Weekly Round-up on Tax and Corporate Laws | 26th to 30rd March 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 26 to 30th, 2024, namely:

a) SEBI introduces the Beta version of T+0 rolling settlement cycle on an optional basis;

b) Mere appending phrase “Yes” doesn’t align with mandate of Section 151 for granting approval for reassessment: HC;

c) Kerala HC dismissed writ & denied relief to assessee who mistakenly claimed IGST instead of CGST/SGST;

d) Assessment order to be set aside since tables of SCN itself were contradictory & reply wasn’t considered: HC; and

e) Enhancing Clarity in Disclosure: Introduction of “Material Accounting Policy Information” in Ind AS 1.

1. SEBI introduces the Beta version of  T+0 rolling settlement cycle on an optional basis

Earlier, SEBI vide circular SEBI/HO/MRD2/DCAP/P/CIR/2021/628, dated 07.09.2021, allowed for introducing a T+1 rolling settlement cycle. All stock exchanges, clearing corporations, and depositories [collectively referred to as “Market Infrastructure Institutions (MIIs)”] jointly decided to shift to the T+1 settlement cycle in a phased manner, which was fully implemented w.e.f. January 27, 2023.

a) What is Rolling Settlement?

Rolling settlement is the mechanism for settling trades done on a stock exchange. It refers to a system where securities traded on a given date are settled on successive dates. T+1 rolling settlement occurs on the next trading day after the trade execution date (T).

Example – Suppose Mr A purchased 200 shares on Monday (T day), January 1, 2024. So, for Mr. A, the settlement will fall on Tuesday (T + 1 day), January 2, 2024. On this day, Mr A is supposed to make a pay-in to the full value of shares purchased to the exchange. The exchange, in return, will credit the shares purchased to his demat account.

b) Introduction of the T+0 rolling settlement

SEBI vide circular No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/20, dated 21.03.2024, introduced the Beta version of the T+0 rolling settlement cycle on an optional basis, in addition to the existing T+1 settlement cycle in the equity cash market. This initiative will cover a limited set of 25 scrips and a limited number of brokers.

The T+0 rolling settlement cycle stems from recommendations by a working group comprising MIIs, public feedback and suggestions from SEBI’s Risk Management Review Committee. These provisions are effective from March 28, 2024.

In the T+0 rolling settlement, the settlement occurs on the same day as the transaction occurs. The T+0 settlement cycle reduces transactional risks and enhances market efficiency by providing immediate liquidity to investors.

Example – Suppose Mr. L decides to buy 100 shares of ABC Ltd. on Tuesday (T day), which is April 2. So, for Mr L, the settlement will fall on the same day, i.e. Tuesday. There is no delay between the trade execution and settlement.

Similarly, a seller who has sold the shares on the ‘T’ day will need to deliver the shares to the broker or exchange on the same day, i.e. April 2. In return, the shares will be debited from the seller’s demat account. The seller can expect to receive the sale proceeds by the end of April 2.

c) Impact of T+0 Settlement on Investors

T+0 settlement enables investors to benefit from immediate trade execution and settlement, providing them with improved flexibility to capitalize on short-term trading opportunities and market fluctuations. Investors can react quickly to market developments, execute trades promptly and optimize investment strategies.

A shortened settlement cycle would bring cost and time efficiency, transparency in charges to investors, and strengthened risk management at clearing corporations and the overall securities market ecosystem.

T+0 settlement eliminates waiting for an additional day for trading confirmation and settlement. This facilitates efficient liquidity management by enabling investors to access funds and securities immediately after trade execution.

d) Operational Guidelines for Participating in T+0 Settlement

The operational guidelines for participating in the T+0 Settlement are as follows –

I) Who is eligible to participate in the T+0 settlement cycle?

All investors are eligible to participate in the T+0 settlement cycle segment if they can meet the timelines, process and risk requirements as prescribed by the MIIs.

ii) What are the Trade Timings?

