I.T. MIRROR 23-24 VOL 10

Vol. 10 March 24 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 "I measure the progress of a community by the degree of progress which women have achieved." B. R. Ambedkar SheTax: Women’s Voices in Taxation Special Edition

Glimpses of A C Parikh & Co. Budget Meeting on 03/02/2024

7 18 23 32 38 30 26 42 HUF - A Tax Planning Instrument - CA Supriya Dewan Dissecting the provisions of Section 179 of Income Tax Act, 1961 in relation to Liability of Directors of Private Company - Adv. Priyanshi Desai ITC Reversal in case of redemption of securities - CA Pratibha Goyal Clubs journey from sales tax to GST - CA Amrin Alwani Accounting and Auditing Standards – India Scenario - CA Krishna Parag Raval Analysis of Financial Statements through Ratio Analysis - CA Nisha Tekwani Evolution of FP&A Under IBP - Integrated Business Planning - CA Pooja Thakkar The Insolvency and Bankruptcy Code and PUFE Transactions - Adv. Aishwarya Reddy & Adv. Laghima Jain Amendments to Companies Rules, 2023 - CS Riddhi Pamnani 2 Chairman's Message - CA (Dr.) Vishves Shah 3 President's Message - CA Ashish Tekwani 4 Hon. Secretary's Message -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. 10 - MARCH 24 CONTENTS 5 Message of Vice Chancellor of Gujarat University 6 Message of Vice Chancellor of Gujarat Technological University - Dr. Neerja A Gupta - Dr. Rajul K. Gajjar 45

Chairman’s Message CA (Dr.) VISHVES SHAH Chairman 2 Dear Esteemed Readers, It is with great pleasure and pride that I introduce this month's edition of our IT Mirror, a remarkable collection of articles exclusively authored by women tax professionals. In honor of International Women's Day, we have dedicated this edition to highlighting the exceptional contributions, insights, and expertise of our women colleagues in the field of taxation. This special edition is a testament to our commitment to providing a platform for women professionals, acknowledging their integral role in shaping the landscape of tax and finance. By featuring the voices of these talented individuals, we aim to foster inclusivity, inspire future generations, and enrich the dialogue within our tax community. As we delve into the insightful content curated by our women contributors, let us reflect on the powerful words of Eleanor Roosevelt: "Awoman is like a tea bag; you never know how strong it is until it's in hot water." The strength, resilience, and brilliance exhibited by women tax professionals, showcased in the articles within this edition, exemplify the transformative power they bring to our industry. We recognize that diversity is not just a goal but a strength. The varied perspectives, innovative solutions, and unwavering dedication demonstrated by our women professionals contribute immeasurably to the success and growth of our community. This edition serves as a celebration of their achievements and an acknowledgment of the essential role they play in shaping the future of taxation. We express our deepest gratitude to the women tax professionals who have generously shared their knowledge and experiences in this edition. Your voices are a source of inspiration, and we are privileged to amplify them through the pages of our Tax Journal. As you engage with the content of this special edition, I encourage you to embrace the power of diversity and join us in celebrating the achievements of women professionals in the tax industry. Your support and feedback are vital as we continue to champion inclusivity within our community. Thank you for being a part of this empowering journey. Warm regards, CA(Dr.) Vishves A. Shah Chairman, IT Mirror Committee Income Tax Bar Association

3 Dear Readers, As we approach the month of March, a time dedicated to celebrating the achievements, contributions, and resilience of women worldwide, we are delighted to present a special edition of our IT Mirror. This edition is entirely crafted by a talented group of women professionals in the field, marking International Women's Day. In our commitment to fostering diversity and inclusivity, we recognize the invaluable expertise and unique perspectives that women bring to the tax profession. This special edition not only showcases the exceptional skills of our women contributors but also aims to make our IT Mirror more vibrant and reflective of the rich tapestry of talent within our community. The articles within this edition cover a spectrum of topics, offering insights, analysis, and thoughtful commentary on various tax-related subjects. From navigating recent regulatory changes to exploring innovative approaches in tax planning, each piece is a testament to the depth of knowledge and experience that women professionals bring to the forefront of the tax landscape. As we navigate through the pages of this special edition, let us take a moment to appreciate the diversity within our community and recognize the importance of providing equal opportunities to all professionals. By championing inclusivity, we not only enrich our publication but also contribute to the overall growth and progress of our industry. We extend our heartfelt gratitude to the talented women professionals who have generously shared their expertise in this edition. Their commitment to excellence serves as an inspiration to us all, and we hope this collection of articles inspires future generations of tax professionals. We invite you to delve into the insightful content curated for this special edition and encourage you to share your thoughts and feedback with us. Together, let us continue to build a tax community that embraces diversity, fosters collaboration, and celebrates the achievements of every professional, regardless of gender. Thank you for your continued support. Warm regards, CA Ashish Tekwani President Income Tax Bar Association President’s Message CA ASHISH TEKWANI President

Dear Esteemed Readers, As we usher in the month of March, we are thrilled to present a distinctive edition of our Monthly Tax Journal dedicated to celebrating the achievements and expertise of women professionals in the field of taxation. In alignment with International Women's Day, all the articles featured in this edition are authored by talented women who have made significant contributions to the tax landscape. As we approach International Women's Day, it gives me great pleasure to extend warm greetings to all our readers, contributors, and supporters. This annual celebration serves as a poignant reminder of the remarkable contributions made by women across all spheres of life, including the intricate world of taxation. It is imperative to recognize and celebrate the invaluable role that women play in shaping the landscape of taxation globally. From pioneering research and innovative policy initiatives to leading organizations and advocating for change, women continue to make indelible marks within the tax profession. Our decision to spotlight the perspectives of women professionals is driven by a commitment to fostering inclusivity within our tax community. We believe that diversity not only enhances the richness of our collective knowledge but also paves the way for a more dynamic and forward-thinking industry. This special edition serves as a platform to amplify the voices of women in tax, providing a forum for dialogue, collaboration, and empowerment. The articles within this edition cover a wide array of topics, showcasing the depth and breadth of expertise that women bring to the forefront of tax discussions. From nuanced analysis of regulatory changes to innovative approaches in tax planning, each piece reflects the diverse skill set and unique perspectives of the women who have contributed. We extend our heartfelt gratitude to all the women who have dedicated their time, energy, and expertise to advancing the field of taxation. Your contributions are invaluable, and your impact is immeasurable. As you peruse the articles in this edition, we invite you to join us in celebrating the achievements of women professionals in the tax industry. Your feedback and engagement are invaluable as we continue on our journey toward a more diverse and inclusive future. Thank you for your ongoing support. Happy International Women's Day! Warm regards, CA Jaykishan Pamnani Hon. Secretary Income Tax Bar Association Hon. Secretary’s Message CA JAYKISHAN PAMNANI Hon. Secretary 4

Message of Vice Chancellor of Gujarat University 5

266 Message of Vice Chancellor of Gujarat Technological University

HUF can be used as an efficient tax saving tool that can be used to reduce taxes by proper Tax Planning. The notion of HUF Hindu undivided family is particularly relevant in India since joint families exist in Indian culture where an individual's income is also taxed as joint income. Income is charged on family as a whole as a unit. So, we can conclude that family is assessable as a unit and has to hold a separate PAN card for earning income and getting assessed under Income tax act,1961. So, let's get into the comprehensive understanding of meaning and formation of HUF, creation of corpus for HUF through gifts,how it can be used as a tax saving tool and its dissolution. What is Hindu undivided family? As per Hindu law, it is a family consisting of all persons lineally descended from a common ancestor, including wives and unmarried daughters. HUF cannot be created under a contract but is automatically created in a joint Hindu family with common ancestors and linear descendant. There are 3 conditions which need to be fulfilled to meet the HUF criteria: Must be Hindu. Jain, Buddhist and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act. There should be a Co-parcenership. There should be a joint family property which consists of ancestral property, property acquired with the help of ancestral property and property transferred by its members. There should be common ancestor and at least 2 coparceners to recognize HUF under Income tax Act. HUF: A Tax Planning Instrument - CA SUPRIYA DEWAN 7

I. T. MIRROR (2023-24) Who is Karta, Co-parcener or member of HUF? The person responsible for managing the affairs of the family is called Karta. In most of the cases, the senior-most male member of the family is known as Karta or manager. Any male or female person born in a joint family under Hindu law who is within four levels in lineal descendent from the common male ancestor is considered as a coparcener and anyone who becomes part of the family other than by the virtue of birth (i.e., by marriage) is treated as a member. However, a person who is adopted into the family also becomes its coparcener from adoption, though not born in the family. As per the amended law since 2005, even a girl child becomes a coparcener by birth and can continue to be a co-parcener of her father's HUF even after her marriage. Co-parcener have a right to seek partition and become the Karta of the HUF. Whereas, Members have the right to be maintained out of the funds of HUF and receive their share at the time of partition but do not have the right to seek for partition or become the Karta. How is HUF formed? A HUF comes into existence automatically after the marriage of an Individual and birth of 1st child and only a HUF creation deed on a stamp paper is required to recognize it as HUF for the purposes of Income Tax Act 1961. Consequently, a separate PAN card should be obtained for the HUF and a separate bank account should be opened in the name of the HUF. How to create Corpus For HUF? • Assets received as gifts by HUF. (Relatives or non-relatives). Gift from non-relative should not exceed Rs 50,000. • Assets passed on by will that favour's HUF. • Assets received on the partition of a larger HUF of which the coparcener was a member (like an HUF in which the coparcener's father or grandfather was the Karta). • Common ancestral property • Property acquired from the sale of joint family property It is important here to note that capital infusion should be done taking into account the clubbing provisions under Section-64(2) of Income tax act,1961. This clubbing can be surpassed if the amount transfer in HUF account is invested by Karta in tax free scheme (E.g., tax free bonds). Income earned from tax free bonds being tax free shall not be income and clubbed in hands of transferor u/s 64(2) The tax-free income can then be re-invested to earn even taxable income. It is important to note that clubbing provision is attracted on income and shall be clubbed in hands of transferor but Income on income is out of Clubbing Provision and shall be taxable in hands of HUF and not transferor. Heads of Income For HUF • Income from House Property • Income from Other Sources • Capital Gains • Profits and Gains of Business or Profession Since HUF is an artificial person, it cannot earn income from salary. Tax benefits enjoyed by HUF (under old scheme) • A HUF is assessed as a separate entity for the purpose of assessment under the Act and enjoys the threshold exemption of income of Rs 2.5 lacs and is also taxed at individual slab rates. 268

