Weekly Round-up on Tax and Corporate Laws | 24th to 29th March 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 24^th to 29^th 2025, namely:

1. CBDT amends TP safe harbour rules, increasing threshold and adding lithium-ion batteries for EVs as ‘core auto components’;
2. Govt. amends Form 3CD; new clause 36B inserted to report sum received for buyback of shares;
3. SEBI Board approves increase in FPI Disclosure Threshold from Rs 25,000 crore to Rs 50,000 crore;
4. Order to be set aside as only summary notice was issued without issuing proper and prior SCN: HC;
5. Order to be set aside as payment through DRC-03 under protest could not be treated as voluntary payment: HC; and
6. NFRA audit oversight update: Key inspection findings and professional guidance from the interaction series.

1. CBDT amends TP safe harbour rules, increasing threshold and adding lithium-ion batteries for EVs as ‘core auto components’

Section 92CB of the Income-tax Act, 1961, empowers the Central Board of Direct Taxes (CBDT) to prescribe Safe Harbour Rules (SHR) for determining the arm’s length price under Section 92C or Section 92CA. Rules 10TA to 10TG of the Income-tax Rules set out the provisions governing Safe Harbour Rules.

The CBDT has amended Rules 10TA, 10TD, and 10TE to broaden the scope of the Safe Harbour framework. The key amendments are as follows:

1.1 Increase in threshold limit

Rule 10TD(2A), which specifies threshold limits and conditions for treating certain international and specified domestic transactions as being at arm’s length, has been revised to increase the safe harbour threshold from Rs. 200 crores to Rs. 300 crores.

1.2 Expansion of eligible transactions

Clause (b) of Rule 10TA, which defines “eligible international transaction” for Safe Harbour Rules, has been amended by inserting sub-clause (iv) to include “lithium-ion batteries for use in electric or hybrid electric vehicles” as core auto components.

1.3 Applicability of amendments

To ensure tax certainty for taxpayers opting for safe harbour, Rule 10TD(3B) has been amended to extend the applicability of these changes to Assessment Years 2025-26 and 2026-27.

Read the Notification

2. Govt. amends Form 3CD; new clause 36B inserted to report sum received for buyback of shares

The Central Board of Direct Taxes (CBDT) released the Income-tax (Eighth Amendment) Rules, 2025, on March 28, 2025, prescribing changes to Form No. 3CD. The changes shall come into force on 01-04-2025.

The changes introduced in Forms are consequential of amendments proposed by the Finance (No. 2) Act 2024, such as the insertion of reference of Section 44BBC in Clause 12, insertion of ‘expenditure to settle proceedings for contravention of notified laws’ in Clause 21, etc. Other changes introduced in the form are as follows:

2.1 Introduction of Clause 36B for Buyback Receipts

A new Clause 36B has been added to Form 3CD. This addition mandates the disclosure of the buyback receipts of shares under section 2(22)(f) of the Income-tax Act, 1961. It seeks the following details:

• Amount received for buyback of shares
• Cost of acquisition of shares bought back

2.2 Introduction of Code in Clause 31

The Board has introduced a new code system for transactions in Clause 31, which deals with loans, deposits and repayments. The code categorises the nature of amounts/receipts/repayments involved in loans, deposits, and specified advances. Examples of codes include:

• Cash payment (Code A)
• Cash receipt (Code B)
• Payment through non-account payee cheques (Code C)
• Transfer of assets (Code E), etc.

2.3 Omission of Clauses 28 and 29

Clauses 28 and 29 have been omitted from the Form 3CD. These clauses were used to report disclosures related to the receipt of the unlisted company for inadequate consideration under Section 56(2)(viia) & reporting of the receipt of consideration exceeding the fair market value under Section 56(2)(viib).

2.4 Modifications to Clause 22 – Inadmissibility under MSMED Act

Clause 22 of Form 3CD requires reporting of the amount of interest inadmissible under Section 23 of MSMED Act, 2006 or any other amount not allowable under section 43B(h) of the Income-tax Act, 1961.

Clause 22 now includes a bifurcation of amounts disallowed under Section 43B(h). It seeks the reporting in the following manner:

• Total amount payable to a micro or small enterprise under Section 15 of the MSMED Act.
• Amount paid within the time limit under Section 15.
• Amount not paid within the time limit and inadmissible for the previous year.

Read the Notification

3. Key Highlights of SEBI’s Board Meeting Dated March 24, 2025

The SEBI, in its 209^th board meeting dated March 24, 2025, approved a series of amendments aimed at enhancing market integrity, strengthening the governance framework of market participants and improving market transparency. The Press Release (PR No. 15/2025) dated March 24, 2025, highlights the key approvals made by the Board. These include (a) higher threshold limit for FPIs to disclose equity ‘Assets under Management’, (b) allowing IAs and RAs to charge advance fees from clients for up to one year, (c) the formation of a High-Level Committee to review ‘Conflict of Interest’ and Disclosure norms for SEBI Members & Officials, and (d) a review of the appointment process for KMPs and Public Interest Directors in MIIs.

