Weekly Round-up on Tax and Corporate Laws | 11th to 16th March 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 11 to 16^th, 2024, namely:

(a) CBDT allows filing of modified ITR for business reorganization from June 16 to March 22 until June 30, 2024;

(b) ‘Congress’ can file fresh stay application before ITAT as 48% of outstanding demand has been recovered: HC;

(c) GSTIN introduces New 14A and 15A tables in GSTR 1;

(d) Assessee’s request to amend/rectify genuine mistake in Form DRC 03 to be allowed by dept.: HC;

(e) SEBI relaxes timelines for Foreign Portfolio Investors to disclose material changes and

(f) Treatment of classification error of liabilities in the financial statement under AS and Ind AS framework.

1. CBDT allows filing of modified ITR for business reorganization from June 16 to March 22 until June 30, 2024

Section 170A of the Income-tax Act, 1961 provides that the entities going through business reorganization may furnish modified return of income for any assessment year to which such order of business reorganization is applicable within six months from the end of the month of issuance of order of competent authority.

Section 170A was inserted vide the Finance Act, 2022 with effect from April 1, 2022, to make provisions for giving effect to the order of business reorganization issued by a tribunal, Court or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

Further, the Board, through its order u/s 119 dated 26.09.2022, permitted successor companies, if the business reorganization order was issued between 01.04.2022 to 30.09.2022, to submit modified returns under section 170A of the Act by March 31, 2023.

Later, the Board received applications from entities requesting approval to submit income returns following business reorganization through amalgamation, merger, or demerger, sanctioned by a competent authority under the Insolvency and Bankruptcy Code, 2016, before 01.04.2022.

In respect of such entities, the Apex Court, in the case of Dalmia Power Ltd. v. ACIT [2019] 112 taxmann.com 252 (SC), held that the Department was to consider revised returns filed beyond the prescribed timeline after taking into account the scheme of amalgamation as sanctioned by NCLT.

Therefore, the entities whose scheme of business reorganization was sanctioned by the competent authority vide orders dated prior to 01.04.2022 were outside the purview of section 170A. Consequently, these entities could not file modified returns of income under section 170A of the Act.

To address the challenges faced by these entities and ease their genuine difficulties, the CBDT issued an order allowing successor companies to submit modified returns for the relevant assessment year. This can be done through the e-filing portal functionality

“u/s 119(2)(b) – after condonation of delay/Court Order or Sanction Order of Business reorganization of the Competent authority issued prior to 01.04.2022”.

A three-step approach has been laid down in the order which is as follows:

Step 1: The assessee will communicate with the Jurisdictional Assessing Officer (JAO) as per the proforma to enable electronic filing of the return. This can be done up to 30.04.2024.

Step 2:  The JAO will verify whether the return is resulting from and limited to the order of the competent authority & enablement through ITBA. The taxpayer will receive such information on its e-filing portal within 30 days of the taxpayer’s receipt of communication.

Step 3: Upon receiving such information, the taxpayer can furnish return for the relevant assessment year on the e-filing portal up to 30.06.2024.

Further, it is clarified that successor companies are not required to file a separate application under section 119(2)(b) for condonation of delay before the Board in cases where the order of business reorganization of the competent authority was issued after 01.06.2016 but prior to 01.04.2022.

Read the CBDT Order

2. ‘Congress’ can file fresh stay application before ITAT as 48% of outstanding demand has been recovered: HC

Assessee-Indian National Congress was fighting a legal battle with the Income Tax Department over the recovery of tax demand. On March 8 2024, the Income Tax Appellate Tribunal (ITAT) rejected the assessee’s application for a stay on the demand recovery.

The assessee approached the Delhi High Court seeking relief.

The Delhi High Court held that ITAT had carefully examined the various contentions and challenges which stood raised and expressed a prima facie opinion, which alone was required while considering an application for stay.

It would be wholly inappropriate to re-examine or reconsider those questions in extenso, bearing in mind the limited evaluation that the ITAT was liable to undertake and the fact that the principal appeal was pending consideration before the ITAT.

Further, the 20% deposit mentioned in the OM dated July 31 2017 isn’t set in stone or inviolable. It’s guidance for authorities considering stay applications during appeals. The OM doesn’t guarantee the right for the assessee to claim a stay by depositing 20%. Authorities decide on a sufficient amount to secure revenue interest and maintain balance.