I. T. MIRROR (2023-24) For e.g. If there are 3 members in a family and each family member's income exceeds Rs 10 lacs. Further the family has a let out ancestral property from which it receives rental income amounting to Rs 10 lacs. Now ignoring any deductions if such income is taxed in hands of any family member it shall be taxed at 30%. However, if such income is shown in hands of HUF, then there shall be exemption up to Rs 2.5 lacs I.e., savings of Rs 75,000. Then further for income ranging between 2.5-5 lacs tax rate shall be 5% instead of 30% (I.e., tax savings of 25% amounting to Rs 62,500) if the income would have been taxed in the hands of any family member. • Just like an individual a HUF can claim gross annual value of self-occupied property as NIL. The HUF is also entitled to claim a deduction for interest on self-occupied house property of Rs. 2,00,000 u/s 24(b) of Income tax act,1961 in a year. The HUF can also let out its property to any person and interest on loan paid deduction can be availed without any limit, in respect of the said property.Apart from 24(b) standard 30% deduction of Net annual value is allowed. • HUF being assessable as separate person under Income tax act ,1961 can avail separate deductions under Section-80C up to Rs 1.5 lacs, Mediclaim for family members under Section-80D up to Rs25,000 and in case any member is a senior citizen Up to Rs 50,000, u/s 80TTA up to Rs 10,000 and for senior citizens up to Rs 50,000. Therefore, these deductions can be claimed irrespective of the individual deductions of members since two pan cards can be applied and an individual can file two income tax returns, one in his personal/individual capacity and secondly in the name of the HUF. • Just like an individual a HUF can claim capital gain exemptions under Section 54 and section 54F,54B 54EC of Income tax Act,1961. • Deductions to HUF are also available in respect of medical treatment of dependent or disabled family members, Deduction U/S 80G in respect of donations can also be claimed by HUF. • HUF can have a separate DEMATAccount and enjoy tax rate of 15% on Short-term Capital Gains (STTPaid), HUF can also invest in a mutual fund. • HUF can carry business but not profession, but funds should be of HUF and can pay remuneration to Karta and other family members. Let's understand with an example whatever we have read in the article: • Mr. Arpit is a salaried person and is drawing a salary of Rs 20,50,000 annually.His income includes income from investments of Rs.10,00,000.He also pays LIC Premium of Rs 60,000/- for his family, PPF investment of Rs. 1,00,000/-. His company deducts PF of Rs. 1,50,000/- from his Salary. He also pays medical insurance premium for himself and his family of Rs. 20,000/-. Scenario 1 Interest income held in Mr. Arpit's name Particulars Amount Salary 20,50,000 Less: standard deduction (50,000) Interest income 10,00,000 Gross Total Income 30,00,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) : u/s 80D 20,000 Net taxable income 28,30,000 Tax liability 6,87,960 9

I. T. MIRROR (2023-24) Scenario II Interest income Transferred in Mr. Arpit's HUFname (Arpit sons and HUF) Revised tax liability of Mr. Arpit Particulars Amount Salary 20,50,000 Less: standard deduction (50,000) Gross Total Income 20,00,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) : u/s 80D 20,000 Net taxable income 18,30,000 Tax liability of Mr. Arpit 3,75,960 Tax liability of Mr.Arpit's HUF Particulars Amount Interest income 10,00,000 Gross Total Income 10,00,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) : u/s 80D 0 Net taxable income 8,50,000 Tax liability of HUF 85,800 Tax saving underScenario II of Rs.2,26,200. Let's take another example where Mr. Ram is a salaried employee and has an ancestral property which has been let out and he receives rent from that property amounting to Rs 7,50,000 and he forms HUF. He also pays LIC Premium of Rs 60,000/- for his family, PPF investment of Rs. 1,00,000/-. His company deducts PF of Rs. 1,50,000/- from his Salary. So, let's check his liability if this rental income is taxed in individual capacity and HUF. Scenario I Rental income held in Mr. Arpit's name Particulars Amount Salary 20,50,000 Less: Standard deduction (50,000) Rent from House property 7,50,000 Less: Standard deduction u/s 24(a) (2,25,000) Gross Total Income 25,25,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) Net taxable income 23,75,000 Tax liability of Mr. Ram 5,46,000 2610

I. T. MIRROR (2023-24) Scenario II Rental income Transferred in Mr. Arpit's HUFname (Arpit sons and HUF) Revised tax liability of Mr. Ram Particulars Amount Salary 20,50,000 Less: Standard deduction (50,000) Gross Total Income 20,00,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) Net taxable income 18,50,000 Tax liability of Mr. Ram 3,82,200 Tax liability of Mr. Ram's HUF Particulars Amount Rent from House property 7,50,000 Less: Standard deduction u/s 24(a) 2,25,000 Gross Total Income 5,25,000 Deductions: u/s 80C 1,50,000 (Maximum of Rs 1.5lacs) Net taxable income 3,75,000 Tax liability of HUF 6,500 Tax saving underScenario II of Rs1,57,300. Tax benefits enjoyed by HUF(undernew scheme) • A HUF is assessed as a separate entity for the purpose of assessment under the Act and enjoys the threshold exemption of income of Rs 2.5 lacs and is also taxed at individual slab rates. For e.g. If there are 3 members in a family and each family member's income exceeds Rs 10 lacs. Further the family has a let out ancestral property from which it receives rental income amounting to Rs 10 lacs. Now ignoring any deductions if such income is taxed in hands of any family member it shall be taxed at 30%. However, if such income is shown in hands of HUF, then there shall be exemption up to Rs 2.5 lacs i.e., savings of Rs 50,000. Then further for income ranging between 2.5-5 lacs tax rate shall be 5% instead of 30% (I.e., tax savings of 25% amounting to Rs 62,500) if the income would have been taxed in the hands of any family member. HUF are allowed concessional tax regime under section 115BAC. • Standard 30% deduction of Net annual value is allowed is allowed to HUF just like individuals. • Just like an individual a HUF can claim capital gain exemptions under Section 54 and section 54F,54B 54EC of Income tax Act,1961. • HUF can have a separate DEMAT Account and enjoy tax rate of 15% on Short-term Capital Gains (STT Paid), HUF can also invest in a mutual fund. • HUF can carry business but not profession, but funds should be of HUF and can pay remuneration to Karta and other family members. 11

I. T. MIRROR (2023-24) Let's understand with an example whatever we have read in the article: Mr. Arpit is a salaried person and is drawing a salary of Rs 20,50,000 annually.His income includes income from investments of Rs. 10,00, 000.He also pays LIC Premium of Rs 60,000/- for his family, PPF investment of Rs. 1,00,000/-. His company deducts PF of Rs. 1,50,000/- from his Salary. He also pays medical insurance premium for himself and his family of Rs. 20,000/-. Scenario 1 Interest income held in Mr. Arpit's name Particulars Amount Salary 20,50,000 Less: Standard deduction (50,000) Interest income 10,00,000 Gross Total Income 30,00,000 Deductions: u/s 80C - : u/s 80D - Net taxable income 30,00,000 Tax liability 6,24,000 Scenario II Interest income Transferred in Mr. Arpit's HUF name (Arpit sons and HUF) Revised tax liability of Mr. Arpit Particulars Amount Salary 20,50,000 Less: Standard deduction (50,000) Gross Total Income 20,00,000 Deductions: u/s 80C - : u/s 80D - Net taxable income 20,00,000 Tax liability of Mr. Arpit 3,12,000 Tax liability of Mr. Arpit's HUF Particulars Amount Interest income 10,00,000 Gross Total Income 10,00,000 Deductions: u/s 80C - : u/s 80D - Net taxable income 10,00,000 Tax liability of HUF 62,400 Tax saving under Scenario II of Rs.2,49,600. Let's take another example where Mr. Ram is a salaried employee and has an ancestral property which has been let out and he receives rent from that property amounting to Rs 7,50,000 and he forms HUF. He also pays LIC 2612

I. T. MIRROR (2023-24) Premium of Rs 60,000/- for his family, PPF investment of Rs. 1,00,000/-. His company deducts PF of Rs. 1,50,000/- from his Salary. So, let's check his liability if this rental income is taxed in individual capacity and HUF. Scenario I Rental income held in Mr. Arpit's name Particulars Amount Salary 20,50,000 Less: Standard deduction (50,000) Rent from House property 7,50,000 Less: Standard deduction u/s 24(a) 2,25,000 Gross Total Income 25,25,000 Deductions: u/s 80C - Net taxable income 25,25,000 Tax liability of Mr. Ram 4,75,800 Scenario II Rental income Transferred in Mr. Arpit's HUF name (Arpit sons and HUF) Revised tax liability of Mr. Ram Particulars Amount Salary 20,00,000 Gross Total Income 20,00,000 Deductions: u/s 80C - Net taxable income 20,00,000 Tax liability of Mr. Ram 3,12,000 Tax liability of Mr. Ram's HUF Particulars Amount Rent from House property 7,50,000 Less: Standard deduction u/s 24(a) 2,25,000 Gross Total Income 5,25,000 Deductions: u/s 80C - Net taxable income 5,25,000 Tax liability of HUF 14,300 Tax saving under Scenario II of Rs 1,49,500. Creation of corpus through gifts In one of the ways the corpus of Hindu undivided family can be created by receiving gifts from relatives. It is one of the most sought-after routes taken by HUF members in India to create wealth and add impetus to the existing capital. There is no stipulation for a HUF to accept gifts from any source. The only thing to be taken into 13

I. T. MIRROR (2023-24) consideration is that the intent of the donor should be clear, and the gift should be bonafide. Gift declaration detailing complete information relating to the donor should be recorded and preserved to support any unforeseen litigation. Let's understand the implications in gifts to and from HUF. Firstly, let's discuss tax implications involved in GIFTS TO HUF: RELATIVES OF HUF: In case of HUF, members are its relative. So as per provisions of Section 56(2)(X) of Income Tax Act,1961, gifts received from members shall be exempt in hands of HUF. TAX IMPLICATION ON DONOR:Taxation of any amount given by the donor i.e., any gift given by the donor is not taxable in the hands of donor and is specifically not regarded as transfer under Section 47 of the Act. So, any amount given/ asset transferred by the donor without any consideration is not taxable in the hands of donor. However, it is not possible for an individual being a member (Relative of HUF) of HUF to convert his separate property into property belonging to HUF in view of the clubbing provisions contained in Section 64(2) of the Income-tax Act, 1956. In such a case, the income generated from such property would be assessable as his individual income only and not as HUF income. However, the income which is so generated remains with the HUF and HUF is free to invest this income and any income generated out of such reinvested income is not liable for clubbing and remains with the HUF. Thus, though the initial income is clubbed in the hands of the person who has given the gift, income from income in future years is not to be clubbed. Following gifts received by HUF shall be taxable if received from non-relative: • Money received in aggregate in excess of Rs50,000 in a financial year • Immovable property received, where stamp duty value exceeds Rs50,000. • Movable property received, where aggregate fair market value exceeds Rs 50,000. Movable property means shares/securities, jewelry, archaeological collections, drawings, paintings, sculptures or any work of art and bullion, being capital asset of the taxpayer. Let's understand all this with the help of example: Illustration: Arpit and sons HUF receives land having SDV 5 lacs from his Karta (Mr. Arpit) and cash amounting to Rs 1 lacs and a car from Arpit's friend as gift on his wedding anniversary. The land will be used by HUF to earn rental income. What would be the tax implications? Both the transactions by Mr. Arpit and his friend will not be regarded as transfer under Section 47, Income tax act,1961 and hence not attract any capital gain tax in hands of donor. In hands of his HUF the SDV of land although exceeds 50,000, still shall not be taxable in the hands of HUF since it is received from member. However, the rental income from HUF shall be exempt since the land is received from Karta (relative of HUF). However, such rental income shall be clubbed in the income of Mr. Arpit as per the provisions of Section-64(2) of Income Tax Act,1961. Cash received by HUF from non-relatives (Arpit's friend) amounting to Rs 1 lacs exceeds the limit ofmonetary gift that can be received by HUF under section-56(2)(X). Hence, Rs 1 lacs shall be taxable in the hands of HUF. Car is not a movable property as defined under SEction-56(2)(x). Therefore, FMV shall not be taxable in hands of HUF. Now Let's discuss tax implications involved in Gifts from HUF: This thing has been under a lot of debate since in case of individual, because HUF has not expressly defined in the definition of relative under Income Tax Act,1961 although the definition of a relative in case of HUF has been extended to include any member of the HUF by way of an explanation in Budget 2012. 2614

