I.T. MIRROR 23-24 VOL 6

Vol. 6 November Income Tax Bar Association Room No. 204, Nature View Building, Nr. Mrudul Tower, Ashram Road, Ahmedabad - 380009. Tel. No. : 079-48011947 I e-mail: [email protected] I www.incometaxbar.org Room No. 204, Nature View Building, Nr. Mrudul Tower, Ashram Road, Ahmedabad - 380009. Tel. No. : 079-48011947 I e-mail: [email protected] I www.incometaxbar.org Narendra Modi Stadium

GLIMPSES OF WEBINAR HELD ON 11TH OCTOBER 2023 ON THE TOPIC OF HOW TO RESPOND TO MECHANICAL SHOW CAUSE NOTICES FOR FY 2017 – 18 ISSUED BY GST DEPARTMENT BY ADV. (CA) ABHAY DESAI

2 Chairman's Message 3 President's Message 4 Hon. Secretary's Message - CA (Dr.) Vishves Shah - CA Ashish Tekwani - CA Jaykishan Pamnani 1 Adv. Ashutosh R. Thakkar Adv. (Dr.) Dhruven V. Shah Adv. (Dr.) Kartikey B. Shah Dhruvin D. Mehta (IPP) Bhavesh K. Govani Hiren C. Thakkar CA Kenan M. Satyawadi Narendra D. Karkar CA Parth H. Doshi Parth K. Katharia CA Pratik P. Kaneria CA Suvrat S. Shah Adv Dhiresh T Shah President Emeritus CA Ashish T. Tekwani President CA Shridhar K. Shah Vice President CA Jaykishan P. Pamnani Hon. Secretary CA Maulik B. Patel Hon. Joint Secretary CA Shivam K. Bhavsar Hon. Treasurer CA (Dr.) Vishves Shah Chairman CA Nisha Tekwani CA Suvrat Shah CA Rajesh Mewada Co – Chairman Jinal Shah CA Kaivan Parekh CA Pratik P. Kaneria Members Room No. 204, Nature View Building, Nr. Mrudul Tower, Ashram Road, Ahmedabad - 380009. Tel. No. : 079-48011947 I e-mail: [email protected] I www.incometaxbar.org Mouth Piece of Income Tax Bar Association INVITEE MEMBERS COMMITTEE MEMBERS IT MIRROR COMMITTEE OFFICE BEARERS Vol. 6 - November CONTENTS 5 8 10 20 23 26 31 35 Important Legal Updates - CA Parag Raval Mastering the art of Merger & Acquisition [M&A] - CA CS Rushabh M Shah All about Input Service Distributor under GST - CA Rikin Parikh When Input Tax Credit (ITC) is liable to reversed under Goods and Service Tax (GST) Act - CA Harshil Sheth ECRRS Is it a Delight for the Department and a Dilemma for the Taxpayers - CA Yash Shah Introduction and Recent Changes in Handling Bogus Purchases - CA Dipak C. Dama A comprehensive Guide to Alternate Investment Funds [AIFs] in India - CA Harsh Mehta and Adv (CS) Lokesh Shah De Dollarisation of Currency Notes - CA Homesh Mulchandani

Chairman’s Message CA (Dr.) VISHVES SHAH Chairman 2 Dear Esteemed Members, As we approach the festive season, I extend my warmest wishes to all the members of the Income Tax Bar Association. Diwali, the festival of lights, is not only a time of celebration and joy but also a moment for reflection and renewal. It holds a special significance in our lives, not only on a personal level but also within our professions as Tax Practitioners. Diwali represents the triumph of light over darkness, good over evil, and knowledge over ignorance. In our field, knowledge is our greatest tool. This festival reminds us that we must continuously strive to expand our knowledge and expertise, adapt to changing regulations, and uphold the highest ethical standards in our profession. Traditionally, Diwali has a big impact on the business and professional landscape. We explore how this festival not only marks the start of a new year but also presents an opportunity for individuals and businesses to set new goals, revamp strategies, and strengthen financial positions. Understanding and staying updated on these changes is crucial for our practice, as GST plays a pivotal role in our taxation system. This knowledge empowers us to provide the best guidance to our clients and ensure compliance with the everevolving tax laws. I would like to express my gratitude to the editorial team for their unwavering commitment to delivering valuable insights and updates to our members. The IT Mirror continues to be a beacon of knowledge and information for our community. I encourage all members to make the most of this issue, gain new perspectives, and use the knowledge acquired to serve our clients and profession better. As we celebrate Diwali, may the light of knowledge and prosperity shine on all our endeavours. Wishing you a prosperous and joyous Diwali! Warm regards, CA(Dr.) Vishves A. Shah Chairman, IT Mirror Committee Income Tax Bar Association

3 Dear Members, As the President of our esteemed Income Tax Bar Association, I am pleased to address you in this message, especially on the auspicious occasion of Diwali. This festival of lights brings joy, prosperity, and a sense of togetherness to our lives, much like the valuable insights and knowledge that our IT Mirror provides. I would like to take this opportunity to appreciate the articles that have graced our IT Mirror in recent times, encourage you to delve deeper into our wealth of content, extend my heartfelt gratitude to the talented writers, and convey my warmest Diwali wishes. First and foremost, I would like to express my sincere appreciation for the articles that have enriched the pages of our IT Mirror. These articles, authored by experts in the field, have consistently provided readers with in-depth analysis, critical perspectives, and practical solutions to the intricate world of taxation. The quality of content and the dedication of our authors are truly commendable. Each article contributes significantly to the knowledge base of our readers, keeping them wellinformed and up-to-date with the ever-evolving tax landscape. It is my hope that you, our esteemed readers, have found these articles to be valuable resources in your professional endeavours. Our aim is to empower you with the knowledge you need to navigate the complex world of taxation with confidence and clarity. Taxation affects every aspect of our lives, from individual financial decisions to business operations, and it is crucial to stay informed and updated. Diwali, known as the festival of lamps, is an occasion for rejoicing the victory of illumination over obscurity and virtue over malevolence. It is a moment for rejuvenation, an opportunity to fortify the connections within our families and communities. I extend my heartfelt wishes to all our readers for a cheerful and prosperous festival. May the radiance of wisdom forever illuminate your paths in your careers In conclusion, our IT Mirror exists to serve as a beacon of knowledge and a source of insight for our readers. Your support and readership have been instrumental in our journey, and we are committed to delivering the best in tax-related content. I urge you to continue exploring our IT Mirror, engaging with our content, and sharing your feedback and suggestions with us. Thank you for your continued support, and I wish you a happy and prosperous Diwali. Warm regards, CA Ashish Tekwani President Income Tax Bar Association President’s Message CA ASHISH TEKWANI President

Dear Members, I hope this message finds you well and in high spirits. As the festive season of Diwali approaches, we at Income Tax Bar Association would like to extend our warmest wishes to you, your colleagues, and your loved ones. May this festival of lights bring joy, prosperity, and success to your lives. As the festive season of Diwali lights up our lives with joy and prosperity, and cricket enthusiasts around the world gear up for the excitement of the Cricket World Cup, we all are thrilled to join in the celebration of both of these remarkable events. Our Diwali issue is a reflection of the brilliance and significance of this festival, not only in our personal lives but also in the context of taxation, financial planning, and compliance. This issue brings you a collection of thought-provoking articles and expert insights. At the Association we understand the importance of embracing the diverse moments that make life rich and meaningful, whether it's the cultural significance of Diwali or the worldwide celebration of cricket. Both these events connect us in unique ways and enrich our lives. We extend our heartfelt gratitude to our dedicated contributors and most importantly, our readers, whose unwavering support makes our content possible. We appreciate your continued engagement. Your insights, expertise, and contributions have been invaluable to our magazine, and we believe your involvement would be a significant asset. In addition to written contributions, we are open to collaborating on any creative content or ideas that you may have, such as interviews, case studies, or interactive features. We encourage you to let your creativity flow. As we bask in the glow of Diwali and immerse ourselves in the thrill of the Cricket World Cup, we wish you a Diwali filled with light and prosperity, and a World Cup journey full of excitement and unity. Once again, we wish you and your family a prosperous and joyous Diwali. Thank you for being a valued member of our Association. Happy reading!!! Warm regards, Yours sincerely, CA Jaykishan Pamnani Hon. Secretary Income Tax Bar Association Hon. Secretary’s Message CA JAYKISHAN PAMNANI Hon. Secretary 4

A. UBER NOT AN ASSESSEE IN DEFAULT FOR NON-DEDUCTION AND PAYMENT OF TDS: ITAT MUMBAI Dy. CIT (OSD) v/s Uber India Systems Pvt Ltd (ITA no. 126/Mum./2023, A. Y. 2019-20) Facts: Ÿ Uber India is running the business of Uber BV (an entity incorporated in the Netherlands and is the legal owner of the software application called Uber App). Ÿ Uber India activities related to drivers, business development, taking care of legal and statutory responsibilities and so on. Ÿ Uber India is also involved in the task of collecting money from the passengers for the ride, collecting the commission, and making payment to the drivers for the ride. It is also involved in food delivery services. Ÿ A TDS verification survey was conducted by the Assessing Officer (AO) and assessee was treated as assesseein-default for non-deduction tax at source (TDS) under section 194C of the Income Tax Act while making payment to drivers, restaurant partners and courier partners. Ÿ On appeal, the CIT(A) reversed the AO's order, and the matter reached the Mumbai Tribunal. ITAT Mumbai held as below: Ÿ In the year under consideration, the assessee provided taxi and food delivery services in India through its mobile application. Uber EATS is a food delivery App that is on a similar pattern as Uber App. Uber EATS is a Restaurant Aggregator platform akin to Uber App being a ride-sharing platform. Ÿ When cash is directly paid by the rider to the Driver, then Uber India isn't treated as person responsible for payment. Therefore, how the very same Uber India could be treated as a person responsible for payment when the rider decides to make payments through digital means. Ÿ The assessee is only a 'payment and collection service provider' and acts as a remitter of money. But a person who is mere a remitter of money cannot be held person responsible for making payment. Further, an intermediary is not required to deduct TDS. Ÿ So the assessee is not an assessee in default. Note: As per the amendment to Sec 204(v) inserted by Finance Act, 2020, the person authorized to make the payment on behalf of the non-resident is liable for withholding tax. B. MCA NOTIFIES MANDATORY DEMATERIALISATION FOR SECURITIES OF PRIVATE COMPANIES Ÿ Sub-section (1A) was inserted under Section 29 of the Companies Act 2013 facilitating the Central Government to prescribe such class or classes of unlisted companies for which the securities shall be held and/ or transferred in dematerialised form only. Ÿ In exercise of the powers conferred under the said section, Rule 9B has been inserted vide the Companies (Prospectus and Allotment of securities) Second Amendment Rules, 2023 specifying the requirement of mandatory dematerialisation of securities issued by private companies. Ÿ The mandatory dematerialisation requirement is applicable on all securities of every private company, excluding small companies and government companies. The provisions are applicable with immediate effect, Important Legal Updates - CA PARAG RAVAL 5