Some of the key highlights of the SEBI’s board meeting in detail are as follows:

3.1 Higher Threshold Limit for FPIs to Disclose Equity ‘Assets under Management’

Currently, Foreign Portfolio Investors (FPIs) holding more than Rs 25,000 crore of equity assets under management (AUM) in Indian markets are required to disclose details of all entities holding any ownership, economic interest, or exercising control over FPI without any thresholds to the Designated Depository Participants (DDPs). The Board has now approved of a proposal to increase the threshold limit for FPIs from Rs. 25,000 crore to Rs. 50,000 crore. It ensures a more balanced regulatory approach while reducing compliance burdens for large FPIs.

3.2 Allowing IAs and RAs to Charge Advance Fees from Clients for Up to One Year

Currently, Investment advisers (IAs) are allowed to charge advance fees for a maximum period of six months, while Research analysts (RAs) can charge advance fees for a maximum period of three months. The Board has now allowed IAs and RAs to charge advance fees from clients for up to one year. This aims to provide greater flexibility in fee structures while ensuring better alignment with long-term advisory and research services.

3.3 High-Level Committee to Review Conflict of Interest and Disclosure Norms for SEBI Members and Officials

In a move to enhance transparency and accountability, the Board has announced the formation of a High-Level Committee (HLC) to review existing provisions related to conflicts of interest, property disclosures, investments, and liabilities of Board Members and Officials.

The HLC must comprise of eminent persons and experts with relevant backgrounds and experience in constitutional, statutory, and regulatory bodies, as well as the government, public sector, private sector, and academia. The primary objective of HLC is to conduct a review of existing framework for managing conflicts of interest and disclosures and to recommend enhancements that promote transparency and accountability among SEBI Members and Officials. This ensures a strong governance structure that upholds integrity and public trust in regulatory processes.

3.4 Review of Appointment Process for KMPs and Public Interest Directors in Market Infrastructure Institutions

To improve governance within Market Infrastructure Institutions (MIIs), the Board has reviewed the appointment process and cooling-off period for directors and specific key management personnel (KMPs) such as the Compliance Officer (CO), Chief Risk Officer (CRiO), Chief Technology Officer (CTO), and Chief Information Security Officer (CISO).

Further, the Board approved the following proposals regarding the appointment of Public Interest Directors (PIDs) on the Governing Board of MIIs –

• Continuation of existing process for appointing PIDs without Shareholder Approval
• Governing Board to record and communicate rationale for not re-appointing PIDs to SEBI
• Cooling-off Period for KMPs and Directors moving to Competing MIIs
• Board approval for appointment, re-appointment and termination of KMPs

3.5 Deferment of Regulatory Amendments for Merchant Bankers, Debenture Trustees and Custodians

SEBI, in its Board meeting on December 18, 2024, approved regulatory amendments allowing Merchant Bankers, Debenture Trustees, and Custodians to undertake other regulated activities as separate legal entities, subject to obtaining registration or confirmation from the respective regulatory authority. The board has now approved the deferment of the implementation of these amendments, providing these entities more time to comply and restructure their operations. This ensures a smooth transition, minimising disruptions while maintaining regulatory compliance and operational efficiency.

3.6 Conclusion

The decisions taken in the board meeting reflect a balanced approach toward enhancing market integrity, governance, and regulatory efficiency. By increasing the disclosure threshold for FPIs, allowing IAs and RAs to charge advance fees for up to one year and forming a High-Level Committee to review conflict of interest and disclosure norms, SEBI has shown its commitment to creating a transparent and investor-friendly environment. Additionally, the review of the appointment process for KMPs and Public Interest Directors in MIIs strengthens governance and enhances accountability.

Read SEBI’s 209th Board Meeting

4. Order to be set aside as only summary notice was issued without issuing proper and prior SCN: HC

The Hon’ble Gauhati High Court held that issuing only a summary SCN without a prior proper SCN under Section 73(1) of the AGST Act vitiates the adjudication process. Compliance with procedural safeguards under Section 73 and Rule 142(1) is mandatory for a valid order under Section 73(9). This was held in Maverick Technologies vs. State of Assam [2025].

Facts

The assessee challenged the order issued under Section 73 of the Assam Goods and Services Tax Act, 2017 (AGST Act) on the ground that no proper and prior show cause notice (SCN), as mandated under Section 73(1), was issued. Instead, the department merely issued an attachment to the determination of tax under Section 73(3) along with a summary of the SCN in Form GST DRC-01. The assessee contended that such issuance was not in compliance with Section 73(1) of the AGST Act and Rule 142(1) of the AGST Rules. Consequently, the assessee sought to set aside the impugned order on the basis that the statutory requirement of serving a valid SCN before adjudication was not met.

