Weekly Round-up on Tax and Corporate Laws | 21st to 26th August 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from August 21^st to 26^th, 2023, namely:

(a) Unregistered Finfluencers Beware: SEBI’s proposed norms could shake up your Financial content game;

(b) No ITC allowed if supplier didn’t pay GST to Government even if tax was collected from buyer: Patna HC;

(c) CBDT revamps the Income-tax Dept. website with a user-friendly interface, added features & new modules;

(d) CBDT releases instructions for AOs to implement Abhisar Buildwel’s ruling delivered on the scope of Section 153A/153C;

(e) Goods which are returned need not be necessarily accompanied by a Credit Note: Madras HC; and

(f) Auditor’s Responsibility for Non-Recognition of Interest Expenses on Borrowings Classified as Non-Performing Assets.

1. Unregistered Finfluencers Beware: SEBI’s proposed norms could shake up your Financial content game

In today’s world, the actions of financial influencers have gained substantial public and media attention. These individuals, often not officially recognized as financial professionals, create captivating content, share insights, and provide advice on various financial topics to their followers on social media platforms.

While some may genuinely serve as educators, a notable portion of these influencers operate without official registration as Investment Advisers (IAs) or Research Analysts (RAs), raising concerns about their legitimacy.

Now, the SEBI has released the Consultation Papers introducing the concept of a specialized fee payment system for registered IAs and RAs. This system aims to assist investors in recognizing, differentiating, and steering clear of unregistered entities or financial influencers.

This paper aims to limit SEBI registered intermediaries’ involvement with unregistered finfluencers who promote products, services, or securities for undisclosed compensation. This restriction aims to reduce the influence of undisclosed compensation on purchasing decisions. Let’s understand the key aspects of the Consultation Papers:

(a) Who are ‘finfluencers’

Financial influencers, commonly called ‘finfluencers’, are persons who provide information and/or advice on various financial topics such as investing in securities, personal finance, banking products, insurance, real estate investment, etc. through social/digital media platforms/channels, and have the ability to influence the financial decisions of their followers.

(b) Social Media: The Alluring Avenue for Aspiring ‘Finfluencers’

The Finfluencers often attract investors/prospective investors through engaging stories, messages, reels and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn, Twitter, etc.

(c) Demystifying Earnings: How ‘Finfluencers’ Rake in Compensation

The Unregulated finfluencers promote products/services/securities, urging clients to use them for referral fees, non-cash perks, platform compensation received directly from social media or other platforms, and profit sharing.

(d) SEBI’s proposed Actions to curb the association of SEBI registered intermediaries with finfluencers

SEBI’s recent consultation papers propose measures to restrict interactions between registered financial entities and unregistered ones (including finfluencers). Some of the proposed actions include:

• SEBI-registered entities and their agents will be prohibited from associating with unregistered entities (including finfluencers) to promote their services/products, whether monetarily or non-monetarily.
• Entities registered/regulated by SEBI, stock exchanges, or AMFI shall not share their clients’ confidential information with unregistered entities.
• Finfluencers must prominently display their SEBI/stock exchange/AMFI registration number, contact information, investor grievance helpline, and necessary disclosures/disclaimers on all posts.
• SEBI-registered intermediaries/regulated entities shall not pay any trailing commission based on the number of referrals as a referral fee.
• SEBI-registered intermediaries shall actively dissociate themselves from any unregistered entity using their name, product or service.

The SEBI has prescribed the format for the public comments. Comments/suggestions may be emailed to consultationMIRSD@sebi.gov.in by September 15th, 2023.

Comments

In response to the rising influence of financial influencers (finfluencers), SEBI’s Consultation Papers introduce measures to regulate their activities. These proposals, aiming to enhance transparency and protect investors, include restrictions on interactions with unregistered entities, disclosure requirements, and dissociation from unregistered actors. SEBI seeks to create a more informed and accountable financial ecosystem through these actions.

