Weekly Round-up on Tax and Corporate Laws | 07th to 12th February 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 07th to 12th February 2022, namely:

(a) MCA introduces form CSR -2 for transparent CSR reporting

(b) The Mumbai Tribunal rules that a gift can’t be doubted just because the returned income of the donor is insufficient to justify it

(c) Sale of a developed plot is different from the sale of land; covered under the supply of construction service: AAAR

(d) A person accused of fraud under Section 447 of Companies Act 2013 has no right to bail if a charge sheet is filed within 60 days limit under Section 167(2) of Cr.PC

(e) Petitioner can’t be held liable for a contravention of the provision of GST law by any other person in the supply chain: HC

(f) Presentation of ‘Assets under development’ in the Financial Statements

1. MCA introduces new form CSR -2

The Central Government vide Notification No. GSR 107(E), dated 11-02-2022, has notified the Companies (Accounts) Amendment Rules, 2022. As per amended rules, every company covered under Section 135 shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding financial year (2020-2021) and onwards. The CSR-2 is to be filed as an addendum to Form AOC-4/AOC-4 XBRL/AOC-4 NBFC (Ind AS), as the case may be. However, form CSR-2 for the FY 2020-21 shall be filed separately by 31st March 2022. Companies falling under Section 135 are required to spend a certain percentage of their profits on CSR as specified in the section. Earlier, there was no form prescribed to furnish a report on CSR. Now through this notification ministry introduced the same.

Objective of Amendment

Corporate Social Responsibility (CSR) is a self-regulating business model that helps a company be accountable to itself, its stakeholders, and the public. As a part of the good corporate governance practice, the MCA, on 11th February 2022, notified Form CSR-2. Now it is mandatory for corporates to furnish the details of the CSR spent to the Ministry through this form. Earlier, no such form was prescribed. Section 135 of the Act only mandates to annex the details of CSR to its Board Report and also disclose on the website of the company, if any. Form CSR-2 may be useful for data mining and analysis for the MCA to introduce better policies on this front.

Applicability of CSR-2

Every class of companies which are falling under Section 135 of the Act, i.e., having a net worth of Rs. 500 crores or more, or turnover of Rs. 1,000 crore or more or a net profit of Rs. 5 crores or more during the immediately preceding financial year shall file form CSR- 2.

Due date to file CSR-2

For FY 2020-21: CSR-2 is to be filed separately on or before 31st March 2022;

From FY 2021-22 onwards: CSR-2 is to be filed as an addendum to form AOC-4/AOC-4 XBRL/AOC-4 NBFC (IND AS), as the case may be.

How to file Form CSR-2?

Form CSR-2 is a web-based form, and it is available on the MCA portal under the head MCA Services. For filing the form CSR-2, one needs to log in to the MCA first. Unlike the E- forms, it cannot be downloaded, and it is to be filed on the MCA portal just like the spice form.

Disclosures

CSR-2 requires a company to disclose its net worth, turnover, net profits of a particular financial year, triggering the CSR applicability. Apart from that, details with regard to the constitution of the CSR committee, their meetings, CSR policy, approved CSR projects, the amount required to spend as per Section 135, the actual amount spent, details of the project on which amount is to be spent, the excess amount spent if any, etc. are also required to be reported.

New concept of Project ID has been introduced

A new concept of the generation of Project ID has been introduced through the form. Project ID may serve as a reference ID to track the CSR activities of the company.

Form to be digitally signed by the Director of the Co.

The form is to be digitally signed by the authorized directors of the company.

Whether CSR -2 need to be certified?

The form is to be filed after a self-declaration. Therefore, no certification from practising professionals like Company Secretary (CS), Chartered Accountant (CA) or Cost Accountant (CMA) is required.

Penalty on failure to file form CSR-2

In the notification, no separate penalty is specified for the non-filing of the form.

The general penalty for filing incorrect details attract penalty under Section 448 and 449, which provide for punishment for false statement/Certificate and punishment for false evidence, respectively.

