Weekly Round-up on Tax and Corporate Laws | 10th to 15th January 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 10th to 15th January 2022, namely:

(a) Gujarat High Court held that payment of tax is sufficient to allow withdrawal from Capital Gains Account Scheme

(b) Karnataka AAAR held that vouchers are goods and do not qualify as money unless redeemed; liable to GST

(c) MCA amends Companies (Registration Offices and Fees) Rules, 2014; tightens norms relating to additional fee and higher-additional fee

(d) CBIC issues guidelines for recovery proceedings in case of mismatch in GSTR-1 & GSTR-3B

(e) CIRP plea filed within 3 yrs of acknowledgement of debt through letters wasn’t barred by limitation: NCLAT

(f) An auditor must attend the physical count of inventory: NFRA

1. Payment of tax is sufficient to allow withdrawal from Capital Gains Account Scheme; HC directs AO to issue NOC

The Gujarat High Court has ruled that if the assessee has sought NOC from AO to withdraw the sum from Capital Gains Accounts Scheme, there is no reason not to allow such request when the entire amount of the advance tax on the capital gains is duly deposited.

Facts

The assessee was an individual and practising advocate. During 2018-19, he claimed exemption under Section 54F by depositing Rs. 4.67 crores with the Bank of India in the Capital Gains Accounts Scheme, 1988.

Later, the assessee couldn’t find any viable opportunity and sought to withdraw the money deposited with the Bank. As a No Objection Certificate (NOC) from Assessing Officer (AO) was required to withdraw money, the assessee paid capital gain tax through an advance tax of Rs. 1.25 crores and submitted a letter with AO for issuance of NOC.

However, AO rejected the issuance of NOC on the ground that the same cannot be done until the return of income for Assessment Year 2022-2023 is filed by the assessee. Aggrieved-assessee filed the writ petition before the High Court.

Ruling

The Gujarat High Court held that the assessee had shown his inability to purchase any residential house. Thus, on tax payment, he sought to close the account and permit the withdrawal of the remaining amount.

There was no reason for the AO not to allow this request. More particularly, when the entire amount of the advance tax had already been paid. By way of an affidavit, the assessee also stated that he shall not claim the set-off of any business/professional loss against the Capital Gain that he may offer in the Assessment Year 2022-2023.

It has been undertaken further that while filing the return of income, a physical copy of the same shall also be deposited with the concerned AO. With all possible loopholes plugged, cementing the same with the affidavit, the action of the AO denying the issue of NOC for the balance withdrawal of the deposit isn’t justified.

Thus, AO was directed to issue NOC and allow that from the part of the amount deposited in the Capital Gain Account Scheme, and the remaining amount shall be legally withdrawn.

Read the Ruling

Also Read, Taxmann's Expectations from the Union Budget 

Every year, Taxmann releases a document that includes our recommendation and expectations from the Union Budget. This year also, we have prepared a list of our apprehensions and recommendations for the upcoming Budget. We don’t focus on our demands from the Govt. for Industries but highlight the asymmetry and conflict between different provisions that should be plugged to bring clarity in the law. At Taxmann, we believe that our responsibility is to highlight the gaps in the law and work as a bridge between the revenue, taxpayer, and tax professionals. The document below contains or expectations from the Union Budget 2022.

2. Vouchers are goods and do not qualify as money unless redeemed; shall be liable to GST: AAAR

The Karnataka Appellate Authority for Advance Ruling (AAAR) has recently upheld that vouchers are goods and liable to GST when bought from authorised issuers and sold to various companies. The vouchers do not qualify as money unless redeemed. The Appellate Authority gives this ruling in the case of Premier Sales Promotion (P.) Ltd.

Facts

The appellant was engaged in trading vouchers like gift vouchers, cashback vouchers and multi-option vouchers by purchasing them from authorised issuers and selling them to various companies. It applied for an advance ruling to determine the taxability of vouchers, and the AAR held that vouchers are goods and liable to GST of 18%. The appellant filed an appeal against the advance ruling and contended that vouchers are payment instruments and are treated as consideration and not goods.

AAAR

The Appellate Authority for Advance Ruling (AAAR) observed that the definition of money in GST law includes instruments when used as consideration to settle an obligation. The voucher in the hands of the appellant does not settle an obligation but creates an obligation and cannot be termed as money. The voucher is an instrument recognised by the RBI and does not qualify as money unless redeemed. Appellant purchases the vouchers by paying consideration, and the same is sold to clients for consideration. Therefore, it was upheld that vouchers would qualify as movable property and considered as goods.

Read the Ruling

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3. MCA amends Companies (Registration Offices and Fees) Rules, 2014; tightens norms relating to additional fee and higher-additional fee

The Ministry of Corporate Affairs (MCA) has notified amendment to the Companies (Registration Offices and Fees) Rules, 2014. The amendment shall be effective from 1st July 2022. As per the amended norms, the MCA has prescribed a higher additional fee of up to 18 times, as against the existing 12 times of the normal fee, for delay in filing of forms by making amendments in Annexure to Companies (Registration Offices and Fees) Rules, 2014 relating to filing fees under Section 403 of the Companies Act, 2013.

