 2022 555
Proposals Related to Trusts / Institutions in Finance Bill, 2022
5. Activity of the trust is not genuine or or the benefit of section 11 was not available
Activity is being carried out in to the trust.
contravention of all or any of the conditions
with which it was registered. Now as per the new provision, a trust or
institution registered u/s. 12AA or 12AB, only
6. The trust has not complied any of the such part of the income which accrues on the
requirement of any other law which has investment made in contravention of Section
not been disputed or has attained finality. 11(5) will not be considered for exemption u/
s. 11 and so far as a trust or institution approved
Time limit to pass the order: u/s. 10 (23C) (iv), (v), (vi), or (via) exemption
u/s. 10 (23C) (iv), (v), (vi), or (via) will not be
Order of cancellation or refusal to cancel the available as similar provision is absent in section
registration shall be passed within 6 months 10(23C).
from the end of the quarter in which first notice
is issued. 7. Expenditure (with certain conditions) to be
allowed from income liable to be taxed:
5. Filing of income tax return:
A trust or institution approved u/s. 10 (23C)
A trust or institution approved u/s. 10 (23C) (iv), (v), (vi), or (via), due to the violation of
(iv), (v), (vi), or (via), shall furnish return of condition of the 10thproviso (does not keep and
income u/s. 139(4C). maintain books and documents and/or does not
file audit report within time allowed) or 18th
6. Restrict the disallowance of exemption: proviso (first proviso to clause 2(15) become
applicable) or applicability of 20th proviso(does
A trust or institution registered u/s. 12AA or not file income tax return)
12AB, only such part of the income which
accrues on the investment made in OR
contravention of Section 11(5) will not be
considered for exemption u/s. 11. A trust or institution registered u/s. 12AA or
12AB, first proviso to clause 2(15) become
Till now, so far as a trust or institution approved applicable or if the trust has not filed audit report
u/s. 10 (23C) (iv), (v), (vi), or (via), any part of in Form 10B (Section 12A (1) (b)) or has failed
the income which is used or applied directly or to furnish return of income within time allowed
indirectly for the benefit of any person referred u/s. 139(4) (Section 12A (1) (bb)), its income
to in section 13(3), there was no provision to chargeable to tax shall be computed after
disallow the exemption and so far as a trust allowing deduction of expenditure, subject
registered u/s. 12AA or 12AB, the benefits of fulfilment of certain conditions:
section 11 were not available to the trust.
i. Expenditure is not out of the corpus.
Now as per the new provision, a trust or
institution approved u/s. 10 (23C) (iv), (v), (vi), ii. Expenditure is not out of loan or
or (via) or Registered u/s. 12AA or 12AB, only borrowings
such part of the income which is used or applied
directly or indirectly for the benefit of any iii. Claim of depreciation is not on the assets
person referred to in section 13(3) shall be claimed as expenditure.
deemed to be the income of the previous year
in which it is so applied. iv. Expenditure is not in form of contribution
or donation to any person.
Similarly, till now a trust or institution approved
u/s. 10 (23C) (iv), (v), (vi), or (via) or registered Section 40(a) (ia) (without TDS), 40A (3) and
u/s. 12AA or 12AB, investment made in (3A) (payment in excess of Rs. 10000/- in cash),
contravention of Section 11(5), exemption u/s. shall be applicable to the above expenditure as
10 (23C) (iv), (v), (vi), or (via) was not available well.
556 Ahmedabad Chartered Accountants Journal February, 2022
Proposals Related to Trusts / Institutions in Finance Bill, 2022
8. Expenditure allowed as application on cash 10. Maximum marginal rate of tax on its
basis only: accreted income:
For a trust or institution approved u/s. 10 (23C) As per new section 115TD:
(iv), (v), (vi), or (via) or registered u/s. 12AA
or 12AB, a new Explanation is proposed to be A Trust Approved u/s. 10(23C) (iv) or (v) or
inserted, so as to provide that any sum payable (vi) or (via) or Registered u/s. 12AA or 12AB,
shall be treated as application, only in the year and it has:
in which it is actually paid. It is also proposed
to provide that any sum has been claimed to be 1. Converted into any form which is not
applied in any previous year, shall not be eligible to grant approval u/s. 10(23C) (iv)
allowed as application in any subsequent year. or (v) or (vi) or (via) or Registration u/s.
12AA or 12AB, which means:
9. 30% of flate rate of tax applicable on certain
income: a. Approval or Registration has been
cancelled or
As per new section 115BBI, 30% rate of tax is
applicable to a trust approved u/s. 10(23C) (iv) b. Has adopted any modification in its
or (v) or (vi) or (via) or registered u/s. 12A on objects which are not in conformity
the aggregate of income stated as under: with conditions of its approval or
registration and:
A. Income accumulated but accumulation not
allowed due to: i. Has not applied for fresh approval
1. Form for accumulation not filed or filed of registration or
after expiry of time allowed u/s. 139(1).
2. That part of income which is ii. Has applied but the application has
attributable to the investment out of been rejected.
accumulation, made in contravention
of Section 11(5). 2. Merged with any entity, other than having
3. Return of Income of the previous year similar objects, and is approved u/s.
in which accumulation is made, is not 10(23C) (iv) or (v) or (vi) or (via) or
filed on or before time allowed u/s. registered u/s. 12AA or 12AB. Or
139(1).
3. On dissolution of the trust, failed to transfer
B. Where any trust has opted to treat the all its assets, within 12 months from the
voluntary contribution as corpus donation end of the month in which dissolution take
as per Explanation 3A of 11(1) (a) or place, to another trust approved u/s.
Explanation 4 to 3rd proviso to Section 10(23C) (iv) or (v) or (vi) or (via) or
10(23C) and had claimed deduction of registered u/s. 12AA or 12AB,
such contribution u/s. 11(1) (d) and
thereafter violates any of the condition Shall have to pay maximum marginal rate
enumerated therein. of tax on its accreted income.
C. Only such part of the income which is used Accreted income means:
or applied directly or indirectly for the
benefit of any person referred to in section Fair market value of its total assets less total
11(3). liability, computed in accordance with the
method of valuation as may be prescribed.
D. Only such part of the income which
accrues on the investment made in Total assets shall exclude:
contravention of Section 11(5).
1. Assets acquired from the Agricultural
E. Income not exempt u/s. 13(1) (c). Income.
2. Assets acquired during the period of not
having Approval or Registration.
Ahmedabad Chartered Accountants Journal February, 2022 557
Proposals Related to Trusts / Institutions in Finance Bill, 2022
3. Assets transferred to other trust approved related to trusts / institutions are being made more
u/s. 10(23C) (iv) or (v) or (vi) or (via) or and more stringent. This year few beneficial
Registered u/s. 12AA or 12AB, on provisions have also been brought in but the time
dissolution, within 12 months of its has come where one need to be extra careful while
dissolution. complying the provisions of a charitable trust /
institution.
11. Interest payable on defulat to pay tax:
Gist of Trusts covered under section u/s. 10 (23C)
As per amended provision of section 115TE, (iv), (v), (vi), or (via) or registered u/s. 12AA or
Interest @ 12% shall be payable on the Tax as 12AB are:
per 115TD, if the trust does not pay the tax, as
per Section 115TD (5). 1. 10(23C)(iv):
12. Power to send reference by Assessing Trust established for objects which are
Officer: important throughout India or throughout any
state or states.
As per the substituted first Proviso to Section
143(3), Assessing Officer has power to send a 2. 10(23C)(v):
reference to Principal Commissioner or
Commissioner to withdraw the approval or Trust established wholly for public religious or
registration, if he finds that the trust has public religious and charitable purpose, which
committed any specified violation. is approved by Principal Commissioner or
Commissioner.
No order of assessment shall be made without
giving effect to the order of Principal 3. 10(23C)(vi):
Commissioner or Commissioner
University or other education institution, not
13. Penalty leviable: for purpose of profit, other than, not financed
wholly or substantially financed by
As per new section 271AAE, penalty shall be Government or aggregate annual receipt does
payable on such part of the income which is not exceeds Rs. 5 crores.
or used or applied directly or indirectly for the
benefit of any person referred to in section 4. 10(23C)(via):
13(3).
Hospital, not for purpose of profit, other than,
1. 100% of the amount referred to above, not financed wholly or substantially financed
where the violation is noticed for the first by Government or aggregate annual receipt
time in any previous year. does not exceeds Rs. 1 crore.
2. 200% of the amount referred to above, 5. 12AA or 12AB:
where the violation is noticed again in any
subsequent previous year. Trust created wholly for charitable or religious
purpose.
The proposed new section seeks to operate
without prejudice to any other provision of “Charitable Purpose” is defined u/s. 2(15):
chapter XXI. Thus if any penalty is leviable
under any other provision of the said chapter, Charitable purpose includes:
in addition to proposed penalty, that penalty
would also be applicable. Relief of the poor, education, yoga, medical
relief, preservation of environment (which
Conclusion includes water sheds, forest and wildlife),
preservation of monuments or places or object
These are very important amendments and if we of artistic or historic interest and advancement
see the Finance Act of last few years, the provisions of any other object of general public utility.
❉❉❉
558 Ahmedabad Chartered Accountants Journal February, 2022
Evolution Branding in
E-commerce and its
Protection
Adv. Parv U. Shah
[email protected]
Introduction: - businesses had to spend a lot of their profits in offline
marketing just to create a brand and name in the
In this modern world of globalization, a business is market which not only used to eat a lot of their cash
challenged by competition with not only the local flow from the working capital but also ultimately
or national businesses but also global businesses. made it very hard to sustain in the market. But, gone
The future and scaling of a small business although are those days when you had to create a brick-and-
has become limitless but it is also open to a lot of mortar retail store to create a brand or to sell the
fierce competition from big players as well as other products. To run a business nowadays does not
local and unorganized players in the market. There require backing of a great investor with money power
are so many challenges in even small businesses behind it. A home-maker from her kitchen can also
facing problems in the areas of production, costing, run a great business through social media platforms
distribution, legal compliances, and much more. like Instagram and Facebook which used to be
With the market getting global each day, the business initially just a social media app but now a market
is not only exposed to different types of customers place with 201.1 million and 349.2 million active
all over the world but also the compliances and users respectively just in 2020 and the numbers are
challenges mentioned above rise day by day. In a increasing exponentially from time to time. With the
country like India, where unfortunately the big boom of Internet, as well as easy accessibility to the
players are getting bigger and more infusion of same has given birth to a new baby in the Indian
foreign investments in the Indian Market that leave Market called E-commerce. The E-commerce
almost nothing for a small player to run a smooth business has evolved and matured from time to time.
business. It is almost inevitable that small local Due to this, along with the big brands in the retail
players are acquired by the big companies or they market, a lot of small and local brands have been
may run out of business due to big brands entering created on the internet with a loyal customer base
into the market with big names and huge financial with a “community building” driven business model.
backing. The Flipkart-Walmart deal is the biggest These brands do not have much of an offline retail
example as Amazon India was gaining more and presence, sometimes no presence at all. But they are
more market share. strongly built in their own way on the very powerful
medium of internet. “MAMAEARTH” is the
Birth of E-Commerce Brands: -
As they say, where there is a will, there is a way;
therefore, a true entrepreneur is not going to be
bogged down with the challenges mentioned above.
They always tend to find ways to compete, sustain
and ultimately succeed. And that gives rise to E-
Commerce in the market which has now become
one of the biggest weapons in the D to C (Direct to
Consumer) Industry. Initially, when there was no
presence of E-commerce and a very less access of
internet in the market, small players and local
Ahmedabad Chartered Accountants Journal February, 2022 559
Evolution Branding in E-commerce and its Protection
biggest example of that. A company that is just 5-6 COVID-19 fuelled online shopping resulting into
years old in one of the most competitive markets of permanently changed consumer behaviour, especially
skin and baby care sector has clocked a revenue of in case of ordering groceries online. Online grocery
112 crore in the Financial Year 2020 through smart market reached $1.9 billion GMV (Gross
and targeted marketing through social media Merchandise Value) in 2019 and is expected to be
influence and Eco-friendly. Through target doubled by end of 2020. As per the indianwire.com,
advertisements, it has not only built a brand but has Indian online grocery market has made a sale of
also built a community which use and demand for around $3 billion in 2020, thanks to COVID-19
Mamaearth products only and none else. Thus, one restrictions. Consultancy.in, in its report projected
does not need to put in loads of amount of money to 57% CAGR for Indian Online Grocery market, i.e.,
create a brand. A brand can either be built based on to reach $18.28 billion by 2024 from $1.9 billion in
a unique problem-solving product or based on 2019. This can be assigned to the online retailing
fulfillment of a demand which the big players in the reaching to the Tier-2 cities of the country. COVID-
market are not able to fulfill or hesitate to fulfill. Food 19 has given them the taste of ordering and getting
delivery App “ZOMATO” is one of the biggest more conscious and concerned about health and
examples of a company that introduced a service no hygiene. KPMG Consultancy also reported that Post
big player in the market even thought of doing.After COVID-19 consumer is tech-savvy and cashless.
the introduction of “ZOMATO”, one of the biggest RedSeer also predicted the present half percent of
international brands ”UBER EATS” tried to enter market share of online grocery sales to reach to two
in market but was soon acquired by Zomato in 2020 percentages by the 2024 amounting to $800 billion.
in a Rs. 1,376 Crore non-cash deal which is a
testament to the power of an E-commerce built brand E-Commerce Brands : A blessing in Disguise?
from scratch.
