Weekly Round-up on Tax and Corporate Laws | 18th to 23rd December 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from December 18th to 23rd 2023, namely:

(a) Changes introduced in new ITR forms 1 and 4 notified for Assessment Year 2024-25;

(b) Assessee entitled to get 6% interest on refund of excess amount of equalisation levy: HC;

(c) RBI’s 2023 Guidelines Transform Cross-Border Transactions;

(d) Refund of accumulated ITC is admissible even if principal input & output have the same GST but other inputs have different rates: HC;

(e) HC stayed the operation of demand-cum-show cause notice issued by dept. without issuing Form GST ASMT-10; and

(f) NFRA exercises jurisdiction beyond seven years from the date of the auditor’s report. 

1. Changes introduced in new ITR forms 1 and 4 notified for Assessment Year 2024-25

Surprising taxpayers with an unexpected and welcome gesture, the CBDT notified the Income Tax Return (ITR) Forms 1 and 4 for the Assessment Year 2024-25. These ITR Forms will be applicable for filing income tax returns with respect to income earned during the previous year 2023-24 (between 01-04-2023 to 31-03-2024).

The department usually notifies the ITR form before the start of the subsequent Assessment Year, i.e. in February or March. This unexpected early release marks a departure from the established timeline. It provides taxpayers an extended period to get familiar with the changes, gather necessary documentation, and file returns more precisely.

We have scrutinised the new ITR Forms and identified the key changes in new ITR forms compared to last year. These changes have been explained in this article.

Read the Article

Read the Notification

2. Assessee entitled to get 6% interest on refund of excess amount of equalisation levy: HC

The assessee had filed a statement of specified income disclosing total consideration for specified services and equalisation levy. After declaring the total levy, the assessee claimed a refund of a certain amount of the levy.

The Assessing Officer (AO) paid the refund amount. However, the AO refused to grant interest on the amount refunded, contending that no provision provided for interest on refunding excess deduction or erroneous deduction of equalisation levy.

Aggrieved by the order, the assessee filed a writ petition to the Bombay High Court.

The High Court held that a tax refund is a refund of taxes when the tax liability is less than the tax paid. In the instant case, the assessee paid taxes pursuant to Section 165 of the Finance Act, 2016 and, therefore, when the said amount was refunded, it should carry interest. While awarding interest, it is a kind of compensation for the use and retention of the money collected unauthorizedly by the department. When the collection is illegal, there is a corresponding obligation to refund such amount with interest as much as they have retained and enjoyed the money deposited.

The government must repay the taxpayer’s refund along with accrued interest, as no explicit statutory provision exempts it from the obligation to compensate for the undue retention of the taxpayer’s money, despite the absence of an interest payment mandate on excess amounts or taxes collected.

The State received the money without right, retained, and used it. It is bound to make the party good, just as an individual would be under similar circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows.

Therefore, there was no reason to deny interest payment to the payer, and the AO was directed to pay simple interest at 6%, the rate prescribed under section 244A.

Read the Ruling

3. RBI’s 2023 Guidelines Transform Cross-Border Transactions

The Reserve Bank of India (RBI) has introduced the FEM (Manner of Receipt and Payment) Regulations, 2023. These regulations will supersede the 2016 version. The updated rules categorise all transactions between Indian residents and non-residents into Trade and Non-trade transactions. These regulations streamline and structure the norms relating to the manner of receipt and payment.

RBI’s Oversight and Permissions on Cross-Border Payments

As per Regulation 3 of newly introduced Regulations, unless permitted by RBI or allowed by the Act, Rules or Directions under the FEMA, no person in India can pay or receive payment from a person resident outside India. The RBI may, on an application made to it, permit a person resident in India to make or receive payment from a person resident outside India.

Breakdown of India’s New Forex Rules for Trade

The regulation further provides that all the receipts and payments between a person resident in India and outside India shall be made through an Authorised Bank or Authorised Person. New Regulation 3 has bifurcated the transactions for receipt and payment into two categories: Trade Transactions and Transactions other than Trade Transactions.

Manner of receipt and payment in case of Trade Transactions

The receipt and payment for export to or import from the following countries in respect of eligible goods and services shall be as follows:

• Receipt and Payment from Nepal and Bhutan: The receipt/payment for export to or import from Nepal and Bhutan of eligible goods and services shall be in Indian Rupees. However, in the case of exports from India, receipts towards the amount of the export may be in foreign currency, where the Nepal Rashtra Bank has permitted the importer to make payment in foreign currency.
• Receipt and payment from member Countries of ACU: The Export/import transactions with Asian Clearing Union (‘ACU’) member countries (excluding Nepal and Bhutan) for eligible goods/services shall utilise the ACU mechanism or comply with RBI directions to authorised dealers. However, where the goods arrive in India from an ACU member country (excluding Nepal and Bhutan), but the supplier resides outside the ACU, payment is allowed in INR or any foreign currency.
• Receipt and payment from countries other than members of ACU: The receipt/payment for export to or import from countries other than member countries of ACU of eligible goods and services shall be made In Indian Rupees or any foreign currency.