I. T. MIRROR (2023-24) and a timeline upto 30th September, 2024 (18 months from 31st Mar 2023) is provided for the compliance with the mandatory dematerialisation requirements. Ÿ In case a company ceases to be a small company after 31st March, 2023, the timeline of 18 months triggers from the close of the financial year in which it ceases to be a small company. Ÿ Private companies shall issue all securities in dematerialised form only and facilitate dematerialisation of all existing securities. Ÿ Private companies should make an application with depository for dematerialisation of all existing securities and securing ISIN for each type of security. Ÿ A small company means a company, other than a public company, having (A) paid up share capital not exceeding Rs. 4 crores and (B) turnover not exceeding Rs. 40 crores. Further, the following cannot be a small company – (A) A holding company or a subsidiary company. (B) A company registered under section 8. (C) A company or body corporate governed by any special Act. C. TAXABILITY OF INTEREST FREE LOAN OR LOAN AT A CONCESSIONAL INTEREST RATE: 1. Introduction: A perquisite arises when employers extend a loan facility to their employees for personal purposes such as education, medical treatment, marriage, etc. These loans are generally free or at a concessional rate of interest and are recovered from the salary of employees by way of deductions from salary over a period of time. 2. How to calculate perquisite value: Step 1: Calculate the outstanding balance of each loan taken from the employer as of the last day of each month. Step 2: Calculate interest on the amount computed in Step 1 at the rate of interest declared by the State Bank of India on the first day of the relevant financial year in respect of similar loans. Step 3: Reduce the interest computed in Step 2 by any interest recovered from the employee. Step 4: The resulting figure shall be the taxable perquisite. 3. When not taxable? Interest-free loans or concessional rate loans taken from the employer up to Rs. 20,000 are not taxable in the hands of employees as perquisite. Any loan taken as interest-free or at a concessional rate from the employer for the medical treatment of diseases specified in approved hospitals is not taxable as perquisite. D. SECTION 171 OF THE INCOME TAX ACT : Section 171 of the Income Tax Act, 1961 defines the partition of Hindu Undivided Family (HUF) and deals with the provisions of assessment after its partition. 1. Distinguished from Hindu Law: The Partition of HUF should be recognized as per the Income Tax Act and not as per the Hindu Law. Section 6 of the Hindu Succession Act would govern the rights of the parties but insofar as income-tax law is concerned, the matter has to be governed by section 171(1) of the Income Tax Act, 1961. 2. Partial partition: Tax Laws do not recognize partial partition of property or/and persons after 30.03.1978 on insertion of sub-section 6

I. T. MIRROR (2023-24) (9) to Section 171 of the Income Tax Act. This restriction was put to avoid creation of multiple HUFs which was a misuse. 3. Distribution of assets at the time of partition of HUF On a full partition of the assets of a Hindu Undivided Family (HUF), all the coparceners get their shares in the property. After the amendment in 2005, of Section 6 of Hindu Succession Act, 1956, daughters are also made coparceners and their rights are equal to those of the sons and therefore sons and daughters get the same share in the HUF property on partition. 4. Physical division by metes and bounds Physical division by metes and bounds is necessary, Hindu Law does not require division of joint family property physically or by metes and bounds. However, partition as defined under Explanation to Section 171 of the Act means— Ÿ where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition; or Ÿ where the property does not admit of a physical division, then such division as the property admits of but a mere severance of status shall not be deemed to be a partition. 5. Partition of HUF Partition of HUF property can be done either through family settlement or through a partition deed Partition of HUF property can be done either through family settlement or through a partition deed. Family settlement does not attract stamp duty and is not required to be registered, but partition deed attracts stamp duty and must be registered. 6. Procedures for recognition of partition : The procedure by which the partition gets its recognition are as follows:— Ÿ The HUF, which has been hitherto assessed, must make a claim to the assessing officer that the Hindu undivided family (HUF) properties have been subjected to total partition. Ÿ Then, the Assessing Officer will make an inquiry into the claim after giving notice to all members of the HUF; and Ÿ if he is satisfied that the claim is correct, then, he will record a finding that there was a total partition of the HUF, and he will also mention the date on which it has taken place. 7. Order under section 171 not applicable where an HUF has not been assessed to tax The wordings of section 171 show that the section has no application to an HUF, which has not been hitherto assessed. – [CIT v. Hari Krishnan Gupta (2001) 117 Taxman 214 (Del.)] 8. Partition is not a transfer Distribution of the assets of an HUF in the course of partition, would not attract any capital gains tax liability as it does not involve a transfer. There would be no clubbing of incomes under section 64 of the Income Tax Act as it would not involve any direct or indirect transfer. 7

Mergers and acquisitions hold significant importance for businesses, making it crucial to ensure the success of these transactions. To achieve a seamless journey from initiation to completion and integration, it is essential to grasp the factors contributing to M&A triumph. And we, as professionals, become a necessary part of the whole deal. But the first thing is to understand how the deal works and how we can (as professionals) leverage our knowledge to our advantage. KEYS TO SUCCESSFULLY COMPLETING AN M&A DEAL An M&A deal represents a significant milestone for your business, underscoring the importance of a successful transaction. By familiarizing yourself with crucial M&A insights, regardless of whether you are pursuing a merger or acquisition, you significantly enhance your chances of successfully concluding the deal. The path to success unveils the following indispensable secrets: Retain capable and experienced M&Aadvisors You can't complete this transaction alone; a business owner representing himself in an altering deal is asking for trouble. You need a dispassionate advisor who has been through the process before and can guide you to a close. This advice is especially true if you're selling a business. And who, better than us, suits the position? Keep yourself from getting too high or too low during the process M&Ais a roller coaster ride, with ups and downs around every turn as a deal you think is wrapped up one day falls apart the next day, only to come back together on the third day. Maintaining a steady and balanced approach is essential. This is where the patience plays a crucial part. Check emotion at the door In M&A deals, emotions can run high, but losing your cool is a surefire way to derail negotiations. Stick to the facts, stay logical, and maintain a calm mind. These are the building blocks for a successful transaction, ensuring you navigate challenges effectively and keep the deal on track. Take your time with the first offer Having multiple offers on the table provides you with significant leverage. It amplifies your negotiating power and offers a diversified range of deal structures and terms to choose from. This competitive environment often drives up your valuation and can expedite the transaction timeline. More options equate to a higher probability of securing a deal that aligns closely with your strategic objectives. Don't hold out for a marginally better offer Of course. If you get an offer that's good enough, it's often better to take it rather than wait for a perfect one that might never come. You must take advantage of good opportunities. In business, making a deal now is usually better than taking a risk and ending up with nothing later. Mastering the art of Merger & Acquisition [M&A] - CA CS RUSHABH M SHAH 8

I. T. MIRROR (2023-24) Know when yourposition is weak or strong Exaggerating a position of strength can deter potentially favourable deals while mishandling a situation of weakness can jeopardise the value and potentially harm your professional trajectory. The market is the best way to determine your company's valuation Getting a business appraisal is just a starting point; it only shows you part of the picture. The real test comes when you talk directly to people who might want to buy your business. These conversations can give you a better sense of what your business is truly worth and what buyers are willing to pay. So, don't just rely on a paper valuation; get out there and speak to genuine buyers to understand your business's actual market value. STEPS OF THE M&A PROCESS Going through an M&A deal can be an intimidating process (for both the mergers and acquisitions teams), but that process thankfully follows some concrete steps. Here's the stepbystep process that nearly every M&Adeal follows: 1 Compile a target list : To buy or sell a business, you need a list of potential buyers or sellers that match what you're looking for. With this list, you will know who to talk to, making it easier to make a deal happen. 2 Contact the targets : Making a phone call and discussing the target's interest is essential. That discussion lets you gauge the target's interest level and whether proceeding makes sense. Knowing how to make a pitch is an art; believe it or not, being a Buyer is far more difficult than being a Seller! 3 Send/receive a teaser : The teaser (sometimes called an executive summary) is the document the Seller sends to the Buyer to give the Buyer just enough information (the product, the customers, the problem the company solves, and some highlevel financials) to make the Buyer want to learn more. The teaser is usually anonymous;; the Buyer doesn't know which specific company is sending the document. 4 Sign a confidentiality agreement : Both parties promise to keep all talks and documents about the deal a secret. This ensures that sensitive information doesn't get out, which could ruin the deal or harm the businesses involved. 5 Send/review the confidential information memorandum (CIM) : The CIM or deal book is the Seller's bible. It provides all the information (including company history, product descriptions, financials, customer info, and more) Buyer needs to determine whether to make an offer. 6 Submit/solicit a Letter of interest (LOI) : Buyer expresses interest in doing a deal by submitting this simply written offer, often with a valuation range rather than a specific price. 7 Conduct management meetings : Buyer and Seller get a chance to meet face to face. In these meetings, Seller provides Buyers with an update on the business and guidance for future performance. Additionally, both sides gauge how compatible they are. 8 Ask for or submit a letter of intent (LOI) : Based on the material in the CIM and the updates from the management meetings, the Buyer submits this detailed offer with a firm price. 9 Conduct due diligence : In the due diligence phase, the Buyer examines the Seller's books and records to confirm everything the Seller has claimed. 10 Write the purchase agreement : The buyer and seller put all the deal details into a legal contract. This ensures that both sides follow what they agreed on, and it's officially recorded. 11 Close the deal : Closing is rather anti climactic: Both sides sign lots of papers, the Buyer gives the Seller the money, and the Seller gives the Buyer the company. 12 Handle any post-closing adjustments and integration : Closing isn't the end of the deal. Buyers and Sellers usually have some post-closing financial adjustments. The buyer has to integrate the acquired company into the parent company or ensure it can continue operating as a standalone business. 9