One of the benefits of an online brand to the customer
Evolution of E-commerce Brands: - is the ample number of choices of various brands
and products delivered right to their doorstep which
The current market scenario due to Corona Virus they can choose from without wasting any time as
pandemic has disrupted the manner of doing business opposed to going from store to store in search of
in the market. There was a sudden boom in E- different products and brands. It is also beneficial to
commerce as retail markets were shut down for a the business owner as they have the option to increase
long period of time and thus suffered huge loss of profit margin because of the absence of any
business. The pandemic almost forced the business middlemen like whole seller incase of directly buying
owners to pivot from traditional retail market to from website. Due to pandemic, many people had
Online market. For example, there is almost always lost their jobs and were forced to other jobs and find
a shopping list ready of daily and monthly businesses. But, at the same time it has turned out to
requirement of essentials. Local neighbouring Kirana be a blessing in disguise for some people as they
stores were the life blood. Previously there existed were forced to create new businesses and social
only mom and pop stores (brick and motor), street media has turned out to be one of the biggest catalysts
vendors, and street hawkers, from whom the in expediting the expansion and scaling of
consumers had been shopping for food and grocery businesses. Thousands of homemaker wives and
consumption based on their demographic profile. mothers, retired husbands and fathers as well as
(Termed as an unorganized sector accounting for young minds and teenagers who had nothing to do
around 97% in India). Now we use the term grocery during the pandemic started to post their products
commonly for these regular shopping essential items. and services on their Instagram profiles and Facebook
Over a short period of time, liberalization and foreign marketplace which ultimately helped them in creating
direct investment in the retail Consumers have a small local brand with a tiny yet loyal customer
already embraced online shopping. In the past e- base. Thus, due to this, there are now thousands of
retailer mostly competed on retailing of apparels. such brands in such an unorganized digital sector
560 Ahmedabad Chartered Accountants Journal February, 2022
Evolution Branding in E-commerce and its Protection
who do their business via social media only and with on a mobile device. Online payments are seeing
smart digital marketing. Such businesses are booming massive growth in India that enhances the future of
by creating a whole new market in the digital space. the eCommerce business in India. Customers are
finding it convenient to make payments while on the
Contributors of Boom in E-Commerce Brands:- move. The digital payment platforms are secure too,
and the willingness to use these platforms is seeing
The e-commerce industry is bound to see exceptional an increase. The sector has seen tremendous growth
growth over the years. The growth is bound to be that has made businesses opt for mobile optimization
led by the industry stalwarts like Flipkart and of their websites. Many companies have chosen to
Amazon. Increasing industry investments, M&As, go for a mobile app.You can also use location-based
and government policies are other reasons for the campaign strategies that allow you to send
development of this industry. The industry has also customized messages based on the customer’s
seen remarkable investments by Facebook, Google, location. Moreover, the E-commerce industry is
and Reliance Retail. Technology has a significant seeing multi-pronged growth. While the industry has
role to play and has also increased the trust factor been dominated by apparel, electronics goods, books,
among customers. In addition, it has helped in etc., other sectors like groceries, FMCG, and food
ensuring an improved user experience for customers. delivery also expect tremendous growth. The
The tech-savvy audience is always looking for newer industry’s growth is also pulling in traditional retailers,
features, and the use of technology helps to reach which adds to the growth story. Latest technology
out to this audience easily. Moreover, the incumbent trends and advancements and its benefits have helped
players have reached out more to the smaller town. the e-commerce industry and have allowed the
The penetration of high-speed internet services has incumbent players to connect with their customers
aided it. The rise in income in Tier 2 and Tier 3 towns better.Apart from enhancing user experience, it also
has also become a critical factor for the future of the helps customers through the buyer’s journey and in
E-Commerce industry. Nowadays, the industry’s their decision-making. The advent of augmented
increased frequency of freebies has also allowed this reality has been a complete game-changer for the
segment of shoppers to be hooked onto online industry. Customers can be provided with a better
shopping. The use of technology has also helped experience, and it is getting immense popularity in
this market adapt to the new mode of shopping. E- specific sectors like home décor, fashion, jewelry,
commerce platforms also find it easy to keep them etc. Studies also point to the tremendous popularity
hooked onto the platform through targeted products. that this technology has brought to the industry. The
future prospects of eCommerce in India are enhanced
One of the factors for the exponential growth of E- as augmented reality allows website visitors to try
commerce branding is increased use of digital the product virtually before making their buying
payments. The future of eCommerce industry lies in decision. They can have a 3D view of the product
the growth of mobile commerce. According to and have an idea of how it will look. Major e-
studies, 73% of [* File contains invalid data | In- commerce players like LENSKART and IKEA
line.JPG *]ECommerce sales globally will happen have been utilizing this technology.
Brand Protection: -
But as they say, there always two sides of a coin.
With advantages of E-commerce acting as a catalyst
in expansion of a brand, there are lots of things which
are needed to be taken care of. In an era where
authenticity and originality of anything is becoming
a rarity, the bigger the brand gets, the higher the
chances of copycats and piracy. Due to a lot of
Ahmedabad Chartered Accountants Journal February, 2022 561
Evolution Branding in E-commerce and its Protection
immediate exposure on social media, the small brand evolution of consumer-focused e-commerce adds
owners/entrepreneurs are mostly unaware of their many more factors into the equation. The main issues
Intellectual Properties (IP) and the rights pertaining here are a saturation of options and the reliance on
to it. Most of the brands created on social media consumer trust. The online marketplace is not limited
platforms get ripped off left, right and center as these by geography or a time schedule. This means that
brands do not have much awareness about their IP consumers don’t need to buy based on convenience
Rights because the Entrepreneurs of the same are or proximity; they can find the exact product they’re
new to the business world and haven’t really faced looking for, sold by a myriad of providers, and
the brutality of the market and the infringer take undue choose the one that most appeals to them. Given this
advantage of same by selling, manufacturing inferior saturation of supply, purchasing decisions become
and cheap products with the same brand name of more influenced by brands. This leads to the second
the original entrepreneur. This part is called the factor: consumer trust. The internet, being as
Passing off Action. Therefore, it is always advisable intangible as it is, offers many options but among
and recommended to secure and protect the brand those, there will be lower quality products and
by way of Trademark Registration. The small “TM” numerous scams. According to J.D. Houvener
or “®” symbol next to a brand name may seem of Bold Patents:
innocuous, but with it comes as an association of
trust and identity. Registered brand names ensure that “E-commerce offers a decreased ability to try things
other companies cannot try to impersonate them ahead of time and engage with real people to get a
without fear of litigation. Without a registered sense of their reliability. Thus, consumers will try
trademark, the original owner has little to no to find companies they trust and become very loyal
protection against infringing parties. Brand identity to those that reward their trust with good, reliable
also involves taglines and logos, which should be service.”
trademarked as well. Having a consistent brand identity enables building
of trust among consumers; people will know the
A trademark registration essentially is a process of brand’s name, logo, and slogan and will be able to
gaining exclusive rights over our brand name so that recognize other people using its services or buying
one can protect its products or services from its products. A collective trust can develop when
infringement of the trademark as well as have legal people see other people using a product; this almost
remedy under the statute to stop the infringer and/or becomes an endorsement.
recover damages if any loss is occurred due to loss Conclusion -
of goodwill and reputation in the market. The reason Thus, trademark registration becomes crucial to e-
that brand identity, and thus trademark registration, commerce market success in the long term.
is so important in the e-commerce market is that being Trademarks are essential for e-commerce because
successful involves so much more than offering a they establish brand identity. This means that no
good product. Of course, having a great product or other companies in the field can tarnish a brand’s
service to sell is a great foundation, but the rapid reputation by using the same name, logo, or slogan.
A positive brand association, or even just name
recognition, boosts e-commerce sales and success.
In a market where consumers have so many options
to choose from, good brand awareness can often
make the crucial difference. Every business should
make sure to register trademarks as soon as they
can; to reap their benefits.
❉❉❉
562 Ahmedabad Chartered Accountants Journal February, 2022
Glimpses of Advocate Samir N. Divatia
Supreme Court [email protected]
Rulings
29 S.482 CrPC: Prosecution launched in 2008
28 Deduction of Gains derived by 100% u/s 276C, 277 & 278B of the Income-tax
Export-oriented undertaking as
Assessee set up only an expansion of Old Act, 1961 for alleged tax evasion in AY 1994-95
Unit and not a New Unit deserves to be quashed because the assessee has
paid the tax and the penalty & also taking into
These tests which have been formulated in the account the year in which the alleged offence was
decision of this Court are Manufacture or committed. The assessee has been paying income-
production of articles yielding additional profit tax regularly & has not been prosecuted for any
attributable to the new outlay of capital in a false disclosure either earlier or thereafter. It would
separate and distinct unit is the heart of the matter. only be in the nature of harassment to the petitioners,
The fact that an assessee by the establishment of a and an abuse of the process of the Court, if this
new industrial undertaking expands his existing case is allowed to be continued. (Note: The
business which he certainly does would not on Supreme Court has directed issue of notice on the
that score, deprive him of the benefit. Every new Dept’s SLP).
creation in business is some kind of expansion and
advancement. The true test is not whether the new 30 Family and Personal loss- WILL –
industrial undertaking connotes expansion of the Validity-Registration.
existing business of the assessee but whether it is,
all the same, a new and identifiable undertaking Conduct of a party would be construed as a fact
separate and distinct from the existing business. u/s. 8 of the Evidence Act. When a party makes a
In order that the new undertaking can be said to claim based upon revocation of the earlier WILL,
be not formed out of the already existing business, as indicated in the subsequent one, the said
there must be a new emergence of a physically acknowledgment of the former would form part of
separate industrial unit that may exist on its own a conduct leading to a relevant fact vis-à-vis a fact
as a viable unit. The new unit may produce the in issue.
same commodities as the old business or it may
produce some other distinct marketable products, When an admission is clear and unequivocal, there
even commodities that may feed the old business. is no need to prove it while taking judicial notice.
The products produced by the new unit may be Thus, in case where a party admits the execution
consumed by the assessee in his old business or of the documents in the nature of WILL, which is
may be sold in the open market. One thing is certain otherwise proved in accordance with section 63 and
that the new undertaking must be an integrated 68 Act of the Succession Act and Evidence Act
unit by itself wherein articles are produced. The respectively, it becomes a relevant fact duly proved
Tribunal has noted that the new unit was fully an in absence of any discretion by the court.
independent unit with a production capacity of 15
lakh tons per annum as compared to the earlier In view of the section 18 of the Registration Act,
production capacity of 2 lakh tons per annum of 1908, registration of a WILL is only an additional
the old unit.
Ahmedabad Chartered Accountants Journal February, 2022 563
Glimpses of Supreme Court Rulings The mere fact that a Recommendation of a Law
Commission Report is not followed by Parliament,
or attending circumstance in proving it with the would not necessarily lead to the conclusion that
rebuttable presumption available u/s.114 illustration what has been suggested by Law Commission
(e) of the Evidence Act. cannot form part of Statute as properly interpreted.
V Prabhakara vs Basavaraj (2022) (1 SCC No order bares the stamp of invalidity on its forehead
115) and has to be set aside in regular court proceedings
as being illegal. Even, if an order is later set aside
31 S.263(2) of Income Tax Act, Limitation as having been passed without jurisdiction, for the
period of its subsistence, it is an order that must be
On a fair reading of section 263(2), it can be seen obeyed.
that as mandated by section 263(2), no order u/s.
263 shall be made after the expiry of 2 years from There can be no doubt that the legal fiction created
the end of the Financial Year in which the order u/s.17(2) of the A & C Act, for enforcement of
sought to be revised was passed. Therefore, the interim orders is created only for the limited purpose
word used is “made” and not the order “received” of enforcement as a decree of the court. To extend
by the assessee. Even the word “dispatch” is not this fiction to encompass appeals from such orders
mentioned therein. Therefore, once it is established is to go beyond the clear intention of the legislature.
that the order u/s.263 is made/passed within the It is now axiomatic that when a legal fiction is
period provided, it cannot be said to be beyond the incorporated in a Statute, the court has to ascertain
period of limitation u/s. 263(2). The receipt of the for what purpose the fiction is created. After
such order has no relevance for the purpose of ascertaining the purpose, full effect must be given
counting the period of limitation. to the statutory fiction and it should be carried to its
logical conclusion.
CIT vs Md. Meeran Shahul Hamid (2022) (1
SCC 12) Amazon.com N V Investment Holdings LLC.
Vs Future Retail Ltd. (2022) (1 SCC 209).
32 Arbitration and Conciliation Act, 1996
❉❉❉
The Arbitral Tribunal cannot itself enforce its orders
which can only be done by a court with reference
to CPC. S. 37 is a complete code so far as appeals
from orders and awards made under A & C Act,
1996 are concerned.
564 Ahmedabad Chartered Accountants Journal February, 2022
From the
Courts
CA. C. R. Sharedalal CA. Jayesh C. Sharedalal
[email protected] [email protected]
Section 14A : Disallowance not to exceed exclusion of provisions in so far as primary
agricultural credit societies were concerned.
91 Exempt Income. Allowing the Appeal, that following the dictum laid
Pr. CIT v/s. EWS Finance and down by the Supreme Court, the assessee was
Investments Pvt. Ltd. eligible for special deduction under section 80P and
(2021) 433 ITR 23 (Mad) the orders under appeal were set aside.
Ref : Mavilayi Service Co.op. Bank Ltd. v/s. CIT
Issue: (2021) 431 ITR-1
Whether disallowance u/s 14A can exceed the 93 Assessee has a right to arrange matters
exempt income? legally to avoid tax.
CIT v/s. Vikram Reddy
Held: (2021) 433 ITR 100 (Karn)
Where the Tribunal deleted the addition made under Issue:
section 14A of the Income Tax Act, 1961 holding Whether assessee has a right to arrange affairs
that the disallowance made under section 14A could legally to avoid tax?
not exceed the exempt income: Held:
The Supreme Court in Azadi Bachao Andolan
Held, dismissing the appeal, that the Tribunal was (2003) 263 ITR 706 (SC) held that as long as
right in deleting the addition made under section arrangement of the assesee to avoid payment of
14A holding that the disallowance made under the tax does not contravene any statutory provision and
section could not exceed the exempt income. is within the four corners of the law it cannot be
found fault with.
Primary Agricultural Credit Society:
Provision of Warranty: Allowability:
92 Exemption.
Tellicherry Public Servants Co.Op. 94 Three tests.
Bank Ltd. v/s. CIT Pr. CIT v/s. Lenovo India Pvt. Ltd.
(2021) 433 ITR 60 (Ker) (2021) 433 ITR 117 (Karn)
Issue: Issue:
Which are the three tests for allowability of
Whether income of Primary Agricultural Credit provision of warranty?
Society is exempt?
Held:
The assessee was a co-operative credit society. For
the assessment year 2010-11 its claim for exemption
under section 80P of the Income Tax Act, 1961
was denied by the Assessing Officer. The assessee
contended that it was exempted under section
80P(2)(a)(i) and section 80P(4) provided for total
Ahmedabad Chartered Accountants Journal February, 2022 565
From the Courts Held:
Held: In our opinion, intimation by the Police to the
Income Tax Department on August 27, 2019 would
The Supreme Court in Rotork Controls India (P) not confer jurisdiction on the Income Tax
Ltd. (2009) 314 ITR 62 (SC) has laid down three Department to detain and withhold cash, that too
tests for permitting a claim for deduction on account by issuance of an invalid search warrant under
of a provision of warranty, viz. (i) the assessee has section 132 of the Act; and there is no basis for the
to establish that there is a present obligation on Income Tax Department to invoke the provisions
account of past event, (ii) work out the probable of section 132, 132A and 132B of the Act since
estimate of the outflow of resources required, and there is no “reason to believe” that the assessee has
(iii) substantiate the reliability of such estimate. violated any provision of law.