I. T. MIRROR (2023-24) In hands of non-members any amount received in excess of Section 56(2)(x) as stated above are taxable. In the context of an individual as a recipient of gift, the definition of donor relative does not include an HUF. Hence, on plain reading of law, it appears that the gift received by individual HUF members (in excess of specified limits) from the HUF shall be chargeable to tax in the hands of individual members. This has also been upheld in a few judicial rulings. However, certain contradictory rulings have held that such gifts should be tax- free for individual members, as HUF is a group of relatives. Hence, adopting this position that gifts received by an individual HUF member from the HUF is tax-free may be litigious. The amount received by member from HUF shall not be governed by section-56(2)(X). Each member of the HUF has pre-existing right in the assets of the HUF, and therefore, receipt of any sum from the HUF cannot be said to be a gift without consideration by the HUF or gift by other members of the HUF. Thus, amount received by members from HUF shall be exempt under section-10(2) if two conditions are fulfilled: 1) the individual is the member of an HUF and (2) the sum received is from the income of the HUF. However, when a member converts his individual property as HUF property, it cannot be said to be exempt as other members don't have a pre-existing right in the individual member's property and clubbing provisions under section-64(2) shall apply. Recently the Chandigarh bench of the Income-tax Appellate Tribunal in case of Pankil Garg Vs PCIT (ITAT Chandigarh) held that the provision of section 56 (2)(vii) of the Income-tax Act, 1961 (the Act) does not apply to a gift given by a Hindu Undivided Family (HUF)to its members, on the premise that a member has pre-existing right in the family properties Meaning of Partition • 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 • 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. Simply “physical division in definite portion” for this purpose means a division in which a member takes a particular house which he can occupy and live or a piece of land which he can cultivate or which he can sell or mortgage or takes a particular ornament which he can wear or dispose of. In other words, such a division is not one in which he can only claim as a proportion of the income and a division of the corpus but where he cannot claim any definite portion of property. However, under the tax laws, only a physical division by metes and bounds does constitute a partition. In case a property is incapable of such division, specification of shares may however be sufficient because the main intent behind partition is to bring peace amongst family members. To be concise, there is said to be a partition under tax laws only when the Assessing officer passes an order under section 171 of the Income-tax Act, 1961 Section-171 of Income Tax Act,1961 governs the partition for HUF. When the coparceners demand partition, the Karta shall create a statement of Assets after meeting liabilities, if any and determine the residual assets to be distributed. Partition means the status of Joint Hindu Family comes to an end. Under Hindu Law, when the Joint Family status comes to an end there is division of property among members and joint ownership of property comes to an end. Partition of the HUF property can be of two types under the Hindu Law i.e., total and partial. However, if any partition takes place in HUF, there should be complete partition of HUF because partial partition is not recognized under Income tax Act ,1961 as per the provisions of Section-171(9) in order to avoid creation of multiple HUFs to misuse the law and taking advantage of minimum threshold for multiple HUF's 15

I. T. MIRROR (2023-24) Case scenarios for partition Joint family having only brothers: All will have equal share Joint family consisting of father, mother and sons: Though the mother will have no right to claim partition, but when partition will be effected the mother will have equal share as her sons Joint family consisting of unmarried Daughters with the passing of the Hindu Succession (Amendment) Act, 2005 (w.e.f. 9th September 2005), a daughter of a coparcener shall also by birth become a coparcener in her own right in the same manner as the son. Complete partition of HUF: Where all the properties of the family are divided amongst all the constituents of the family, and the family ceases to exist as an undivided family, it is known as a total or complete partition Partial partition of HUF: In a partition of HUF, there can be a division/partition where only some of the property is divided while the balance of the property remaining joint. Similarly, there may be a partition where some of the coparceners leave the family, with their share of property, while others remaining joint. 1. However, though Hindu law recognizes division of property among family members through partial partition, from assessment year 1980-1981, the Income-tax Act, 1961 does not recognize such partial partition, made after 31st December 1978. Share of coparceners 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.Therefore, in terms of Income Tax Act, 1961 an unequal partition can also be done via will of the co-parceners as to whether to allot on partition in accordance with the share specified under the Hindu Succession Act or to allot lower or more to anyone or more persons. (CGT vs. N.S Getti Chettiar 91971) 82 ITR 599(SC). To start partition proceedings all that is necessary is a clear indication by Coparcener of the HUF to separate himself from the family. Such declaration should be known to the members of the HUF who would be ultimately effected by the decision. Partition of the property will only take place when all the members of the HUF agree to the terms and conditions of the partition. Registration of Partition Partition of HUF can be done through family settlement or through partition deed. Stamp duty is not required for family settlement and thus is not required to be registered, whereas partition deed attracts stamp duty and must be registered. Siromani v. Hemkumar & Dinmani, AIR 1968 SC 1299; Nanibai v. Gitabai, AIR 1958 SC 706; Muthyalareddy v. Venkata Reddi, AIR 1969 A. P. 242.] Due to exorbitant cost involved with partition; family settlement is preferred. Things to keep in mind while perusing with the option of family settlement is that the partition should be voluntary and should be without any force, threat, coercion or fraud. It should be fair and equitable settlement and though it is unstamped and unregistered it is binding on every member. It is not necessary to effect partition by a written partition deed. It can be effected orally and be acted upon. Even a partition of an immovable property can be by an oral agreement. –Refer the case of Popat Lal Devaram v. CIT (1970) 77 ITR 1013 (Orissa) wherein it was held by the Hon'ble Orissa High Court that Law is well settled that a partition of the joint family properties can be effected by an oral agreement irrespective of the value of the property. 261

I. T. MIRROR (2023-24) It is imperative to note that Section 17 of the Registration Act, 1908 talks only when immovable property is transferred. Therefore, family settlement without registration is okay if no immovable property is involved. However, in respect of transfer of immovable property separate registered documents only for immovable property can be made. Therefore, in respect of transfer of properties of the HUF, the facts and circumstances of each case will have to be seen and analysis has to be done properly after referring to the various judicial pronouncements. Assessment of partition Upon making a claim regarding the partition of HUF as stated above, the Assessing Officer would issue a notice to all the members of the HUF making a detail enquiry regarding the said partition including the date of the said partition. On Completion of inquiry, On the completion of such enquiry, the Assessing Officer shall record a finding as to whether there has been a total or partial partition of the joint family property. In case the Assessing Officer has recorded a finding of total or partial partition under this section and the partition has taken place during the previous year the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place. In such cases, each member or group of members shall, in addition to any tax for which he or it may be separately liable be jointly and severally liable for the tax on the income so assessed. Once the full partition of the HUF is carried out, the HUF can be closed, and PAN of HUF should be surrendered to AO. CONCLUSION: Formation of HUF is easy and also has tax benefits but it is not sunshine and rainbow everywhere, the dissolution of HUF is tricky and requires consent of all the members. However it should be noted that there is a disadvantage as well and that is the fact that all assets of in the name of the Hindu undivided family are assets of the family and not of a specific individual. So everything must be taken into consideration both the benefits and the drawbacks. 17

Legal Provisions Section 179: Liability of directors of private company (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), (now the Companies Act, 2013)where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962. Explanation.—For the purposes of this section, the expression "tax due" includes penalty, interest [, fees] or any other sum payable under the Act. Conditions to be fulfilled for invocation of Section 179 Following conditions need to be fulfilled for the purpose of invocation of provisions of section 179: 1. Tax should be due from a private company in respect of any income of said company accruing during relevant previous year 2. Assessing Officer has taken sufficient steps to recover the tax from private company 3. Despite of taking necessary steps, the tax in arrears cannot be recovered from the private company 4. Person, upon whom action under section 179 is proposed to be taken, should be director of the private company during the relevant previous year 5. Such person is not able to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the private company. 6. The person being director of the private company should be given a reasonable opportunity of being heard before taking action under section 179 If conditions of section 179 are not fulfilled then show cause notice issued as well as order passed under section 179 are liable to be challenged in writ petition before High Court. Dissecting the provisions of Section 179 of Income Tax Act, 1961 in relation to Liability of Directors of Private Company - ADV PRIYANSHI DESAI 2618

I. T. MIRROR (2023-24) 19 Show cause notice bereft of the material particulars as regards the steps taken by the Department for the purpose of recovering the tax from the company One of the condition precedents for invocation of provisions of section 179 is that the Assessing Officer should take sufficient steps to recover outstanding tax demand from the private company. It is only in the event the Department fails to recover the dues from the company that it can proceed against the director of the said company jointly or severally. Setting out of the particulars of the efforts made by the Revenue and its failure to recover tax dues from the delinquent private limited company in a notice issued under section 179(1) is a sin qua non for proceeding further under the said section. Stating of such efforts in the show cause notice before assuming jurisdiction under section 179 is required in order to give opportunity to the director against whom such a notice was issued, to point out why the efforts made by the Revenue to recover from the company were inadequate or improper. Therefore, before assuming jurisdiction under section 179(1) of the Act, Assessing Officer should fulfil following conditions cumulatively: 1. Efforts should be made to recover tax dues from the delinquent private limited company 2. Such efforts to recover the tax dues from the delinquent private limited company should have failed. 3. Said efforts and failure of recovery of tax dues must find mention in the show cause notice howsoever briefly. This would give an opportunity to the noticee, being the director of the delinquent private limited company, to object to the same on facts and if the Revenue finds merits in the objection then it can recover it from the delinquent private limited company. If in the show cause notice, there is no whisper of any steps having been taken against the company for recovery of the outstanding demand then the said notice and consequential order is liable to be quashed and set aside. Further, the phrase “cannot be recovered” appearing in section 179 requires the Revenue to establish that such recovery could not be made against the company and then only it would be permissible for the Revenue to initiate action against the director responsible for conducting affairs of the company during the relevant previous year. In the show cause notice, Revenue has to establish that it has taken effective steps to recover the outstanding dues from the company and has not been able to recover the entire outstanding liability. The jurisdictional condition to be fulfilled by the Assessing Officer in order to assume jurisdiction under section 179(1) of the Act is that the statement, made in the show cause notice that the recovery proceedings had been conducted against the defaulting private limited company but it had failed to recover the outstanding tax demand due from the said company, should be supported by mentioning in the show cause notice briefly the types of efforts made and its results. If the types of efforts made to recover tax arrears from delinquent private company and its results are not specified in the show cause notice then the said show cause notice issued and order passed under section 179 are challengeable under writ petition before High Court and liable to be quashed and set aside. In the case of Jagesh Savjani vs. Union of India [2023] 154 taxmann.com 42 (Bombay High Court), the Hon'ble High Court held that setting out particulars of the efforts made by the revenue and its failure to recover tax dues from the private company forms the sine qua non for proceeding against the director. Further, stating of such facts in the notice before assuming jurisdiction to proceed, was required in order to give opportunity to the director against whom such a notice was issued, to point out why the efforts made by the revenue to recover from the company were inadequate or improper. Special Leave Petition was filed before the Supreme Court against the above decision of Bombay High Court which was dismissed on the ground that there was no merit in said petition.