The purpose of introduction of ISD is to distribute input tax credit on common input services among the units of the same entity having same PAN which supplies goods or services or both. Companies may have their head office at one place and branches / units/ regional offices at other places which may be registered separately. The Head Office would be procuring certain common services such as security services, communication charges, courier expenses, housekeeping expenses, accounting services etc. and pay GST which would be for common utilization of all branches across the country. Usually the Invoices for such expenses would be raised on the Head Office. Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming branches/units.ISD mechanism is designed in a way that allows the distribution of input tax credit from the centralized location to various branches. The Head office of the entity has to register themselves as Input Service Distributor under GST. DEFINITION OF 'INPUT SERVICE DISTRIBUTOR' UNDER GST LAW Section 2(61) of CGSTAct defines Input Service Distributor to mean “an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of Central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;“ Let's understand how ISD works with an example. The head office of M/s XY Limited is located in Mumbai having branches in Chennai, Delhi and Hyderabad. The head office incurred annual software licence and maintenance expense (service received) on behalf of all its branches and received the invoice for the same. Since the software is used by all its branches, the input tax credit of entire services cannot be claimed in Mumbai. The same has to be distributed to all three locations. Here, the head office at Mumbai is the Input Service Distributor. Thus it is clear that ISD is an office of an entity which does not involve in supply of goods or services or both but receives invoice of Input service and distributes the credit of CGST, SGST, UTGST and IGST,attributable to the concerned branches/unit/ regional office only of the supplier having same PAN. Situations where ISD is not applicable ISD cannot distribute the input tax credit in the following cases: Ÿ Where Input Tax Credit is paid on Inputs and capital goods. For instance, raw materials and machinery purchased. Ÿ Input Tax Credit cannot be distributed to outsourced manufacturers or service providers. Example1 –ABC Ltd has two units at Delhi and Chandigarh. It has purchased power bank for its employees and has input tax credit. Whether the ISD can distribute the credit of the above items.The ISD cannot distribute input tax credit from goods to its units. From the definition in section 2 (61), ISD can distribute input tax credit only from the services received. All about Input Service Distributor under GST - CA RIKIN PARIKH 10

Manner of distribution of credit by Input Service Distributor: Section 20 of the CGST Act 2017 read with Rule 39 of CGST Rules, 2017 deals with the manner of distribution of Input Tax Credit as ISD (1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed. (2) The Input Service Distributor may distribute the credit subject to the following conditions, namely :- (a) The credit can be distributed to the recipients of credit against a document containing such details as may be prescribed; (b) The amount of the credit distributed shall not exceed the amount of credit available for distribution; (c) The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient; (d) The credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period; (e) The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period. Explanation – For the purposes of this section,-- (a) The “relevant period” a shall be – (i) If the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed the said financial year; or (ii) If some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed; (b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor. (c) the term “turnover”, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied *[under entries 84 and 92A] of List 1 of the Seventh Schedule to the Constitutions and entries 51 and 54 of List II of the said Schedule. * Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01.02.2019 before it was read as “under entry 84” I. T. MIRROR (2023-24) 11

I. T. MIRROR (2023-24) IMPORTANT CONDITION FOR DISTRIBUTION OF INPUT TAX CREDIT BY ISD An ISD must adhere to the conditions specified in law for distributing common input tax credit on service procured by it. In this regard, certain set of conditions are stipulated in sec 20 (2) of the CGST Act read with rule 39(1) of the CGST Rules, discussed as under: Conditions for distributing credit by ISD – Sec 20(2) of the CGST Act (A) ISD Invoice is must In terms of sec 20(2) (a) of the CGST Act, an ISD can distribute the credit to the recipients of credit against a document containing such details as may be prescribed. In this regard rule 39(1)(g) of the CGST Rules states that the ISD shall issue an ISD invoice, as prescribed in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit. (B) Appropriate amount As per Section 20 (2)(b) of the CSGT Act 2017, The amount of the credit distributed by an ISD shall not exceed the amount of credit available for distribution. Conditions for distributing credit by ISD – Rule 39 (1) of the CGST Rules (1) Distribution in same month Rule 39(1)(a) of the CGST Rules states that the input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in Form GSTR-6 in accordance with the provisions of Chapter VIII of these rules. (2) Separate distribution of eligible and ineligible credit Rule 39 (1)(b) of the CGST Rules, 2017, the ISD shallseparately distribute the amount of ineligible input tax credit (ineligible under the provisions of sec 17 (5) of the CGST Act i.e. blocked credit or otherwise) and the amount of eligible input tax credit. (3) Separate distribution of CGST, SGST/UTGST and IGST In terms of rule 39(1) (C) of the CGST Rules, the input tax credit on account of central tax state tax, union territory tax and integrated tax shall be distributed separately in accordance with the provisions of clause (d) Mechanism of Distribution of credit by ISD The input tax credit on account of central tax (CGST), state tax (SGST) or UT tax (UTGST) and integrated tax (IGST) may accrue for distribution amongst the units located in same state as that of ISD or the units located in different states as that of ISD or amongst states located in same as well as different states. As per sec 20 (1) of the CGST Act, the ISD shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed. To ensure proper allocation between central and state levies of GST, rule 39 (1) lays down the manner for distribution of credit by ISD under various heads viz., CGST, SGST/UTGST and IGST in the following manner: Ÿ The input tax credit on account of IGST shall be distributed as input tax credit of IGST to every recipient [rule 39(1)(e )]; 12

Ÿ The input tax credit on account of CGST and SGST / UTGST shall – In respect of a recipient located in the same state or union territory in which the ISD is located, be distributed as input tax credit of CGST and SGST/UTGST that qualifies for distribution to such recipient in accordance with clause (d) [rule 39 (1)(f)(ii)] In respect of a recipient located in a state or union territory other than that of the ISD, be distributed as IGST and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of CGST and SGST/UTGST that qualifies for distribution to such recipient in accordance with clause (d) [rule 39 (1)(f) (ii)] In nutshell, the matter of distribution of credit can be summarised as under: State “A” State “B” ISD Recipient ISD and recipient in same state / union territory ISD and recipient in different state / union territory ITC of IGST CGST SGST/UTGST To be distributed as IGST CGST SGST/UTGST ISD Recipient ITC of IGST CGST SGST/UTGST To be distributed as IGST IGST (CGST + SGST/UTGST) SGST/UTGST Procedure for distribution of credit by ISD An ISD will have to compulsorily take a separate registration as such ISD and apply for the same in Form GST REG-1. There is no threshold limit for registration for an ISD. The other location may be registered separately. Since the service relates to other locations the corresponding credit has to be transferred. Let us understand with various case study the procedure for distribution of credit by ISD is discussed as under: Case 1:Input Tax Credit attributable to Specific Unit : In terms of sec 20 (2) (c) of the CGST Act, the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient. Example 2:ABC Ltd has two units at Delhi and Chennai. ABC Ltd. has received tax invoice of INR 10,000/- towards advertisement service attributed to Chennai unit alone. Whether this credit can be distributed by ISD to Delhi Unit? Ans: No, as the input service is attributed only to the Chennai Unit the ISD cannot distribute the credit to the Delhi Unit. Input Tax Credit attributable to more than one recipient Sec 20 (2)(d) of the CGST Act states that the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a state or turnover in a union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input I. T. MIRROR (2023-24) 13

I. T. MIRROR (2023-24) service is attributable and which are operational in the current year, during the said relevant period. Formula to distribute Credit to more than one recipient / all the recipients As per rule 39 (1) (d) of the CGST Rules, the input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sec 20 (2) of the CGSTAct to one of the recipient 'R1', whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipients(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount “C1”, to be calculated by applying the following formulaC1=(t1/T)* C Where “C” is the amount of credit to be distributed, “t1” is the turnover, as referred to in sec 20, of person R1 during the relevant period, and “T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of Sec 20 Meaning of relevant period: As per explanation (a) to sec 20 (2) of the CGSTAct, for the purposes of this section, the relevant period shall be: Scenario Relevant period for distribution of ITC (i) If the recipients of credit have turnover in their states or union territories in the financial year preceding the year during which credit is to be distributed (ii) If some or all recipients of the credit do not have any turnover in their states or union territories in the financial year proceeding the year during which the credit is to be distributed The said financial year The last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed. Meaning of 'recipient of credit' The expression “recipient of credit” means the supplier of goods or services or both having the same PAN as that of the ISD-explanation (b) to sec 20 (2) of the CGSTAct. Meaning of 'turnover in state' or 'turnover in union territory': In terms of sec 2 (112) of the CGSTAct, “turnover in state” or “turnover in union territory” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a state or union territory by a taxable person, exports of goods or services or both and interstate supplies of goods or services or both made from the state or union territory by the said taxable person but excludes central tax, state tax, union territory tax, integrated tax and cess. Example3 : M/s. ABC Ltd., having its Head Office at Hyderabad, is registered as ISD. It has three units in different places namely Mangalore, Indore and Ahmedabad which are operational in the current year. M/s. ABC Ltd furnishes the following information for the month of June, 2022& asks for permission to distribute the input tax credit to various units as under: 14