Section 147/148: Treatment to 97 Time limit to give effect to Appellate
Order.
95 Objections of Assessee. Salsettee Catholic Co.Op. Hsg. So. Ltd.
Chetan Engineers v/s. Asst. CIT v/s. Asst. CIT (2021) 433 ITR 259 (Bom)
(2021) 433 ITR 143 (Guj)
Issue:
Issue:
What is the time limit to pass order giving effect to
In 147/148 proceedings what treatment should be order passed by Commissioner (Appeals)?
given by Assessing Officer to the objections by
assessee? Held:
Held: After an order is passed by the Commissioner
(Appeals) under section 250 of the Income Tax Act,
That none of the objections raised by the assessee 1961 it has to be given effect within a period of
to the notice issued under section 148 to reopen the three months from the end of the month in which
assessment under section 147 were duly considered the order under section 250 is passed. The period
by the Assessing Officer in a meaningful manner. of three months would be computed from the date
The exercise which the Assessing Officer was of receipt of the appellate order by the Principal
supposed to have undertaken while dealing with Chief Commissioner or Chief Commissioner or
the objections raised by the assessee was not an Principal Commissioner or Chief Commissioner or
empty formality. The order disposing of the Commissioner as the case may be. If however, it is
objections should reflect application of mind. The not possible for the Assessing Officer to give effect
order disposing of the objections was quashed and to the appellate order within the period of three
set aside. The matter was remitted to the Assessing months which has to be for reasons beyond his
Officer. (Matter remanded). control, he has to make a request to the Principal
Commissioner or the Commissioner seeking
Cash seized by Police Department to extension of time. Upon receipt of such request in
writing, the principal Commissioner or
96 I.T. Department : Sec. 132. Commissioner as the case may be may allow an
Mectec v/s. Director of Income Tax additional period of six months to give effect to the
(Investigation) appellate order, if he is satisfied that such a request
(2021) 433 ITR 203 (Telengana) is required to be granted.
Issue:
How the provisions of Sec. 132 would be applicable
when Police Department handed over seized cash
to Income Tax Department?
566 Ahmedabad Chartered Accountants Journal February, 2022
Setting up and Commencement of From the Courts
98 business: Expenditure. were sufficient to meet its investment, the
Pr. CIT v/s. Miele India Pvt. Ltd. presumption is that the investments were made from
(2021) 433 ITR 286 (Delhi) interest free funds available with the assessee. The
burden of proving that the investment was made
Issue: out of borrowed funds is on the Revenue.
How the expenditure between setting up and 100 Non-Resident: Liability for withholding
commencement of business is to be considered? tax.
L.G. Electronics India P. Ltd. in Re
Held: (2021) 433 ITR 332 (AAR)
That there was a difference between setting up a Issue:
business and commencement of business. The fact
that the assessee had executed lease deeds for is How withholding of tax is to be done on given facts
premises, engaged senior employees, carried out by a Non – Resident?
local purchases and sales could not have been
possible had it not set up its business. Held:
Both, the Commissioner (Appeals) and the Tribunal Non-Resident. Taxability in India-Wholly owned
were correct in concluding that the assessee had Mauritius Subsidiary of International Cricket
set up its business and was ready to carry on its Council Entering into advertising and Marketing
business in the previous year relevant to the agreement with Indian company dealing in
assessment year 2009-10. The experience Centre appliances. Indian company granted promotional,
was another mode or platform for selling its goods. advertising, marketing and other commercial rights
Therefore, the stated absence of the assessee on an in connection with events of council. Payment under
online platform was non sequitur in the fact agreement not on account of use of or right to use
situation. The Tribunal did not err in deleting the any copyright of literary, artistic or scientific work
addition made qua the preoperative expenses nor for any information concerning industrial,
holding that the expenses incurred were legitimate commercial or scientific experience. Payment was
business expenditure under section 37. for availing of rights in respect of grant of tickets,
boards and branding, parking passes, promotion of
Investment out of interest free funds and products, signage, replay screens, hospitality,
publications, press conferences, printed materials,
99 burden on revenue. hospitality, publications, press conferences, printed
Coffeeday Global Ltd. v/s. Addl. CIT materials, cricket zones and event promotions,
(2021) 433 ITR 321 (Karn) exclusive marketing programmes, hospitality tickets
for council awards and match partner rights.
Issue: Payments not royalty or fees for technical services.
Payments not liable to withholding tax. Double
Burden on Revenue to prove that investment was taxation avoidances agreement between India and
out of borrowed funds. Mauritius, art. 12- Income tax Act, 1961, s. 195.
Held: ❉❉❉
It is a well settled legal proposition that where
interest free funds are available to the assessee and
Ahmedabad Chartered Accountants Journal February, 2022 567
Tribunal
News
CA. Yogesh G. Shah CA. Aparna Parelkar
[email protected] [email protected]
49 DCIT v Macrotech Developer Ltd 133 Held
taxmann.com 321 Mum)
Assessment Year:2015-16 The ITAT held that the sales promotion expenses,
Order dated: 11 October 2021 advertisement expenses, etc. could not be capitalized
as work-in-progress as per the AS prescribed for
Basic Facts the real estate sector as well as the accounting
policies and judicial pronouncements. The assessee
The assessee is engaged in the business of was consistently following the method of valuation
construction and development of real estate. The of inventories in accordance with AS-2. On perusal
assessee had incurred sales promotion and of Para 11 and 13 of AS-2, the ITAT found that the
advertisement expense for launching its new project selling and distribution costs, advertisement
and for attracting prospective customers. The expenses, etc. were to be excluded from the cost of
assessee had claimed deduction for such expenses inventories as they did not contribute towards
in its return of income on the grounds that they bringing the inventories to their present location and
represented selling expenses which were debited condition. This view (i.e., selling costs were not to
to the profit and loss account and could not be be considered as part of the project cost) was also
considered as cost of the project. During the course supported by the ‘Guidance Note on Accounting
of assessment proceedings, the AO observed that for Real Estate Transactions’ (Revised 2012)
the assessee was following percentage of wherein at Paragraph 2.4(b) it was provided that
completion method (POCM) of revenue selling costs were not to be considered as part of
recognition as per the accounting standards (AS) the construction and development costs. • The Delhi
prescribed for the real estate sector. The AO High Court in an earlier ruling Gopal Das Estates
disallowed the said expenses on the basis that & Housing (P.) Ltd. v. CIT [2019] 103
pending recognition of revenue, sales promotion taxmann.com 334/263 Taxman 8/412 ITR 489
and advertisement expenses could not be allowed (Delhi HC) had observed that the expenditure
as deduction and thus, treated the same as part of incurred on advertising being necessary for
the work-in-progress. Aggrieved by the AO’s order, promotion of its business, was to be allowed as a
the assessee filed an appeal before the CIT(A), who business expenditure and would not form part of
held that the assesee’s claim for deduction of sales the project cost. Lastly, the assessee’s claim for
promotion and advertisement expenses was in order. deduction of sales promotion expenses,
Aggrieved by the CIT(A)’s order, the Revenue is advertisement expenses, etc. was consistently
in appeal before the ITAT. allowed by the Revenue not only in the preceding
but also in the succeeding years, and therefore, there
Issue was no justification on its part in declining the
assessee’s claim for deduction of the said expenses
Whether the sales promotion & advertisement during the year under consideration. This view was
expenses incurred for new project need to be fortified in other rulings Lodha Palazzo v. Asstt.
capitalized. CIT [IT Appeal No. 2298 (Mum.) of 2012, dated
568 Ahmedabad Chartered Accountants Journal February, 2022
10-12-2014]; Macrotech Construction (P.) Ltd. v. Tribunal News
Asstt. CIT [2019] 103 taxmann.com 348/176 ITD
530 (Mum. ITAT); Vardhman Developers Ltd. v. nor agency placed PE in India, and, in absence
ITO [2015] 55 taxmann.com 370 (Mum. ITAT of any such PE in India, profits, if any,
pronounced by the Mumbai ITAT. In view of the attributable to Indian operations could not be
above, the ITAT upheld the CIT(A)’s order and assessed as business profits under article 7
allowed the assessee’s claim of deduction for sales
promotion and advertisement expenses. Held
50 DCIT v. Western Union Financial The ITAT upheld the view taken by the co-ordinate
Services 133 Taxmann. com 95 (Del) Bench of the ITAT in taxpayer’s own case for
Assessment Year: 2013-14 earlier AYs wherein it was held that the taxpayer
Order dated: 20 September 2021 neither had fixed place PE in India nor agency
PE in India and in absence of any PE in India the
Basic Facts profits, if any, attributable to India operations,
could not be assessed as business profits under
the assessee is a non resident company registered Article 7 of the India-USA tax treaty on the
in USA. It is engaged in the business of rendering ground that the premises of the agents were owned
money transfer services. The business of the / hired by the agents. There was no evidence to
assessee includes transfer of monies across show that the assessee could as a matter of right
international borders. For the purpose of carrying enter and make use of the premises for the purpose
out its business in India, the assessee had entered of its business. The software was the property of
into agreements appointing agents in India. There the assessee and it had not parted with its copyright
are four types of agents (i) Department of Posts (ii) therein in favour of the agents. The agents had
commercial banks (iii) non-banking financial only been allowed the use of software in order to
companies and (iv) tour operators. During the course gain access to the mainframe computers in the
of assessment proceedings, the AO reached a USA. Mere use of the software for the purpose
conclusion that the assessee-company had a from the premises of the agents could not lead to
Permanent Establishment (PE) in India under article the decision that the premises-cum-software would
5 in the form of fixed placed PE due to usage of be the PE of the assessee in India. Regarding
software developed and owned by the assessee in Agency PE, the ITAT found that all the agents
India and that there was existence of agency PE on were carrying out business and were also doing
account of agents working in India and accordingly, money transfer business. Further just because they
he held that commission income earned by the were not acting as agents for any other company
assessee from its operations in India was taxable in carrying on money transfer business it could not
India. The AO went on to attribute 50 per cent of be said that their activities were wholly or almost
the profits earned by the assessee on funds remitted wholly devoted to the assessee. The ITAT found
to India. The CIT(A) allowed the appeal of the that the assessee was liable to refund the principal
assessee by following the order passed by the ITAT amount of a money transfer upon the written
in assessee’s own case for assessment years 2001- request of the sender if payment to the recipient
02 to 2009-10, wherein it was held that assessee was not made within 30 days excluding Sundays
did not have any Permanent Establishment in India and holidays and that the same would be the case
in terms of article 5 of India US-DTAA. of the fees charged. The assessee or his agent
would in no case be liable for damages for the
Issue delay, non-payment or underpayment of the
money transfer. The agent was not therefore liable
Whether though assessee had business to any risk on this account. The terms of
connection, it did not have any fixed placed PE appointment of sub-agents were uniform in all
cases and the rates of compensation were uniform
throughout the world. Accordingly, the ITAT held
Ahmedabad Chartered Accountants Journal February, 2022 569
Tribunal News
that the payment to agents was at arm’s length. Issue
Therefore, the ITAT held that the agents were
independent agents under Article 5(5) of the India- Whether expenditure incurred defending patent
USA tax treaty. The ITAT found that there was is capital in nature
no express authority given to the agents in the
agreement and there was no clause therein to that Held
effect. The fact that the agents concluded in India
the commitment of the assessee made abroad could All the expenditure have been incurred by the
not be considered as an authority to conclude assessee for the protection of its business and
contracts. By making payment to the beneficiary, intellectual rights. These expenditure has been
the agent in India was only performing his duty incurred mostly on account of defending the right
under the agreement of agency, for which he was of the assessee, therefore the same cannot held to
remunerated; he was not exercising any be an expenditure which resulted into any endure
“authority”, certainly not an authority to conclude benefit to the assessee. Any expenditure incurred
contracts on behalf of the assessee. Thus, the by the assessee for protection of IPR rights and for
agents did not habitually exercise the authority to normal maintenance of its intellectual property are
conclude the contracts on behalf of the assessee. revenue expenditure. Further, the increase in the
sales resulting into the higher profit could not be
DCIT v. M/s Omni Active Health the reasons to hold that such expenditure are capital
in nature. In fact the better protection of the
51 Technologies Ltd. TS-10-ITAT-2022 intellectual property rights of the property would
(Mum) naturally result into higher profits and turnover but
Assessment Year: 2010-11 & 2011-12 that does not make such expenditure as capital
Order dated: 7th January 2022 expenditure. Accordingly, he appeal of the learned
Assessing Officer is dismissed to hold that
Basic Facts expenditure of Rs. 8,73,34,684/- incurred by the
assessee towards legal fee is Revenue in nature.