There’s a fixed trading window from 9:15 AM to 1:30 PM.

iii) Surveillance Measures

The surveillance measures applicable in the T+1 settlement cycle shall apply to scrips in the T+0 settlement cycle.

iv) Setting the Price Band

The price in the T+0 segment will operate with a price band of +100 basis points from the price in the regular T+1 market. After every 50 basis points movement in the underlying T+1 market, this band will be re-calibrated.

v) Index Calculation and Settlement Price Computation

T+0 prices will not be considered in index calculation and settlement price computation. There shall be no separate close price for securities based on trading in the T+0 segment.

vi) Netting of Obligations

There shall be no netting in pay-in and pay-out obligations between the T+1 and T+0 settlement cycle.

e) Publication of Operational Guidelines and FAQs for T+0 Settlement

To ensure smooth implementation, the MIIs are required to publish other operational guidelines (including mechanisms for trading, clearing and settlement, risk management, etc.) and FAQs along with the list of 25 scrips for the Beta version of the T+0 settlement cycle and disseminate the same on their respective websites.

Periodically, MIIs must disseminate the list of brokers participating in the Beta version of the T+0 settlement cycle on their websites. The MIIs must provide a fortnightly report on the progress of activities in the Beta version of the T+0 settlement cycle until further direction.

Read the Circular

2. Mere appending phrase “Yes” doesn’t align with mandate of Sec. 151 for granting approval for reassessment: HC

The assessee filed its return of income, which was processed under section 143(1). Subsequently, a search operation was conducted on the premises of an assessee, of which the assessee was one of the concerns. Reassessment proceedings were initiated against the assessee, and a notice under section 148 was issued.

In response, the assessee requested the Assessing Officer (AO) to consider the original return of income as return filed in response to the notice under section 148. The AO completed the assessment by adding to the assessee’s income on account of unexplained share premiums and commission for accommodation entries.

The instant appeal was filed by AO against order of passed by ITAT, wherein it was held that prescribed authority had granted approval under Section 151 in a mechanical manner.

The Delhi High Court held that the satisfaction of the AO is a sine qua non for a valid approval by the higher authorities under Section 151. The section stipulates that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner must be “satisfied” on the reasons recorded by the AO that it is a fit case for issuing such notice.

In the instant case, the Principal Commissioner of Income Tax (PCIT) merely wrote “Yes” without specifically noting his approval while recording the satisfaction that it is a fit case for issuing notice under Section 148. The satisfaction arrived at by the PCIT must be clearly discernible from the expression used when affixing its signature, according to approval for reassessment under Section 148.

The approval cannot be granted mechanically as it links the facts considered to the conclusion reached. Merely appending the phrase “Yes” does not appropriately align with the mandate of Section 151 as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose. The approval in the instant case is akin to the rubber stamping of “Yes”.

Read the Ruling

3. Kerala HC dismissed writ & denied relief to assessee who mistakenly claimed IGST instead of CGST/SGST

The Honorable Kerala High Court has recently held that the Court, in the exercise of its limited jurisdiction, could not amend the statute and prescribe different time limit for claiming refund of wrongly availed ITC even if assessee made a bonafide mistake in claiming IGST instead of CGST/SGST. This ruling is given by the High Court of Kerala in the case of M Trans Corporation v. State Tax Officer.

Facts

The petitioner was a registered dealer under the provisions of the CGST Act 2017. The department issued the show cause notice to the petitioner in Form GST ASMT-10. The petitioner filed the reply to the said Show Cause Notice. However, the Assessing Authority rejected the petitioner’s contention and found that the petitioner had availed excess input tax credit in the financial year 2017-18 under IGST instead of SGST and CGST.

On the said amount, the petitioner was directed to pay the tax, interest, and penalty. It filed writ petition against the demand and contended that the assessee should not be punished and the ITC wrongly availed as IGST instead of CGST & SGST should be allowed.

High Court

The Honorable High Court noted that the petitioner had not moved any application within the prescribed time and was not even under extended time to claim the refund. As per Section 54 and Section 49, for refund of excess tax, etc., paid by registered dealer, dealer must move an application within the period of two years from the last date of filing returns for the relevant year.