(i) CGST paid on services used only for Mangalore Unit : Rs.5,00,000/- (ii) IGST, CGST & SGST paid on service used for all units Rs.15,00,000/-. Total turnover of the units for the financial year 2021-22 are as follows (in Rs.): Total turnover of three units = Rs.20,00,00,000/- Turnover of Mangalore Unit = Rs.10,00,00,000/- (50%) Turnover of Indore Unit = Rs.6,00,00,000 (30%) Turnover of Ahmedabad unit = Rs.4,00,00,000 (20%) Computation of Input Tax Credit Distributed to various units is as follows: Particulars CGST paid on services used only for Mangalore Unit IGST, CGST & SGST paid on services used in all units Distribution on pro rata basis to all the units which are operational in the current year Total Total credit available Mangalore Indore Ahmedabad 5,00,000 15,00,000 20,00,000 5,00,000 7,50,000 12,50,000 0 4,50,000 4,50,000 0 3,00,000 3,00,000 Note 1: Credit distributed pro rata based on the turnover of all the units is as under: - (a) Unit- Mangalore: (10,00,00,000 / 20,00,00,000) *15,00,000 = Rs.7,50,000 (b) Unit – Indore (6,00,00,000/-20,00,00,000/-) *15,00,000= Rs.4,50,000 (c) Unit-Ahmedabad: (4,00,00,000/- 20,00,00,000) *15,00,000 = Rs.3,00,000 Input Tax Credit attributable to all the recipients (including recipient in same state) The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a state or turnover in a union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period – Sec 20 (2) of the CGST Act. Example 4: ABC Ltd has it's head office located in Chennai (Tamil Nadu ) which is a registered ISD. It has four units in different cities: one in Ahmedabad (Gujarat), one in Hyderabad, one in Chennai (Tamil Nadu) and one in Pune (Maharashtra). Gujarat unit also operates from another location i.eSuratbut the GSTIN number is the same for both Ahmedabad and Surat, Hyderabad unit was not operational during the year. Turnover generated at different locations is as follows: Ahmedabad Rs.4,00,00,000 Surat Rs.4,00,00,000 Pune Rs.8,00,00,000 Chennai Rs.4,00,00,000 Total Turnover for the year is Rs.20,00,00,000 I. T. MIRROR (2023-24) 15

Distribution of Tax Credit is as follows: Note :If there are two or more locations of a recipient in a same State / Union Territory, the sum of their turnover is to be considered in working out the proportion of the credit that will be distributed to that registration. In this case, turnover of Ahmedabad and Surat needs to be clubbed and shown as turnover of Gujarat. Case Study2 – Distribution of IGSTCredit ABC Ltd receives an invoice from supplier “X” with an input tax credit – IGST of Rs.30,00,000 for June 2022, services used by all units. Solution to Case Study 2 ABC Ltd. head office (ISD) shall distribute Rs.30,00,000 among all units except Hyderabad as it is not operational, in the ratio in 2:2:1 (In ratio of turnover of Gujarat : Pune : Chennai) as follows: Ahmedabad and Surat – Gujarat : in the form of IGST Rs.12,00,000/- i.e. (30,00,000/ 20,00,00,000)) x 8,00,00,000 (*) (*)Turnover of Ahmedabad and Surat are to be considered as One Unit for the purpose of Calculation. Pune–Maharashtra: in the form of IGSTRs.12,00,000/- i.e. (30,00,000/20,00,00,000) x 8,00,00,000/-. Chennai – Tamil Nadu : in the form of IGSTRs.6,00,000.- i.e. (30,00,000 / 20,00,00,000) x 4,00,00,000/- Case Study 3 – Distribution of CGSTand SGSTCredit Also, ABC Ltd. received an invoice from supplier 'Y' with an input tax credit – CGST and SGST totalling Rs.2,00,000 that is used entirely by the Pune unit. Solution to Case study 3 ABC Ltd. Head office (ISD) shall distribute Rs.2,00,000 to Chennai only in the form of CGST of Rs.100,000 and SGSTof Rs.1,00,000 each as the supply from supplier 'Y' was exclusively for Pune Unit. Manner for reduction of excess distributed credit – Issuance of Credit Note As per rule 39(1)(j) of the CGST Rules, any input tax credit required to be reduced on account of issuance of a credit note to the ISD by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (d), and the amount so apportioned shall be treated as under: (i) Reduced from the amount to be distributed in the month in which the credit note is included in the return in Form GSTR-6; or (ii) Added to the output tax liability of the recipient where the amount so apportioned is in negative by virtue of the amount of credit under distribution being less than the amount to be adjusted. Note : If the amount of input tax credit distributed by an ISD is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the ISD, the process specified in clause (j) of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit rule 39(2) of the CGSTRules. Case Study 4: ABC Ltd. received a credit note from the supplier 'A' in July 2022 in respect of supplies made in December for ITC Rs.2,00,000. Now, this ITC mentioned in credit note will be reduced from July month total ITC distributed, in the same ratio in which the original ITC was distributed i.e. 2:2:1 Pune : in the form of IGSTof Rs.80,000 Chennai : in the form of IGSTof Rs.40,000 Ahmedabad and Surat: in the form of IGSTof Rs.80,000 (*) (The details of the reduction of the ITC shall be furnished in para 6B of the GSTR-6 return filed for the moth of July 2022) I. T. MIRROR (2023-24) 16

Manner for distribution of additional credit – Issuance of Debit Note Any additional amount of input tax credit on account of issuance of a debit note to an ISD by the supplier shall be distributed in the manner and subject to the conditions specified in clause (a) to (f) and the amount attributable to any recipient shall be calculated in the manner provided in clause (d) and such credit shall be distributed in the month in which the debit note is included in the return in Form GSTR-6 – rule 39(1)(i) of the CGST Rules. The additional amount of credit, if any, arising due to a debit note issued to an ISD by the supplier, shall be distributed in the similar manner as discussed above for normal distribution of credit, the month in which such debit note is included in the return of ISD. Case Study 5 : ABC Ltd. received a Debit note from the supplier 'C' in August 2022 in respect of supplies made in December for ITC Rs.10000. Now this ITC mentioned in debit note will be added to August month total ITC distributed, in the same ratio in which the original ITC was distributed i.e. 2:2:1 between Pune, Gujarat(Ahmedabad) and Chennai. Pune : in the form of IGST of Rs.4000/- Ahmedabad and Surat : in the form of IGST of Rs.4,000 Chennai : in the form of CGST of Rs.1,000/- and SGST of Rs.1000/- Consequence of Excess Distribution of Credit by ISD CBIC Circular No 71/45/2018-GSTdated 26.10.2018 clarifies the consequence of excess distribution of credit by ISD to one unit. 1. According to Section 21 of the CGST Act where the ISD distributes the credit in contravention of the provisions contained in section 20 of the CGST Act resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest and penalty, if any. 2. The recipient unit (s) which has received excess credit from ISD may deposit the said excess amount voluntarily along with interest if any by using Form GST DRC-03. 3. If the said recipient unit/ units does/ do not come forward voluntarily, necessary proceedings may be initiated against the said unit(s) under the provisions of section 73 or 74 of the CGST Act as the case may be. Form GST DRC-07 can be used by the tax authorities in such cases. 4. The ISD would also be liable to a general penalty under the provisions contained in section 122(1)(ix) of the CGST Act. Example 5 : The total credit available to ISD is Rs.4,00,000/- and the credit shall be distributed equally to Mumbai and Bangalore. If the ISD distributes the credit of Rs.2,50,000/- to Chennai and Rs.1,50,000 to Mangalore, what would be the consequence. Ans : The excess credit of Rs.50,000/- distributed to Mumbai would be recovered from the recipient Mumbai along with interest and provisions of section 73 or 74 shall apply mutatis mutandis for effecting such payment of tax. Further the ITC of Rs.50,000/- recovered from Mumbai shall lapse and it will not be available to the Bangalore unit. Other compliance for ISD Ÿ An ISD will have to file monthly return in GSTR-6 within thirteen days after the end of the month and will have to furnish information of all ISD invoice issued. Ÿ The details in the returns will be made available to the respective recipients in their GSTR2A. Ÿ An ISD shall not be required to file Annual return. I. T. MIRROR (2023-24) 17

I. T. MIRROR (2023-24) An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account.If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as normal taxpayer Cross Charge Vs. ISD Now in this article we will also discuss on the difference between Cross Charge vis a vis ISD provision as stated in CGST Act 2017 Cross charge means allocation of common functions to different branches, which may or may not involve ITC, i.e. it is for supply of services from one unit to another in terms of common functions undertaken by such HO or branches. Also, when there is supply of services between distinct persons, even without consideration, then cross charge is mandatory as per Sec 7 (1) (c) of the CGST Act read with Schedule I thereof. Whereas ISD is optional and it is a mere mechanism to transfer credit from one registration to another, i.e. only ITC on input services which are attributable to other distinct entities are distributable. Seemingly, in the case of cross charge, there is an element of service rendered by the person who cross charges his other units even though they belong to the same legal entity. On the other hand, in the case of ISD, there is no element of service at all, but a mere distribution of credit. The major difference between cross charge and ISD can be summarised as under: Cross Charge It arises from a deeming fiction of law. There is no such requirement ITC can be charged utilisation of on input services, inputs and capital goods. Expenses to be cross charged to all branches. There is no prescribed basis The basis could be the turnover, count of employees or cost of e m p l o y e e s o r a n y o t h e r reasonable basis read with Rule 28 of the CGST Rules Point of difference ISD GST Provision Separate Registration Input Services / Inputs / Capital goods ITC Distribution Distribution basis Mandatory requirement to follow the GST Law and its provisions. A separate registration needs to be obtained for ISD Mechanism to distribute the ITC on input services ITC is to be distributed amongst branches for which input service pertains ITC to be distributed on turnover basis Example 6: Company A has its HO in the state of Delhi with branches in Mumbai, Kolkata and Chennai. All the offices are registered in GST. Now, if the HO is taking care of administration and accounting functions of branches in Mumbai, Kolkata and Chennai, then HO in Delhi is required to cross charges for the services provided by it to branches and discharge 18