The assessee is engaged in the business of
manufacturing and trading of healthcare and Cannought Plaza Restaurants P. Ltd.,
nutraceuticals products. It was granted a patent for
one of its processes in the USA. During the AY 52 TS-1186-ITAT-2021 (Del)
2010-11 and 2011-12, the taxpayer had claimed a Assessment Year: 2011-12 and 2012-13
deduction for legal charges on account of Order dated: 31 December 2021
maintenance of patents, settlement amount paid, and
legal fees paid to defend existing rights of the Basic Facts
taxpayer. However, the AO treated the expenditure
as capital in nature considering the increasing profits The assessee is engaged, inter alia, in the business
of the taxpayer in subsequent years. Aggrieved by of running fast food restaurants in North and East
the AO’s order, the taxpayer filed an appeal before India. The assessee had taken shops/spaces/units
the CIT(A), who upheld the taxpayer’s view that in commercial areas/malls on lease from various
the expenditure incurred on litigation as well as the parties by way of lease agreements for carrying out
settlement amount paid by the taxpayer was business activities. Apart from rent, it had paid
revenue in nature and that there were several charges for availing common area maintenance
judicial precedents on this issue. Aggrieved by the (CAM) services, which were provided either by
CIT(A)’s order, the Revenue filed an appeal before landlord or any other agency. The CAM charges
the ITAT. were paid to the same party to whom the rent was
being paid pursuant to the lease agreements, or to
an appointed or related party with whom the lease
agreement had been entered into. The assessee had
570 Ahmedabad Chartered Accountants Journal February, 2022
deducted tax at source on the amount of CAM Tribunal News
charges at 2% under section 194C of the Act and at
10% on lease rental charges u/s 194-I of the Act. Ultra Tech Cement Ltd. v. DCIT TS-
The AO, amongst others, treated the assessee as an
assessee-in-default under section 201(1) for short 53 1133-ITAT-2021 (Mum)
deduction of TDS on the CAM charges at 2% under Assessment Year: 2011-12
section 194C of the Act instead of 10% under Order dated: 14 December 2021
section 194-I of the Act. In course of appeal
proceedings, the matter reached before the ITAT. Basic Facts
Issue The assessee is a subsidiary of an Indian company
(I Co). During the FY 2010-11, corresponding to
Whether tax on Common Area Maintenance AY 2011-12 another Indian Company was
Charges (‘CAM charges’), paid by the appellant amalgamated with Assessee under a scheme of
to the lessor, was liable to be deducted under amalgamation as approved by High courts w.e.f. 1
section 194I or under section 194C of the Act. July 2010 (appointed date). The rights, properties,
estates etc. of amalgamating company included rail
Held undertakings and power plants for which the said
company was claiming tax holiday under section
On perusal of the definition the terminology ‘rent’ 80-IA. Upon amalgamation the assessee claimed
under section 194-I of the Act, only the payments deduction under section 80-IA of the ITA for the
for use of premises / equipment were covered by period 1 July 2010 to 31 March 2011. During the
section 194-I of the ITA. CAM charges were assessment proceedings the AO invoked the
completely independent and separate from rental provisions of section 80-IA(12A) of the Act and
payments and were fundamentally for availing disallowed the claim of the assessee. The AO relied
common area maintenance services which might on the Memorandum explaining the provisions of
be provided by the landlord or any other agency. the Finance Bill, 2007 [introducing section 80-
As the CAM charges were not paid for use of land/ IA(12A) of the ITA] which reads as “…Sub-section
building but were paid for carrying out the work (12) of the said section 80-IA, inter alia, provides
for maintenance of the common area/facilities that that where any undertaking of an Indian company
were available along with the lease premises, which is entitled to the deduction under the said
therefore, the same could not be characterized and/ section is transferred before the expiry of the period
or brought within the meaning of “rent” as defined specified therein, to another Indian company in a
in Section 194-I of the Act. Further, as the CAM scheme of amalgamation or demerger, the
charges were in the nature of a contractual payment provisions of the said section 80-IA shall apply to
made to a person for carrying out the work in lieu the amalgamated or the resulting company as they
of a contract, therefore, the same would fall within would have applied to the amalgamating or the
the meaning of ‘work’ as defined in section 194C demerged company if the amalgamation or
of the Act. In view of the above, the ITAT demerger had not taken place. It is proposed to
concluded that the CAM charges being in the nature insert a new sub-section (12A) in section 80-IA so
of contractual payments would be subject to TDS as to provide that the provisions of sub-section (12)
under section 194C of the ITA and hence, the shall not apply to any undertaking or enterprise
assessee could not be treated as asseesee-in-default which is transferred in a scheme of amalgamation
under section 201(1) of the Act. or demerger after 31-3-2007….”On appeal against
the AO’s order, the CIT(A) upheld the view taken
by the AO and noted that the amendment provision
brought in by the Finance Act, 2007 (FA 2007)
was free from any ambiguity and pursuant to such
an amendment, deduction under section 80-IA of
Ahmedabad Chartered Accountants Journal February, 2022 571
Tribunal News since the provisions of sub-section (12) were
disabling in nature, as it disentitled an
the Act became impermissible for the amalgamated amalgamating company or a demerged company
company in respect of the undertakings inherited from claiming deduction in the year of
under the scheme of amalgamation. Aggrieved, the amalgamation or demerger, the insertion of sub-
assessee filed an appeal before the ITAT. section (12A) merely negated the effect of sub-
section (12) and cured the disability created by
Issue sub-section
Whether after section 80IA(12A) was inserted (12). With respect to CBDT Circular No. 3/ 2008
in Act, deduction under section 80IA was dated Mar 12, 2008, relied upon by the Revenue,
allowable to a amalgamated company ITAT observes that the CBDT tried to clarify
something which is nowhere stated either in the
Held language of newly inserted sub-section (12A) or in
the Notes to Clauses or Explanatory Memorandum
ITAT relies on the Madras HC ruling in Madras to Finance
Machine Tools Manufacturers 98 ITR 119 and the
Delhi HC ruling in Tata Communications Internet Bill, 2007; Further that, if the intention of tax
Services 251 CTR 290 and remarks that the holiday u/s 80-IA was to provide incentive to only
benefit of deduction was attached to an enterprise original investor, the legislature would have never
or undertaking and notto the owner; ITAT inserted sub-section (12) in the statute. ITAT
examines the position with respect to allowability observes that initial investment was made by the
of tax holiday on transfer of eligible undertaking holding company and the eligible undertakings
prior to introduction of Section 80-IA(12) in the were demerged by holding company to its wholly
light of Madras HC ruling in Silical Metallurgic owned subsidiary, which got amalgamated with the
324 ITR 29 and Bombay HC ruling in Tyresoles Assessee and thus, there was no change in the entity
Concessionaire 81 Taxman 279 and finds that prior making the initial investment and conditions
to the insertion of subsection (12), the deduction prescribed by the CBDT in the aforesaid Circular
was allowed to the successor entity to which the for denial of deduction is not fulfilled in the present
undertaking was transferred. ITAT thus disagrees case. The ITAT notes that
with Revenue’s contention that 80-IA(12) is an
enabling provision that entitles the successor entity Bombay HC and Gujarat HC had approved the
to claim the benefit relating to undertaking amalgamation and explicitly conferred Assessee
transferred in the scheme of amalgamation/ with a right to claim deduction u/s 80-IA for the
demerger and remarks that deduction was eligible undertakings for the residual period and
available to the successor even prior to insertion refers to Kolkata bench ruling in Electrocast Sales
of sub-section (12) and pursuant to the provisions India 170 ITD 507 wherein it was held that that the
of sub-section (1) r.w.s. sub-section (4)of Section High Court approves the scheme of merger with a
80-IA. ITAT observes that sub-section (12A) larger public interest in mind that cannot be
simply states that the provisions of sub-section (12) disturbed by the Revenue. The ITAT thus held that
shall not apply to undertakings or enterprise sub-section (12A) of section 80IA of the IT Act,
transferred in the scheme of amalgamation or merely neutralises applicability of subsection (12)
demerger after Mar 31, 2007 and remarks that “if and does not disentitle the successor entities to claim
the intention of legislature was to curtail the rights deduction in accordance with section 80IA of the
of the new owner of the undertaking to claim the IT Act. Accordingly, AO was directed to allow the
tax holiday for residual period, it could have simply deduction as claimed by the assessee with respect
stated that benefit u/s 80IA will not be available to eligible units acquired in amalgamation.
or it could have stated that the deduction prescribed
under sub-section (1) of section 80IA will not be
available to the successor”. ITAT observes that
572 Ahmedabad Chartered Accountants Journal February, 2022
54 CPA Global Support Services (I) (P.) Tribunal News
Ltd.v.ITO
Assessment year 2011-12 Tribunal held that Eclerx is a Knowledge Process
Order Dated 11th October 2021 Outsourcing (KPO) company, and its financials
show that it is outsourcing its substantial amount of
Basic Facts work to outsiders and, thus, it cannot be compared
with the assessee which is working as a captive
The assessee was rendering information technology ITES provider. As regards TCS, it observed that it
enabled services to its AE. To benchmark said was rendering software testing, verification, and
transaction, the assessee selected 14 comparables validation of software and, it is predominantly
out of which only 3 comparables were accepted by providing services to Citi Group which was a
the TPO. The TPO selected further 5 comparables related party. Turnover of TCS E-Serve, is 180
and adopting average of 29.53 per cent, the TPO times of the taxpayer and is duly supported by Tata
recomputed the operating margin and made TP Consultancy Services (TCS)/Tata group having
adjustment. On appeal: the assessee had argued large scale and large client base. TCS E-Serve also
only for exclusion of two comparables, namely, E- contributed brand equity to the tune of Rs. 3.67
clerx Services Ltd. and TCS E-Serve Ltd. crores to Tata Sons Ltd. by using its brand name
‘Tata’ which makes it incomparable vis-a-vis the
Issue assessee. There is no difference in FAR analysis of
the assessee during the year under consideration
Whether company with huge turnover and brand and in the subsequent assessment year i.e. 2012-
name as compared to assessee was incomparable 13. Following the decision said decision of the
to assessee. Whether a KPO company whose Tribunal, the AO/TPO was directed to exclude E-
financials showed that it was outsourcing its clerx Services Ltd. and TCS E-Serve Ltd. from the
substantial amount of work to outsiders, could not final set of comparables.
be compared with assessee
❉❉❉
Held
The Tribunal in assessee’s own case in earlier year
had considered the quarrel relating to the inclusion
of E-clerx Services Ltd. and TCS E-Serve Ltd.
Ahmedabad Chartered Accountants Journal February, 2022 573
Unreported
Judgements
CA. Sanjay R. Shah
[email protected]
In this issue, we are giving gist culled out from a Gist Only
decision of ITAT, Ahmedabad, in the case of Aarti Facts of the Case:
Catalyst Solutions P. Ltd. in I.T.A. No.1195/Ahd/ 1. The grounds of appeal raised by the Revenue in
2018, wherein the Hon’ble Tribunal discussed
about the scope of section 68 vis-à-vis the unsecured their appeal were against the following additions,
deposits/ loans taken by the assessee from different which were deleted by C.I.T. (Appeals).
persons. One of the arguments advanced by the (i) Addition of Rs.1,31,26,457/- u/s.68 of the
Departmental Representative was that the creditors
have returned meagre income of less than Act, and
Rs.5,00,000/- and yet they had advanced amount (ii) Disallowance of Rs.87,54,000/- being
running into lacs of rupees, which casts doubt on
their creditworthiness. The readers would find that payment made for technology transfer.
similar contentions are raised by the Department in
several cases, which have been reopened recently. 2. The assessee is a company engaged in the
The Hon’ble Tribunal, after considering the business of mechanical maintenance contractor.
evidences led by the assessee, deleted the addition. For the Asst. Year 2014-15, it filed its return of
income disclosing total income of Rs.5,41,910/
We hope the readers would find the decision useful. -, which was selected for scrutiny assessment.
TheAssessing Officer, in the scrutiny assessment,
Annexure made addition of Rs.1,31,26,457/- in respect of
unsecured loans obtained by the assessee u/s.68
In the Income Tax Appellate Tribunal and also disallowed a sum of Rs.87,54,000/-
Ahmedabad – Bench ‘B’ being payment made for technology transfer on
the ground that the same is capital expenditure.
(Conducted Through Virtual Court)
3. Before the Tribunal, the learned DR contended
Before S/Shri Pramod M. Jagtap, Vice President that as far as addition u/s.68 for cash credit of
and Rs.1,31,26,457/- is concerned, it was found by
the Assessing Officer that the persons who
T.R. Senthil Kumar, Judicial Member advanced such unsecured loan were showing
meager income of less than Rs.5.00 lakhs in
ITA No.1195/Ahd/2018 their individual returns, and therefore, their
AssessmentYear: 2014-15 credit-worthiness of having lent huge
unsecured loan was doubtful. The learned
DCIT, Vs. M/s. Aarti Catalyst CIT(A) has relied upon the decision of
Cir. 1(1)(1), Solutions P.Ltd jurisdictional Gujarat High Court in the case
Ahmedabad. Vadodara. of DCIT Vs. Rohini Builders, (2012) 256 ITR
(Appellant) (Respondent) 360 (Guj) which is distinguishable. As far as
the second issue of payment made for
Assessee by : Shri M.K. Patel, AR technology transfer is concerned, the learned
Respondent by : Shri R.R. Makwana, Sr. DR DR submitted that there was no technology
transfer agreement, and therefore, such payment
Date of hearing : 31-01-2022 cannot be allowed.
Date of pronouncement : 16-02-2022
574 Ahmedabad Chartered Accountants Journal February, 2022
Unreported Judgements
4. The A.R. of the assessee submitted that all (iv) Sumati Dayal v. CIT [1995] 214 ITR 801
unsecured loans are supported by the sources of
the creditors in the form of F.D. maturity, LIC and held as under:
maturity, agriculture loan and bank statement of
creditors for which each and every transaction “11. In the present case on hand, the assessee
was explained before the learned Assessing has discharged his onus by providing details
Officer. The learned Assessing Officer did not relating to the loan amount availed from
make any further inquiry in respect of the said the three creditors by producing their bank
transaction, and therefore, C.I.T.(Appeals) has accounts, Income-Tax Returns,
rightly deleted addition u/s.68. It was also confirmation letters, etc. The AO has
contended that proviso to section 68, which was doubted source of the creditors thereby the
inserted w.e.f.Asst.Year 2013-14 to prove source AO is inquiring source of source which is
of source was only applicable for share not permitted as held in various judgments
application money, share capital and share cited (supra). Wherever explanation has
premium and not in respect of unsecured loan been provided by the assessee, the
obtained by the assessee; whereas the learned ld.CIT(A) has deleted such credits, and also
Assessing Officer has erred in applying this confirmed the amount of loans which were
proviso for unsecured loan obtained by the not explained by the assessee. Therefore,
assessee-company. He also relied on the decision this findings of the Ld.CIT(A) does not
of jurisdictional Gujarat High Court in the case require any interference.
of Rohini Builders and Hon’ble Gauhati High
Court in the case of Nemi Chand Kothari Vs. 12. Another limb of arguments of the ld.DR is that
CIT, 264 ITR 254, wherein it is held that once as per the new proviso to section 68 of the Act
the assessee has disclosed the sources from which introduced w.e.f. 1-4-2003 is related to the
he has received the loans, his burden stands investment made on share application money,
discharged. It is not the burden of the assessee share capital, share premium or any such
to show the source of his creditor or to prove the amount by whatever name called. Here in this
creditworthiness of source of sub-creditors. case, the AO has doubted about the loans
received by the assessee from three creditors
5. On the second issue, the A.R. contended that who are not the ‘investors’. When the assessee
the technology transfer was in respect of Delta has established with necessary documents, bank
Pressure and Dust blow system, which was statements, IT return, confirmation letters, bank
included in fixed assets and on that, no entries, etc. the AO ought not to have invoked
depreciation was claimed since the asset was proviso to section 68 which is not applicable
not out to use during Asst. Year 2014-15. to loan transactions. Thus, the grounds raised
Therefore, the learned Assessing Officer by the Revenue is rejected.
cannot disallow the item of technology transfer
expenses relating to this. 13. As far as second issue is concerned, as rightly
pleaded by the ld.AR addition made by the AO
Findings and Decision of Tribunal: is on disallowance of capital expenditure
incurred for purchase of machinery, which is
6. The Tribunal, after considering the rival capital in nature, the same cannot be treated as
contentions, relied upon the following revenue expenditure as per the Accounting
decisions. Standard. Hence, addition made by the AO is
unsustainable in law and liable to be deleted.