I. T. MIRROR (2023-24) Judicial precedents 1. Mehul Jadavji Shah vs. DCIT[2018] 92 taxmann.com 401 (Bombay High Court) 2. Madhavi Kerkar vs. ACIT[2018] 90 taxmann.com 55 (Bombay High Court) 3. Ashita Nilesh Patel vs. ACIT[2020] 115 taxmann.com 37 (Gujarat High Court) 4. Bhailal Babubhai Patel vs. PCIT[2023] 156 taxmann.com 271 (Gujarat High Court) 5. Amit Suresh Bhatnagar vs. ITO [2009] 183 Taxman 287 (Gujarat High Court) 6. Indubhai T. Vasa vs. ITO [2005] 146 Taxman 163 (Gujarat) 7. Sonal Nimish Patel vs. ACIT[2020] 114 taxmann.com 705 (Gujarat High Court) 8. Bhagwandas J. Patel vs. DCIT[1999] 238 ITR 127 (Gujarat High Court) Breach of principles of natural justice due to non-issue of notice under section 179 Show cause notice under section 179 is the trigger point for initiation of proceedings against the director of the private company under the said section. What if order under section 179 is passed without issuing show cause notice to the director. Then this would tantamount to breach of principles of natural justice as the director will be deprived of the opportunity to show cause as to why order under section 179 should not be passed. In such case order under section 179 is liable to be quashed and set aside since director had not been given any opportunity to prove that non-recovery of tax due against company could not be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to affairs of company. Judicial precedents 1. Susan Chacko Perumal vs. ACIT[2017] 84 taxmann.com 68 (Gujarat High Court) Director of the private company is able to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the private company. Section 179 inter alia envisages that where any due from a private company in respect of any income of any previous year cannot be recovered then every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. It therefore follows that if tax dues from a private company cannot be recovered then the same can be recovered from every person who was a director of a private company at any time during the relevant previous year. However, such a director can absolve himself if he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty in relation to the affairs of the company. Perusal of provisions of section 179 depicts that the legislature has used the words “gross neglect” and not the words “mere neglect on the part of the Director”. Gross negligence has to be viewed in the context of non-recovery of tax dues of the company and not with respect to general functioning of the company. So, if gross negligence is not attributable to the non-recovery of tax dues of the company then the director cannot be held responsible. Where director had brought sufficient material on record to suggest lack of financial control and lack of decision making powers on his part and that he had a very limited role to play in company as a director and that the entire decision making process was with the directors appointed by the investors which was the single largest 260

I. T. MIRROR (2023-24) shareholder and, further, not even a single incident, decision or action was highlighted by Assessing Officer, which would be treated as an act of gross neglect, breach of duty or malfeasance on the part of the director resulting in non-recovery of tax due from company then show cause notice issued under section 179 upon the director for recovery of tax demand of company was to be set aside. Judicial precedents: 1. Prakash B. Kamat vs. PCIT [2023] 151 taxmann.com 344 (Bombay High Court) 2. Maganbhai Hansrajbhai Patel vs. ACIT [2012] 26 taxmann.com 226 (Gujarat High Court) 3. Gul Gopaldas Daryani vs. ITO [2014] 46 taxmann.com 35 (Gujarat High Court) 4. Geeta P. Kamat vs. PCIT [2023] 150 taxmann.com 490 (Bombay High Court) 5. Ram Prakash Singeshwar Rungta vs. ITO [2015] 59 taxmann.com 174 (Gujarat High Court) 6. Jashvantlal Natverlal Kansara vs. ITO [2014] 43 taxmann.com 288 (Gujarat High Court) Only the principal dues of the tax can be recovered from the director and interest thereon and penalties cannot be subject matter of recovery. Section 179(1) of the Act permits recovery of tax dues of any private company from its Directors under certain circumstances. Such circumstances being that such tax cannot be recovered from the company and unless the Director proves that the non recovery cannot be attributed to gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company. Section 179(1) of the Act thus statutorily provides for lifting of corporate veil under given set of circumstances. The liability of tax dues which is basically fastened on the company, is permitted to be recovered from its Director in case of private company, provided the conditions set out in said section noted above are fulfilled. 16. In section 179 of the Act, term used is "tax due". Section 2(43) of the Act defines tax and reads as under : "(43) 'tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior tot he aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA." Term 'penalty' has not been defined. Term 'interest' is defined in section 2(28A) of the Act but is in context of interest payable in any manner in respect of any moneys borrowed or debt incurred and has no relation to interest chargeable under various provisions of the Act on tax arrears. Section 156 which pertains to notice of demand provides that where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Section 156 reads as under : "156. Where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable : (Provided that where any sum is determined to be payable by the assessee under sub-section (1) of section 143, the intimation under the sub-section shall be deemed to be a notice of demand for the purposes of this section.)" When we compare the language used in section 179(1) of the Act with that of section 156, it emerges that in section 179, the term used is 'tax due' where as in section 156 which is a recovery provision refers to a notice of demand which would specify the sum payable. The sum payable may as provided in the section itself include tax, interest, 21

I. T. MIRROR (2023-24) penalty fine or any other sum which is payable in consequence of any order under the Act. Section 220 of the Act pertains to "when tax payable and when assessee deemed to be in default". Section 220(1) provides for time limit for payment of amount otherwise than advance tax specified in notice demand under section 156. Section 220(2) provides that if the amount so specified is not paid within such time, the assessee shall be liable to pay interest. Such interest thus would be on the entire sum payable which may include the tax, interest and penalty or any other source found payable. It would therefore, not be possible to stretch the language of section 179(1) of the Act to include interest and penalty also in the expression 'tax due'. The liability of the director to pay the dues of the company arises in terms of section 179(1) of the Act and such liability would be co-extensive as provided in the said provision which as we notice refers to tax dues. The director may be considered an assessee under section 2(7) of the Act which provides that assessee means a person by whom any tax or any other sum of money is payable under the Act. However, the same must be qua the tax of the company 'which was due and remained unpaid. By virtue of section 179(1) of the Act, the director cannot be held liable for interest and penalty and thereupon be treated as an assessee under section 2(7) of the Act as a person by whom any tax or any other sum of money is payable under the Act. Judicial precedents: 1. Maganbhai Hansrajbhai Patel vs. ACIT [2012] 26 taxmann.com 226 (Gujarat High Court) 262

It is general trend for businessman to invest surplus funds in form of Securities. Now, in GST Regime, one cannot avail Input Tax Credit (ITC) with respect to Exempted supply. Same condition was prevalent in-Service Tax Regime as well. Now this article deals with the question that whether redemption of security can be held as an exempted supply for reversal of ITC. In Service Tax Regime or Cenvat Credit Law the activity of trading in securities was included within the scope of exempted services and therefore same, lead to Cenvat Credit Reversal. In GST Regime the 'transaction in securities' is covered within the scope of 'value of exempt supply' and thus require reversal of ITC. Relevant Law calling for reversal of ITC: Section 17(2) and 17(3) related to Apportionment of credit is given below for your reference: (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Section 2(101) is given below for your reference: (101) "securities" shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); Definition of Securities as per clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (h) “securities” include— (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities; ITC Reversal in case of redemption of securities - CA PRATIBHA GOYAL 23

I. T. MIRROR (2023-24) Explanation 2(b) of Chapter V Explanation. - For the purposes of this Chapter, -…. (1) …. (2) for determining the value of an exempt supply as referred to in sub-section (3) of section 17 (a) …. (b) the value of security shall be taken as one per cent. of the sale value of such security. As per plain interpretation of these provisions, it can be inferred that one is required to reverse the ITC in case of redemption of Securities like Shares, Mutual Funds etc. Now this would be a cause of worry for many as almost every Taxpayer has an investment in securities. Here the question arises that whether the activity of redemption of securities would be covered within the expression 'transaction in securities'? In this regard, we may note that the expression 'transaction in securities' has not been defined under the GST laws. Sharing a caselaw of Service Tax Regime to understand the meaning of Transaction in Securities: CESTAT, BANGALORE BENCH in matter of Ace Creative Learning (P.) Ltd. v. Commissioner of Central Tax held that in case investments are made in mutual fund and earned profit from it which was shown in Books of Account under head 'other income', he could not have been termed as 'service provider', hence, department had wrongly demanded reversal of credit on exempted services 5. After considering the submissions of both the parties and perusal of the material on record, I find that theappellant is providing Commercial Training and Coaching Services and they have also invested in the mutual funds and have earned profit during the year 2014-15, 2015-16 & 2016-17 which they have shown as under the head "other income". The Department has wrongly considered the investment in mutual fund as trading in mutual funds and has issued a notice on the presumption that the appellant is providing exempted services which is trading in mutual funds and has not maintained separate records for common input services availed in providing the output services and exempted activity i.e. trading and hence are liable to pay 6%/7% of the amount of exempted services. Further I find that the 'trading' has not been defined under the Service Tax but in the context of securities, 'trading' means an activity where a person is engaged in selling the goods and occupy for the purpose of making profit but certainly trading is different from redemption of mutual fund units, in the present case appellant cannot transfer the mutual fund units to third party and give only by redemption to the mutual fund because the appellant is not permitted to trade mutual fund unit in the absence of a license from the SEBI. There is a restriction on the right to transfer unit and the appellant cannot transfer units to any other person. Further I find that the appellant cannot be termed as "service provider" because he only makes an investment in the mutual fund and earn profit from it which is shown in the Books of Accounts under the head "other income". Hence the question of invoking Rule 6 does not arise and I am of the view that Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services. I also find that substantial demand is time-barred as during the audit, the Department entertained the view that the appellant is engaged in providing the exempted services and consequently issued the show-cause notice. The appellant has been filing the returns under the taxable service of 'Commercial Training and Coaching and has provided all the records to the Department during the course of investigation and has not suppressed any material fact from the Department and in view of the various decisions relied upon by the appellant, extended period cannot be invoked where the Revenue's case is based on Balance Sheet and income return and other records of the assessee. In view of my discussion above, I am of the considered view that the impugned order is not sustainable in law and the same is set aside by allowing the appeal of the appellant. 264

