Weekly Round-up on Tax and Corporate Laws | 18th to 24th April 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 18^th to 24^th April 2022, namely:

(a) The CBDT makes return filing mandatory where turnover, TDS/TCS or deposit in a saving account exceeds a certain limit

(b) ‘Referral Fee’ paid to doctors is not deductible; HC follows ‘Apex Lab.’ Ruling

(c) Top 10 points from RBI’s new rules on Debit/ Credit Cards

(d) Wages/salaries of only those employees who worked during CIRP are to be included in CIRP costs, rules SC

(e) An owner can seek redemption of confiscated goods/conveyances even after confiscation order

(f) Goods can’t be detained for not having batch number, packing date, expiry date etc. under GST

(g) Key considerations for audit of Property, Plant, and Equipment

1. The CBDT makes return filing mandatory where turnover, TDS/TCS or deposit in a saving account exceeds a certain limit

Section 139 of the Income-tax Act contains provisions for filing a return of income. The seventh proviso to Section 139(1) requires mandatory filing of a return by a person entering into certain high-value transactions.

The CBDT has notified the following additional criteria to make return filing mandatory for an assessee:

• 1. If total sales, turnover or gross receipt of the business exceeds Rs. 60 lakhs during the previous year;
  2. If total gross receipt of profession exceeds Rs. 10 lakhs during the previous year;
  3. If the total tax deducted and collected during the previous year exceeds Rs. 25,000. The threshold limit shall be Rs. 50,000 in case of a resident individual of the age of 60 years or more; or
  4. If the aggregate deposit in one or more savings bank accounts is Rs. 50 lakhs or more during the previous year.

Read the Notification

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2. ‘Referral Fee’ paid to doctors for referring patients, not deductible; HC follows ‘Apex Lab.’ Ruling

The Calcutta High Court, applying the Supreme Court ruling in the case of Apex Laboratories (P.) Ltd.  [2022] 135 taxmann.com 286 (SC), has denied the benefit of deduction of ‘referral fee’ paid by a hospital to doctors.

Facts

Assessee-company was engaged in the business of running a multi-speciality hospital. A notice under Section 148 was served on the assessee as it claimed ‘referral payment to doctors’ as a business expense. The assessee filed an objection against such notice, and the AO rejected such objection. The AO opined that the aforesaid expenditure is prohibited by law and disallowable under Section 37(1). The aggrieved assessee filed a writ petition before the High Court.

Ruling

The High Court held that receiving any freebies, bonuses or commission, etc., by physician/medical practitioners from the allied health industry, including hospitals, for referring any patient for medical investigation, surgical, or other treatment purposes are prohibited under Regulation 6.4.1. and 6.4.2. of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and violation of the same is a punishable offence and invites disciplinary action under Regulation 8 of said Indian Medical Council Regulations.

Further, the High Court followed the judgment of the Supreme Court in the case of Apex Laboratories (P.) Ltd. (supra) to hold that allowing deduction of such expenses would encourage and cause proliferation of corruption in the medical field and will frustrate the very purpose and object of the aforesaid Indian Medical Council Regulations, 2002 and Explanation 1 of Section 37(1), and the CBDT’s Circular No. 5, dated 01-08-2012.

Read the Ruling

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3. Top 10 points from RBI’s new rules on Debit/Credit Cards

The RBI vide. Circular No. RBI/2022-23/92 DoR.AUT.REC.No.27/24.01.041/2022-23, Dated April 21, 2022, has issued new directions relating to the issuance and conduct of Credit Card and Debit Cards. The directions cover the regulations relating to credit, debit, and co-branded cards, which shall be read along with prudential, payment, technology and cyber security related directions applicable to such cards, as issued by the RBI.