Manner of receipt and payment in case of transactions other than trade transactions

For transactions outside of trade activities, all receipts and payments from Nepal and Bhutan are to be conducted in Indian Rupees. However, in the case of overseas investments in Bhutan, payments may also be made in foreign currency. For transactions involving countries other than Nepal and Bhutan, payments can be made in either Indian rupees or any foreign currency.

Read the Notification

4. Refund of accumulated ITC is admissible even if principal input & output have the same GST but other inputs have different rates: HC

The Delhi High Court has held that the refund of accumulated ITC due to an inverted tax structure is admissible when principal input and output may attract the same tax rate but other inputs attract different tax rates.

In the present case, the assessee procured Liquified Petroleum Gas (LPG) in bulk, and the same was refilled and bottled in cylinders after being compressed into liquid and sold. It filed an application for a refund of accumulated ITC, but the same was denied on the grounds that input and output attract the same rate of GST of 5%. It filed a writ petition against the rejection of the refund.

The department contended that the refund of accumulated ITC was rejected relying on CBIC Circular No.135/5/2020-GST dated 31-3-2020, which stated that refund of accumulated ITC under Section 54(3)(ii) of CGST Act would not be applicable where input and output supplies are same.

The High Court noted that various items were used for production, including accessories required for safety, and such goods were essential for the production of bottled LPG and making it suitable for retail supplies such as valves, nylon thread, clips and plastic seals, which were chargeable to a different rate of GST of 18%.

The word ‘inputs’ used in the plural in the provision indicated that the refund of accumulated ITC was not confined to ITC accumulated on a single input. The law did not require comparing the principal input tax rate with the principal output tax rate. The Court further noted that the tax rate of other inputs could not be disregarded, and there was no reason or scope for confining refund of unutilised ITC to cases where the tax rate on main input was higher than the tax rate of principal output.

Moreover, the aforementioned Circular was not applicable in the instant case as it was related to ITC accumulated because of different rates applicable at different points in time. Thus, the Court directed GST authorities to process refund applications along with interest.

Read the Ruling

5. HC stayed the operation of demand-cum-show cause notice issued by dept. without issuing Form GST ASMT-10

The Gauhati High Court has stayed the operation of demand-cum-show cause notice issued without compliance with issuing the Form GST ASMT-10.

In the present case, the petitioner company was served with a demand-cum-show cause notice under Section 73(1) alleging that there was an unreconciled ITC amount as reflected in GSTR-9C for the financial year 2017-18, and the petitioner was liable to reverse wrongly availed and utilised ITC along with applicable interest and penalty. The petitioner filed a writ petition against it and contended that mandatory conditions precedent required for invoking provisions of Section 73(1) for issuance of impugned demand-cum-show cause notice were absent.

The High Court noted that in the instant case, Form GST ASMT-10 was not issued to the petitioner. Therefore, prima facie, the act of issuance of impugned demand-cum-show cause notice under Section 73(1) by the proper officer was without compliance with mandatory conditions, more particularly, provisions of Section 61 read with Rule 99. Thus, the Court held that the operation of the impugned demand-cum-show cause notice was to be stayed, and the matter was listed for hearing.

Read the Ruling

6. NFRA exercises jurisdiction beyond seven years from the date of the auditor’s report

NFRA, in a recent order, has taken action against the statutory auditors based on information received from the Ministry of Finance, Government of India. NFRA passed an order for the professional conduct of the statutory auditors of the company under Section 132(4) of the Companies Act 2013 based on the information available apparent from the records.

SA 230 states that the retention period for audit engagements is ordinarily no shorter than seven years from the date of the auditor’s report or, if later, the date of the group auditor’s report. Also, SQC 1 states that the retention period may also depend on other factors, such as whether local law or regulation prescribes specific retention periods for certain types of engagements or whether there are generally accepted retention periods in the jurisdiction in the absence of specific legal or regulatory requirements.

In view of the above provisions, the statutory auditor contented that NFRA’s letter calling for the audit file was sent 19 days after a lapse of 7 years is time-barred as statutory auditors are under no legal or statutory obligation to retain the audit file relating to the audit of the company beyond seven years from the date of the auditor’s report.

In this regard, the NFRA clarified that it, being a public interest authority, has much wider power than the ICAI in matters of professional misconduct. Though NFRA would not pursue the matter relating to non-submission of the audit file due to delay in issuance of the letter calling for the audit file, but it can initiate action against the auditor for professional misconduct even after 7 years without calling for the audit file.

Concluding Remarks from this Order of NFRA

Since NFRA would not pursue the matter relating to the non-submission of the audit file due to the delay in issuance of the letter, it can initiate action against the auditor for professional misconduct even after 7 years without calling for the audit file. Therefore, auditors need to ensure that they accept audits only after verifying compliance with ethical and statutory requirements and that their audit reports do not contain any apparent deficiencies since these deficiencies can be taken up for inquiry by NFRA even after the expiry of 7-year time-limit.

Read the Story