I. T. MIRROR (2023-24) Conclusion: • Trading of securities and sale of investment is different. • Redemption of Mutual Fund, sale of shares held as capital asset etc. is an investment Activity and thus is Transaction in Money. • Reversal of ITC should be required in case of sale of securities and not in case of redemption of an investment. Illustrations 1. Mr A is Registered in GST. He is having total turnover of Rs. 10 Lakhs, and the value of redemption of securities held as investmentsRs. 2 Lakhs. His Total Input Tax Credit if Rs. 50,000. Redemption of securities held as investments cannot be construed as Transaction in securities for reversal of ITC. 2. Mr A is Stock-Broker Registered in GST. He is having total turnover of Rs. 10 Lakhs from Facilitation of Transaction in securities, and Rs. 2 Lakhs from Sale of Securities. His Total Input Tax Credit if Rs. 50,000. In this case this will lead to reversal of proportionate ITC. Formula for ITC Reversal: = Total ITC X Value of exempt supply Total Turnover Value of Exempt Supply = 1% of Value of Security Conclusion Though we have seen favourable case laws in old tax regime where redemption of securities held as investment did not call for reversal of Cenvat credit, clarification is still required in GST Regime. Department may interpret the activity of redemption of securities to include within the scope of transaction in securities and, therefore, it would require reversal of input tax credits. This issue thus calls for a logical clarification, so as to avoid unnecessary litigation. 25

Meaning and understanding on incorporation of Clubs: As we deep dive into the Indirect Tax levy on the Club, it is important to know the meaning and types of Clubs.According to the Cambridge Dictionary, the English meaning of Club is, “an organization of people with a common purpose or interest, who meet regularly and take part in shared activities.” The old-fashioned Clubs worldwide were merely informal periodic gatherings of people who voluntarily met on a regular basis for a mutual purpose. As the size of the clubs increased, so does the volume and complexity of the transactions, need to give Clubs a formal structure was felt, as a result Clubs started making their own rules and regulations through Memorandum and Article of Association. Also, many of them started registering in formal and recognised bodies such as, Trusts, Societies, Companies. Indirect Tax Journey of Clubs: Sales Tax: In the Sales Tax regime,Clubs were treated at par with other form of person, except the fact that the Doctrine of Mutuality was in existence throughout. Before we move into more details of Doctrine of Mutuality, some light on the Concept of Mutuality is drawn in below para. “Doctrine of Mutuality” means no person can transact with himself. There can be no sale to self. It has evolved as early as 18thcentury by way of jurisprudence advanced in the English laws in the case of Graff v/s Evans (1893). Under different tax laws, as adopted by various countries, there was a continual trial of the revenue in proving contrary to the doctrine and supporting the levy of tax on the transactions wherein there are no distinct person. In terms of supply by Clubs, in the case of Graff v/s Evans, it was held that if a member of a club acquired liquor which was the property of the club, was not sale but merely transfer of special property wherein the club is only acting as an agent. Post this decision, the levy of taxes on Clubs were challenged in different Provinces of India and under various decisions, the High Courts took similar view and supported the concept of MutualityDoctrine such as: Bengal Nagpur Cotton Mills Club, Rajnandgaon v. Sales Tax Officer, Raipur: Madhya Pradesh HC; Century Club and Another v. The State of Mysore and Another: Mysore High Court Against these decisions, the matter travelled to Hon'ble Apex Court and in the case of Enfield India Ltd. , SCtook 1 the opposite view by reversing the HC rulings and held that, decisions of English Law concerning the Licensing Act cannot be applied in tax matters and therefore the supply of goods by Club to its member is very well a transaction of sale. On the similar line, the matter was challenged by the industry in the SC and in the case of Young Men´sIndian Association , a landmark decision was made by the Apex Court which upheld the Concept of Doctrine of 2 Mutuality and held that the Clubs or Associations were not transferring property belonging to them but were Clubs journey from sales tax to GST Accounting and Auditing Standards - India Scenario - CA AMRIN ALWANI 1 Deputy Commercial Tax Officer, Saidapet, Madras and Another Vs. Enfield India Ltd. Co-Operative Canteen Ltd. (1967) 2 Joint Commercial Tax Officer, Harbour Division Il, Madras Versus Young Men´sIndian Association, Madras and Others (1970) 26

I. T. MIRROR (2023-24) 27 merely acting as agents for and on behalf of the members. It also added that, Clubs were not selling goods, but were rendering services to their members. If we deep dive into the decision of SC in the above case, the court made a very clear distinction between a Member's Club and a Proprietary Club and held that the transaction between a Proprietary Club and its members are leviable to tax.Quick reference to meanings: Member's Club; Members are joint owners of all the Club's properties, where every member is a shareholder, and every shareholder is a member; Holding of the property by the agent / trustee must be holding for and on behalf of and not a holding antagonistic to the members of the club Proprietary Club; Members are not owners of or interested in the property of the club By the time the industry got settled and more clarity on levy of Sales Tax was received basis judiciary pronouncements, 46th Amendment to the Constitution of India was being introduced by the revenue in the year 1984. Before the 46th amendment to Constitution, the Clubs whether incorporated or not were treated at par under the Indirect Tax regime. Vide the Constitutional Amendment inserted Clause (29A) in Article 366 of wherein subclause (e) can be read as under: “tax on sale or purchase of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment, or other valuable consideration.” With this amendment, a new grey area under the levy of Sales Tax was introduced for the supplies by Club to its members. Now this constitutional amendment created a distinction between the transaction with a member by an incorporated association vis-à-vis an unincorporated association or body of persons. The literal interpretation of the amendment is very clear that to tax only transactions by an unincorporated association to its member. As far as such sale by an unincorporated association to the member is concerned, it is an established principal in 3 the taxing statue and also recently confirmed by the SC in the case of Calcutta Club that, to overcome a fundamental principal such as the Doctrine of Mutuality, the deeming fiction (i.e., Article 366(29A) (e) of the Constitution) has to be very specific. Therefore, the absence of explicit distinction between club and its members would render Doctrine of Mutuality in force even after the introduction of the Constitutional amendment. Though the distinction created between transactions with a member by an incorporated association and an unincorporated association in the Constitution stems from the preconceived notion that the tax on transactions were already applicable to an incorporated under the existing Sales Tax Act. The understanding of lawmakers can be gathered from the Statement of Objects and Reasons appended to the Constitution Bill, 1981 (enacted as The Constitution (Forty-sixth Amendment) Act, 1982). Which also means that the intention of lawmakers to differentiate between incorporated and unincorporated club under Article 366 of the Constitution has never been to levy tax only on sale or purchase of goods by unincorporate club or association. Service Tax As the Indian tax laws developed further in terms of clarity on levy of Sales Tax on different transactions, a new baby in form of Service Tax was brought in and the taxes on provisioning of Services was introduced under Chapter Vof the Finance Act, 1994 with effect from 1 July 1994. 3 State of West Bengal & Ors. Versus Calcutta Club Limited (2019)

I. T. MIRROR (2023-24) The initial Act didn't contain any explicit provisions pertaining to supply of services by Club to its members.With the introduction of Mandap Keeper's Service in 1998, the Mandap Keeper services supplied by Clubs to its members were brought 4 into the ST net. However, the Calcutta High Court in the case of Saturday Club Ltd held that principally there should be existence of two sides for having transaction as against consideration. In a members' club, there is no question of two sides. 'Members' and 'Club' both are same entity. One may be called as principal when the other as agent, therefore, such transaction in between themselves cannot be recorded as income, sale, or service. With effect from 16 June 2005, a new service was introduced in the name of “Club or Association Service” under the Finance Act along with a detailed definition of Club or Association. Simultaneously, an explanation was also added to impose STon services only by an “unincorporated association” or “body of persons” to its members. Once more, distinction was made in the taxability of services supplied by an incorporated club vis-à-vis an unincorporated club to its members. Anybody “established or constituted” by or under any law for the time being in force, is not included. Here, the intention of legislature was to keep “anybody established or constituted by or under any law for the time being in force” out of the scope of service tax as they were taxed under the specific statutes but the clause was interpreted differently by the Apex court in the case of Calcutta Club wherein the court interpreted the clause with its literal meaning and held that legislature has categorically kept the incorporated association out of the scope of Club or Association Service. Therefore, the taxability on incorporated club remained unaffected even after the introduction of “Club or Association Service”, whereas for the unincorporated Club, the definition introduced along with the explanation was not specific enough to do away with the fundamental principal of Doctrine of Mutuality, hence the taxability on unincorporated club also remain unaffected. Service Tax regime saw a paradigm shift with effect from July 2012 and new taxation system was being introduced. Besides other changes, the word "service" was also being defined under Section 65B (44) of the Finance Act. Whereby, the explanation to Section states, “for the purposes of this chapter, an unincorporated association, or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons”. Deeming provision this time was very specific and has explicit provisions which treats unincorporated association, or a body of persons and a member as distinct persons. The inclusion of the explanation has finally severed the Doctrine of Mutuality available to unincorporated associations hitherto. As a result of which the unincorporated association were brought into the STnet. 5 In one of the decisions by Gujarat HC in the case Sports Club of Gujarat Ltd , it was held that the provisions purport to levy ST in respect of services provided by the petitioner club to its members, to be ultra vires. The decision was challenged in the Apex Court and was finally decided along with the Calcutta Club Case wherein the Apex court ruled in the favour of the Clubs. In the said landmark judgement, it was held that the doctrine of mutuality, insofar as incorporated institutions are concerned, was not done away with in the STregime. Co-incidentally all the petitioners in the Sports Club Case as well as in Calcutta Club Case were incorporated. Moreover, in Calcutta Club Case, the SC explicitly held that the mutuality would be applicable only in the case of an incorporated club. In nutshell, till the introduction of Negative List under ST, the transactions between Club, (whether incorporated or not) and its member were kept out of the Indirect Tax net applying the Doctrine of Mutuality. Whereas post July 2012, STmade leviable on the transaction between unincorporated Cluband its member.(The matter for STon unincorporated club is pending in the SC in the matter of Bangalore Club and the view may differ basis the decision of the Court). GST GST was introduced and articulated as a Game Changer wherein the revenue has tried to incorporate express provisions whereby the ongoing litigations has been concluded under the erstwhile Indirect Tax regime. In the same line, definition of Business is being defined in a way to include supplies by a Club. As per the CGST Act, 4 Saturday Club Ltd. Versus Asstt. Commr., Service Tax Cell, Calcutta (2004) 5 Sports Club of Gujarat Ltd Versus Union of India & 3 (2013) 268