These directions relating to debit cards shall apply to every bank operating in India. In contrast, the directions on credit cards shall apply to every Scheduled Bank and all Non-Banking Financial Companies (NBFCs) operating in India. The directions will be effective from July 1, 2022. The top 10 key takeaways from this  master direction are given below:

1. 1. Scheduled Banks with a Networth of Rs. 100 crores or more can do credit card business;
   2. Banks to issue one-pager key fact statements along with credit card applications containing the important aspects such as rate of interest, charges, etc.;
   3. RBI forbids unsolicited up-gradation of credit cards;
   4. Banks to seek OTP based consent for activating a credit card. If no consent is received, card issuers shall close the credit card account within 7 working days from the date of seeking confirmation from the customer;
   5. Banks are prohibited from sharing credit information with Credit Information Companies before card activation;
   6. Credit-card issuers to ensure complete transparency in the conversion of transactions into EMIs;
   7. The card issuer’s representatives shall contact the customers only between 10:00 and 19:00 hrs.;
   8. A dedicated helpline and email-id shall be available for the cardholders to raise complaints against any act of misselling or harassment by the representative of the card issuer;
   9. The request for closure of a credit card shall be honoured within 7 working days by the credit card issuer. The card-issuer shall not insist on sending a closure request through post or any other means which may result in the delay of receipt of the request;
   10. Banks to issue other form factors in place of the plastic debit cards such as wearables after obtaining explicit consent from the customers.

Read the Master Directions

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4. Wages/salaries of only those employees who worked during CIRP are to be included in CIRP costs, rules SC

In this significant ruling, the Apex Court ruled that wages/salaries shall be payable in full first under Section 53(1)(a) of IBC as part of CIRP costs only if these are of workmen/employees who actually worked during ‘Corporate Insolvency Resolution Process’ (‘CIRP’) period when Resolution Professional managed the corporate debtor as a going concern.

Facts

In the instant case of Sunil Kumar Jain v. Sundaresh Bhatt [2022] 137 taxmann.com 303 (SC), the NCLAT had dismissed an appeal filed by the workmen/employees of ABG Shipyard Limited against the impugned order of NCLT denying any relief to them with regard to their claim relating to salary, which they claimed for a period involving CIRP and the prior period. Appellants filed an appeal against the order of the NCLAT.

The question before the Court was whether the wages/salaries of those workmen/employees who had not worked at all during CIRP shall have to be treated and/or included in the CIRP costs?

Supreme Court’s Ruling

The Court observed that the wages/salaries of the workmen/employees of the corporate debtor for the period during CIRP could be included in the CIRP costs provided it is established and proved that the Interim Resolution Professional/Resolution Professional managed the operations of the corporate debtor as a going concern during the CIRP and that the concerned workmen/employees of the corporate debtor actually worked during the CIRP.

The Court held that in such an eventuality, the wages/salaries of those workmen/employees who actually worked during the CIRP period when the resolution professional managed the operations of the corporate debtor as a going concern shall be paid treating it and/or considering it as part of CIRP costs and the same shall be payable in full first as per Section 53(1)(a) of the IB Code.

The Court further held that even if RP has not submitted the claims towards the wages/salaries as part of CIRP costs, still the claims submitted/to be submitted by the appellant’s workers will have to be adjudicated upon and considered by the Liquidator.

The Liquidator has to consider and adjudicate (i) whether the corporate debtor was a going concern during the CIRP; (ii) how many workmen/employees actually worked during the CIRP while the corporate debtor was a going concern.

Read the Ruling

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5. The owner can seek redemption of confiscated goods/conveyances even after confiscation order: HC

The Karnataka High Court has held that even if a confiscation order is passed, it is open to the owner to seek redemption of confiscated goods/conveyances. If the owner comes forward to pay the amount comprised in demand notice even after the confiscation order was passed, the goods and conveyances may be released pending the conclusion of long drawn confiscation proceedings. The Karnataka High Court gave this ruling in the case of Shel Singh Purohit v. Commercial Taxes Officer.

Facts

The Competent Authority detained the goods of the petitioner under transport and the vehicle. The petitioner sent a letter by Speed Post seeking the release of the goods in detention on the ground that they were perishable. The authority further issued a notice to the petitioner under section 130 for confiscation of goods and vehicles. It filed a writ petition against such continued detention.