Given the repeated adjournments requested by the assessee and their refusal to proceed with the appeal, the Court has granted permission to the assessee to file a new stay application before the ITAT, considering the recovery of Rs. 65.94 crores by the Assessing Officer, which was 48% of the outstanding demand.

Read the Ruling

3. GSTIN introduces New 14A and 15A tables in GSTR 1

The GSTN has issued an advisory to inform all taxpayers that two new Table 14A and Table 15A have been introduced in GSTR-1 to capture the amendment details of the supplies made through e-commerce operators (ECO) on which e-commerce operators are liable to collect tax under section 52 or liable to pay tax u/s 9(5).

These tables have been made live on the GST common portal and will be available in GSTR-1/IFF from the February 2024 tax period onwards. These amendment tables are relevant for those taxpayers who have reported the supplies in Table 14 or Table 15 in earlier tax periods. In this regard, GSTN Update dated March 12, 2024 has been issued.

Read the GSTN Advisory

4. Assessee’s request to amend/rectify genuine mistake in Form DRC 03 to be allowed by dept.: HC

The Honorable Bombay High Court has recently held that where the assessee has made bona fide error in Form DRC-03 regarding the financial year for ITC reversal under the new GST regime, the Revenue should permit the assessee to amend forms to reflect the correct financial year as there would be no loss of Revenue. This ruling is given by the High Court of Bombay in case of Rajesh Real Estate Developers (P.) Ltd. v. Union of India.

Facts

In the present case, the assessee was required to reverse ITC, and it reversed ITC through Form DRC-03 but inadvertently mentioned the year as Financial Year 2019-20 instead of the financial year 2018-19. Despite submitting details and explanations for reversal along with submission of Form DRC-03 and requesting consideration of these payments for the financial year 2018-19, a Final Audit Report was issued to the assessee, demanding payment and interest.

The GST department acknowledged the assessee’s payments but contended that payments made via Form DRC-03 were for the financial year 2019-20 and refused to recognize them for the financial year 2018-19. It filed a writ petition since the request to amend/rectify the genuine mistake in Form DRC-03 was denied by the Department.

High Court

The Honorable High Court recognized the assessee’s bonafide mistake in mentioning the wrong financial year. The Court also observed that the Department was aware that there was no loss of Revenue to the Government. Therefore, bona fide inadvertent errors in furnishing details need to be recognized and permitted to be corrected.

Thus, the Court directed the Department to permit the assessee to amend Form DRC-03 to reflect the correct financial year.

Read the Ruling

5. SEBI relaxes timelines for Foreign Portfolio Investors to disclose material changes

The SEBI vide its board meeting dated March 15, 2024, unveiled a series of proposals to ease regulatory requirements and streamline business operations for Foreign Portfolio Investors (FPIs). These measures aim to create a more conducive environment for FPIs, facilitating smoother operations and simplifying regulatory requirements. These include

a) Exempting additional disclosure requirements for specific FPIs,

b) relaxing timelines for disclosure of material changes by FPIs, and

c) facilitating ease of doing business for listed companies – ongoing compliance requirements.

The key highlights of the SEBI’s board meeting are as follows:

(a) SEBI to introduce Beta version of optional T+0 settlement for a limited set of 25 scrips

SEBI approved the launch of the Beta version of optional T+0 settlement for a limited set of 25 scrips and with a limited set of brokers. In parallel, SEBI shall continue to do further stakeholder consultation, including with users of the Beta version. This initiative aims to accelerate market liquidity and enhance trading experiences.

(b) Exempting additional disclosure requirements for certain specific FPIs

In its board meeting, SEBI approved a proposal to exempt additional disclosure requirements for Foreign Portfolio Investors (FPIs) holding more than 50% of their India equity Assets under Management (AUM) in a single corporate group. This exemption applies if the concentrated holdings of these FPIs are in a listed company with no identified promoter, subject to the fulfilment of specific conditions. This aims to promote investor confidence and facilitate smoother market operations.

(c) Relaxation of timelines for FPIs to disclose material changes to DDP

SEBI approved a proposal to relax timelines to disclose material changes by FPIs. FPIs must disclose material changes to their designated depository participant (DDP) within seven working days.

Under the new framework, material changes shall be categorized into two types, viz. Type I and Type II. Type I material changes must be reported to the DDP within seven working days of the occurrence of the change, along with supporting documents provided within 30 days of such change.