GST on such services as per provisions discussed above, for which branches are eligible to avail the credit subject to satisfaction of ITC conditions. But, if such HO has appointed a statutory auditor for carrying out audit of the company as a whole, the auditor will raise the invoice for audit fee along with GST on HO only (through he has done audit of HO and all branches). Now, as per ISD mechanism, HO may avail credit of GST charged by auditor and distribute the same to branches as per the procedure prescribed under Sec 20 of the CGST Act and Rules made thereunder. For distributing credit as ISD, HO needs to register separately as ISD in addition to its normal registration. Few Important question in situation of ISD 1) Whether Registration of ISD is mandatory for distributing the Input tax Credit on Service to its Units/ Branches? Ans: As per 50th GST council meeting held on 11.07.2023 clarified that Input Services Distributor (ISD) mechanism is not mandatory for distribution of input tax credit of common input services procured from third parties to the distinct persons as per the present provisions of GST law. Further it has also recommended by the council in this meeting that amendment may be made in GST law to make ISD mechanism mandatory prospectively for distribution of input tax credit of such common input services procured from third parties.Continuing the 50th council meeting recommendation, to effect the changes of making ISD mechanism mandatory, GST Council in 52nd meeting held on 7.10.2023 has recommended amendments in Section 2(61) and section 20 of CGST Act, 2017 as well amendment in rule 39 of CGST Rules, 2017 so that ISD Mechanism becomes mandatory for distribution of input tax credit of such common input services procured from third parties 2) XYZ Ltd has a place of business at Ernakulum and has branch office at Coimbatore and Guntur. Whether branch office can act as ISD ? Ans : As per the definition of ISD under Section 2 (61) it is clear that ISD is an entity level office which only receive tax invoice of input service and shall distribute the input tax credit of input service. An ISD cannot raise invoice on supply. Therefore, the branch cannot act as ISD if it provides supply and raise invoice. There must be separate ISD registration to receive invoices of supply of services on behalf of other units of the entity having same PAN. 3) ABC Ltd has two different business operations at Banglore. It has Textile manufacturing unit and also has a software business.It incurs advertisement expenditure, common for its entire business unit at Mumbai marketing office. Whether ISD registration is necessary for distribution of credit ? Ans : Yes, In order to take ITC credit, the inward supply must have nexus with output supply. In the above illustration, if the advertisement expenses are related to software marketing then ITC cannot be distributed to manufacturing unit on account of absence of nexus.When a specific input service is availed by a particular unit., ISD cannot distribute the input tax credit to other units but only to that particular unit which availed the inward supply. I. T. MIRROR (2023-24) 19

INTRODUCTION: Input Tax Credit (ITC) is indeed the cornerstone of the Goods and Services Tax (GST) system in India, and the seamless availability of ITC was one of the primary objectives when GST was introduced in 2017. The concept of ITC was designed to ensure that businesses could offset the taxes paid on inputs and services against their final tax liability, thereby preventing the cascading effect of taxes and promoting a more efficient and transparent tax regime. However, over time, several restrictions and complexities have been introduced in the availing and utilization of ITC. To make it clear when ITC is available, let's dive into the list of instances when ITC is not available. It has become important to ask when ITC is not available instead of asking When ITC is available because of so many restrictions. This article is talking about restrictions on AVAILMENT of ITC. Here is, a COMPREHENSIVE Article on Section 16,17,18,19 provisions which provides LIST OF INSTANCES when RESTRICTION on AVAILMENT of ITC or LIST OF INSTANCES IF AVAILED wrongly THEN LIABLE TO BE REVERSED. When Input Tax Credit (ITC) is liable to be reversed under Goods and Service Tax (GST) Act - CA HARSHIL SHETH Section / Rules Details Sec. 16(1) Taxpayer must not claim ITC if Goods/ Services are not to be used in the course or furtherance of his business If at all claimed mistakenly/intentionally then liable to reverse Sec. 16(2)(a) Taxpayer must not claim ITC if he is not in possession of a tax invoice or debit note If at all claimed mistakenly/intentionally then liable to reverse Sec. 16(2)(aa) Taxpayer must not claim ITC of invoices which are not appearing in his GSTR 2B If at all claimed mistakenly/intentionally then liable to reverse Sec. 16(2)(b) Taxpayer must not claim ITC if he is he has not received the goods or services or both. If at all claimed mistakenly/intentionally then liable to reverse Sec. 16(2)(c) Taxpayer must not claim ITC if his supplier has not paid TAX to Govt. If at all claimed mistakenly/intentionally then liable to reverse Since Taxpayer is claiming Provisionally ITC as self-assessment basis in belief that Supplier will eventually pay tax in GSTR 3B New RULE 37A puts a check on this Rule 37A Reversal of ITC in the case of non-payment of tax by the supplier and re-availment thereof.- Where ITC has been availed by Taxpayer in GSTR-3B for a tax period in respect of such invoice or debit note, the details of which have been furnished by the 20

I. T. MIRROR (2023-24) supplier in the statement of outward supplies in FORM GSTR-1 or using the IFF, but the return in FORM GSTR-3B for the said tax period has not been furnished by such supplier till the 30th day of September following the end of financial year in which the ITC in respect of such invoice or debit note has been availed, the said amount of ITC shall be reversed by the said registered person, while furnishing a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year (After 30th November, liable to Interest also) Please note that where the said supplier subsequently furnishes the return in FORM GSTR-3B for the said tax period, the said registered person may re-avail the amount of such credit in the return in FORM GSTR-3B for a tax period thereafter. 2nd proviso to If TAXPAYER fails to pay to the supplier of goods or services or both, the amount Section 16 towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the ITC availed by the recipient shall be paid by him along with interest payable under section 50 If at all pending to make payment to creditors beyond 180 days then liable to reverse Sec. 16(3) Where TAXPAYER has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the ITC on the said tax component shall not be allowed. If at all claimed mistakenly/intentionally on then liable to reverse Sec. 16(4) END DATE FOR CLAIMING ITC - TAXPAYER shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the 30th Nov. following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier If at all claimed mistakenly/intentionally then liable to reverse Rule 48(5) If supplier is liable for making E-invoice (with QR+IRN), but he has not made Einvoice, then tax Invoice is not considered Proper tax Invoice If at all claimed mistakenly/intentionally for such invoice then liable to reverse Sec. 17(1)read Taxpayer should avail ITC only for Business purpose with Rule 42 If the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, ITC in respect of Non-business purpose shall be liable to reverse Sec. 17(2)read Taxpayer should avail ITC only for Taxable supply with Rule 43 If the goods or services or both are used by the registered person partly for effecting taxable supplies and partly for effecting exempt supplies under the said Acts, ITC in respect of EXEMPT supply shall be liable to reverse Sec. 17(5) If taxpayer has claimed ITC of below ineligible items, then liable to reverse 1. Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons 2. Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles 3. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance Section / Rules Details 21

I. T. MIRROR (2023-24) Section / Rules Details 4. Leasing, renting or hiring of motor vehicles 5. Goods or services or both used for personal consumption 6. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples 7. Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service 8. Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. for this clause - "plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support Sec. 19 ITC in respect of inputs supplied to job worker must be received back within one year and capital goods sent for job work must be received back in 3 years If not received back then liable to reverse ( Actually considered as SUPPLY ) Sec. 18(6) In case of sale of capital goods or plant and machinery, on which ITC has been taken, the registered person shall pay an amount equal to the ITC taken on the said capital goods or plant and machinery reduced by 5 percentage points per quarter or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher 22

INTRODUCTION On the 1st of September 2023, the GST Network introduced a significant change to the Goods and Services Tax (GST) reconciliation process.The Electronic Credit Reversal and Reclaim Statement (ECRRS) has become a crucial element in the GST 3B filing process. This statement aims to reconcile the Input Tax Credit (ITC) and reduce errors, ensuring that taxpayers claim the correct amount of ITC. It has made a fundamental shift in the way taxpayers manage their Input Tax Credit (ITC). According to Notification No. 14/2022 Central Tax dated July 5, 2022, in conjunction with Circular 170/02/2022- GST dated July 6, 2022, significant alterations have been made to the GSTR 3B form and specified ITC disclosure manner creating a separation of permanent and temporary reversals. The amount associated with temporary reversals can now be reclaimed through entry 4A5 and must be reported in table 4D1 of the GSTR3B form.While the ECRRS promises greater accuracy and transparency, it also brings with it a set of challenges and deadlines that taxpayers must navigate.This article will delve into the quarterly taxpayers reporting their opening balances, the intricacies of amendments as well as the impact of ECRRS on taxpayers, exploring the hurdles it poses. UNDERSTANDING THE ECRRS The GST Network has recently introduced a fresh ledger in the services section of the GST portal. The ECRRS introduces three essential activities for taxpayers: 1. Historical ITC Reversal and Reclaim: Taxpayers are required to prepare a monthly statement dating back to July 2017, highlighting ITC that was reversed but has not been reclaimed. This includes cases like ITC reversed for non-payment to creditors within 180 days. This historical data provides a comprehensive view of outstanding ITC. 2. Opening Balance Adjustment: From September 1, 2023, taxpayers can adjust the opening balance of unreclaimed ITC. This adjustment allows taxpayers to claim previously reversed ITC. 3. Monthly Reporting: Any temporary reversal and reclamation of ITC reported in GSTR 3B (4B2 and 4D1) will be automatically calculated and reflected in the ECRRS. AMENDMENTS AND DEADLINES Taxpayers have three opportunities to amend the opening balance, but this can only be done until November 30, 2023. After this date, the opening balance becomes frozen. Any attempt to claim more ITC than the cumulative balance of ITC earlier reversed will trigger a warning signal. While taxpayers can still file their GST 3B return after receiving a warning, the tax authorities may issue notices seeking explanations for such discrepancies. ECRRS: Is it a Delight for the Department and a Dilemma for the Taxpayers? - CA YASH SHAH 23