I. T. MIRROR (2023-24) Business includes - provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. Thus, now no separate provision was needed under the Act to levy tax on Clubs. However, subsequent to the decision of SC in the case of Calcutta Club (2019), upholding the doctrine of mutuality even after the 46th constitutional amendment, the supplies of goods or services by an unincorporated or incorporated entity to its members become a subject matter of litigation. Therefore, it became imperative on the part of legislature to amend the GST Act to bring clarity as well to bring the transactions between club and its member within the ambit of GST so as to safeguard the levy. In 39th GST Council Meeting, it was decided to amend the GST Act and to give more clarity on the Levy of GST on transactions between the Club and its member. As a result, in form of Notification , an amendment in Section 7 6 was introduced which expanded the scope of supply, by a person, other than an individual, to its members or viceversa for valuable consideration with retrospective effect. Moreover, an explanation was also inserted which categorically mentioned that for the purposes of this amendment, the person and its members shall be deemed to be two separate persons and the supply inter se shall be deemed to take place from one such person to another. There by, the legislature left no scope for the application of Doctrine of Mutuality for the transaction between the Club and its members. Also, no distinction has ever been created between the incorporated and unincorporated club under the GST. However, it is also interesting to know that, given the levy has been introduced with a retrospective effect and also gives more clarity on the levy, this seems to be a start of new era of litigation for supplies by Club to its members!! Sales Tax levy on Clubs under Central Provinces and Berar Sales Tax Act, 1947 46th Amendment to Constitution of India to Tax Supply of Goods by un-incorporated Clubs : 1982 Service Tax on Club and Association services : 2005 Change in definition of Service to clarify taxability of Service Tax on un-incorporated club : 2012 Levy of GST on Club and Association Service : 2017 Decision of Apex Court in the case of Calcutta Club to Exclude incorporated club from the ambit of Service Tax : 2019 Amendment in GST Act to expand Scope of Supply on Services by Club to its members with retrospective effect from July 2017 : 2021 29 6 Notification No. 38/2021 – Central Tax Dated: 21st December, 2021 Decision of SC - Calcutta Club to Exclude incorporated club from the ambit of ST: 2019 Amendment in GST Act to expand Scope of Supply on Services by Club to its members with retrospective effect from July 2017: 2021 Levy of GST on Club and Association Service : 2017 Service Tax on Club and Association services : 2005 Change in definition of Service to clarify taxability of ST on un-incorporated club : 2012 46th Amendment to Constitution to tax Supply of Goods by unincorporated Clubs : 1982 Sales Tax levy on Clubs under Central Provinces and Berar Sales Tax Act, 1947

Accounting Standards – (India Scenario) (A) Accounting Standards notified under Companies Act, 2013 • Companies (Accounting Standards) Rules, 2021 • Companies (Indian Accounting Standards) Rules, 2015 (B) Accounting Standards issued by ICAI • Applicable to Non-Corporate Entities (NCE) (C) Draft Accounting Standards for LLP (not yet notified) As per Companies (Accounting Standards) Rules, 2021 • Every company, other than companies on which Ind-AS are applicable, and its auditor(s) shall comply with the Accounting Standards in the manner specified in the Annexure attached to this rule. • The ASs shall be applied in the preparation of Financial Statements • The Central Government hereby specifies AS 1 to 5, 7 and 9 to 29 as recommended by ICAI • ASs come into effect in respect of accounting periods commencing on or after the 1st day of April, 2021. • Exemption or relaxation in respect of Small and Medium Sized Company (SMC) Here, Small and Medium Sized Company (SMC) means : o whose equity or debt securities are not listed o which is not a bank, financial institution or an insurance company o whose turnover (excluding other income) does not exceed Rs. 250 Crore in the immediately preceding accounting year o which does not have borrowings (including public deposits) in excess of Rs. 50 Crore at any time during the immediately preceding accounting year, and o which is not a holding or subsidiary company of a company which is not a SMC company SMC Company shall disclose by way of a note to its financial statements the following fact: “The Company is a Small and Medium Sized Company (SMC) as defined in the Companies (Accounting Standards) Rules, 2021 notified under the Companies Act, 2013. Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company.” ASs which are prescribed, are found to be not in conformity with law, the provisions of the said law will prevail and the financial statements shall be prepared in conformity with such law Two years wait period if change from Non-SMC to SMC Accounting and Auditing Standards – India Scenario - CA KRISHNA PARAG RAVAL 2630

I. T. MIRROR (2023-24) 31 Accounting Standards issued by ICAI applicable for Non-Corporate Entities (NCE): • The ICAI Council, at its 400th meeting, held on March 18-19, 2021, considered the matter relating to applicability of ASs issued by ICAI, to Non-company entities (Enterprises). The scheme for applicability of Accounting Standards to Non-company entities shall come into effect in respect of accounting periods commencing on or after April 1, 2020. • For applicability of ASs, Non-company entities are classified into four categories, viz., Level I, Level II, Level III and Level IV. – Level I – large size entities – Level II – medium size entities – Level III – small size entities – Level IV – micro size entities Level IV, III & II are together referred to as MSME entities • Effective from Accounting Periods from 01.04.2020 • Level – I are those entities whose securities are listed or in process of listing on any stock exchange or bank or financial institutions or entities carrying on insurance business or whose turnover exceed Rs. 250 Crore or Borrowing exceed Rs. 50 Crore in immediately preceding financial year • Level – II are those entities whose turnover exceed Rs. 50 Crore but does not exceed Rs. 250 Crore or Borrowing exceed Rs. 10 Crore but does not exceed Rs. 50 Crore in immediately preceding financial year • Level – III are those entities whose turnover exceed Rs. 10 Crore but does not exceed Rs. 50 Crore or Borrowing exceed Rs. 2 Crore but does not exceed Rs. 10 Crore in immediately preceding financial year • Level – IV are those entities which are not covered under Level I, Level II and Level III are considered as Level IV entities. An MSME which avails the exemptions or relaxations given to it shall disclose by way of a note to its financial statements the fact : “The Entity is a Micro Small and Medium Sized Enterprise (MSME) as per the announcement made by ICAI and has complied with the Accounting Standards insofar as they are applicable to entities falling in Level II or Level III or Level IV, as the case may be.” Two years wait period if change from Level I to II or II to III or III to IV. Auditing Standards – (India Scenario) Auditing Standards in India are broadly categories into following Types of Standards Abbreviation Numerical Series Nos. Standards on Quality Control SQC 01-99 1 Standards on Auditing SA 100-999 38 Standards on Review Engagements SRE 2000-2699 2 Standards on Assurance Engagements SAE 3000-3699 3 TOTAL : …….. 44 There are draft Auditing Standards for LLP however the same are not yet notified.

Ratio analysis is one of the oldest methods of financial statements analysis. It was originally developed by banks and other lenders to help them chose amongst competing companies asking for their credit. Two sets of financial statements can be difficult to compare. The effect of time, of being in different industries and having different styles of conducting business can make it almost impossible to come up with a conclusion as to which company is a better investment. Ratio analysis helps solve these issues. Sources of Data: - Financial Statements: The financial data published by the company and its competitors is the prime source of information for ratio analysis. - Best Practices Reports: There are a wide range of consulting firms that collate and publish data about various companies. This data is used for operational benchmarking and can also be used for financial data analysis. - Market: The data generated by all the activity on the stock exchange is also important from ratio analysis point of view. There is a whole class of ratios where the stock price is compared with earnings, cash flow and such other metrics to check if it is fairly priced. Importance Dividing numbers and obtaining ratios is not the main skill. In fact, this part can be automated and done by the computer. Companies wouldn't want to pay analysts for doing simple division, would they? The real skill lies in being able to interpret these numbers. The Companies in India require to prepare their financial statements in form of Schedule III to the Companies Act, 2013. Schedule III of Companies Act, 2013 came into force with effect from the 1st April, 2014 vide Notification S.O.902(E), dated 26th March 2014 and subsequently amended vide 1. Notification G.S.R. 679(E), dated 4th September 2015 2. Notification G.S.R. 404(E), dated 6th April 2016 3. Notification G.S.R. 1022(E), dated 11th October, 2018 4. Notification G.S.R. 207(E), dated 24th March, 2021. To bring about greater transparency in the financial statements, an amendment to Schedule III to the Companies Act, 2013 was introduced by the Ministry of Corporate Affairs. Therein, several new disclosures that are grouped under “Additional Regulatory Information” (ARI) are mentioned. Disclosure of 11 key accounting ratios is amongst the few disclosures specified under ARI, and are mandatory to be provided in the Financial Statements. Analysis of Financial Statements through Ratio Analysis - CA NISHA TEKWANI 2632

I. T. MIRROR (2023-24) 33 Let's dive into the meaning, computation and analysis of the ratios to be disclosed as per the requirements of the Companies Act: Name of Ratio Current Ratio Formula Current Assets / Current Liabilities Numerator Cash and Bank Equivalents in all forms whether Current Account, Savings Account, Undeposited cheques from Customers, Sundry Debtors/Receivables, Inventory - Finished Goods, Raw Material, Work in Progress, Prepaid Expenses are all form of Current Assets Assets are defined as Current Assets if they are expected to be converted into cash or cash equivalent in one year from the date of the Balance Sheet Denominator Bank Loans in form of Over Drafts, Cash Credits, Accrued Interest, The principal portion of Term Loans that will become due within one-year, Sundry Creditors/ Payables, Salary Payable and Other Current Provisions Liabilities are defined as Current Liabilities if they are expected to be payable within one year from the date of the Balance Sheet Analysis / Importance Indicates company's ability to meet its current liabilities with its current assets. A working capital ratio of 1 can imply that a company may have liquidity troubles and not be able to pay its short-term liabilities. But the trouble could be temporary and later improve. A working capital ratio of 2 or higher can indicate healthy liquidity and the ability to pay short-term liabilities, but it could also point to a company that has too much in short-term assets such as cash. Some of these assets might better be used to invest in the company or to pay shareholder dividends. Name of Ratio Debt Equity Ratio Formula Total Liabilities/Total Shareholder's equity Numerator All the liabilities that a company owes are taken into consideration – short term, long term and other liabilities. On the balance sheet date, total liabilities plus equity must equal total assets. However, sometimes there will be some off balance sheet liabilities as well, which have to be considered. Denominator The shareholders' Equity is equity and preference share capital + post accumulated profits (excluding fictitious assets etc). Analysis / Importance It is used to evaluate a company's financial leverage. A higher debt equity ratio means a company may have a difficult time covering its liabilities. An ideal debt to equity ratio is 2:1, which means that at no point of time should the debt be more than twice the equity because it becomes riskier to pay back and hence the fear of bankruptcy. However, optimal D/E ratio varies industry to industry.