On the other hand, Type II material changes, along with supporting documents, must be reported within 30 days of such change. This initiative aims to streamline reporting processes.

(d) Category I and II AIFs allowed to create encumbrances on their equity holdings in infrastructure sector investee companies

To provide ease of doing business for Alternative Investment Funds (AIFs), the Board approved the proposal to allow Category I and II AIFs to create an encumbrance on the equity of its investee companies in the infrastructure sector. This encourages flexibility in investment strategies and fosters participation in infrastructure projects.

(e) Introducing due diligence measures for AIFs, AIF Managers and their KMPs

The Board approved a proposal requiring AIFs, Managers of AIFs and their Key Managerial Personnel (KMPs) to conduct specific due diligence of their investors and investments. This measure aims to prevent AIFs from facilitating circumvention, thereby ensuring compliance with specified regulations administered by financial sector regulators.

(f) Facilitating ease of doing business for listed companies-ongoing compliance requirements

The Board approved amendments to the SEBI (LODR) Regulations, 2015, including

(a) extending timelines for filing up vacancies of KMPs from 3 months to 6 months,

(b) reducing the timelines for prior intimation of BMs to 2 working days, and

(c) increasing the time gap between 2 consecutive risk management committee meetings from 180 days to 210 days.

This aims to streamline operational processes and enhance regulatory compliance for listed entities.

(g) Providing flexibility to FPIs in dealing with securities post-expiry of registration

SEBI introduced measures to deal with securities post-expiry of registration, approving the following proposals –

(a) reactivation of expired FPI registrations permitted within 30 days,

(b) providing FPIs with a min. of 180 days or end of registration block for disposal of securities,

(c) offering an additional period of 180 days for disposal of securities subject to certain conditions, and

(d) allowing a one-time opportunity of 360 days for disposal of securities in existing cases. These measures aim to promote market stability and compliance.

(h) Establishing a uniform approach to verify market rumours by equity-listed entities

After discussions with the Industry Standards Forum (ISF) and stakeholders consultations, a proposal was presented to the Board to establish a uniform approach to verify market rumours by equity-listed entities.

The Board approved the following measures –

(a) specifying objective and uniformly assessed criteria for rumour verification in terms of material price movement of equity shares of a listed entity, and

(b) requiring promoters, directors, KMPs and senior management to provide timely response to a listed entity for verifying market rumour.

This aims to enhance transparency and responsiveness in equity-listed entities, thereby fostering investor trust.

Read the Press Release

6. Treatment of classification error of liabilities in the financial statement under AS and Ind AS framework

During a review of its financial statements, the company’s management discovered that certain material liabilities were incorrectly classified as “current liabilities” instead of “non-current liabilities” in the previous year.

While ascertaining whether this error requires an adjustment in the current year’s financial statements, the management noticed that Ind AS 8, Changes in Accounting Estimates and Errors, states that errors that arise with respect to recognition, measurement, presentation or disclosure of elements of financial statements require restatement because reclassification of these liabilities is deemed a correction of error under Ind AS 8.

To rectify this, the company will restate the comparative amounts for the prior year and present a third balance sheet as at the beginning of the preceding period, in addition to the restated comparative financial statements.

However, under the AS framework, to determine whether the reclassification of liabilities from current to non-current will be considered an error, one needs to refer to AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, which states that errors can arise as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, or oversight. Therefore, reclassifying liabilities from current to non-current without appropriate justification or correction can be considered an oversight error.

AS 5 requires adjustment only for those errors that impact income or expenses and arise in the current period due to errors or omissions in one or more prior periods. Since the reclassification itself does not generate any income or expenses affecting the current period’s profit or loss, it doesn’t strictly qualify as a prior period item. Still, the entity should provide disclosure to maintain the integrity of the financial statements, providing a clear view of the company’s financial position and performance across periods.

On an overall basis, the company shall restate the financial statement under the Ind AS framework where errors arise with respect to recognition measurement presentation or disclosure of elements of financial statements. However, under the AS framework, though the reclassification may not fit the strict definition of a prior period item, it’s still necessary to disclose it to ensure transparency and maintain the integrity of the financial statements in line with accounting standards.

Reclassification of Liabilities under Indian Accounting Standards (Ind AS)

Reclassification Error of Liabilities under AS