Section 403 of the Companies Act deals with fees for filing any document with the Registrar and shifting of the additional fees from a slab-based structure to a day-based defaulting structure. The higher additional fees shall be applicable in some instances for the delay in filing forms. The higher additional fee, however, would not be applicable in respect to:

(a) Form SH-7: Form for increasing the Nominal Share Capital;

(b) Form AOC-4: Form filed under Section 137 of the Act;

(c) Form MGT-7: Form filed under section 92 of the Act;

(d) Form CHG-1, Form CHG-4 etc.: Charges Form.

The MCA specified that if there is a delay in filing of E-form PAS-3 (Return of Allotment) and INC-22 (Shifting of the Registered Office) a higher additional fee will be charged only if:

(a) There is a delay in filing of above forms (forms are filed after the expiry of due date as specified in the Act);

(b) The delay is on two or more occasions; and

(c) Such delay is made within 365 days from the date of filing of the last belated form wherein an additional/higher additional fee was payable.

The MCA further specified that no additional fee would be charged wherever a higher additional fee is applicable, and one needs to pay the higher additional fee only.

Read the article

Read the Rules

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4. CBIC issues guidelines for recovery proceedings in case of mismatch in GSTR-1 & GSTR-3B

Explanation to Section 75(12) of CGST Act, 2017 provides that if the tax payable in respect of outward supplies furnished in Form GSTR-1 has not been paid through GSTR-3B return, the short payment of tax and admitted liability shall be recovered under the provisions of section 79 along with interest thereon.

The CBIC noted that there might be a genuine reason for the difference between the outward supplies declared in GSTR-1 and GSTR-3B. Therefore, it is instructed that the proper officer should provide an opportunity to explain such differences and short-payment of tax before taking any action under Section 79 for recovery of the said amount.

However, where the registered person fails to give a reply to the proper officer or fails to make the payment of tax, within the time prescribed in the communication or such further period as may be permitted by the proper officer, then the proceedings for recovery of the said amount as per provisions of Section 79 may be initiated by the proper officer. In this regard, Instruction No. 01/2022-GST dated 7th January 2022 has been issued.

Read the instructions

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5. CIRP plea filed within 3 yrs of acknowledgement of debt through letters wasn’t barred by limitation

In the instant case, the corporate debtor was granted credit facilities which were enhanced from time to time. An extension was given to the corporate debtor to pay his debts due to CDR (Corporate Debt Restructuring) package worked out and implemented as per RBI guidelines.

However, the corporate debtor failed to act as per the CDR package, and the account was termed as NPA on 25-8-2015. Subsequently, as per RBI guidelines, the date was revised to 15-1-2013 based on when the CDR Package had been formalised. Consequently, financial creditor-Bank filed an application under section 7 against the corporate debtor, which the Adjudicating Authority admitted.

The corporate debtor contended that its account was classified as NPA on 15-1-2013. Therefore, the application filed under Section 7 on 5-3-2018 was time-barred. The Financial creditor pointed out an acknowledgement of corporate debtor on 15-6-2016 through letters of corporate debtor itself and claimed that the balance sheets of the corporate debtor showed overall borrowings.

On appeal, the Appellate Tribunal held that since letters addressed by the corporate debtor on 15-6-2016 to financial creditor bank for debt resolution clearly acknowledged its debt liability, CIRP application filed within three years of such acknowledgement was not barred by limitation.

Read the Ruling

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6. An auditor must attend the physical count of inventory: NFRA

The auditor is duty-bound to report on matters specified in paragraphs 3 and 4 of Companies (Auditor`s Report) Order (CARO), 2020. To report under paragraph 3(ii)(a) of CARO, 2020 and to adhere to the provisions contained in Para A1 to A8 of SA 501 Audit Evidence – Specific Considerations for selected items, the auditor is required to attend the physical count of inventory.

However, where it is impracticable to attend the physical inventory counting, Para A12 and A13 of SA 501 states that, in that case, an alternate audit procedure may be performed to provide sufficient appropriate audit evidence about the existence and condition of inventory.

An auditor must satisfy himself that the management has conducted the physical verification of inventory at reasonable intervals. Further, the auditor should maintain sufficient and adequate verification evidence to form any conclusion. For this, the auditor should attend the physical count of inventory and prepare the relevant working papers wherever required. Mere obtaining the stock statements of inventory from the management is not sufficient to frame a conclusion.

Also, proper documentation supporting the auditor’s contention that the management conducted proper physical verification shall be readily available on records. The instances of such documentation are provided below:

(a) Reconciliation made between the books and physical verification records.

(b) Audit remarks/ observations, if any, found for adjustment in inventories after the physical verification.

(c) Working papers for sampling done by the auditor, where physical verification is conducted by management and audit team member is present.

(d) Evidence that engagement team has done test count to satisfy themselves about the effectiveness of the count procedures.

(e) Verification done by the auditor about the adequacy of physical safeguards over inventory.

(f) Evidence of reconciliation of inventory between items issued, consumed, returned, damaged and obsolete to ensure that the physical balance represents the actual quantity as per books.

(g) Documentation of the inventory receipt and issue procedures.

(h) Evidence of examining the manner in which the goods are stacked or labelled, and the quality and nature of items that require expert knowledge for recognition and whether any experts were involved in such cases.

To conclude, it is necessary to obtain sufficient appropriate audit evidence in the manner and of the kind required by SAs, regarding the inventory of the company at the year-end.

Read the story

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