Read the Story

2. No ITC allowed if supplier didn’t pay GST to Government even if tax was collected from buyer: Patna HC

The Honorable Patna High Court has recently held that the claim of Input Tax Credit cannot be sustained when the supplying/selling dealer has not paid the amounts to the Government despite collecting tax from the purchasing dealer. This ruling is given by the High Court of Patna in the case of Aastha Enterprises v. State of Bihar.

Facts

In the present case, the petitioner made the purchases from the supplier after making payments through bank accounts. However, the selling dealer had not paid the tax liability to the Government, and the Department denied the Input Tax Credit (ITC) to the petitioner. It filed a writ petition and contended that the Department should proceed against the selling dealer to recover the collected amount of tax.

High Court

The Honorable High Court noted that for availing of ITC, its conditions are to be strictly followed by the purchaser, and the purchasing dealer could only claim ITC benefit if the supplier who collected tax from the purchaser has paid it to the Government. Moreover, as long as the supplier does not pay the tax paid by the purchaser to the supplier, the purchaser cannot raise a claim for Input Tax Credit.

The Court further noted that mere production of a tax invoice, establishment of movement of goods and receipt of same and consideration having been paid through bank accounts would not enable ITC. Therefore, it was held that the claim of ITC raised by the petitioner could not be sustained when the supplying/selling dealer had not paid up the amounts to the Government despite the collection of tax done from the petitioner.

Read the Story

3. CBDT revamps Income-tax Dept. website with user-friendly interface, added features & new modules

To improve the taxpayer experience and stay updated with modern technology, the Income Tax Department has overhauled its official website, https://www.incometaxindia.gov.in. The website now boasts a user-friendly interface, additional features, and fresh modules.

The newly revamped website was launched by Shri Nitin Gupta, Chairman, CBDT, at the ‘Chintan Shivir’, organized by the Directorate of Income Tax (Systems) at Udaipur. The new website serves a complete source of tax and related information, including Direct Tax laws, Allied Acts, Rules, Circulars, and Notifications. The revamped website has been aesthetically redesigned with a mobile-responsive layout. The website also has a ‘Mega Menu’ for content, with new features and functionalities.

The new features let users compare Acts, Sections, Rules, and Tax treaties. Content is tagged with Income Tax sections for easy navigation. Dynamic due date alerts offer reverse countdowns, tooltips, and links for easier taxpayer compliance.

Read the Press Release

4. CBDT releases instructions for AOs to implement Abhisar Buildwel’s ruling delivered on scope of Sec. 153A/153C

The Supreme Court, in the case of Abhisar Buildwell [2023] 149 taxmann.com 399 (SC), provided power to the Assessing Officer (AO) to reopen the completed/unabated assessments, subject to fulfilment of the conditions as mentioned under sections 147 if no incriminating material is found during the search.

Accordingly, exercising powers under section 119, the Central Board of Direct Taxes (CBDT) issued the instruction for AOs to implement the above judgment while framing assessments. The AOs are directed to divide the cases impacted by the judgment into two broad categories:

I. Pending/abated assessments

AO would be required to ascertain assessments falling in the category of assessments that became abated on the date of the search or requisition. In such cases, if any proceedings initiated or any order of assessment or reassessment has been annulled in appeal or in any other legal proceedings, the same shall stand revived from the date of receipt of the order of annulment as per the provisions of section 153A(2). The AO would need to take necessary action as per the provisions of section 153A(2) read with section 153(8) regarding such pending/abated assessments.

II. Completed/unabated assessments

In respect of assessments that were unabated/completed at the time of issue of notices under section 153A/153C, the following scenarios will emerge:

(a) Lead and all the tagged cases

AO will be required to reopen the cases following the procedure prescribed under section 148A in accordance with the law laid down by the Hon’ble Supreme Court. In view of the specific provisions of section 153(6), all the cases reopened under section 147/148 will be required to be completed by April 30^th, 2024.

