Weekly Round-up on Tax and Corporate Laws | 21st to 26th November 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 21st to 26th November 2022, namely:

(a) SEBI includes mutual funds under insider trading norms;

(b) Delhi High Court refers the matter to a larger bench to decide writ jurisdiction in the faceless assessment if AO is located outside Delhi;

(c) Govt. appoints Competition Commission to deal with Anti-Profiteering matters under Section 171(2);

(d) High Court rejects the petition seeking direction to allow amendments to GSTR-1 after the prescribed time limit; and

(e) Should adjustments be made to the method of depreciation for the purpose of consolidation?

1. SEBI includes mutual funds under insider trading norms

The SEBI introduces Chapter IIA to the SEBI (PIT) Regulations, 2015. The Amended norm includes mutual fund units under insider trading norms. The amendment imposes restrictions on communication in relation to and trading by insiders in the units of mutual funds while in possession of unpublished price-sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders of the scheme. The key highlights of the amendment are discussed hereunder:

(a) Applicability

The provisions of this Chapter shall apply only in relation to the units of a mutual fund. All the provisions of Chapters IIIA and V shall also apply in relation to the units of a mutual fund.

(b) Connected Persons shall also include Mutual Funds & AMCs

Now, Mutual Funds, Asset Management Companies (AMC) and trustees will be under the scope of the definition of Connected Persons under SEBI (PIT) Regulations. All the restrictions relating to connected persons will also apply to Mutual Funds, AMCs & trustees.

(c) Structured digital database for unpublished price-sensitive information

SEBI imposed restrictions on the communication and procurement of unpublished price-sensitive information (UPSI). Further, the board of directors or heads of the organisation responsible for handling unpublished price-sensitive information shall ensure that the structured digital database is preserved for less than 8 years after the completion of the relevant transaction.

(d) Insiders cannot trade in the units of a scheme of a mutual fund when in possession of UPSI

An insider cannot trade in the units of a mutual fund scheme when in possession of unpublished price-sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders.

(e) AMCs shall disclose holdings in mutual funds schemes every quarter

Every AMC shall quarterly disclose the details of holdings in the units of its mutual fund schemes held by the designated persons of the AMC, trustees and their immediate relatives.

(f) Board of AMCs shall ensure the formulation of the code of conduct

The board of directors of every AMC shall ensure that the CEO or MD formulates a code of conduct with their approval to regulate, monitor and report dealings in mutual fund units by the designated persons and their immediate relatives.

(g) The scope of a designated person is expanded

The definition of a designated person shall now include the head of the AMC, Directors, Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, etc. These are the persons who have access to UPSI.

(h) SEBI introduces institutional mechanisms for the prevention of insider trading.

The CEO/MD of an AMC, with the approval of the trustee or such other person, shall put in place an adequate and effective system of internal controls to ensure compliance with the requirements given in PIT regulations. Every AMC shall formulate written policies and procedures (with the approval of the trustees) for inquiry in case of a leak of UPSI.

Read the Notification

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2. Delhi High Court refers the matter to a larger bench to decide writ jurisdiction in the faceless assessment if AO is located outside Delhi

The Delhi High Court has referred the matter to a larger bench to decide the issue of territorial jurisdiction to entertain a writ petition if an appeal is filed under a faceless assessment regime. The court has framed questions of law that would require consideration by the larger bench.

Facts

Assessee-petitioner (jurisdiction at Chattisgarh) filed its return of income for the relevant assessment year. During the assessment, a show cause notice-cum-assessment order was served to which the assessee could not respond for certain reasons. The final assessment order was passed without giving a reasonable opportunity to the assessee to be heard.

The assessee filed a writ petition before the Delhi High Court, contending that the AO has violated the principles of natural justice while passing the assessment order.

However, the AO raised the question of the admissibility of the petition. It was contended that the petition filed by the assessee was not maintainable as the situs of the jurisdictional AO was outside India.