I. T. MIRROR (2023-24) What is ECRRS? This statement will deal with transactions in respect of ITC which has been temporarily reversed and eligible for reclaim in future periods. Temporary Reversal of ITC means which is temporarily ineligible in the current month, but in future, it can be re-claimed on fulfilment of specified conditions, for e.g., 180 reversal, tax payment by supplier etc. Target Taxpayers Monthly Taxpayers Quarterly Taxpayers (July- September) What Amount to be reported as Opening Balance? Amount reversed but unclaimed, till August 2023 Amount reversed but unclaimed, till July 2023 Due Date for reporting the Opening Balance (Fresh) 30th November 2023 Due Date for reporting Amendments to Opening Balance Three (3) amendments are allowed, after the 30th of November till 31st December 2023. No new fresh addition can be made. Warning Message, in case excess claimed than closing balance While filing August'23 return, & onwards While filing July'23 to September'23 return & onwards BENEFITS OF THE ECRRS The introduction of the ECRRS brings several benefits to the GST filing process: 1. Reduced Errors and Mismatches: ECRRS reduces the likelihood of errors and mismatches in ITC claims, ensuring that the revenue department collects accurate tax revenues. 2. Enhanced Compliance: The ECRRS encourages taxpayers to comply with reporting requirements and deadlines, ultimately improving GST compliance rates. 3. Transparency: With a clear audit trail, tax authorities can easily trace ITC reversal and reclamation activities, reducing tax fraud. 4. Time and Resource Savings: The standardized process reduces the likelihood of litigation related to ITC reversal and reclamation, saving both time and resources for the revenue department. 24

I. T. MIRROR (2023-24) CHALLENGES FOR TAXPAYERS While the ECRRS offers benefits, it also presents challenges: 1. Additional Reporting Requirement: Taxpayers must now manage an additional reporting requirement, adding to their compliance workload. 2. Time Constraints: Reporting and amending the opening balance within specified time frames (till November 30, 2023) can be challenging. 3. Limited Amendment Opportunities: Allowing only three opportunities to amend the opening balance may be insufficient for those who need to make corrections or updates. After December 31, 2023, the opening balance is frozen and subject to review by jurisdictional tax officers, potentially leading to disputes. CONCLUSION The Electronic Credit Reversal and Reclaim Statement (ECRRS) represents a significant step toward streamlining the GST filing process and improving compliance and transparency. While it offers numerous benefits for tax authorities, it also places additional responsibilities on taxpayers, requiring them to manage reporting and amendments within strict time frames. To ensure a smooth transition and minimize potential issues, taxpayers should stay informed and adapt their processes, accordingly, leveraging technology solutions and seeking professional guidance when needed. 25

In the world of taxes, the topic of fake purchases or purchases that aren't genuine has become more important lately. This is because of recent things like the GST department cancelling GST numbers and then sharing information with the Income Tax department. But different courts have different opinions because the situations in each case aren't the same. Right now, tax officials are using three different ways to deal with cases where purchases might be fake: Ÿ Checking if Purchases Are Real: In some situations, if a person's sales seem real and they have good proof of the purchases they made, those purchases are seen as fake. Ÿ Finding Fake Sales: Sometimes, it's discovered that the reported sales were never real, and the proof for the purchases they supposedly made isn't reliable. So, the whole amount spent on those purchases is considered fake and added to the total. Ÿ Different Tax Approaches: If someone's sales seem honest, authorities like CIT(A), ITAT, and HCs decide to tax a certain part of the reported fake purchases. Or they suggest taxing those purchases at a higher rate of profit. It's really important to be careful about: Ÿ What Tax Officials Do: Different ways tax people use to handle fake purchases. Ÿ Possible Investigations: The checks that tax officials might do to look into these purchases. Ÿ What the Law Says: The legal stuff that comes after these investigations. Ÿ Not the Same Treatment: Knowing that how fake purchases are treated can change based on the situation. Let us explore Bogus Purchases in Relation to Recent Developments Now, let's delve into the world of bogus purchases while building upon the recent developments we discussed earlier. Bogus purchases, as the term suggests, are purchases that are not real or genuine. In accounting terms, they refer to entries in records that falsely claim purchases, even though no actual transactions took place and no goods were actually bought at the time of recording. This concept has gained even more significance due to the current practices of the GST department. The GST department now shares details about cancelled GST numbers and sales information, which the income tax department uses to investigate individuals or businesses involved in purchasing materials from these parties. This process intertwines the idea of bogus purchases with untested purchases. Untested purchases occur when the buyer does acquire goods or services, but they are obtained from the grey market, and the invoice comes from someone other than the actual seller. It's important to differentiate between bogus purchases and untested purchases, as decisions about additions to tax liability are based on this distinction. Bogus or untested purchases are employed to manipulate gross profit by inflating purchases and manufacturing expenses in two main ways: Ÿ By creating documentation for purchases that were never actually made. Ÿ By using purchases from the grey market in manufacturing or sales but obtaining documentation from bill providers at higher rates. Introduction and Recent Changes in Handling Bogus Purchases - CA DIPAK C. DAMA 26

I. T. MIRROR (2023-24) Various sources provide information to the assessing officer about such purchases, including: Ÿ Search, survey actions, and scrutiny assessments conducted on accommodation entry providers or beneficiaries. Ÿ Information shared by the GSTdepartment or other government departments. Ÿ Discrepancies identified through inquiries conducted under Section 133(6) of the Act. Tax department often becomes suspicious of bogus or inflated purchases when: Ÿ High turnover is accompanied by a very low profit margin, which doesn't align with a business setup for such a large turnover. Ÿ Turnover remains constant, but the profit margin consistently decreases. Ÿ Creditor balances for purchases remain outstanding in the balance sheet for a significant period. Ÿ Cash is the primary mode of payment for purchases. Ÿ Purchase vouchers have incomplete or doubtful details about the seller, such as outdated contact information. Ÿ Sellers are not regular dealers with the assessee. Ÿ Purchase vouchers lack confidence-inspiring elements, such as details typical of the seller's location. Ÿ Transportation details are unclear from the vouchers or records. Ÿ Banking details for RTGS or other transactions are missing from the vouchers. To confirm these details, the assessing officer may undertake investigations such as: Ÿ Verifying the seller's identity and existence through notices and inquiries. Ÿ Sending inspectors for field inquiries if the seller is local. Ÿ Issuing summons or carrying out operations to record the seller's statement and investigate sales to the assessee. Ÿ Inquiring about long-pending payments and reasons for delays. Ÿ Examining the authenticity of transportation details. Presently, the tax department takes a specific view: - In some cases, the assessing officer treats the entire purchase as bogus and adds it as unexplained investment under Section 69Aof the Act or as unexplained expenditure under Section 69C of the Act. - Alternatively, the assessing officer might consider a lump sum (20% to 30%) of the purchase cost as unexplained investment, or they might enhance the GP rate achieved by the assessee as per their regular books to estimate income associated with the bogus purchases. This is often done following the precedent set by the Supreme Court in the case of Vijay Proteins Ltd., without thoroughly considering the presented documents and in haste to conclude the assessment. It's worth noting that when judicial authorities estimate the income embedded in bogus or untested purchases as a percentage of those purchases, the addition made by the assessing officer based on third-party reports (such as GST department reports) is sometimes overturned, leading to the deletion of the total addition by the judicial authorities. ANALYSIS OF KEY JUDICIAL PRECEDENTS ON BOGUS PURCHASES 1. Commissioner of Income-tax v. Nikunj Eximp Enterprises (P.) Ltd. Ÿ The entire addition was deleted. Ÿ The assessee provided comprehensive details, including confirmation letters from suppliers, bank statements, invoices, and stock inventory. Ÿ Sales were not doubted, and non-appearance of suppliers did not justify concluding purchases were not made. 27