I. T. MIRROR (2023-24) Name of Ratio Debt Service Coverage Ratio Formula Net Operating Income/Total Debt Service Numerator Gross revenue less all the “cash” expenses Net Operating Income = Revenue – Cash Operating Expenses Denominator Principal and Interest payments plus contributions to sinking fund (current debt obligations) Analysis / Importance It measures a firm's available cash flow to pay current debt obligations. A DSCR greater than 1 means the entity has sufficient income to pay its current debt obligations. Name of Ratio Return on Equity Ratio Formula Net income/ Average Shareholder's equity Numerator Net income is income arrived at after deducting all the expenses, interest, taxes, and Preference share dividends but before deducting Equity share dividends. Denominator Average Shareholder's equity = (Beginning shareholders' equity + Ending shareholders' equity) ÷ 2 Analysis / Importance ROE is considered a gauge of a corporation's profitability and how efficient it is in generating profits Name of Ratio Inventory Turnover Ratio Formula Cost of Goods Sold / Average value of inventory Numerator Cost of Goods Sold = Opening Stock + Net Purchase - Closing Stock + Direct Labour + Direct Expenses (note: selling and administrative expenses are normally excluded) Denominator (Opening Stock + Closing Stock) ÷ 2 Analysis / Importance It is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold in a given period. A slow turnover implies weak sales and possibly excess inventory, while a faster ratio implies either strong sales or insufficient inventory. The speed with which a company can turn over inventory is a critical measure of business performance. Retailers that turn inventory into sales faster tend to outperform comparable competitors. Opportunity cost of holding / low ratio has also to be factored in. 2634

I. T. MIRROR (2023-24) Name of Ratio Trade Receivable Turnover Ratio Formula Net Credit Sales / Average Accounts Receivables Numerator Net credit sales = gross credit sales - sales return. Some companies use total sales rather than net sales, which may inflate the results. Denominator (Opening Receivables of the period + Closing Receivables of the same period ) ÷ 2 Analysis / Importance It is an indicator of how well the company is managing the credit given to its customers. A high ratio indicates that the collection mechanism of the business is very efficient and the business has a higher base of customers who are quick in making their payments. It also measures how many times a company's receivables are converted into cash in a certain period of time. Name of Ratio Trade Payable Turnover Ratio Formula Net Credit Purchases / Average Accounts Payables Numerator Net Credit Purchase = Gross Credit Purchase – Purchase Return Denominator (Opening Payables of the period + Ending Payables of the same period ) ÷ 2 Analysis / Importance It shows how efficient a company is at paying its suppliers and short term debts. It shows the number of times the business is paying off its creditors or suppliers in an accounting period. A decreasing turnover ratio indicates that a company is taking longer to pay off its suppliers than in previous periods. It could be an indication of the company's financial condition. The payment policy should not be too quick for the company to miss out an opportunity to use the money in other endeavours. However, it should not be too slow for the creditors to ponder whether to extend a line of credit to the company. Name of Ratio Net Capital Turnover Ratio Formula Net Annual Sales / Average Working Capital Numerator Net Annual Sales = Gross Sales – Sales Returns and Trade Discounts Denominator Average Working Capital = (Opening working capital + Closing working capital) ÷ 2 OR Average working capital = average current assets – average current liabilities. Analysis / Importance It measures the relationships between the funds used to finance a company's operations and the revenues it generates to continue operations and turn a profit. A higher ratio would therefore be better, however too high a ratio would suggest that it needs to raise additional capital to support future growth. 35

Name of Ratio Net Profit Ratio Formula Net Profit After Tax / Revenue x 100 Numerator Net Profit After Tax = Net Sales – Cost of Goods Sold – Operating & other Expenses – Depreciation –Interest – Taxes Denominator Total Sales – Returns Analysis / Importance Expressed as a percentage. Indicator of a company's overall financial health. Higher the ratio, higher the chances of growth in share prices as they are typically correlated with earnings growth. However, one should consider one-off items such as the sale of an asset, which may temporarily boost profits. Name of Ratio Return on Capital Employed Ratio (ROCE) Formula Earnings before Interest &Taxes / Capital Employed Numerator EBIT = Earnings Before Interest and Taxes Denominator Capital Employed = Total Assets – Current Liabilities or Capital Employed = Tangible Net Worth* + Total Debt + Deferred Tax Liability *Tangible Net Worth = Total Asset – Total Current Liabilities – Intangible Assets Analysis / Importance It is a financial ratio – used to assess a company's profitability and capital efficiency. To put it simply, it measures how well a company is at generating profits from capital. Some prefer ROCE over Return on Equity (ROE) and Return on Assets (ROA) because return on capital considers both debt and equity financing. Ahigher ROCE implies a higher amount of profit is invested back in the company, which helps produce higher EPS. Name of Ratio Return on Investment (ROI) Formula (Final Value of Investment – Cost of Investment) / Cost of Investment Numerator Final Value of Investment = Market Value of Investment, plus dividends and interest Cost of Investment = Value at which the investment was purchased Denominator Cost of Investment = Value at which the investment was purchased Analysis / Importance It is used to evaluate the efficiency of an investment or compare the efficiency/profitability of a number of different investments. I. T. MIRROR (2023-24) 263

I. T. MIRROR (2023-24) Conclusion: Ratio analysis of Financial Statements is a powerful tool that provides valuable insights into a company's financial health and performance. The benefits of ratio analysis are manifold, as it enables stakeholders to assess liquidity, solvency, efficiency, and profitability, aiding in informed decision-making. Ratios serve as benchmarks for comparison, allowing investors, creditors, and management to gauge a company's relative strength and weaknesses within its industry. However, caution must be exercised when interpreting ratio analysis. One must recognize that ratios are simplifications and may not capture the entirety of a company's complexities. Variations in accounting methods and industry norms can affect the accuracy of comparisons. Additionally, over-reliance on ratios without considering qualitative factors may lead to misguided conclusions. Furthermore, ratios are historical indicators and may not accurately predict future performance, especially in dynamic business environments. External factors like economic shifts or unforeseen events can significantly impact a company's financial landscape, rendering historical ratios less reliable. In conclusion, while ratio analysis is a valuable analytical tool, users must approach it judiciously, supplementing quantitative findings with qualitative assessments and staying mindful of the limitations inherent in such numerical evaluations. 37

In the rapidly evolving business landscape, financial planning and analysis (FP&A) has become an essential function for organizations seeking sustainable growth and success. With the increasing complexity and uncertainty, integrated business planning (IBP) has emerged as a game-changer for FP&A professionals. In this article, we will explore the evolution of FP&A under IBP and understand how this integrated approach revolutionizes the way organizations plan, analyze, and adapt to market dynamics. THE ROLE OF FINANCIAL PLANNING AND ANALYSIS (FP&A) IN IBP Financial Planning and Analysis (FP&A) is a crucial function within organizations, responsible for forecasting, budgeting, and analyzing financial data to support strategic decision-making. Traditionally, FP&A has operated in silos, focusing solely on financial metrics without considering the impact of operational aspects on financial performance. However, with the introduction of integrated business planning (IBP), the role of FP&A has evolved significantly. IBP blends strategic planning, financial planning, and operational planning into a cohesive framework that enables businesses to make data-driven decisions and align their financial goals with overall business objectives. By integrating these traditionally siloed processes, organizations can gain real-time insights, enhance forecasting accuracy, and improve decision-making capabilities. The seamless integration of financial and operational data enhances the FP&A function's ability to provide valuable insights and recommendations to key stakeholders. EVOLUTION OF FP&A IN THE CONTEXT OF IBP In the traditional FP&A model, financial planning and analysis were primarily focused on historical data, with limited visibility into future performance. However, with the introduction of IBP, FP&A has evolved to become a forward-looking function, incorporating predictive analytics, scenario planning, and risk management. Evolution of FP&A under IBP - Integrated Business Planning - CA POOJA THAKKAR 2638

I. T. MIRROR (2023-24) 39 Under IBP, FP&A professionals can access real-time data from various operational systems to identify trends, patterns, and potential risks. This shift from a retrospective approach to a proactive one has empowered organizations to promptly make informed decisions and take corrective actions. BENEFITS OF INTEGRATING FP&A INTO IBP The integration of FP&A into IBP brings numerous benefits to organizations, enhancing their ability to achieve financial objectives and drive sustainable growth. Some of the key benefits include: 1. Enhanced decision-making: By combining financial and operational data, organizations can make more informed and data-driven decisions. IBP provides a holistic view of the business, enabling FP&A professionals to identify potential risks, evaluate various scenarios, and recommend the most viable course of action. 2. Improved forecasting accuracy: Traditional forecasting methods rely on historical data and assumptions, leading to inaccuracies. With IBP, FP&A professionals have access to real-time data, enabling them to create more accurate and reliable forecasts. This enhanced forecasting accuracy helps organizations in resource planning, budgeting, and identifying growth opportunities. 3. Increased collaboration: IBP breaks down the barriers between different departments and encourages cross-functional collaboration. By integrating FP&A into the IBP process, organizations foster collaboration between finance, operations, sales, and other key functions. This collaborative approach ensures the alignment of goals and strategies, leading to increased efficiency and better outcomes. KEY COMPONENTS OF AN INTEGRATED FP&A PROCESS To successfully integrate FP&A into the IBP framework, organizations need to establish a structured and welldefined process. Here are some key components of an integrated FP&A process: 1. Data integration: Organizations need to integrate financial and operational data from various sources to enable seamless analysis and decision-making. This may involve implementing advanced data analytics tools, developing data governance protocols, and establishing a data-driven culture across the organization. 2. Collaborative planning: IBP encourages cross-functional collaboration and participation in the planning process. FP&A professionals should actively engage with stakeholders from different departments to gather insights, align objectives, and develop integrated plans. 3. Scenario planning and sensitivity analysis: IBP enables organizations to evaluate various scenarios and assess their impact on financial performance. FP&A professionals should leverage scenario planning techniques and conduct sensitivity analysis to identify potential risks and develop contingency plans. 4. Continuous monitoring and reporting: IBP requires organizations to continuously monitor performance against plans and targets. FP&A professionals should establish robust reporting mechanisms and dashboards to provide real-time insights to key stakeholders. Regular performance reviews and variance analysis help organizations identify deviations from plans and take corrective actions promptly. CHALLENGES IN IMPLEMENTING FP&A UNDER IBP While integrating FP&A into IBP offers significant benefits, organizations may face challenges during the implementation process. Some common challenges include: 1. Data quality and integration: Integrating financial and operational data from disparate sources can be complex. Organizations must ensure data accuracy, consistency, and integrity to derive meaningful insights. Developing data integration processes and establishing data governance protocols are essential to overcome this challenge.