(i) Daulat Ram Rawatmull - 87 ITR 360 (SC)
14. For the above reasons, grounds raised by the
(ii) CIT v. Orissa Corpn. (P.) Ltd. - 159 ITR Revenue are hereby rejected, and the appeal is
78 (SC) dismissed.
(iii) Sreelekha Banerjee v. CIT - 49 ITR 112 15. In the result, appeal of the Revenue is
(SC) dismissed.”
7. Thus, the appeal of the revenue was dismissed.
❉❉❉
Ahmedabad Chartered Accountants Journal February, 2022 575
Controversies
CA. Kaushik D. Shah
[email protected].
Issue Officer for initiation of the penalty proceedings
under the said clause (c) of Section 271(1).
Whether penalty under Section 271(1)(c) of the
Income-tax Act, 1961 could be imposed in the View against the Proposition
event, the satisfaction arrived at by the Assessing
Officer regarding concealment of the income the Honourable High Court of Delhi in the case of CIT
particulars of his income or furnished inaccurate Vs. Zoom Communication (P.) Ltd. held that, after
particulars of such income, before initiation of the examining the decision of the Supreme Court in
penalty proceedings is not recorded by the Reliance Petroproducts (P.) Ltd., had observed that
Assessing Officer? the Court cannot overlook the fact that only a small
percentage of the income tax returns are picked up
Propositions for scrutiny and if the assessee makes a claim which
is not only incorrect in law but is also wholly
The provisions contained in Section 271(1)(c) of without any basis and the explanation furnished by
the Act states that, him for making such a claim is not found to be bona
fide, it would be difficult to say that he would still
· If the Assessing Officer (or the Commissioner not be liable to penalty under Section 271(1)(c) of
(Appeals) or the Principal Commissioner or the Act.
Commissioner) in the course of any proceedings
under the Act, is satisfied that any person has View in favour of the Proposition
concealed the particulars of his income or
furnished inaccurate particulars of such income, Honourable High Court of Delhi in the case of CIT
Vs. Ram Commercial Enterprises Ltd. has held that
· Then the Assessing Officer may direct that such there was nothing on record (order) which would
person shall pay by way of penalty in addition suggest that the Assessing Officer had a prima facie
to tax, if any, payable by him, satisfaction that it was a fit case for initiation of
penalty proceedings under Section 271(1)(c) against
· A sum which shall not be less than, but which the assessee. The argument of the department, that
shall not exceed three times, the amount of tax based on material on record the Tribunal should
sought to be evaded by reason of the have inferred that requisite satisfaction had been
concealment of particulars of his income. arrived at by the Assessing Officer, was expressly
rejected by the Court.
Further as per the provisions contained in Section
271(1B), where any amount is added or disallowed Further, Honourable High Court of Delhi in the case
in computing the total income or loss of an assessee of CIT Vs. Diwan Enterprises has applied the
in any order of assessment or reassessment and the rationale of the judgment in the case of CIT Vs.
said order contains a direction for initiation of Ram Commercial Enterprises Ltd. and upheld the
penalty proceedings under section 271(1)(c), such contention of the Assessee that there was nothing
an order of assessment or reassessment shall be that suggest that the Assessing Officer had arrived
deemed to constitute satisfaction of the Assessing at a prima facie satisfaction.
576 Ahmedabad Chartered Accountants Journal February, 2022
Honourable High Court of Bombay in the case of Controversies
PCIT Vs. Sesa Goa Ltd. has held that an simple
erroneous claim does not automatically attract a Assessing Officer made two adjustments to the
penalty under Section 271(1)(c), it is attracted only returned income.
when an erroneous claim is based on a deliberate
misrepresentation of facts or deliberate suppression First, an addition of Rs. 3,82,636/- as income from
of relevant material facts. undisclosed sources. Second, he restricted the
deduction under Section 80HHC of the Act to Rs.
In the case of CIT Vs. Reliance Petroproducts (P.) 53,17,841/- as against the claim of the assessee of
Ltd., the revenue had contended that since the Rs. 1,03,61,340/-.
assessee had claimed excessive deductions knowing
that they were incorrect, it amounted to concealment Importantly, by the very same order, the Assessing
of income and therefore penalty proceedings were Officer initiated penalty proceedings under Section
initiated under Section 271(1)(c), in the said case 271(1)(c) of the Act.
Honourable Supreme Court held that merely
because the assessee had claimed the expenditure, Tribunal had deleted the penalty and the revenue
which was not accepted or was not acceptable to had approached the Honourable High Court of
the revenue, that, by itself, would not attract the Delhi.
penalty under section 271(1)(c). If the contention
of the revenue was accepted, then in case of every Honourable High Court relying on the judgment
return where the claim made was not accepted by in the case of CIT Vs. Reliance Petroproducts (P.)
the Assessing Officer for any reason, the assessee Ltd., dismissed the appeal by the Revenue.
would invite penalty under section 271(1)(c).
In both the above judgments of the Delhi High
Summation Court, there is no mention of the fact that reasons
for satisfaction by the Assessing Officer regarding
Decision given by Honourable High Court of Delhi the concealment of income to be recorded. The
in the case of Commissioner of Income Tax, Delhi emphasis in both the judgments is on recording of
vs. Madhushree Gupta has set the benchmark for satisfaction.
key matter of this controversy.
In view of above, in my humble opinion, the
In the given case the assessee has filed a return of satisfaction, which theAssessing Officer has reached
income declaring a loss of Rs. 53,54,135/-. The said for initiating the penalty proceedings under Section
return was processed under Section 143(1) of the 271(1)(c), must be reflected from the order itself. It
Act. However, on 25th October, 2002 notices under is not for the Courts to trace reasons from files of
Section 143(2) of the Act were issued. such authorities.
Consequently, even though the Assessing Officer
by an order dated 20th February, 2004 assessed the ❉❉❉
taxable income of the assessee as Nil, further
Ahmedabad Chartered Accountants Journal February, 2022 577
Judicial Advocate Tushar Hemani
Analysis [email protected]
For the purpose of levy of penalty, the law as included. On appeal by the assessee, “the AAC
applicable on the date of filing of return of reduced the income from New Crockery House
income is to be applied. to Rs. 2,955 and taking into account certain
other items determined the figure of concealed
23 Brij Mohan v. CIT [1979] 120 ITR 1 income of Rs. 7,357.
(SC)
3. The ITO instituted penalty proceedings, and
xxx… applied clause (iii) of sub-section (1) of section
271 of the Act, as it stood after amendment by
1. Is an assessee, who has concealed the the Finance Act, 1968. Having regard to the
particulars of his income, liable to penalty under minimum penalty which, in his opinion, was
clause (iii) of sub-section (1) of section 271 of leviable, he referred the case to the IAC. The
the Income-tax Act, 1961 as it stood on the date IAC examined the matter, and, on the basis that
of the concealment or as it stood during the the concealed income was Rs. 7,357, he
assessment year relevant to the previous year imposed a penalty in the like sum, in view of
in which the income was earned? the amended clause (iii) of sub-section (1) of
section 271 of the Act. The assessee appealed
That is the question in this reference made by to the ITAT, and contended that the amended
the ITAT under section 257 of the Income-tax provision could not be invoked and what came
Act. into operation was the law as it stood in the
assessment year 1964-65. The Tribunal rejected
2. The assessee is a partner in two firms, namely, the contention. But it reduced the penalty to
Hindustan Pottery Agency and New Crockery Rs. 2,955 taking the view that the assessee was
House. He filed a return of his total income for guilty of concealing the share income from
the assessment year 1964-65 on 24-4-1968. He New Crockery House only. The assessee then
disclosed an income of Rs. 460 from his share applied for a reference. The Tribunal saw a
in the profits of Hindustan Pottery Agency. He conflict of opinion on the point raised by the
did not disclose the income from his share in assessee between the Kerala High Court in
New Crockery House. In the course of the Hajee K. Assainarv. CIT [1971] 81 ITR 423
assessment proceedings, the ITO found that the and the Punjab and Haryana High Court in IT
assessee had received income from New Ref. No. 45 of 1971 (decided on 26-4-1972)
Crockery House also. Because of non- which had followed by Saeed Ahmad v. IAC
compliance by the assessee with a notice issued [1971] 79 ITR 28 decided by the Allahabad
under section 143(2) of the Act, the ITO made High Court. In the circumstances, it made the
a best judgment assessment under section 144 present reference directly to this Court on the
of the Act on a total income of Rs. 12,118. This following question of law:
included a share income of Rs. 1,462 from
Hindustan Pottery Agency and a share income “Whether the Tribunal was, in law, right in
of Rs. 3,456 from New Crockery House. sustaining the penalty of Rs. 2,955 by applying
Certain other items of income were also
578 Ahmedabad Chartered Accountants Journal February, 2022
the provisions of section 271(1)(c)(iii) of the Judicial Analysis
Income-tax Act, 1961, as amended with effect
from 1-4-1968?” contention. In our opinion, the assessment of
the total income and the computation of tax
Section 271 of the Income-tax Act provides for liability is a proceeding which, for that purpose,
penalties in certain cases. Clause (c) of sub- is governed by entirely different consideration
section (1) of section 271 speaks of a case where from a proceeding for penalty imposed for
the ITO is satisfied that a person has concealed concealment of income. And this is so
the particulars of his income or furnished notwithstanding that the income concealed is
inaccurate particulars of his income. The the income assessed to tax. In the case of the
measure of the penalty is specified in clause assessment of income and the determination of
(iii) of the sub-section. During the assessment the consequent tax liability, the relevant law is
year 1964-65, clause (iii ) reads as follows: the law which rules during the assessment year
in respect of which the total income is assessed
“(iii)in the cases referred to in clause (c), in and the tax liability determined. The rate of tax
addition to any tax payable by him, a sum is determined by the relevant Finance Act. In
which shall not be less than twenty per cent the case of a penalty, however, we must
but which shall not exceed one and a half times remember that a penalty is imposed on account
the amount of the tax, if any, which would have of the commission of a wrongful act, and
been avoided if the income as returned by such plainly it is the law operating on the date on
person had been accepted as the correct which the wrongful act is committed which
income.” determines the penalty. Where penalty is
imposed for concealment of particulars of
That clause was substituted with effect from 1- income, it is the law ruling on the date when
4-1968 by the Finance Act, 1968 by the the act of concealment takes place which is
following: relevant. It is wholly immaterial that the income
concealed was to be assessed in relation to an
“(iii)in the cases referred to in clause (c), in assessment year in the past.
addition to any tax payable by him, a sum
which shall not be less than, but which shall We do not think that the cases to which the
not exceed twice, the amount of the income in Tribunal has referred can be said to differ on
respect of which the particulars have been this.
concealed or inaccurate particulars have been
furnished.” 5. The concealment of the particulars of his
income was effected by the assessee when he
It is evident that the quantum of tax which is filed a return of total income on 24-4-1968.
levied under the substituted clause (iii) can be Accordingly, it is the substituted clause (iii)
greater than that impossible in terms of the ,brought in by the Finance Act, 1968, which
original clause (iii). governs the case. That clause came into effect
from 1-4-1968.
4. The case of the assessee is that an assessment
proceeding for the determination of the total 6. Another contention raised by the assessee may
income and the computation of the tax liability be noticed. It is urged that under section 139 of
must ordinarily be made on the basis of the law the Income-tax Act, as it stood during the
prevailing during the assessment year, and assessment year 1964-65, the return of income
inasmuch as concealment of income is should have been filed by the end of September
concerned, any penalty imposed in respect of 1964 and inasmuch as the return, although filed
concealment of such income must also be as late as 24-4-1968, was accepted by the ITO
governed by the law pertaining to that it should be deemed that the return was treated
assessment year. We are unable to accept the as filed within time or, in other words, that the
Ahmedabad Chartered Accountants Journal February, 2022 579
Judicial Analysis income within the meaning of section
271(1)(c) of the Income-tax Act, 1961 on
return had been filed by 30-9-1964. In that the basis of either the original return or the
event, the submission continues, the return under section 148?
concealment of the particulars of income must
be deemed to have taken place when the 2. Whether, on the facts and in the
original clause (iii ) of sub-section (1) of section circumstances of the case, the Tribunal was
271 of theAct was in operation. This contention justified in holding that the penal
is also without force. Under section 139 of the provisions for default under section
Act, although the statute itself prescribes the 271(1)(c) as amended on 1-4-1968 are
date by which a return of income must be filed, applicable in the case of the applicant ?"
power has been conferred on the ITO to extend
the date of furnishing the return. A return filed 2. The assessee is a company. The proceedings
within the extended period is a good return in relate to its assessment for the assessment years
the sense that the ITO is bound to take it into 1959-60 to 1962-63 (both inclusive). Returns
consideration. But nowhere does section 139 were originally filed and the assessments were
declare that where a return is filed within the completed long before the penal provisions
extended period, it will be deemed to have been under section 271(1)(c) of the Income-tax Act,
filed within the period originally prescribed by 1961 ('the Act') were amended with effect from
the statute. On the contrary, the section contains 1-4-1968. During the original assessment
a provision for payment of interest where the proceedings there was no concealment found,
return is filed beyond the prescribed date even no penal proceedings were initiated and
though within the extended period. That is naturally no penalty was levied. The
evidence of the fact that the return filed during assessments were reopened subsequently. In
the extended period is not regarded by the response to the notices issued under section 148
statute as filed within the time originally of the Act returns of income were filed showing
prescribed. the income as was shown in the original returns.
These returns were filed after 1-4-1968. The
7. Accordingly, we are of the opinion that clause assessments were completed after making
(iii) substituted in sub-section (1) of section 271 certain additions. The fact that there was
of the Income-tax Act, 1961 by the Finance concealment of income is not in dispute. Nor
Act, 1968, governs the case before us and, is there any dispute as to whether the assessee
therefore, the penalty imposed on the assessee is liable to penalty under section 271 (1)(c).
in the instant case is covered by that provision. The dispute is only whether the penalty is to
be imposed in accordance with the provisions
xxx… of section 271(1)(c) as it stood before or after
1-4-1968.