I. T. MIRROR (2023-24) 2 Principal Commissioner of Income-tax v. Vaman International (P.) Ltd. Ÿ The entire addition was deleted. Ÿ Reliance on statements without granting cross-examination opportunity was insufficient. Ÿ The onus was on the revenue to prove the income belongs to the assessee. 3 Commissioner of Income-tax Act v. Odeon Builders (P.) Ltd. Ÿ The entire additions were deleted. Ÿ Disallowance based solely on third-party information without providing statements to the assessee was unjustified. 4 Deputy Commissioner of Income-tax v. Rajeev G. Kalathil Ÿ Sales were accepted. Ÿ Only profit element embedded (5% to 8%) in previous history was added, not the entire purchase amount. 5 Smt. Kiran Navin Doshi v. Income-tax Officer Ÿ The Tribunal upheld estimating 12.5% profit of bogus purchase amount instead of disallowing total purchase amount under section 69C. 6 PCITVs. Rishabhdev Tachnocable Ltd. Ÿ Sales were genuine; only profit margin was added. Ÿ Profit margin computed by comparing GPratios of earlier years. 7 PCITVs. M/s Mohommad Haji Adam & Co. Ÿ Bogus purchase fact established; sales accepted. Ÿ Purchase cannot be rejected without affecting sales; only difference in GPrates taxed. 8 PCITVs. Jagdish H Patel Ÿ Treating entire purchases as bogus distorts GPratio. Ÿ GPrate additions involve estimation and gross work. 9 Pooja PaperTrading Co (P.) Ltd. Ÿ No evidence of genuineness; disallowance limited to income/profit attributable to bogus purchases. Ÿ Progressive GPratio accepted; no addition made. 10 Surana Enterprises Vs. ITO Ÿ Gross profit from goods shown; estimation based on profit element only. 11 CITVs. Hi-Lux Automative Pvt. Ltd. Ÿ Suppliers' non-compliance after 6 years not unusual; no adverse inference. Ÿ Sufficient evidence produced; addition deleted. 12 CITVs. Nikunj Eximp Enterprises Pvt. Ltd. Ÿ Stock reconciled; all documentary evidence furnished. Ÿ Substantial sales to government department; non-appearance of suppliers insufficient. 13 Geolife Organics Vs. ACIT Ÿ AO's lack of effort for further investigation; no proper substantiation. Ÿ Sales not doubted; reasonable GPrate accepted. 14 YFC Projects Pvt. Ltd. Ÿ No defects in books; non-appearance of suppliers not sufficient. Ÿ Only non-filing of confirmations not grounds for disallowance. 28

I. T. MIRROR (2023-24) 15 Cheil India (P.) Ltd Vs. ITO Ÿ Assessee's documents not examined; non-compliance reasons varied. Ÿ Several reasons for parties' non-appearance; no automatic disallowance. 16 CITVS. Odean Builders Pvt. Ltd. Ÿ Assessee's documentary evidence and discharge of burden led to addition deletion. Ÿ Third party statement validity not confirmed through cross-examination. 17 PCITVs. Tejua RohitkumarKapadia Ÿ Third party statement; sales confirmed; documentation provided. 18 CITVs. Sunrise Tooling System (P) Ltd Ÿ Sales shown; goods utilized; estimation of profit justified. 19 PCITVs. Shapoorji Pallonji & Co. Ltd. Ÿ Minor fraction of company's purchases bogus; addition based on third party statement. 20 PCITVs. Ui Packs India Ÿ Department accepted sales; invoking section 69C not justified. Ÿ Trading account recast on purchase disallowance changes GPrate. 21 ITO VS. Deepak Khusaldas Mehta Ÿ Assessee's lack of cross-examination opportunity; non-appearance reasons. Ÿ Reconciliation and stock identification not considered. 22 Cannon Industries Pvt. Ltd. Vs. DCIT Ÿ Sole basis of statement; no cross-examination provided. Ÿ Sales undisputed; addition deleted based on matched purchase bills. These cases collectively underscore the significance of evidence, independent inquiry, and fair treatment in assessing bogus purchases. The decisions emphasize that assumptions alone are insufficient and that each case demands a thorough evaluation based on facts and circumstances. ANALYSING JUDICIAL PRECEDENTS: BOGUS PURCHASES AND UNTESTED PURCHASES The realm of taxation law is often shaped by judicial pronouncements that define the interpretation and application of legal provisions. In the context of dealing with the contentious issue of bogus purchases and untested purchases, a series of significant cases shed light on the treatment and assessment of such transactions. These cases collectively underscore the necessity of a balanced and evidence-based approach in determining the additions related to these purchases. The Essence of the Cases Through a comprehensive review of various judicial decisions, a consistent thread emerges, emphasizing the need to restrict additions for bogus purchases or untested purchases to the actual income embedded within these transactions. This approach ensures that the assessment remains grounded in the factual and economic reality rather than being deemed as unexplained investments or expenditures under Sections 69A or 69C of the Income Tax Act. Genuine Evidentiary Support In the face of such assessments, it is vital for taxpayers to provide robust and genuine evidentiary support to substantiate the authenticity of their purchase transactions. Several key pieces of documentary evidence have proven instrumental in demonstrating the validity of these transactions: 29

I. T. MIRROR (2023-24) 1. Purchase Invoices and Visual Documentation: Furnishing purchase invoices, coupled with visual documentation such as photographs of the purchased goods, establishes the actual receipt of goods. 2. Inward Register Records: Maintaining a detailed inward register at registered premises is crucial. This record must encompass essential details like supplier names, GST numbers, taxable values, GST amounts, weighbridge receipts, transport details, and more. 3. Confirmation from Sellers: Acquiring confirmation from sellers alongside their income tax returns and income statements reinforces the legitimacy of the transaction. 4. Bank Account Statements: Providing bank account statements reflecting payments made to the sellers corroborates the financial aspect of the transaction. 5. Transporter Records: Bilty or Goods Receipt Note from the transporter provides a trail of the movement of goods, offering additional credibility. 6. Stock Register Details: The stock register reflecting the quantity of materials purchased and subsequently sold serves as a critical reference point. 7. Production Records (for Manufacturers): For manufacturing entities, presenting production records that justify the consumption of raw materials or consumables for the intended output strengthens the case. 8. GST Filing Consistency: Ensuring the alignment of purchase values and quantities as per books of account with the GST returns (GSTR 1 and GSTR 3B) filed with the authorities. 9. Response to GST Department Actions: When the GST number of the seller is cancelled or suspended, submitting information about the appeal filed by the seller or actions taken to reinstate the GST number lends clarity. 10. Proof of Goods Movement: Establishing the movement of goods with substantial supporting evidence bolsters the legitimacy of the transaction. BALANCING ACT While these judicial decisions provide significant guidance, it is also crucial to consider the role of the Goods and Services Tax (GST) Department. The interplay between income tax and GST regulations demands a thorough assessment of both fronts to ensure compliance and accurate reporting. In conclusion, navigating the intricate landscape of bogus purchases and untested purchases requires a meticulous approach. The judicial pronouncements underscore the significance of substantiating transactions with genuine and well-documented evidence. Moreover, understanding the implications of such transactions in the context of both income tax and GST regulations is essential for maintaining compliance and achieving equitable assessments. 30

INTRODUCTION In recent years, India's investment landscape has witnessed a significant evolution with the rise of Alternate Investment Funds (AIFs). These funds, often referred to as alternative investments, have become increasingly popular among high-net-worth individuals, institutional investors, and those seeking to diversify their portfolios. This comprehensive guide aims to provide an in-depth understanding of AIFs in India, covering their types, regulations, advantages, risks, and how to invest in them. UNDERSTANDING ALTERNATE INVESTMENT FUNDS (AIFS) Definition and Concept Alternate Investment Funds, commonly known as AIFs, are a category of investment vehicles that pool funds from various investors and deploy them in a diverse range of alternative assets and investment strategies. AIFs differ from traditional investments such as stocks and bonds, as they offer exposure to non-conventional assets, including private equity, venture capital, real estate, hedge funds, and more. AIFs operate under the regulatory framework established by the Securities and Exchange Board of India (SEBI). This framework sets guidelines and regulations to ensure transparency, investor protection, and market integrity in the functioning of AIFs. Classification of AIFs SEBI classifies AIFs into three main categories, each with its specific characteristics and investment strategies: Category I AIFs: These funds focus on supporting specific sectors or industries and include sub-categories like venture capital funds, small and medium enterprise (SME) funds, and social venture funds. Venture capital funds, for instance, invest in startups and early-stage companies, while SME funds target small and medium-sized enterprises. Category II AIFs: Category II AIFs have a broader investment approach and encompass private equity funds, real estate funds, and hedge funds. Private equity funds invest in privately-held companies, while real estate funds primarily invest in various real estate assets, and hedge funds employ diverse strategies to generate returns. Category III AIFs: These funds engage in trading and speculative activities, often involving derivatives and complex trading strategies. Category III AIFs are designed for investors seeking high-risk, high-reward opportunities. Key Participants in AIFs Several key participants play essential roles in the functioning of AIFs: Sponsors: Sponsors are entities responsible for setting up an AIF and seeking SEBI registration. They define the fund's objectives, strategies, and structure. A comprehensive Guide to Alternate Investment Funds [AIFs] in India CA HARSH MEHTA ADV (CS) LOKESH SHAH 31

I. T. MIRROR (2023-24) Fund Managers: Fund managers are responsible for making investment decisions on behalf of the AIF. They are experts in their chosen asset class or strategy and aim to optimize returns while managing risks. Trustees: Trustees act as guardians, ensuring that the AIF complies with SEBI regulations and the terms of the trust deed. They safeguard the interests of the investors. Custodians: In some cases, AIFs appoint custodians to safeguard the assets held by the fund, providing an additional layer of security. Role of SEBI in Regulating AIFs SEBI plays a crucial role in regulating and overseeing AIFs in India. It establishes the regulatory framework, including registration requirements, investment guidelines, disclosure norms, and reporting standards. This regulatory oversight aims to protect investor interests, maintain market integrity, and ensure transparency in AIF operations. TYPES OF ALTERNATE INVESTMENT FUNDS Ÿ Category I AIFs Venture Capital Funds (VCFs): Venture Capital Funds are a sub-category of Category I AIFs that focus on nurturing early-stage startups and high-potential companies. They provide capital to startups, helping them grow and expand their businesses. VCFs often play an active role in the companies they invest in, offering strategic guidance and mentorship to entrepreneurs. These funds contribute significantly to fostering innovation and entrepreneurship in India's evolving startup ecosystem. Small and Medium Enterprise (SME) Funds: SME Funds, another sub-category of Category I AIFs, target small and medium-sized enterprises. These funds aim to bridge the financing gap faced by SMEs, which play a crucial role in India's economic growth. By investing in SMEs, these funds support their expansion, job creation, and overall development. Social Venture Funds: Social Venture Funds, falling under Category I AIFs, have a unique objective. They seek to promote social and environmental causes by investing in projects and organizations that generate a positive societal impact. These funds align financial returns with social good, attracting investors who are committed to responsible and impact-driven investing. Ÿ Category II AIFs Private Equity Funds: Private Equity Funds are among the most well-known AIFs in this category. They invest in privately held companies, often taking a substantial stake in these companies. Private equity funds work closely with the management of their portfolio companies, implementing strategies to enhance their value. This active involvement sets them apart from passive investment vehicles like mutual funds. Real Estate Funds: Real Estate Funds primarily invest in various real estate assets, such as residential and commercial properties, shopping malls, and infrastructure projects. These funds offer investors the opportunity to participate in the real estate market without the challenges of direct ownership. Real estate funds can provide regular income through rental yields and capital appreciation. Hedge Funds: Hedge Funds are known for their flexibility and diverse investment strategies. They can engage in long and short positions in various asset classes, employ arbitrage techniques, and use derivatives to manage risk and generate returns. Hedge funds aim to deliver consistent returns regardless of market conditions, making them an attractive choice for certain investors. 32