Ruling

The Delhi High Court held the issue of maintainability of a writ petition in faceless assessments where the jurisdiction of AO is situated outside the jurisdiction of the High Court will repeatedly arise in many cases.

Thus, to have a conclusive view on the matter, it is referred to a larger bench for a definitive view. The High Court frames the following questions of law:

(a) Whether the Delhi High Court has the necessary territorial jurisdiction to entertain the writ petitions if the jurisdictional Assessing Officer is located outside Delhi?

(b) Whether the Delhi High Court should entertain the writ petitions or refuse to exercise discretion to entertain the same on the ground that Jurisdictional Assessing Officer is located outside the jurisdiction of Delhi Court?

(c) Whether the presence of the National Faceless Assessment Centre in Delhi would be a sufficient ‘cause of action’ to confer jurisdiction on Delhi Court to entertain a writ petition?

(d) Whether the petitioner has the right to choose the High Court if a part of the cause of action arises within one or more High Courts?

Read the Ruling

3. Govt. appoints Competition Commission to deal with Anti-Profiteering matters under Section 171(2)

The Government has empowered the Competition Commission of India, established under Section 7(1) of the Competition Act, 2002 as an authority under Section 171(2) of the Central Goods and Services Tax Act 2017, with effect from 1st December 2022.

Notably, Section 171(2) allows the Central Government to constitute or empower, through notification, any authority to examine whether input tax credit availed by any registered person or the reduction in the tax rate has actually resulted in a commensurate reduction in the price of the goods or services supplied by him. Further, the relevant rules under the Central Goods and Services Tax Rules, 2017 have also been modified accordingly.

Read the Notification

4. High Court rejects petition seeking direction to allow amendments to GSTR-1 after the prescribed time limit

The Telangana High Court has recently held that mistakes in GSTR-1 return cannot be rectified after the prescribed time limit, and requests for rectification would not be allowed.

Facts

The petitioner filed a writ petition before the Telangana High Court to allow amendments in Form GSTR-1. Between January 2018 to August 2018, the petitioner filed the details of a different recipient in Form GSTR-1, due to which the original recipient was not able to avail of the input tax credit as details were not reflected in his Form GSTR-2A. Being a bona fide mistake at the end of the petitioner, it filed the writ petition.

High Court

The Telangana High Court referred to the case of Bharti Airtel Ltd. [2021] 131 taxmann.com 319 (SC), wherein the Supreme Court held that the rectification of return under Section 39(9) would lead to complete uncertainty and collapse of the tax administration. Any rectification would affect the obligations and liabilities of other stakeholders because of the cascading effect on the electronic records. In the given case, the High Court observed that the law provides the specified manner for rectifying errors and omissions. Therefore, the issue is squarely covered by the decision of the Supreme Court and consequently dismissed the writ petition.

Read the Ruling

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5. Should adjustments be made to the method of depreciation for the purpose of consolidation?

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The selection of the depreciation method is a matter of judgment that reflects the pattern in which the entity expects to consume the asset’s future economic benefits. However, where a different method of depreciation is adopted by the parent company and the subsidiary company, then to comply with the requirements of Ind AS 110, i.e., applying uniform accounting policies for like transactions and other events in similar circumstances, whether the parent entity should make adjustments in the method of depreciation for preparing the consolidated financial statement.

In this regard, the Expert Advisory Committee (EAC) of ICAI has provided that a change in the method of depreciation is a change in accounting estimates and not a change in accounting policy. Different methods of depreciation can be followed by the parent and the subsidiary in their separate financial statements, provided those methods reflect the expected pattern of consumption of the future economic benefits embodied in the asset.

It also stated that while preparing consolidated financial statements, the group as a whole should be considered as a single economic entity, and mere consolidation of the subsidiary’s financial statements with those of the parent company would not ordinarily change the actual/expected usage or pattern of consumption of an asset and therefore, does not lead to any change in estimates. Hence, the same would be considered compliant with the accounting standards. Therefore, merely for the purpose of consolidation, adjustments should not be made to the method of depreciation in the CFS.

Read the Story

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