Weekly Round-up on Tax and Corporate Laws | 25th to 30th April 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 25th to 30th April 2022, namely:

(a) CBDT notifies Form ITR-U for filing of updated return

(b) Supreme Court held that the bar under Section 14 of IBC applies only to corporate debtors; Directors being natural persons continue to be liable for cheque bounce

(c) SEBI was not justified in penalising a Co. by taking a ‘hyper-technical’ view of law on related party transactions: Supreme Court

(d) ITC wrongly utilised for payment of IGST on the export of goods should be re-credited if refunded amount was repaid to Govt.: Guj. HC

(e) An online module is introduced for filing of an application for recognition as Pre-Shipment Inspection Agency (PSIA)

(f) Recognition, Measurement, and Presentation of Deferred Tax as per Ind AS 12

1. CBDT notifies Form ITR-U for filing of updated return

The Finance Act, 2022 has introduced a new provision to allow filing an updated return within 24 months from the end of the relevant assessment year. This provision is effective from 01-04-2022. In the financial year 2022-23, a person can file an updated return for AY 2020-21 and AY 2021-22.

The CBDT has notified a new Rule 12AC and Form ITR-U, which shall be required to be filed along with the respective ITR, to furnish an updated return.

The following are the key excerpts from the newly notified Rule and Form:

(a) Manner of furnishing an updated return

An updated return of income is to be furnished electronically under a digital signature or through an electronic verification code for a certain class of person. Further, no separate ITR forms have been notified for filing of an updated return.

A taxpayer shall furnish an updated return in the ITR forms notified for the respective Assessment Year for which an updated return is to be furnished. Such an ITR form is to be filed along with the ITR-U.

(b) Part A General Information (ITR-U)

This part of ITR-U seeks general information from taxpayers related to the filing of an updated return.

(c) Part B – Computation of updated income and tax payable (ITR-U)

This part of ITR-U includes heads of income under which additional income is reported. The taxpayer is required to mention only additional income. Total income as reported in Part B TI of the ITR form shall also be reported here to compute the additional tax payable by the assessee on the updated return.

Adjustments such as previously paid tax, refund issued to the taxpayer, and fee for default in the furnishing of return of income under Section 234F shall be considered while calculating such additional tax.

(d) Tax Payments (ITR-U)

This part of ITR-U includes details of tax payment by the assessee on the updated return under Section 140B and details of payment of advance tax, self-assessment tax, regular assessment tax, and credit for which has not been claimed in the earlier return.

Read the Notification

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2. Bar under Section 14 of IBC applies only to corporate debtors; Directors being natural persons continue to be liable for cheque bounce

In the case of Narinder Garg v. Kotak Mahindra Bank Ltd. [2022] 137 taxmann.com 476 (SC), the Supreme Court held that the bar on initiation of proceedings against the corporate debtor, during the moratorium period under Section 14 of the IBC, would apply only to the corporate debtor and not against the directors of such corporate debtor.

Facts

In the instant case, writ petitions were filed seeking:

(a) Directions to quash the criminal complaints filed against the corporate debtors and its directors under Section 138 of the Negotiable Instruments Act, 1881 on the ground that the resolution plan was approved by the Committee of Creditors (CoC) under Section 30(4) of the IBC.

(b) Quashing the criminal complaint initiated after the order of moratorium passed by the NCLT, as it cannot proceed even if the old management and its director take over the corporate debtor.

Supreme Court’s Ruling

The Supreme Court held that there is no bar under Section 14 of IBC for initiating or continuing a cheque bounce case against natural persons mentioned in Section 141 of the Negotiable Instruments Act during the period of moratorium. Section 14 only bars initiating or continuing a cheque bounce case against the corporate debtor during the moratorium period.

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3. SEBI was not justified in penalising a Co. by taking a hyper-technical view of the law on related party transactions: SC

In the case of SEBI v. R.T. Agro (P.) Ltd. – [2022] 137 taxmann.com 496 (SC), the Supreme Court held that SEBI was not justified in penalising the company by taking a ‘hyper-technical’ view of the law on related party transactions.

Facts

A company (R.T. Exports Limited) proposed to enter into a transaction with Neelkanth Realtors Private Limited for the purchase of 40,000 sq. ft. of residential space. This proposal was treated as a related party transaction and was required to be approved by the shareholders of the company.

Accordingly, a special resolution was approved by R.T. Exports Limited. In terms of Section 188 of the Companies Act, 2013, the related parties abstained from voting on this special resolution. Thereafter, an Extra-Ordinary General Meeting was convened to rescind the resolution in which the related parties also voted.