Held

The Hon’ble High Court held that the non-issuance of a proper and prior SCN and the mere issuance of a summary SCN along with an attachment to the determination of tax do not satisfy the mandatory requirements of Section 73(1) of the AGST Act and Rule 142(1) of the AGST Rules. The court emphasized that compliance with the procedural safeguards laid down in sub-sections (1) to (8) and (10) to (11) of Section 73, along with sub-rule (1) of Rule 142, is a condition precedent for rendering an order under Section 73(9) valid. In the absence of a duly issued SCN, the adjudication process was vitiated, rendering the impugned order legally unsustainable. Accordingly, the court decided in favour of the assessee and set aside the impugned order.

Read the Ruling

5. Order to be set aside as payment through DRC-03 under protest could not be treated as voluntary payment: HC

The Hon’ble Allahabad High Court held that payment through Form DRC-03 under protest cannot be deemed voluntary, preserving the right to appeal. It determined that rectification under Section 161, reducing the demand to ‘NIL’, unlawfully deprived the petitioner of this statutory safeguard of the right to appeal under Section 107 of the CGST Act. This was held in Khaitan Foods India (P.) Ltd. vs. State of U.P. [2025].

Facts

The assessee, engaged in the transportation of goods, was subjected to a detention order under Section 129(1) of the CGST Act, leading to the issuance of a show cause notice. In response, the assessee submitted a reply, after which a challan under PMT-06 was generated for the deposit of GST. However, instead of using PMT-06, the assessee deposited the amount through Form DRC-03 in cash under protest. Subsequently, a demand order under Section 129(3) of the CGST Act was passed, specifying a demand amount, and Form GST DRC-07 was issued. Later, the order under Section 129(3) was rectified under Section 161, reducing the demand to ‘NIL’. This rectification effectively prevented the assessee from filing an appeal against the demand that had already been deposited under protest. Aggrieved by the deprivation of his statutory right to appeal, the assessee approached the Hon’ble High Court.

Held

The Hon’ble High Court held that the deposit made through Form DRC-03 with a specific endorsement of ‘under protest’ could not be treated as a voluntary payment. The court emphasized that the rectification of the order under Section 161, resulting in a ‘NIL’ demand, effectively deprived the petitioner of the right to challenge the demand through an appeal. It was observed that the right to appeal is a fundamental procedural safeguard, and such rectification could not be used as a means to circumvent statutory remedies. Consequently, the rectification order was quashed and set aside. Additionally, the court directed that the period during which the petitioner was prevented from filing an appeal due to the rectification order be excluded from the computation of the limitation period for filing an appeal against the original order under Section 129(3) of the CGST Act.

Read the Ruling

6. NFRA audit oversight update: Key inspection findings and professional guidance from the interaction series

The National Financial Reporting Authority (NFRA), under Section 132 of the Companies Act, 2013, is responsible for monitoring compliance with auditing standards and improving audit quality. Its recent inspection reports and professional publications aim to strengthen audit practices across the profession.

Recently, NFRA has released three inspection reports—Inspection Report Nos. 132.2-2023-05, 132.2-2023-06, and 132.2-2023-07—as part of its 2023 audit quality review cycle. These reports assess the audit practices and quality control systems of SRBC & Co. LLP, Walker Chandiok & Co. LLP, and Deloitte Haskins & Sells LLP, respectively.

Key observations across the reports include:

1. Auditor Independence: Concerns were raised regarding the effectiveness of firm independence policies, particularly in relation to their global and domestic network affiliations. For example, Walker Chandiok & Co. LLP (Report No. 132.2-2023-06) was found to have compromised independence due to its association with the Grant Thornton network, while SRBC & Co. LLP (Report No. 132.2-2023-05) did not fully acknowledge its relationship with the EY network in its policies and procedures.
2. Audit Documentation and Engagement Review: Several firms displayed shortcomings in audit documentation practices, including incomplete integration of physical and electronic files, insufficient evidence of engagement quality control review (EQCR), and delayed or improperly timed sign-offs.
3. Related Party Transactions (RPT): Audit teams often failed to identify or properly evaluate related party transactions, including lack of evidence supporting arm’s length pricing, incomplete disclosures, and non-compliance with applicable standards such as SA 550 and Ind AS 24.

Furthermore, NFRA has also released two document in the series of professional publications titled the “Interaction Series” as part of its ongoing effort to enhance audit quality and provide clarity on critical auditing areas.

Interaction Series 2: Audit Strategy and Audit Plan emphasizes the importance of a well-structured audit strategy that is responsive to the specific risks and characteristics of each engagement. NFRA highlights the need for clear documentation of audit scoping decisions, materiality thresholds, audit team roles, and linkages between risk assessment and audit response.

Interaction Series 3: Related Parties provides targeted guidance on the auditing of related party relationships and transactions. It stresses the auditor’s responsibility to independently identify related parties, assess completeness and appropriateness of disclosures, and perform adequate procedures to evaluate the arm’s length nature of transactions.

These publications are intended not only to address recurring audit deficiencies but also to support firms in strengthening audit execution, documentation, and professional skepticism across complex and high-risk areas.

Read:

NFRA’s Inspection Report, dated 27-03-2025

NFRA Inspection Report, dated March 28, 2025

NFRA’s Inspection Report No. 132.2-2023-07

NFRA’s Interaction Series 2

NFRA releases Interaction Series 3