In the instant case, the petitioner did not move any application within the time prescribed and even the extended time. Therefore, in the exercise of its limited jurisdiction, the Court could not amend statute and prescribe different time limits for moving such an application. Thus, the Court dismissed the petition.

Read the Ruling

4. Assessment order to be set aside since tables of SCN itself were contradictory & reply wasn’t considered: HC

The Honorable Madras High Court has recently held that the assessment order passed without considering the reply of the assessee to be set aside where tables of SCN mentioning differences of ITC itself are contradictory and allowed authorities to issue fresh show cause notice. This ruling is given by the High Court of Madras in the case of Ambika Stores v. Deputy State Tax Officer-I.

Facts

The petitioner was a registered person under GST. It received a show cause notice (SCN) alleging discrepancy between the GSTR-3B return and GSTR-1 return and also between the GSTR-3B return and GSTR-2A auto-populated return. It submitted a reply to the said notice and pointed out the contradiction between figures set out in two tables in SCN. However, the department passed an assessment order without considering its reply and filed a writ petition against it.

High Court

The Honorable High Court noted that the SCN was contradictory since in first table, CGST and SGST amounts in GSTR-3B were shown as Rs.3.33 lakhs, whereas in the second table dealing with the difference between GSTR-3B return and auto-populated GSTR-2A return, GSTR-3B amounts were specified as Rs.5.19 lakhs both for CGST and SGST.

In addition, it appeared from perusal of assessment order that the reply of the assessee was not considered in the assessment order. Therefore, the Court held that the impugned assessment order was liable to be set aside. However, it was open for authorities to issue fresh SCN.

Read the Ruling

5. Enhancing Clarity in Disclosure: Introduction of “Material Accounting Policy Information” in Ind AS 1

The Ministry of Corporate Affairs (MCA) has released Notification No. GSR 242(E) dated 31.03.2023, amending the Companies (Indian Accounting Standards) Rules, 2015 effective from 01.04.2023. These amendments provide more clarity regarding the disclosure of accounting policy information.

Specifically, amendments to Ind AS 1, Presentation of Financial Statements, address the absence of a definition of the word “significant”. Because, before these changes, entities were required to disclose “significant accounting policies” relevant to understand their financial statements. However, the absence of a clear definition for “significant” resulted in the replication of standards without considering the entity-specific information.

Earlier, entities used to disclose “significant accounting policies” without focusing on how to apply the requirements of the Ind ASs to their circumstances. To overcome this problem, the standard replaces the term “significant accounting policies (SAP)” with the term “material accounting policy information (MAPI)”. Ind-AS companies must now disclose “material accounting policy information” instead of “significant accounting policies” to comply with the amendment.

It is important to note here that amended Ind AS 1 does not require disclosure of “material accounting policies (MAP)” but rather “material accounting policy information (MAPI)”.

On a combined reading of new paras 117 to 117C of Ind AS 1, a distinction between “material accounting policy (MAP)” and “material accounting policy information (MAPI)” can be understood:

(a) A “material accounting policy” would simply mean an accounting policy followed for a material transaction, event or other condition. This would have resulted in boilerplate disclosures of standard information duplicating the language of Ind ASs as regards accounting policies followed for material transactions, events or other conditions.

(b) “Material Accounting Policy Information”, on the other hand, would mean material entity-specific information regarding a material accounting policy such as:

• • Significant judgments or assumptions in applying an accounting policy.
  • Disclosing the fact that the entity has chosen accounting policy from a menu of accounting policy options permitted by Ind ASs. In other words, there is no need to disclose the accounting policy where there are no accounting policy options in Ind AS, such as accounting for investment property.
  • Developing accounting policy following Ind AS 8 in the absence of any guidance under an Ind AS.
  • Disclosing adequate information to enable users to understand complex accounting.
  • Disclosing information regarding changes in accounting policy during the reporting period resulted in a material change in the information in the financial statements.These amendments have clarified the disclosure of accounting policy information and resolved the long dispute over what significant accounting policy means.

Read the Story