23 Chowgule& Co. (Hind) (P.) Ltd. v. CIT
[1990] 182 ITR 189 (Bombay) xxx…
xxx… 6. There is no dispute that in the case before us
the returns originally filed as well as the returns
Sugla, J.—Two questions of law are raised in this filed in response to the notices issued under
reference at the instance of the assessee. The section 148 were not correct returns inasmuch
questions read thus: as the income subsequently found as concealed
income was shown in none of them. There is
"1. Whether, on the facts and in the also no dispute that while original returns were
circumstances of the case, the Tribunal was filed and even the assessments were completed
justified in holding that the Income-tax originally before 1-4-1968, the subsequent
Officer has a choice to initiate penal
proceedings for concealment in respect of
the same item of income or particulars of
580 Ahmedabad Chartered Accountants Journal February, 2022
returns in response to the notices under section Judicial Analysis
148 were filed after 1-4-1968 and the
assessments were completed long thereafter. concealment of income, and a particular
Therefore, the question that requires provision of law is applicable to him, it is
consideration is whether penal provisions of difficult to hold that by repeating the same
section 271(1)(c) as amended with effect from default in filing incorrect returns in response to
1-4-1968 are applicable or whether the penal notices under section 148 subsequently, he
provisions as they stood before amendment with becomes liable to penalty under a provision of
effect from 1-4-1968 are applicable. In other law different from the one that obtained on the
words, whether for the purpose of consideration date when he had first committed that default.
of imposition of penalty under section 271(1)(c) Both the Delhi and the Madhya Pradesh High
the date of concealment is to be taken as the Courts, in the judgments respectively relied
date on which the returns were filed originally upon by Shri Munim for the assessee and Shri
or the date on which the returns were filed in Jetley for the revenue, have considered this very
response to the notices issued under section 148, question. The Delhi High Court has analysed
there being no dispute that income was the relevant provisions in great detail and
concealed in the returns filed originally as well discussed all available case law. With respect
as in the returns filed subsequently. to the Madhya Pradesh High Court, the Delhi
High Court's view has commended itself to us.
7. In view of the Supreme Court decision in Brij Accordingly, we hold that penalty is imposable
Mohan's case (supra), there cannot possibly be in this case under section 271(1)(c) (sic) as it
any dispute that for imposition of penalty under stood on the dates when the returns were filed
section 271(1)(c), the law obtaining as on the originally, i.e., as the provisions stood before
date of filing the return in which income was amendment with effect from 1-4-1968.
found to have been concealed, is applicable.
As in this case income was concealed both in xxx..
the returns originally filed and in the returns
filed subsequently, the crucial question still 24 CIT v. Onkar Saran & Sons [1992] 195
remains which of the dates, i.e., the date when ITR 1 (SC)
returns were filed originally or when returns
were subsequently filed are the material dates xxx…
for the purpose.
8. We have heard both the counsels and also been
Admittedly, the provision to be applied is as it taken through the various decisions cited before
stands on the date on which default which us. We are of the opinion that the view taken
attracts penalty is committed. The returns filed by the majority of High Courts is the more
originally, there is no dispute, was first in point acceptable and more practical view. We do not
of time, was incorrect and involved wish to reiterate the reasoning given in these
concealment of income. From this point of decisions. Suffice it to say that, among other
view the provisions of section 271 (1)(c) as they decisions, the issue has been discussed at length
stood on the dates when such returns were filed in the decision of the Madras High Court in
were certainly attracted. It may be that S.S.K.G. Anhanari swamy Chettiar's case
provisions of section 271(1)(c) as they stood (supra) (to which one of us - Ramaswamy, J. -
on the dates when incorrect returns involving was a party) and the decision of the Delhi High
concealment of income were subsequently filed Court in Joginder Singh's case (supra) (to which
are also attracted. However, when the assessee another of us - Ranganathans, J. - was a party).
has already committed a default as regards For the reasons explained in these decisions
and briefly summarised below, we think we
should uphold the view taken by the High
Court in the present case.
Ahmedabad Chartered Accountants Journal February, 2022 581
Judicial Analysis reference to the difference between the
income originally returned and the income
9. We may start with the position that, after the finally reassessed. If the arguments of Shri
decision of this Court in Brij Mohan v. CIT Ahuja were correct there could have been
[1979] 120 ITR 1, mere can be no doubt that no penalty at all imposed on such
the law applicable to penalty proceedings under reassessment as there was no concealment
section 271(1)(a) or (c) is the law as in force in the reassessment proceedings. This
on the date on which the 'offending' return has Court, however, upheld the imposition of
been filed. The question is, which is the the penalty with reference to the original
'offending' return relevant for the purpose in return but it was observed that, if an earlier
question ? It is true, as Shri Ahuja says, that, in penalty had been levied in the course of
this case, the assessee has filed two returns in the original assessment proceedings, that
both of which he concealed the income from penalty order should be recalled and
the lands. It no doubt appears plausible to argue substituted by the new penalty order. The
that the present penalty proceedings have been decision of the Madras High Court in C.V.
initiated only because of the understatement or Govindarajulu Iyerv. CIT [1948] 16 ITR
concealment in the return filed in 1969 and that, 391, which was approved by the Supreme
in doing so, the fact that the assessee had also Court in N.A. Malbary & Bros.'s case
filed earlier a return of income in respect of (supra) also establishes the proposition that,
which he was guilty of the same concealment, even in the course of reassessment
is totally irrelevant. proceedings, a penalty could be imposed
with reference to the concealment in the
10. But, attractive as this argument sounds, it cannot original assessment proceedings.
be accepted. The various situations in which
multiple returns are filed have been analysed (2) Recent decisions of this Court in V.
in the two judgments earlier referred to and Jaganmohan Rao v. CIT [1970] 75 ITR
detailed reasons have been given to come to 373 and other cases indicate a view that,
the conclusion that, even in such a case, the once an original assess- ment is reopened,
law applicable to the penalty proceedings the whole assessment proceedings for the
should be taken to be the law in force on the year are thrown open for a fresh
date of the original return, if any. We may just assessment. For all practical purposes it is
emphasize four considerations which justify the as if the original assessment order does not
above conclusion: exist. Whether this principle can be taken
as applicable for all purposes or not, the
(1) In the case of N.A.Malbary& Bros. v. CIT real position is that, though, technically
[1964] 51 ITR 295 (SC) the assessee had speaking, the original assessment
filed a return originally and the assessment proceedings have been finalised and
proceedings had been completed after reassessment proceedings initiated to
adding the estimated profits from a assess escaped income, it is only the
Bangkok business which had not been determination of the correct total income
shown in the return. Penalty proceedings for the assessment year in question that is
had also been initiated and a penalty had being redone. For this assessment year the
been imposed. Subsequently, reassessment assessee filed a return of income originally
proceedings were initiated. The assessee and in doing so effected a concealment.
filed a return which showed a larger Finally he is being reassessed for the year
income from the Bangkok business than and, as pointed out by N.A. Malbary &
had been estimated before and this was Bros.'s case (supra) it is open to the ITO to
accepted. The ITO initiated penalty
proceedings again and levied a penalty with
582 Ahmedabad Chartered Accountants Journal February, 2022
impose a penalty on him for concealment Judicial Analysis
on the basis of income originally returned.
If the original return could form the basis with effect from 1-4-1968 has been
for determining the quantum of penalty changed over to the quantum of income
imposable on the reassessment, there is no concealed and that by, accepting the
reason why the original return should also assessee's interpretation, we will be
not form the basis for determining the date allowing an assessee to get away with a
on which the concealment was effected by smaller penalty merely because the original
the assessee. return had been filed before 1-4-1968.
While this may no doubt be the position
(3) It will be appreciated that, if the contention between 1968 and 1975, the situation will
of Shri Ahuja is accepted, an anomalous be different with effect from 1-4-1976.
result will follow in certain glaring cases With effect from that date, the measure of
of concealment. Let us take the following penalty will be the one that prevailed prior
illustration. An assessee conceals income to 1-4-1968, namely, on the basis of the
in his original return. He gets away with it amount of tax sought to be evaded. In other
and the original assessment is completed words, from 1-4-1976, one will find the
without detecting the concealment. revenue and the assessee taking stands
Subsequently, a notice is given for exactly contrary to the ones which they are
assessing the escaped income. In these taking at present. The view which we are
proceedings, the assessee files a return of now taking and which appears to favour
income including the escaped income. In the assesses at present, would turn out to
this situation, the argument of Shri Ahuja, their disadvantage and to the advantage of
if accepted, will result in the conclusion the department in the context of the
that the department will be helpless in subsequent amendment with effect from 1-
imposing a penalty in such a case. That 4-1976.
certainly cannot be the effect of the legal 11. For the reasons mentioned above, we are of
provisions. Again, an assessee would the opinion that the view taken by the High
completely escape penalty, if he does not Court is correct. The appeals, therefore, fail and
at all file a return in response to the notice are dismissed. We, however, make no order
under section 148. The argument would regarding costs.
be that since a penalty can be imposed only
with regard to the return filed in the ❉❉❉
reassessment proceedings and since he had
filed no such return, he cannot be penalised
at all.
(4) We should also like to utter a note of
warning at this stage that the matter should
not be decided on the basis of the
consideration that the measure of penalty
Ahmedabad Chartered Accountants Journal February, 2022 583
Update on
Recent Case Laws
CA. Dhinal A. Shah CA. Karan Sukhramani
[email protected] [email protected]
Ammann India (P.) Ltd. v. ACIT [2022] 134 in favour of pending proceedings then it can be
taxmann.com 10 (Ahmedabad - Trib.) reasonably inferred that the intention of the
legislature is that the pending proceeding shall not
Facts continue but fresh proceedings for the same purpose
may be initiated under the new provision.
During the A.Y 2014-15, Assessee acquired certain
assets and liabilities of two businesses from If that be so, then since the Clause (i) of section
associated enterprises, under a slump-sale 92BA was omitted by Finance Act, 2017 w.e.f. 1-
arrangement. 4-2017 from the statute the same cannot be made
applicable in the pending proceeding. It is,
Learned TPO/AO treated the said purchase therefore, to be considered non-est in the concerned
transaction under the slump sale arrangement as statute as if it had never been passed. The impugned
Specified Domestic Transaction (‘SDT’) under order passed by Ld. AO/TPO is bad in law and
section 92BA of the Act and made upward hence the same is hereby quashed.
adjustments.
Astro Offshore Pte. Ltd. v. DCIT [2022] 134
The DRP upheld the order passed by the learned taxmann.com 99 (Delhi - Trib.)
AO/TPO.
Facts
The issue before Hon’ble ITAT was whether under
the present facts and circumstances of the case The assessee is a non-resident company
section 92BA(i) would be applicable particularly incorporated under the laws of Singapore.
when the said section was omitted from the statute
by the Finance Act, 2017 w.e.f. 1-4-2017 and Chronology of Events:
whether Clause (i) of section 92BA of the Act
which has been omitted w.e.f. 1-4-2017 would be 18-12-2019 - Draft Assessment order passed u/s
applicable retrospectively? 147/144/144C(1) of the Act and served on the
assessee.
Ruling
27-1-2020 - Objections filed by the assessee before
Hon’ble ITAT observed that it is a settled principle the DRP
of law that when a particular provision is repealed
from the statue the normal effect would be to wipe 11-12-2020 - Objections disposed of by the DRP
it out from the statute book completely as if it had
never been passed and the statute must be 12-1-2021 - Final assessment order passed by the
considered as a law that never existed. Assessing Officer
Further that in a case where a particular provision The question before the Hon’ble ITAT was whether
in a statute is unconditionally omitted and in its place there is compulsion on Assessing Officer to wait
another provision dealing with the same for completing final assessment, anticipating that
contingency is introduced without a saving clause assessee would be filing an objection before DRP,
even beyond period of limitation prescribed under
statute?
584 Ahmedabad Chartered Accountants Journal February, 2022
Ruling Update on Recent Case Laws
Hon’ble ITAT, on perusal of provisions contained The AO however, was not satisfied and opined that
under section 144C(1), (2), (3) and (4) observed the said services were of technical knowledge,
that there is no compulsion on the Assessing Officer experience, skill, know-how or process which
to wait beyond the period of limitation prescribed enabled the assessee in making design, construction
under the statute for completing the final and design making process utilized for the purpose
assessment, anticipating that the assessee would be of business, hence the payment for those services
filing an objection before the DRP. The period of will qualify as FTS both under section 9(1)(vii) of
limitation prescribed under sub-sections (2) and (4) the Income-tax Act and also article 12(4) of the
is sacrosanct and has to be strictly followed, both, DTAA. Therefore, disallowed the payment to the
by the assessee as well as the Revenue. non- resident entities.
Therefore, the final assessment order having been Ruling
passed beyond the period of limitation prescribed
under section 144C(4)(b) of the Act, was declared The scope of work in the present case is limited to
as invalid. various types of drawings and designs for the
residential project being developed. Whatever
DCIT v. Forum Homes (P.) Ltd [2021] 132 services were provided are project specific and
taxmann.com 223 (Mumbai - Trib.) cannot be used for any other project by the
assessee.
Facts
The terms of the agreement make it clear that the
The assessee is into real estate business and is design, drawing, rendering, model, specification,
working on a residential project. In relation to the electronic files including database and
project, the assessee had availed certain services spreadsheets and other derivation that are part of
from some non-resident entities located at the project will remain the intellectual property of
Singapore. the service provider and are intended for use solely
with respect to the project. It further restrains the
After perusing the given details, the AO (Assessing assessee from utilizing such intellectual property
Officer) concluded that the payments made are in for any other project or for addition to the subject
the nature if Fees for Technical Services (FTS) as project or for completion of the project by any
per section 9(1)(vii) of the Income-tax Act, 1961. other entity.
The Assessee submitted that the provisions of India Accordingly, As the conditions of Article 12(4) of
- Singapore Double Taxation Avoidance DTAA between India and Singapore were not
Agreement would be applicable since the non- fulfilled, said fee could not qualify as FTS
resident entities were resident of Singapore and also
referred to article 12 (4) of the tax treaty to ❉❉❉
substantiate that the service can’t be termed as FTS
under it.
Ahmedabad Chartered Accountants Journal February, 2022 585
FEMA CA. Savan Godiawala
Updates [email protected]
20 Investment by Foreign Portfolio Source:RBI/2021-22/120A.P. (DIR Series)
Investors (FPIs) in Debt – Review Circular No. 16, dated November 8, 2021
For full text refer:https://rbi.org.in/Scripts/
Attention is invited to Schedule 1 to the Foreign BS_CircularIndexDisplay.aspx?Id=12188
Exchange Management (Debt Instruments)
Regulations, 2019 notified vide Notification No. RBI has released Working Paper Series No. 3 on:
FEMA.396/2019-RB dated October 17, 2019, as India’s External Commercial Borrowings:
amended from time to time and the relevant Determinants and Optimal Hedge Ratio
Directions issued thereunder. authored by Ranjeev, Assistant Adviser in the
Department of Statistics and Information
A reference is also invited to the following Management, RBI.