Read the Notification

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2. A Gift amount can’t be doubted just because the donor’s returned income is insufficient to justify it: ITAT

The Mumbai Tribunal has granted relief to film actor Mr Kushal Tandon in a case related to a gift transaction. The Tribunal has ruled that a gift amount received by the actor from his father can’t be doubted and taxed under section 68 by merely relying on the father’s income-tax return.

Facts

The assessee was a film actor and model by profession. During the relevant year, he was unable to meet the expenses required to be incurred by him for a decent survival in the industry. Thus, his father gifted an amount of Rs. 30 lakhs to him.

The Assessing Officer (AO) noticed that the assessee’s father had disclosed an income of Rs. 4,12,960 for the year under consideration. Thus, he treated the gift received as an unexplained cash credit under Section 68. On appeal, the CIT(A) upheld the view taken by AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

Ruling

The Mumbai Tribunal held that the assessee has submitted the gift deed during the assessment proceedings, which his father executed. Such gift deed had clearly stated that the assessee was given an irrevocable cash gift of Rs. 30 lacs to him out of his past accumulated savings.

AO had not attempted to disprove the genuineness and integrity of gift transactions. If the assessee’s father had claimed that the gift amount was from his accumulated saving, it was for AO to have verified such fact. He was required to verify whether such accumulated funds had been generated over the years and whether funds were from his duly explained sources that had already suffered taxes.

AO, merely going by the fact that the father’s returned income was insufficient to justify the gift amount, had summarily discarded the gift transaction. AO could reach a logical conclusion by exercising his powers, i.e. summoning his father and examining the gift transaction.

However, based on premature observations, he rejected the assessee’s explanation and stamped the gift amount as an ‘Unexplained cash credit’ within the meaning of Section 68. Accordingly, the very basis of the addition was devoid of any merit, and therefore, the same couldn’t be sustained & was vacated.

Read the ruling

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3. Sale of a developed plot is different from the sale of land and covered under the supply of construction service: AAAR

The Appellate Authority for Advance Ruling has held that the sale of a developed plot is different from the sale of land. The sale of the developed plot would be covered under the supply of construction services under S. No. 3 of Notification No. 11/2017-Central Tax (Rate) attracting GST at 18%. The Gujarat Appellate Authority gives this ruling in the case of Dipesh Anilkumar Naik.

Facts

The appellant was a farmer having vacant land outside the municipal area of town. He has got necessary approvals from the Plan Passing Authority(the Jilla Panchayat) as per which the seller of land was required to develop the primary amenities like sewerage and drainage line, water line, electricity line, land levelling for road, pipeline facilities for drinking water, street lights, telephone line, etc. He would then sell the individual plots to different buyers without any construction. He filed an application for the advance ruling to determine whether GST would be applicable in selling developed land.

The Authority for Advance Ruling held that GST shall be applicable on the sale of a plot of land for which, as per approval of the respective authority (the Jilla Panchayat), primary amenities such as, drainage line, water line, electricity line, land levelling etc., are to be provided. It filed an appeal against the order.

AAAR

The Appellate Authority for Advance Ruling observed that the appellant didn’t produce any evidence to prove that the price charged for individual plots sold to buyers would not include the price of common facilities which the individual buyers shall be entitled to enjoy or use. The sale of a developed plot would not be equivalent to the sale of land but a different transaction. The sale of developed land would be covered under the scope of “construction of civil structure or a part thereof, intended for sale to a buyer”. Therefore, the sale of such plots would amount to the supply of service, and GST would be payable at 18%.

Read the Ruling

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4. A person accused of fraud under Section 447 of CA 2013 has no right to bail if a charge sheet is filed within 60 days limit under Section 167(2) of Cr.PC.

In this significant ruling in the matter of Serious Fraud Investigation Office v. Rahul Modi [2022] 135 taxmann.com 98 (SC), The Supreme Court observed that an accused in a fraud case under Section 447 of the Companies Act, 2013, has no right to bail if a charge sheet is filed within 60 days limit under Section 167(2) of Cr.PC.