I. T. MIRROR (2023-24) Ÿ Category III AIFs Category III AIFs are designed for investors seeking higher risk and potentially higher rewards. These funds primarily engage in trading and speculative activities, often involving derivatives. While they can offer substantial returns, they are also associated with a higher level of risk and volatility. REGULATIONS AND COMPLIANCE Registration Process For an AIF to operate in India, it must obtain registration from SEBI. The registration process involves the submission of detailed documentation, including the fund's offering document, compliance with SEBI regulations, and information about the fund's sponsors, trustees, and key personnel. SEBI reviews the application and grants registration if all requirements are met. Eligibility Criteria for Investors AIFs are typically open to sophisticated investors, including high-net-worth individuals, institutional investors, and qualified foreign investors. SEBI has set minimum investment thresholds for investors in AIFs, which vary depending on the fund's category and strategy. These criteria aim to ensure that investors have the financial capacity to understand and bear the risks associated with AIF investments. Investment Restrictions and Guidelines SEBI has established guidelines and restrictions for AIFs to maintain transparency and protect investor interests. These guidelines cover areas such as: Investment Concentration:AIFs are required to diversify their investments to reduce concentration risk. Valuation and Reporting: AIFs must follow specific valuation principles and provide regular reports to investors. Exit Strategy: Some AIFs may have lock-in periods, during which investors cannot redeem their investments. The exit strategy and terms are outlined in the fund's offering document. Borrowing Limits: SEBI sets limits on the extent to which AIFs can borrow to finance their investments. Reporting and Disclosures AIFs are required to provide regular reports to investors, including financial statements and portfolio disclosures. These reports help investors monitor the performance of the fund and assess its compliance with the stated investment strategy. Transparency and timely reporting are critical components of SEBI's regulatory framework. SEBI's Regulatory Oversight SEBI maintains a vigilant regulatory oversight of AIFs to ensure compliance with the established guidelines and regulations. The regulator conducts inspections, audits, and reviews to assess AIF operations and adherence to the prescribed norms. This oversight is essential to maintain market integrity and protect investor interests. ADVANTAGES OF INVESTING IN AIFS Diversification of Portfolio One of the primary advantages of investing in AIFs is portfolio diversification. AIFs offer exposure to a wide range of asset classes, including real estate, private equity, venture capital, and hedge funds. This diversification helps reduce the risk associated with a concentrated investment portfolio. A diversified portfolio can be better positioned to withstand market volatility and economic downturns. 33

I. T. MIRROR (2023-24) Professional Management AIFs are managed by experienced fund managers who specialize in specific asset classes or investment strategies. These professionals have in-depth knowledge of their chosen domains and employ rigorous research and analysis to make informed investment decisions. Professional management can lead to better risk management and potentially higher returns. Access to Alternative Assets AIFs provide investors with access to alternative assets that are typically not available through traditional investment avenues. For example, real estate funds allow investors to participate in the real estate market without the challenges of direct ownership, while venture capital funds offer exposure to the dynamic startup ecosystem. This access to alternative assets can enhance portfolio returns and diversification. Customized Investment Strategies AIFs often offer customized investment strategies tailored to the fund's objectives and the preferences of its investors. This flexibility allows investors to align their investments with their risk appetite and financial goals. Whether an investor seeks income generation, capital appreciation, or a combination of both, there is likely an AIF strategy that suits their needs. FUTURE TRENDS AND PROSPECTS Growing Popularity of AIFs The popularity of AIFs is expected to continue growing in India as investors increasingly seek diversification and higher returns beyond traditional investments. AIFs are likely to play a more prominent role in the portfolios of high-net-worth individuals and institutional investors. Evolving Investment Strategies AIFs are likely to adapt and evolve their investment strategies to capitalize on emerging opportunities. As the Indian economy evolves, AIFs may explore new sectors and asset classes, aligning their strategies with changing market dynamics. Role in Economic Development AIFs can contribute significantly to India's economic development by providing capital to sectors like startups, SMEs, and infrastructure projects. These funds can play a vital role in fostering innovation, entrepreneurship, and job creation. 34

INTRODUCTION: The US dollar, which is the world's reserve currency, can see a steady fall in the current context as leading central banks may look to diversify their reserves away from it to other assets or currencies. The notion of de-dollarisation sits well in the thought experiment of a multipolar world where each country will look to enjoy economic autonomy in the sphere of monetary policy. CONCEPT & MEANING OF DE DOLLARISATION De-dollarisation refers to reducing the dollar's dominance of global markets. It is a process of substituting US dollar as the currency used for: Ÿ Bilateral trade agreements Ÿ Trading of goods, merchandise or services exchanged in cross broader Ÿ Trading of oil or other commodities Ÿ Investment in US dollars as a forex reserve De-dollarization involves moving away from the U.S. dollar as a reserve currency or seeking ways to sidestep the dollar when conducting international business. Countries may seek to decrease their dependency on the dollar in several ways. Central banks can hold reserves in gold or other currencies rather than in dollars or US Treasuries. Global Countries may opt to enter agreements to avoid using the dollar when settling international transactions. EVENTS OF DOLLARIZATION & US DOLLAR AS A RESERVE CURRENCY The first U.S. dollar (USD) is one of the world's strongest currencies. It is the official currency of the United States as well as several other countries. Although it has a deep-rooted history in the United States, the dollar as we know it today was first printed in 1914. Printing began a year after the establishment of the Federal Reserve as the nation's central bank with the passing of the Federal Reserve Act. That's when the Fed started issuing Federal Reserve notes in $10 denominations. In 1945Three decades later, the dollar officially became the world's reserve currency. The Federal Reserve Act of 1913 created the Federal Reserve Bank to respond to the unreliability and instability of a currency system that was previously based on banknotes issued by individual banks. This was the same time that the U.S. economy became the world's largest, surpassing that of the United Kingdom. The majority of developed countries pegged their currencies to gold as a way to stabilize currency exchanges. But when World War I broke out in 1914, many countries suspended their use of the gold standard to pay their military expenses with paper money, which devalued their currencies. The countries which were involved in world war left with no choice than borrowing money from US as a part of their economical movement. De Dollarisation of Currency / Notes – CA HOMESH MULCHANDANI 35

I. T. MIRROR (2023-24) History again repeated in World War II as US entered into the war after combat began. During the World War II, US started serving to the Allies' main supplier of weapons and other goods. Most countries paid in gold making the U.S. the owner of the majority of the world's gold by the end of the war. This made a return to the gold standard impossible by the countries that depleted their reserves and it helped US to become super power after completion of Word War II. The Bretton Woods Agreement - Delegates from 44 Allied countries met in Bretton Wood, New Hampshire, US in 1944 to come up with a system to manage foreign exchange that would not disadvantage any country. The delegation decided that the world's currencies would no longer be linked to gold but could be pegged to the U.S. and that is how US smartly played to declare its currency US Dollar to be emerged as Reserve Currency. REASONS FOR DE DOLLARIZATION At least for now, the U.S. dollar retains its central role in the global financial system, but the trend of dedollarization appears to be gathering steam. Discussion of de-dollarization has intensified because of the war in Ukraine. As the U.S. aims to inflict financial pain on Russia with sanctions and by freezing Russia's currency reserves, the punitive power of the dollar is on display. This may be motivating other countries to look for ways around the U.S. currency. Beyond shifting their reserves to gold or other currencies, countries are reducing their dollar dependency by sidestepping the U.S. currency in their international transactions. Some of the real world examples which states events of de dollarization; Ÿ China has been paying for its massive commodities purchases from Russia using the renminbi rather than the dollar, and it also has signed deals to use its own currency in trade with Saudi Arabia and Brazil Ÿ India in last year, announced to allow Indian entities to have transaction settlements in Indian rupees Ÿ BRICS countries are in process of creating a currency that could rival the dollar for world dominance, although it appears that the group has no immediate plans for a common currency HOW IT LOOKS LIKE IN FUTURE Despite the backlash against it, the dollar remains the world's most widely held reserve currency. Thus, it is difficult to speculate about the potential consequences of a more substantially de-dollarized world economy. For one thing, the U.S. would lose the advantages that have come with having the dollar as the world's reserve currency. De-dollarization could help level the playing field for economies outside the U.S. However, countries also depend on having a stable currency to hold in reserve and conduct international business. At least in the near term, there appears to be no viable replacement for the dollar at the heart of the global financial system. De-dollarization could be viewed as a backlash against the hegemony of the U.S. currency. The U.S. has used the dominance of the dollar as a tool to promote and enforce its economic interests around the world, causing other countries to look for ways to step around the currency. Now many countries understood the importance of geo political risk involved in cross border trades and every country wants to have a safe play. 36

GLIMPSES OF SEMINAR ON SHOW CAUSE NOTICE & ADJUDICATION UNDER GST – LEGAL AND PRACTICAL DIMENSIONS BY ADV. SHAILESHBHAI SHETH AND CA JANAKBHAI