Directions issued by the Reserve Bank: Abstract:
This paper examines the determinants of External
· A.P. (DIR Series) Circular No. 31 dated June Commercial Borrowings (ECBs) raised by firms
15, 2018, as amended from time to time; and in India and identifies an optimal hedge ratio for
the ECBs portfolio. It finds that domestic economic
· A.P. (DIR Series) Circular No. 34 dated May activity and movements in the exchange rate of the
24, 2019, as amended from time to time. Indian rupee are the two major factors influencing
the ECBs issuance. Depreciation of the Indian rupee
An announcement was made in the Union Budget has an adverse impact on the issuance of ECBs in
2021-22 that debt financing of Infrastructure the short as well as long run. The optimal hedge
Investment Trusts (InvITs) and Real Estate ratio for the ECBs portfolio is estimated at 63 per
Investment Trusts (REITs) by Foreign Portfolio cent for the periods of high volatility in the forex
Investors (FPIs) will be enabled by making suitable market.
amendments in the relevant legislations. Full paper is available at https://www.rbi.org.in/
Accordingly, it has been decided to permit FPIs to Scripts/PublicationsView.aspx?id=20994
invest in debt securities issued by InvITs and REITs.
Necessary amendments to Foreign Exchange ❉❉❉
Management (Debt Instruments) Regulations, 2019
(Notification No. FEMA 396/2019-RB dated
October 17, 2019) have been notified on October
21, 2021 and are annexed to this circular.
FPIs can acquire debt securities issued by InvITs
and REITs under the Medium-Term Framework
(MTF) or the Voluntary Retention Route (VRR).
Such investments shall be reckoned within the limits
and shall be subject to the terms and conditions for
investments by FPIs in debt securities under the
respective regulations of MTF and VRR.
586 Ahmedabad Chartered Accountants Journal February, 2022
GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
refund applications were beyond two years qua
[I] Important Case Laws: (High Court) relevant date would be liable to be set aside
owing to order of the Supreme Court.
[1] Issue:
[2] Issue:
Madras High Court allowed refund
applications filed after 2 years in April 2021 Non-consideration of Tribunal’s decision in
for the period of June 2018 and August, assessee’s own case for earlier period on
2018. identical issue amounts to error apparent
on record: HC:
Case Laws:
Case Laws:
GNC Infra LLP V. Asst. Commissioner
[2021] 133 taxmann.com 200 (Mad) Koluthara Exports Ltd. v. Union of India
[2021] 133 taxmann.com 246 (Ker.)
Facts:
Facts:
The assessee filed applications on 19.11.2021
for grant of refund for the months of June, 2018 The petitioner was engaged in the processing
and August, 2018. The department rejected of raw fish, manufacture of frozen fish and its
applications by passing rejection order on the export. A show-cause notice was issued to treat
ground that these applications were filed the activity of the petitioner as a service. It
beyond two years of relevant date. The assessee challenged those order of adjudication before
filed writ petition against the rejection order theAppellate Tribunal and the Tribunal allowed
before the High Court of Madras. the appeals after finding that the activity
undertaken by the petitioner would amount to
Held: manufacture and therefore, excluded from the
purview of service tax. The department again
The Hon’ble High Court observed that two initiated proceedings for the subsequent periods
rejection orders passed with regard to June, on identical issue and confirmed demands of
2018 that the refund elapsed in July of 2020 service tax on the petitioner. It filed application
and with regard to August, 2018, the refund seeking rectification but the same was rejected
elapsed in August of 2020. Admittedly, the and therefore, it filed writ petition against the
refund applications were made only on same.
19.4.2021 beyond two years period. But as per
suo motu order of Supreme Court made in Held:
Cognizance for Extension of Limitation, the
Apex Court extended period(s) of limitation, The Hon’ble High Court observed that
as prescribed under any general or special laws Tribunal’s decision in petitioner’s case for an
in respect of all judicial or quasi-judicial earlier period on a particular issue is binding
proceedings, whether condonable or not. upon Commissioner (Appeals) and subordinate
Therefore, impugned orders which held that
Ahmedabad Chartered Accountants Journal February, 2022 587
GST and VAT - Judgements and Updates
authorities. The non-consideration of Tribunal’s do for the purpose of protecting the interest
decision despite same brought to the notice of the Government Revenue. Before
would amount to an error apparent on face of ordering a provisional attachment the
record as held by Supreme Court in Honda Siel Commissioner must form an opinion on
Power Products Ltd. v. CIT [2007] 165 the basis of tangible material that the
taxmann 307. Therefore, it was held that assessee is likely to defeat the demand, if
rectification application would be considered any, and that therefore, it is necessary so
afresh after affording opportunity on hearing. to do for the purpose of protecting the
interest of the Government Revenue;
[3] Issue:
[vi] The expression ‘necessary so to do for
Kerala HC stayed order of provisional protecting the Government Revenue’
attachment as power exercised without implicates that the interests of the
application of mind. Government Revenue cannot be protected
without ordering a provisional attachment;
Case Laws:
[vii]The formation of an opinion by the
Kerala Communicators Cable Ltd. v. CCI Commissioner under section 83(1) must be
and CE [2021] 133 taxmann.com 210 (Ker.) based on tangible material bearing on the
necessity of ordering a provisional
Facts: attachment for the purpose of protecting
the interest of the Government Revenue”.
The Competent Authority invoking powers
under section 83 provisionally attached the bank Held:
accounts of petitioner. The petitioner challenged
the order of provisional attachment s of It was observed after analyzing order of
property. The Honourable High Court observed provisional attachment that there was non-
that in the decision in Radha Krishan Industries application of mind to the purport of power
v. State of Himachal Pradesh [2021] 127 exercisable by the authority in the instant case
taxmann.com 26, the Hon’ble Supreme and none of stipulations specified in above
judgment were evident in order impugned.
Court had occasion to consider the exercise of Thus, impugned order required to be stayed
powers under section 83 of the CGST Act and for a period of eight weeks.
after elaborate consideration, laid down the
manner and mde in which the powers are to be [4] Issue:
exercised. The Condition Nos. 4, 5, 6 and 7
which be relevant are: ITC would be available on invisible loss of
inputs caused during manufacturing
“[iv]The power of order a provisional process: HC:
attachment of the property of the taxable
person including a bank account is Case Laws:
draconian in nature and the conditions
which are prescribed by the status for a R. K. Ganapathy Chettiar v. Asst.
valid exercise of the power must be strictly Commissioner (ST), [2021] 133
fulfilled; taxmann.com 259 (Mad).
[v] the exercise of the power for ordering a Facts:
provisional attachment must be preceded
by the formation of an opinion by the The petitioner was engaged in the
Commissioner that it is necessary so as to manufacturing activity and there was a loss of
a small portion of the inputs, inherent to the
588 Ahmedabad Chartered Accountants Journal February, 2022
manufacturing process. The order was issued GST and VAT - Judgements and Updates
by the department to reverse a portion of the
ITC claimed by the petitioners, proportionate Case Laws:
to the loss of the input, referring to the
provisions of section 17(5)(h) of the GST Act. Vijayneha Polymers (P) Ltd. In re [2021]
It challenged the order for reversal of ITC and 133 taxamann.com 223 (AAR – Telangana):
filed writ petition.
Facts:
Held:
The applicant was constructing a factory
The Hon’ble High Court observed that building and it hired works contractors for
impugned assessment orders rejected a portion executing the construction work. It filed
of ITC claimed. But the situations as set out in application of advance ruling and ruling was
clause (h) of Section 17(5) indicate loss of sought on the availability of Input Tax Credit
inputs that are quantifiable, and involve external (ITC) on GST charged by the contractor
factors or compulsions.A loss that is occasioned supplying works contract service relating to
by consumption in the process of manufacture construction of factory building.
itself. The reversal of ITC by invoking section
17(5)(h) by the revenue, in cases of loss by Decision:
consumption of input inherent to manufacturing
loss was misconceived. Therefore, it was held The Authority for Advance Ruling observed
that ITC would be available on total quantity that Section 17(5) of the CGST Act, 2017
and value of inputs that went into making of restricts the availment of ITC in respect of works
final product and order was liable to be set contract services when supplied for
aside. construction of an immovable property (other
than plant and machinery) except where it is
[II] Important Case Laws: (AAR) an input service for further supply of works
contract service. Thus, it was held that ITC can’t
[1] Issue: be availed on works contract services for
construction of an immovable property except
ITC can’t be availed on works contract the erection of plant and machinery.
service for construction of factory building
: AAR : ❉❉❉
Ahmedabad Chartered Accountants Journal February, 2022 589
Corporate
Law Update
CA. Naveen Mandovara
[email protected]
SEBI Updates: The Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements)
1. Disclosure obligations of high value debt Regulations, 2018 have been amended vide
listed entities in relation to Related Party these Amendment Regulations, 2022.
Transactions:
Following are the major changes:
· SEBI vide circular no. SEBI/HO/CFD/
CMD1/CIR/ P/ 2021/ 662 dated 1. Conditions for Objects of issue in IPO:
November 22, 2021 has specified
following disclosure obligations of listed An issuer making an initial public offer
entities in relation to Related Party shall ensure that the amount for general
Transactions with respect to specified corporate purposes and such objects where
securities: the issuer company has not identified
acquisition or investment target, as
a. Information to be reviewed by the mentioned in objects of the issue in the draft
Audit Committee for approval of offer document and the offer document,
RPTs; shall not exceed 35% of the amount being
raised by the issuer.
b. Information to be provided to
shareholders for consideration of 2. Conditions for Offer for Sale:
RPTs; and
Regulation (8A) is inserted prescribing the
c. Format for reporting of RPTs to the additional conditions for an offer for sale
Stock Exchange. for issues under regulation 6(2).
· Since the provisions of Regulation 23 of 3. Monitoring Agency and reporting of
the LODR Regulations would be issue proceeds:
applicable to high value debt listed
companies also, it has been decided to Credit Rating Agency (CRAs) registered
make provisions of the above referred with SEBI, shall henceforth be permitted
circular dated November 22, 2021 to act as Monitoring Agency instead of
applicable to high value debt listed entities. Scheduled Commercial Banks (SCBs) and
Public Financial Institutions (PFI). Such a
· This Circular shall come into force with monitoring shall continue till 100% instead
immediate effect. of 95% utilization of issue proceeds as
present.
[Circular No.: SEBI/HO/DDHS/
DDHS_Div1/P/CIR/2022/0000000006 dated 4. Price Band:
07.01.2022]
In case of book-built issues, a minimum
2. The Securities and Exchange Board of India price band of being at least 105% of the
(Issue of Capital and Disclosure floor price shall be applicable for all issues
Requirements) (Amendment) Regulations, opening on or after notification in the
2022: official gazette.
590 Ahmedabad Chartered Accountants Journal February, 2022
Corporate Law Update
5. Lock-in for Anchor Investors: Regulation No. Effect of the Change
The existing lock-in of 30 days shall Proviso to “Provided that the
continue for 50% of the portion allocated Regulation appointment or a re-
to the anchor investor and for the remaining 17(1C) appointment of a person,
portion, a lock-in of 90 days from the date [Inserted] including as a managing
of allotment shall be applicable for all director or a whole-time
issues opening on or after April 01, 2022. director or a manager, who
was earlier rejected by the
6. Lock-in provisions for preferential issue shareholders at a general
meeting, shall be done only
i) For Promoters: with the prior approval of the
shareholders:Provided further
The lock-in requirement for allotment that the statement referred to
of upto 20% of the post issue paid-up under sub-section (1) of
capital shall be reduced to 18 months section 102 of the Companies
from the existing 3 years. The lock-in Act, 2013, annexed to the
requirement for allotment exceeding notice to the shareholders, for
20% of the post issue paid-up capital considering the appointment
shall be reduced to 6 months from the or re-appointment of such a
existing 1 year. person earlier rejected by the
shareholders shall contain a
(ii) For Non-promoters detailed explanation and
justification by the Nomination
The lock-in requirement for allotments and Remuneration Committee
shall be reduced from a requirement and the Board of directors for
of 1 year to 6 months. recommending such a person
for appointment or re-
7. Certificate of compliances of SEBI appointment.”
(ICDR) Regulations, 2018:
Regulation Issuance of duplicates or new
The issuer shall place a copy of the 39(2)[Altered] certificates in cases of loss or
certificate of a practicing company
secretary before the general meeting of the old decrepit or worn-out
shareholders considering the proposed certificates in dematerialised
preferential issue, certifying that the issue form.
is being made in accordance with the
requirements of the SEBI (ICDR) Regulation “Provided that requests for
Regulations, 2018. 40(1) effecting transfer of securities
[Sustituted] shall not be processed unless
For detailed text, please refer: https:// the securities are held in the
egazette.nic.in/WriteReadData/2022/ dematerialised form with a
232654.pdf depository:
[Notification No. SEBI/LAD-NRO/GN/ Provided further that
2022/63 dated 14.01.2022] transmission or transposition
of securities held in physical
3. Securities and Exchange Board of India or dematerialised form shall
(Listing Obligations and Disclosure be effected only in
Requirements) (Amendment) Regulations, dematerialised form.
2022:
Following are the major changes:
Ahmedabad Chartered Accountants Journal February, 2022 591
Corporate Law Update The securities holder/claimant shall submit duly
filled up Form ISR-4(to be hosted on the
[Notification No. SEBI/LAD-NRO/GN/ website of the Issuer Companies and the RTAs)
2022/66 dated 24.01.2022] as per the format attached to this circular along
with the documents / details specified therein.