(b) Cases where an appeal is pending (filed either by the Department or the assessee or both) before

• CIT(A): The said judgment is required to be brought to the notice of CIT(A).
• ITAT: The departmental representative should bring the said judgment to the notice of the ITAT in the cases covered by the judgment.
• High Court: The Standing Counsel should bring the judgment to the High Court’s notice in the cases covered by the judgment.

(c) Cases where the decisions of appellate authorities rendered after the Supreme Court judgment are inconsistent with the same

Necessary action may be taken to file Miscellaneous Application (MA) and Notice of Motion (NoM) to the ITAT and High Court, respectively, requesting the review of the decision in line with the Abhisar judgment, with a prayer for condonation of delay, wherever necessary.

It is brought to attention that the time limit for filing a Miscellaneous Application before the ITAT is 6 months from the end of the month in which the order is passed by the ITAT, as per section 254. On receipt of the decision of the Hon’ble ITAT/High Court, as the case may be, necessary action as per law and extant instructions should be taken.

The CBDT also enlists the procedure to be adopted along with necessary actions by the AO to implement the judgment of the Supreme Court.

Read the Instruction

5. Goods that are returned need not be necessarily accompanied by a Credit Note: Madras HC

The Honorable Madras High Court has recently held that detention of goods on the ground that was not accompanied with credit note was illegal since issuance of Credit Note and/or Debit Note under Section 34(1) of CGST Act, is required only for tax liability adjustment. The High Court of Madras gives this ruling in Luminous Power Technologies (P.) Ltd. v. State Tax Officer, Adjudication-I.

Facts

The petitioner dispatched goods to the consignee/buyer with four invoices and e-way bills. However, those goods were not received by the consignee/buyer as the goods got wet due to heavy downpours and were re-transported back by the petitioner after generating four different e-way bills. The goods were detained by Roving Squad when they were transmitted back to the petitioner’s factory in Chennai on the ground that no Credit Note was issued for the return of goods. The petitioner filed writ petition against the detention of goods.

High Court

The Honorable High Court noted that the credit note under Section 34 is not required to be issued at the stage when goods were being returned without being received by the recipient. The issuance of a Credit Note and/or Debit Note under Section 34(1) of the CGST Act is required only to adjust tax liability, and goods that are returned need not necessarily accompany a Credit Note.

In this case, detained goods were covered by four invoices. Therefore, the Court held that detention of goods was per se illegal and unwarranted, particularly because goods accompanied e-way bills, which were generated for the return of goods.

Read the Ruling

6. Auditor’s Responsibility for Non-Recognition of Interest Expenses on Borrowings Classified as Non-Performing Assets

In the case of the listed company availing a credit facility from the bank in the nature of the loan. This loan mandated the company to repay both the principal and interest amounts over time. Unfortunately, the company encountered financial difficulties, failing to meet these repayment obligations. Consequently, the lender categorized these loans as Non-Performing Assets (NPAs) and suspended the accrual of interest on the same. On such suspension, the company ceased to charge the interest on a loan and did not recognize the same in its financial statement. After that, by way of notes, the company disclosed that there was an ongoing negotiation for the settlement of debts, and only after the finalization of the negotiation, they would make the provision of the interest cost.

On this, the National Financial Reporting Authority (NFRA) observed the aforesaid accounting practice of the company and was of the opinion that such accounting practice of non-provisioning of interest cost is not in compliance with the requirements of Ind AS 109, Financial Instruments. This Ind AS mandates recognizing interest cost on borrowings and accounting for the same until such financial liability is extinguished. Further, the liability is said to be extinguished only when the obligation specified in the contract is discharged, cancelled, or expired. In the extant case, as the interest liability was not waived or discharged nor cancelled by the respective lenders, the mere fact that there is ongoing negotiation for settlement of the loan did not relieve the company in discharging its liability of the interest cost on the borrowing classified as NPA.

Thus, the company’s accounting treatment of non-recognition of unpaid interest costs on borrowings classified as Non-Performing Assets (NPAs) violates the requirements of Ind AS 109. In addition to this, NFRA also held the auditor guilty of professional misconduct for non-reporting of such material misstatement in their audit report.

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