However, the appellant-SEBI took up the matter on a complaint and issued a notice alleging violation of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Adjudicating Officer proceeded to penalise the present respondents with a cumulative sum of Rs. 35 lakhs for the alleged violation of the said regulation.

The Securities Appellate Tribunal dismissed the order passed by the Adjudicating Officer and allowed the appeal. The Tribunal held that the bar on voting by the related parties as per Section 188 of the Companies Act, 2013 operated only at the time of entering into a contract or arrangement, i.e., when the resolution was passed. The Tribunal found no fault in the said parties voting in the recalling/rescinding of the said resolution.

Supreme Court’s ruling

On further appeal, the Apex Court held that the SEBI was not justified in taking a ‘hyper-technical’ stance imposing a penalty on the company for the related party voting on a resolution rescinding an earlier special resolution.

The Court held that the view taken by SAT in the given facts and circumstances of the case is to be upheld as it appeared to be a plausible view of the matter since no ill-intent on the part of the respondents (company) was established. It was held that the SAT had rightly disapproved of the hyper-technical stance of SEBI.

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4. ITC wrongly utilised for payment of IGST on the export of goods should be re-credited if refunded amount was repaid to Govt.: Guj. HC

In the case of I-Tech Plast India (P.) Ltd. v. State of Gujarat, the High Court has held that ITC utilised for payment of IGST at the time of export of goods, produced using raw material imported under Advance License, has to be restored or re-credited if the refunded amount of IGST has been repaid by the assessee along with interest.

Facts

The assessee exported finished goods produced using material imported under Advance License on payment of IGST by utilising accumulated ITC instead of exporting it under the letter of undertaking. The IGST paid was automatically refunded, and later it paid the refunded IGST with interest and then requested authorities to re-credit/restore ITC utilised for payment of IGST. The details of such ITC to be restored in the electronic credit ledger were also furnished. Despite repeated attempts, when the ITC was not restored as requested, the assessee filed the writ petition.

High Court

The High Court observed that there was an erroneous grant of refund, and it was also undisputed that the assessee had returned such refund amount together with interest. However, once both these transactions were taken out of the equation, what survived was the reduction of the ITC originally effected from the electronic credit ledger. If the authorities have accepted that there was an error and, resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored. Therefore, the authorities were directed to re-credit/ restore ITC in the electronic credit ledger.

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5. An online module is introduced for filing of an application for recognition as Pre-Shipment Inspection Agency (PSIA)

The DGFT has proposed a new online module for filing of an application for recognition as a Pre-Shipment Inspection Agency (PSIA), electronic issuance of Pre-shipment Inspection Certificates (PSICs) and electronic verification of the authenticity of the PSICs with effect from 01.05.2022.

The online process shall not be mandatory in the initial period of go-live, and the PSIAs, as well as the importers, are provided time till 30-06-2022 to come on board and get familiarised with the online process. All PSICs shall be mandatorily generated online through the DGFT Website w.e.f. 01-07-2022.

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6. Recognition, Measurement, and Presentation of Deferred Tax as per Ind AS 12

As per Ind AS 12 (Income Taxes), Deferred Tax Liabilities (DTL) are the amounts of income taxes payable in future periods in respect of the taxable temporary differences. Whereas, Deferred tax assets (DTA) are the amounts of income taxes recoverable in future periods in respect of the deductible temporary differences, the carry forward of unused tax losses, and the carry forward of unused tax credits.

Recognition of DTL or DTA

For recognition, it is necessary to compute and classify the temporary differences arising due to variance in the carrying amount of an asset or liability in the balance sheet and its tax base. DTL is created for all taxable temporary differences with limited exceptions. Whereas, DTA is created for all deductible temporary differences subject to limited exceptions and recognition criteria.

Deductible temporary differences reduce the taxable profits of future periods, i.e., less future tax payment by a particular amount. However, if there are no tax payments in the future, that means that deductible temporary differences are of no benefit. Therefore, an entity should recognise DTA only if it is probable that taxable profits will be available against which the deductible temporary differences can be utilised.

Measurement of DTL or DTA

Deferred Tax shall be measured at the tax rates expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Accordingly, DTL and DTA shall be recognised by multiplying the temporary differences with tax rates.

The measurement of DTL and DTA shall reflect the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Presentation of DTL and DTA

A transaction and the deferred tax effects of a transaction may be accounted for in:

a) Statement of Profit and Loss;

b) Outside Profit and Loss account:

In Other Comprehensive income such as revaluation amount in accordance with Ind AS 16

Directly in equity, such as correction of an error in accordance with Ind AS 8.

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