High Court

The High Court observed that Section 130(2) of the CGST Act provides for the redemption of confiscated goods and conveyances. Even after a confiscation order is passed, it is open to the owner to seek redemption of confiscated goods/conveyances. If the owner comes forward to pay the amount comprised in demand notice, goods and conveyances may be released pending the conclusion of long drawn confiscation proceedings. Therefore, the Competent Authority was directed to release goods and vehicles immediately after ascertaining prima facie ownership and depositing the total amount comprised in the notice.

Read the Ruling

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6. Goods can’t be detained for not having batch number, packing date, expiry date etc. under GST: HC

The Allahabad High Court, in the case of Shri Surya Traders v. Union of India, has held that if the value of a transaction is more than Rs. 50,000, then only an e-way bill is required. If proper documents are available, goods cannot be detained for not having batch number, packing date, expiry date etc., on the goods.

Facts

The petitioner was a registered dealer and engaged in the business of selling Ancle (Sweet Supari) and Varanasi Ashik (Betel Nut Product). It transported goods along with tax invoices and e-way bills which were intercepted by the department. For one consignment of three bags, a tax invoice was handed over to the transporter, but it was left behind by mistake, and the e-way bill was not generated as the value was less than Rs. 50,000. The department detained the whole consignment and filed a writ petition against the same.

High Court

The High Court observed that as per Rule 138 of CGST Rules, if the value of the transaction is more than Rs. 50,000, then only an e-way bill is required. In the instant case, the department failed to show any authority or provision of the Act in support thereof for detaining goods. The department had arbitrarily referred to the various discrepancies such as the pouches not having batch number, packing date, expiry date, manufacturing date and referred that under the Food Safety Regulation, the said dates/details were required. But so far as the GST law is concerned, the authorities failed to record any provision for justification of the seizure of the goods in question. Therefore, it was held that the department was not justified in detaining goods.

Read the Ruling

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7. Key considerations for audit of Property, Plant, and Equipment

Property, Plant, and Equipment (PPE) constitute a significant portion of the total assets, and hence, an audit of PPE is considered more significant. Accordingly, an auditor is responsible for verifying compliance with the accounting principles and other legal provisions applicable to the entity in respect of PPE. The following points are to be considered while auditing PPE:

1. 1. Understanding the client and its environment to consider inherent risks, including fraud risks, related to PPE.
   2. Assessment of the risks of material misstatement, controls and substantive procedures covering the aspects like existence, completeness, rights, valuation, and classification of PPE.
   3. Assessment of the potential misstatements in PPE on account of frauds and errors like the purchase of an asset at an inflated price, especially from a related party, expenditures for repairs and maintenance recorded as PPE, or vice versa, wrong write-off of the asset as scrap, obsolescence, missing, etc.
   4. Review of the system of internal controls relating to PPE.
   5. Checking the appropriateness of the accounting policies, including policies for determining the costs to be capitalized.
   6. Verification of all records related to opening balances, assets under construction or pending installation, acquisition of new PPE and improvements to the existing ones, self-constructed PPE and improvements thereto, and assets acquired in exchange for a non-monetary asset.
   7. Checking if there are any circumstances that indicate a possible impairment of PPE and how the same has been dealt with by the entity.
   8. Examining the proper authorization and appropriate procedure followed if PPE is retired, destroyed, scrapped, etc.
   9. Checking if management is appropriately carrying out the physical verification of PPE at appropriate intervals and the verification method is reasonable in the circumstances relating to each asset.
   10. Fixed assets are recognized in accordance with the generally accepted accounting principles applicable to the entity.
   11. In case of revaluation, ensure that such revaluation is appropriate and adequate.
   12. Verification of the correctness of depreciation calculation and relevant disclosures that are required in accordance with the Standards applicable to the entity for PPE.

Read the Story

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