Facts

The directors of Adarsh Group of Companies and LLPs were accused of committing an offence under Section 447 of the Companies Act, 2013, Section 120-B read with Sections 417, 418, 420, 406, 463, 467, 468, 471, 474 of the Indian Penal Code, 1860.

The undisputed facts are that the complaint under Section 439(2) of the Companies Act, 2013 was filed on 18-05-2019, which was before the expiry of the 60 days from the date of the remand. The applications filed for statutory bail were dismissed by the Special Court on 22-05-2019, on the ground that the charge sheet was filed before the expiry of 60 days.

The question before the Apex Court was whether an accused is entitled to statutory bail under Section 167(2), CrPC, on the ground that cognizance has not been taken before the expiry of 60 days or 90 days, as the case may be, from the date of remand?

The accused contended that an accused has a right to seek statutory bail under the proviso to Section 167(2) even after the charge sheet is filed, till the court takes cognizance.

The Apex Court held that the indefeasible right of an accused to seek statutory bail under Section 167(2), CrPC arises only if the charge sheet has not been filed before the expiry of the statutory period.

“Reference to cognizance in Madar Sheikh case is in view of the fact situation where the application was filed after the charge-sheet was submitted and cognizance had been taken by the trial court.

Such reference cannot be construed as this court introducing an additional requirement of cognizance having to be taken within the period prescribed under proviso (a) to Section 167(2), CrPC, failing which the accused would be entitled to default bail, even after filing of the charge-sheet within the statutory period.

It is not necessary to repeat that in both Madar Sheikh (supra) and M. Ravindran (supra), this court expressed its view that non-filing of the charge-sheet within the statutory period is the ground for availing the indefeasible right to claim bail under Section 167(2), CrPC. The conundrum relating to the custody of the accused after the expiry of 60 days has also been dealt with by this court.” Court said.

Read the Ruling

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5. Petitioner can’t be held liable for the contravention of the provision of GST law by any other person in supply chain: HC

The Punjab & Haryana High Court has recently held that a person cannot be held liable for the contravention of the provision of law by any other person in the supply chain. Therefore, the initiation of confiscation proceedings against petitioner for alleged contravention of law by other persons in the supply chain is not sustainable. This ruling is given by the Honorable High Court of Punjab and Haryana in the case of Shiv Enterprises v. State of Punjab.

Facts

The proceeding under Section 130(1) was initiated against the petitioner on the ground that sellers/suppliers of the petitioner were not having inward supply but only engaged in outward supply without paying any tax. It challenged the proceedings and filed a petition against the same.

High Court

The Honorable High Court observed that no discrepancy had been pointed out in the invoice and e-way bill of the petitioner. No finding was there with respect to contravention of any provision by the petitioner with intent to evade payment of tax. The department alleged contravention of provisions of GST against the supplier of the petitioner on the ground of showing outward supply without having inward supply. The invocation of Section 130 must have nexus with the action of the person against whom proceedings would be initiated. Therefore, it was held that the petitioner cannot be held liable for contravention of provision of law by any other person in supply chain and notice issued under Section 130 and order passed by authorities was liable to be set aside.

Read the Ruling

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6. Presentation of ‘Assets under Development’ in the Financial Statements

Capital work-in-progress (CWIP) means the expenditure incurred on capital assets that are in the process of construction or completion. It is an item of the balance sheet and its detailed workings are to be shown in notes “Capital Work-In-Progress (CWIP) & Intangible Assets under Development”.

CWIP includes costs incurred on the development of fixed assets which are still under construction at the balance sheet date. It includes costs such as the cost of building under development, land recovered under the settlement of debts, in which certain formalities are still pending, etc.

For capital-work-in progress, an ageing schedule is required to be prepared in the manner prescribed in Schedule III.

Whereas for Intangible assets under development, disclosure under this head is provided in accordance with the criteria laid down in Ind AS-38, Intangible Assets, along with the ageing schedule as prescribed in Schedule III.

Further, for intangible assets under development whose completion is overdue or has exceeded their cost compared to their original plan, the completion schedule shall also be presented in the manner prescribed in Schedule III.

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