4. Issuance of Securities in dematerialized form For item nos. iii to viii in paragraph 1 above,
in case of Investor Service Requests: the RTA/ Issuer Companies shall obtain the
original securities certificate(s) for processing
As an on-going measure to enhance ease of of service requests.
dealing in securities markets by investors, SEBI
has prescribed that listed companies shall issue The RTA/ Issuer Companies shall verify and
the securities in dematerialized form only while process the service requests and thereafter issue
processing service requests: a ‘Letter of confirmation’ in lieu of physical
securities certificate(s), to the securities holder/
i. Issue of duplicate securities certificate; claimant within 30 days of its receipt of such
request after removing objections, if any.
ii. Claim from Unclaimed Suspense Account;
[Circular No.: SEBI/HO/MIRSD/
iii. Renewal / Exchange of securities MIRSD_RTAMB/P/CIR/2022/8 dated
certificate; 25.01.2022]
iv. Endorsement; ❉❉❉
v. Sub-division / Splitting of securities
certificate;
vi. Consolidation of securities certificates/
folios;
vii. Transmission;
viii. Transposition;
ADVERTISEMENT RATES OF
AHMEDABAD CHARTERED ACCOUNTANTS JOURNAL FOR FY 2021-22
(Journal Advertisement size 10.5' length and 8' width letter size)
Page Monthly Quarterly Half yearly Yearly
(Single (Three (Six (Ten
Insertion) Insertions) Insertions) Insertions)
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592 Ahmedabad Chartered Accountants Journal February, 2022
Allied Laws Adv. Ankit Talsania
Corner [email protected]
Nitin Jain Liquidator PSL Limited v. action of the Respondent and argued that the
Enforcement Directorate Through: Raju jurisdiction of the Respondent has ceased as per
Prasad, Assistant Director PMLA [Delhi High the law once a resolution plan was approved by
Court] the Adjudicating Authority or once the liquidation
process of corporate debtor commences.
2021 SCC On Line Del 5281
Arguments of the Counsel for Petitioners
Introduction
The arguments of the Petitioners were as follows –
The Hon’ble High Court of Delhi in this case
clarifies the long on-going debate on whether the a. The Petitioner placed reliance on Section 32A
Insolvency and Bankruptcy Code, 2016 (hereinafter of the Code which categorically bars
referred as ‘Code’) has an overriding effect on the prosecution, attachment, seizure, action or
Prevention of Money Laundering Act, 2002 confiscation of properties of corporate debtor
(hereinafter referred to as ‘the Act”). In the present after approval of a Resolution plan and
case, the High Court has analysed in detail the contended that the action of the Respondent is
provisions of both the legislations. The Court principally on the anvil of Section 32A. The
categorically observed that while the objective of Petitioner contended that Hon’ble Supreme
the Code was to ensure restructuring of company Court in Manish Kumar v. Union of India
in order to evolve the insolvency regime, the Act has held that the jurisdiction and authority of
deals with provisions for punishment and the respondent under the PMLA is legislatively
prevention of offence of money laundering. mandated to cease once a resolution plan is
Although both the statutes are special legislations approved by the Adjudicating Authority or the
dealing with different objectives, both the sale of liquidation assets commences.
legislations can co-exist. The primary question for
determination before the Hon’ble Court was b. The Petitioner highlighted the objective of
‘whether the authorities under the Act retain Section 32A which essentially has been placed
jurisdiction to deal with the properties of corporate on the statute book to ensure that a bona fide
debtor once liquidation has been approved as per bidder in liquidation is protected from
the Code.’ enforcement action. The Petitioner further relied
on the judgment of NCLAT in JSW Steel v.
Facts of the Case Mahender Kumar Khandelwal wherein it was
held
The Petitioner in the present case is the Liquidator
appointed by the Hon’ble National Company Law “44. A plain reading of Section 32A(1) and
Tribunal in order to deal with the matter of M/s PSL (2) clearly suggests that the Directorate
Ltd (‘Corporate Debtor’). The Petitioner of Enforcement/ other investigating
approached the Court upon receipt of summons agencies do not have the powers to
issued by the Respondent herein, who was attach assets of a Corporate Debtor‘,
investigating the matter of the corporate debtor once theResolution Plan stands
under the Act. The Petitioner challenges the said approved and the criminal
Ahmedabad Chartered Accountants Journal February, 2022 593
Allied Laws Corner on a separate pedestal and the actions taken by
the Petitioner would result into frustration of
investigations against the Corporate proceedings currently pending under the Act
Debtor stands abated.” and therefore the Code cannot have supremacy
over the Act.
…
c. The Respondent relied on the judgment of
“The purpose and scheme of the CIR Deputy Director Directorate of Enforcement
Process is to hand over the company of Delhi v. Axis Bank, wherein Delhi High court
the corporate debtor to a bona fide new ruled out that the government authorities
resolution applicant. Any threat of exercising powers under the Act to confiscate
attachment of the assets of the the proceeds of crime and confiscation of
corporate debtor or subjecting the properties are not creditors. Therefore, any
corporate debtor to proceedings by person who is alleged of crime of money
investigating agencies for wrong doing laundering does not fall under the definition of
of the previous management will defeat a debtor and further, any proceedings that are
the very purpose and scheme of CIR initiated under the Act shall not be subject to
Process, which inter-alia includes challenge under the proceedings being carried
resolution of insolvency and revival of on under the Code.
the company, and the efforts of the bank
to realize dues from their NPAs would d. The Respondent therefore argued that the
get derailed.” provisions of the Code will not overrule the
Act and that both the legislations do not have
c. Further, relying on Section 238 of the Code, an overriding effect upon one another.
the Petitioner argued that the resolution or
liquidation of the corporate debtor will be Findings of the Court
exclusively governed by the provisions of the
Code and consequently orders passed in The primary question that was taken up for
connection with the aforesaid must be held to consideration was whether there is in fact an
prevail over proceedings initiated or pending element of irreconcilability and incompatibility in
under any other laws for the time being in force. the operation of the two statutes which cannot be
harmonized, wherein the court observed that the
d. The Petitioner contended that in lieu of fairness, issue of incompatibility in the operation of two
the rights of the bona fide creditors shall not be statutes cannot be answered on a mere perceived
impaired, prejudiced or at stake by relying on or facial plane but on a deeper and meticulous
the judgment passed by the Appellate Tribunal examination of the operation of the competing
under the Act in the case of State Bank of India provisions and the subject that is sought to be
v. Deputy Directorate of Enforcement. regulated.
Arguments of the Counsel for Respondents A. Scheme of the Insolvency and Bankruptcy
Code, 2016
The arguments of the Respondents were as follows:
Referring to the judgment of Innoventive
a. The Respondent contended that since the Industries Ltd. v. ICICI Bank, wherein the
liquidation process followed proceeds of crime Hon’ble Apex Court held that the objective of
and involves confiscation of properties, the the Code was to bring the entire insolvency
matter falls under the purview of the Act. regime under one single umbrella in order to
ascertain the insolvency process is completed
b. The Respondent also contended that provisions in a time-bound manner and therefore the
of IBC cannot be taken as an escape route to provisions of the Code have to strictly followed
do way with the mandates prescribed under the
Act. The Petitioner further pointed out that the
economic offences shall be necessarily be tested
594 Ahmedabad Chartered Accountants Journal February, 2022
in a CIRP. Therefore, the very essence of the Allied Laws Corner
Code will be lost if the time bound process is
not adhered to. Moreover, previously in the case further action, coercive or otherwise, against
of Directorate of Enforcement v. Axis Bank, the liquidation estate of the corporate debtor or
wherein courts have dealt with the question of the corpus gathered by the Liquidator in terms
tussle between the Code and the Act, the Delhi of the sale of liquidation assets as approved by
High court observed that the provisions of the the Adjudicating Authority under the Code.
Code will have no superiority over the Act, The Court further granted liberty to the
since both the statutes operate in different petitioner to move the Adjudicating Authority
spheres. However, this judgment was for release of the amounts held in escrow in
pronounced before insertion of Section 32A to terms of the interim order passed in these
the Code. proceedings.
B. Scheme of the Prevention of Money The Court categorically observed that while the
Laundering Act, 2002 objective of the Code was to ensure
restructuring of company in order to evolve the
The provisions of the Act essentially deal with insolvency regime, the Act deals with
the crime of money laundering. The court provisions for punishment and prevention of
discussed various statutory provisions under the offence of money laundering. Although both
Act and states that while Section 2(u) of the the statutes are special legislations dealing with
Act defines “proceeds of crime” as property different objectives, both the legislations can
derived or obtained through a criminal activity. co-exist.
Sections 3 and 4 govern the offence of money Conclusion
laundering and its punishment respectively.
Section 3 prescribes a punishment for a term The Hon’ble Delhi High Court, in this case,
not less than three years which may be extended although gave preference to the time-bound process
upto 7 years whereas, as per Section 4, as mentioned under the Code, but it did not put up
Competent authority as prescribed under the any restrictions on the power under the Act for
statute is likely to seize the proceeds of crime, prosecution of individuals for offence of money
and it may attach the property for a period not laundering. Therefore, the judgement ensures that
exceeding 180 days. Further, Section 5(1), both the legislations will operate in their own
mandates presenting a report against the offence respective spheres and consequently, the companies
before a Magistrate under section 173 of Code cannot find a way to escape their liability under the
of Criminal Procedure, 1973. umbrella of provisions prescribed under the Code.
With the growing trend and regime of insolvency,
Consequently, after discussion on the Schemes it is even more important to interpret the Code in
of both the statutes and the question of primacy, light of with other existing legislations.
the single bench of Justice Yashwant Varma
held that the Liquidator is held entitled in law ❉❉❉
to proceed further with the liquidation process
in accordance with the provisions of the IBC
and restrained the respondent from taking any
Ahmedabad Chartered Accountants Journal February, 2022 595
GujRERA Corner
Stalled projects under RERA CA. Manan Doshi
[email protected]
Prior to the passing of the Real Estate (Regulation
and Development) Act 2016 (“RERA”), the real C. Non availability of resources such as material
estate sector in India was highly unregulated and and labour
unorganized. This created a serious legislative
lacuna and promoters and developers found D. Unethical/fraudulent practice of promoter
themselves in a position to dominate over and
exploit the home buyers. Consequently, the home E. Delay in obtaining approvals/sanctions/
buyers suffered on account of false and misleading permissions from government authorities
representations, lack of transparency, one-sided
agreements, reneging on contractual commitments F. Change in regional framework of competent
and the increasing number of projects where authority
construction was either substantially delayed or not
completed at all. G. Lack of sale and recovery due to force majeure
conditions
Although the home buyers had recourse against the
promoters under the Consumer ProtectionAct 1986, H. Diversion of funds by promoter
a need was felt to pass a more comprehensive and
multifaceted legislation to safeguard their interests. While discussing the concept of stalled projects
It was against this background that RERA came under the pre-RERA regime, Mr. Justice R. G.
into force on 1st May 2016 with the notification of Ketkar of the Hon’ble Bombay High Court,
59 out of 92 sections, with an aim to regulate the in Neelkamal Realtors Suburban Pvt. Ltd. and Ors.
sector, to provide a dispute redress mechanism to vs. Union of India and Ors. observed as follows:
home buyers and to increase the accountability of
developers. RERA makes provisions for the “…Amounts collected from purchasers were either
mandatory registration of real estate projects and being diverted to other projects, or were not used
agents, for the constitution of a regulator and towards development at all, and the developer
tribunals and for various penalties and punishments. would often be left with no funds to finish the project
despite having collected funds from the purchasers.
A real estate project can become stalled in any of For a variety of reasons including lack of funds,
its phases. A project is said to become stalled when projects were stalled and never completed and
it is still active but for a given reason/s it has no individual purchasers who had invested their life-
actions pending or cannot make progress/move savings or had borrowed money on interest, were
forward. Most real estate projects become stalled left in the lurch on account of these stalled projects.
for the following reasons: Individual purchasers were often left with no choice
but to take illegal possession of premises offered to
A. Litigation affecting land them under the guise of fit-outs etc., and without
the developer having obtained an occupation/
B. Lack of financial management by the promoter completion certificate, which in turn would be on
account of a range of different acts of omission and
commission such as non-adherence to the
sanctioned plans, excess construction, lack of
having obtained the requisite permissions etc…”
596 Ahmedabad Chartered Accountants Journal February, 2022
Reviving stalled projects under RERA: GujRERA Corner
Section 7 (1) of the Act states that, Section 8 of RERA, which would allow the
authority to direct the allottees of such projects
“The Authority may, on receipt of a complaint or to form an AoA that could work towards
suomotuin this behalf or on the recommendation completing the pending development work in
of the competent authority, revoke the registration the stalled project. The UP RERA described it
granted under section 5, after being satisfied that— as a ”joint development of delayed projects,
wherein the promoter continues to be responsible
(a) the promoter makes default in doing anything for completing the project and delivering on its
required by or under this Act or the rules or obligations, while the homebuyers through their
the regulations made thereunder; collective are responsible to ensure the payments
made by them are being deployed only on the
(b) the promoter violates any of the terms or project.”
conditions of the approval given by the
competent authority; In case of stuck projects, the RERA authorities
usually pass an order for refund or recovery of
(c) the promoter is involved in any kind of unfair booking amounts. However, on 29th July 2020,
practice or irregularities.” the UP RERA, with a view to protect the
interests of the AoA and to facilitate the time
Section 8 of the Act states that, bound completion of the project, used its powers
under Section 8 (read with Section 37) of RERA
“ Upon lapse of the registration or on revocation to direct the AoA to undertake the completion
of the registration under this Act, the Authority, may of the remaining development work of the
consult the appropriate Government to take such project. This order helped to transform stalled
action as it may deem fit including the carrying projects into rehabilitation projects under Section
out of the remaining development works by 8 of the RERA.
competent authority or by the association of
allottees or in any other manner, as may be · On 22nd October 2019, the Maharashtra RERA
determined by the Authority: (“MahaRERA”) revoked the registration in
respect of two phases of the project named
Provided that no direction, decision or order of the “DSK Sadaphuli” located in Talegaon, Pune.
Authority under this section shall take effect until The project was 90% complete but came to a
the expiry of the period of appeal provided under standstill after the builders were arrested in
the provisions of this Act: February 2018. As a result, 131 allottees filed
an application seeking MahaRERA’s permission
Provided further that in case of revocation of to complete the pending development work and
registration of a project under this Act, the restrain the mortgagee from selling or creating
association of allottees shall have the first right of third party rights in the project property.
refusal for carrying out of the remaining MahaRERA appointed a resolution panel and a
development works.” panel of professionals (comprising an architect,
chartered accountant and project engineer). By
· Jaypee Kalypso Court – Uttar Pradesh its order, MahaRERA handed over the task of
RERA: In 2019, the Uttar Pradesh RERA (“UP completing the pending developmental work to
RERA”) utilized its conciliatory platform to the AoA, who in consultation with Tata Capital
assist the AoA and the promoter, Jaiprakash Housing Finance Limited and the designated
Associates Limited in respect of the stalled panels consented to complete the pending work
project “JaypeeKalypso Court (Phase II)”. In an either by the appointment of a contractor or
attempt to provide relief to the parties, the UP another developer and to execute the agreements
RERA authority encouraged its state for sale in respect of the unsold apartments.
government to formulate a policy on the lines of
Ahmedabad Chartered Accountants Journal February, 2022 597
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