I. T. MIRROR (2023-24) 2. Change management: Implementing IBP and integrating FP&A requires a significant shift in mindset and organizational culture. Resistance to change, lack of buy-in from key stakeholders, and inadequate change management strategies can hinder the successful implementation of IBP. 3. Technology infrastructure: IBP relies on advanced data analytics tools, forecasting models, and collaboration platforms. Organizations must invest in the right technology infrastructure and ensure seamless integration with existing systems. Lack of technological capabilities and inadequate training can pose challenges during implementation. BEST PRACTICES FOR SUCCESSFUL INTEGRATION OF FP&A INTO IBP To ensure successful integration of FP&A into IBP, organizations can follow these best practices: 1. Establish clear goals and objectives: Clearly define the goals and objectives of integrating FP&A into IBP. Align these objectives with the organization's overall strategic direction to ensure a cohesive approach. 2. Engage stakeholders: Involve key stakeholders from different departments in the integration process. Seek their input, gather insights, and encourage collaboration to foster a sense of ownership and commitment. 3. Invest in training and development: Provide adequate training and development opportunities to FP&A professionals to enhance their data analytics, forecasting, and scenario planning skills. This investment in skill development enables them to contribute to the IBP process effectively. 4. Foster a data-driven culture: Develop a data-driven culture across the organization, emphasizing the importance of data integrity, accuracy, and analysis. Encourage employees to rely on data-driven insights for decision-making and create a culture of continuous improvement. TOOLS AND TECHNOLOGIES FOR FP&A IN AN IBP FRAMEWORK Implementing FP&A within an IBP framework requires the tools and technologies to analyze and interpret financial and operational data effectively. Some commonly used tools and technologies for FP&A in an IBP framework include: 1. Advanced analytics platforms: These platforms enable organizations to perform complex data analysis, predictive modeling, and scenario planning. Advanced analytics tools provide organizations valuable insights into future performance and facilitate informed decision-making. 2. Business intelligence (BI) tools: BI tools help organizations visualize and analyze data, providing userfriendly dashboards and reports. These tools enable FP&A professionals to monitor performance, identify trends, and communicate insights to stakeholders effectively. 3. Collaborative planning software: Collaborative planning software facilitates cross-functional collaboration, enabling stakeholders from different departments to contribute to the planning process. These platforms streamline the planning and budgeting process, enhancing efficiency and accuracy. 4. Enterprise performance management (EPM) systems: EPM systems integrate financial planning, budgeting, and forecasting processes, providing a unified platform for FP&A professionals. These systems enable organizations to align financial goals with strategic objectives and monitor performance against targets. CASE STUDIES OF COMPANIES SUCCESSFULLY IMPLEMENTING FP&A UNDER IBP Case Study 1: Company X - A multinational consumer goods company Company X successfully implemented FP&A under IBP, improving financial performance, and enhancing decision-making capabilities. The company gained real-time insights into market trends, customer behavior, and 2640

I. T. MIRROR (2023-24) supply chain dynamics by integrating financial and operational data. This enabled FP&A professionals to develop accurate forecasts, identify growth opportunities, and optimize resource allocation. Case Study 2: Company Y - A technology startup Company Y, a fast-growing technology startup, implemented FP&A under IBP to support its rapid expansion. By integrating financial and operational planning, the company gained a holistic view of its business, enabling FP&A professionals to identify potential risks and develop proactive strategies. Through scenario planning and sensitivity analysis, Company Y effectively managed its cash flow, optimized pricing strategies, and achieved sustainable growth. CONCLUSION The integration of FP&A into IBP has transformed the way organizations plan, analyze, and adapt to market dynamics. By breaking down the silos between financial and operational planning, organizations can make informed decisions, enhance forecasting accuracy, and drive sustainable growth. While implementing FP&A under IBP may present challenges, organizations can overcome them by establishing clear goals, fostering collaboration, investing in technology, and developing a data-driven culture. With the right tools, technologies, and best practices, organizations can unlock the full potential of FP&A within an IBP framework and thrive in an increasingly competitive market. 41

For a long time, there were several laws which separately dealt with Insolvency and Bankruptcy Provisions in our country. The Insolvency and Bankruptcy Code ('Code' or 'IBC') was framed with the ambitious intention to consolidate and provide an effective frame work for the Insolvency and Bankruptcy of corporates, partnership firms, in a time bound manner. This important legislation aims to improve ease of doing business and facilitate more investments leading to the economic growth of our country. While the provisions of the IBC extensively deal with several nuances of the insolvency process, this article seeks to shed light oncertain of transactions carried out by a company with the intention to protect the interest of the promoters of the company, especially when the company is on the verge of insolvency. It often times happens that the board of directors of the distressed company, attempt to set-off personal liabilities by selling the assets of the company, through transactions that are not in the interest of the company. Such transactions thereby minimize the asset value of the company and hurt the cash flow of the company. These transactions are now being sought to be reversed under the IBC, through Avoidance Provisions. The term 'Avoidance provisions' is defined under the UNCITRAL Legislative Guide on Law of Insolvency as “provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered ineffective and any assets transferred, or their value, to be recovered in the collective interest of creditors.” The Code has incorporated the Avoidance provisions by the way of authorising or giving power to the Resolution Professional or the Liquidator, under Chapter III and Chapter VI, for avoiding or reversing certain transactions while being in charge of the management of the Corporate Debtor ('CD') during the Corporate Insolvency Resolution Process ('CIRP') or the liquidation process. The provisions of IBC empower the Resolution Professional ('RP') or the Liquidator to challenge certain transactions entered by the corporate debtor, which may have been undertaken to deliberately defraud or prejudice the interests of the creditors. One of the major reforms under the Code occurred with the introduction of the provisions dealing with the avoidance transactions, wherein the RP is required to critically review the books of accounts and the transactions of the CD in order to determine whether any of the actions or transaction of the Corporate Debtor falls under the category of preferential transaction, undervalued transaction, fraudulent transaction and extortionate credit transactions ('PUFE' transactions). The primary difference between the PUFE transactions is that the preferential transaction is a deemed provision, whereas, in other categories of avoidance transactions, the burden of proof is upon the RP. Therefore, a preferential transaction, being a deemed provision implies that even if the intention or anticipation to give preference to the related party or any other person is not present, a transaction can be a preferential transaction if it falls under section 43(2) of the Code. On the other hand, to prove a transaction as undervalued, fraudulent, or extortionate credit, the RP or Liquidator has to produce evidence to show the intention. Sections 43 to 51 deal with the avoidance of Preferential, Undervalued and Extortionate transactions, while section 66 deals with avoidance of Fraudulent transactions. Over time, the interpretation and application of the Sections have evolved, leading to an evolving jurisprudence in the field of insolvency law. The IBC provides that such transactions can be avoided or set aside if they are found to be detrimental to the interest of the creditors of the company or impede the effective resolution of the said company. These provisions are in line with the main The Insolvency and Bankruptcy Code & PUFE Transactions ADV. LAGHIMA JAIN ADV. AISHWARYA REDDY 2642

I. T. MIRROR (2023-24) objective of the IBC which is to prevent the misuse of the corporate structure and toensure that the creditors are not prejudiced by fraudulent or preferential dealings at the hands of unscrupulous promoters. The RP plays a pivotal role in identifying, evaluating, and challenging such transactions. By taking appropriate legal actions, seeking recovery, and ensuring fair distribution, the RP aims to protect and optimize the interests of creditors. While representing the interests of the creditors and working towards the maximization of the value of the corporate debtor's assets, the role of RP with respect to PUFE transactions, is elaborated in the following flow chart: Identification and Evaluation Identifying potential PUFE transactions during the period under consideration, which involves reviewing the corporate debtor's books, records, and financial statements to determine any transactions that may fall under the purview of PUFE transactions. Evaluate the identified transactions to ascertain if they meet the criteria for avoidance. In case of listed entity, the RP has to gather information regarding compliance under SEBI from the authroised person of Corporate Debtor Once a potentially avoidable transaction is identified, the RP has the authority to initiate legal proceedings against the parties involved including but not limited to the avoidance transaction and non-cooperation, if any while seeking information. Initiation This includes initiating claims and seeking to set aside the transaction in question. of Proceedings If it is successfully proved that a transaction is an avoidance transaction, RP plays a crucial role in pursuing recovery. The RP seeks to retrieve the value of such transactions for the benefit of the creditors. The recovered amount is then distributed in accordance with the insolvency resolution plan approved by the Committee of Creditors (CoC) or as directed by the National Company Law Tribunal (NCLT). Recovery and Redestribution Collaboration with Experts In cases where the avoidance transaction is complex or involves legal challenges, the RP may collaborate with legal or forensic experts to build a robust case. These experts provide their specialized knowledge and support to strengthen the RP's claims and ensure a fair and successful resolution. Reporting to Adjudication Authority The RP is responsible for submitting periodic reports to the NCLT, providing updates on the progress of the avoidance transaction proceedings. These reports help the NCLT monitor the legal actions taken, track recoveries, and ensure transparency in the overall resolution process. 43

I. T. MIRROR (2023-24) After the enactment of the IBC, the jurisprudence of provisions relating to PUFE transactions, which provides for reversing of fraudulent transactions and the role of RP has been evolving and expanding. Initially, there was some confusion as to whether an application for avoidance transaction can be made once the Resolution Plan is finalized and CIRP has been concluded. This impression was clarified by the Hon'ble Delhi High Court in the matter of Tata Steel BSL Ltd. v. Venus Recruiters1. The said Court has held that the principle of avoidance transactions under the IBCare not affected by the approval of Resolution Plan or the conclusion of CIRP. It has held that CIRP and avoidance applications are, by their very nature, a separate set of proceedings wherein, the former, being objective in nature, is time-bound whereas the latter requires a proper discovery of suspect transactions. The Court after making such observations has concluded that adjudication of an avoidance application is independent of the resolution of the corporate debtor and can survive CIRP. 2 In the matter of Edelweiss Asset Reconstruction Company Ltd. v. Net 4 India Limited , be considered by the NCLT, Delhi. The RP had filed an application red flagging several transactions of the company that was in CIRP. After understanding the transactions on merits, the Hon'ble NCLT, directed the inspection of the Corporate Debtor from the date of alleged transfer of business by an auditor nominated by it and a report of the same be prepared. The Tribunal further directed that upon approval of the said report by the Tribunal, the promoter director shall pay back the loss estimated by the auditor to the company. At the same time, the Tribunals have held that transactions undertaken in the normal course of business or for valid commercial reasons may not be considered as avoidance transactions unless they are found to be undervalued or with the intention to defraud creditors. The term 'fraud' is of significance when such transactions are investigated. The NCLAT in a recent landmark judgement of in the case of Shri Baiju Trading and Investment Private Limited v. Mr. ArihantNenawati and Others3, has interpreted the term'fraud' tointeralia, consist of such debts which thedebtor has no intention of paying or does not expect to be able to pay or such fraud may also happen by way of false representation and without intention to pay back. It has further interpreted the expression “any person” to include a knowing party to the carrying outof fraudulent transactions. The evolving jurisprudence surrounding the avoidance transactions under the Insolvency and Bankruptcy Code reflects the courts' commitment to ensuring fair and equitable resolution of insolvency cases. The dynamic interpretation of the provisions governing avoidance transactions, has enhanced the effectiveness of the Code by allowing the avoidance of transactions that impede the interests of creditors and undermine the ultimate goal of revival or resolution of the corporate debtor. The RP plays a pivotal role in identifying, evaluating, and challenging such transactions. Such transactions are almost always required to be supported by an auditor's report to assist the Tribunal in tracing the elements of fraud within the accounts maintained by the company. By taking appropriate legal actions, seeking recovery, and ensuring fair distribution, the RP aims to protect and optimize the interests of creditors. As courts continue to hear and decide cases consisting of PUFE transactions, the jurisprudence will continue to evolve, providing further clarity and guidance on the interpretation and application of this important provision in insolvency law. 1 (2023) 172 CLA 239 2 2021 SCCOnline NCLT 435 3 2023 SCCOnline NCLAT 845 2644

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