Weekly Round-up on Tax and Corporate Laws | May 27th to 1st June 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from May 27 to June 01, 2024, namely:

1. No separate notice is to be issued to the joint account holder for recovery of tax dues from primary account holder: HC;
2. RBI launches PRAVAAH portal to streamline regulatory approvals and clearances;
3. Recovery proceedings under Section 79 can be initiated before 3 months only in exceptional cases, detailed Instructions issued by CBIC;
4. HC restored registration of assessee, which was cancelled by merely mentioning “obtained by fraud or misstatement or suppression” and
5. Checklist for Clauses 5 to 10 of Form 3CD in Tax Audit under the Income Tax Act, 1961

1. No separate notice is to be issued to joint account holder for recovery of tax dues from primary account holder: HC

The petitioners were farmers and were doing agricultural activities. They sold agricultural goods produced from the joint holding land with their uncle. They collectively cultivated the land and sold the seasonal crops. Out of the sale proceedings, an amount was deposited in the petitioner’s joint account with his uncle. When the petitioners approached the bank to withdraw the said amount, they were informed that there was an attachment to the joint account for the uncle’s outstanding amount from the Income Tax Department for non-payment of said amount.

The petitioners approached the Gujarat High Court and contended that no notice under Section 226(3) of the Income-tax Act was issued to the petitioners before attaching the account. It was submitted that the petitioners were the secondary account holders, and their uncle was the primary account holder in the said joint savings account.

The High Court held that it was informed that the petitioners were secondary account holders and their uncle was the primary account holder in the said joint savings account.

When the impugned notice was issued for recovery of the outstanding dues of the uncle, who is defaulter in making payment of dues to the department, merely because the petitioners were joint account holders, no separate notice was required to be issued to the petitioners for having a joint account as secondary holder in view of provisions of Section 226(3)(iii) of the Act.

Further, upon perusal of the provisions, it was clear that notice must be forwarded to the assessee from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee. This means the notice must be issued from whom the amount is due and not to the joint account holder.

If the petitioners have any grievance against recovery of the above dues in the account of their uncle along with them, they can initiate necessary proceedings in accordance with the law before the appropriate forum.

Accordingly, the writ petition was disposed of.

Read the Ruling

2. RBI launches PRAVAAH portal to streamline regulatory approvals and clearances

On May 28, 2024, Shri Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), introduced three major initiatives, namely (a) the PRAVAAH portal, (b) the Retail Direct Mobile App, and (c) the FinTech Repository. These initiatives, previously announced in the RBI’s development and regulatory policy statements, mark a significant step in enhancing the efficiency and accessibility of financial services in India.

a) PRAVAAH: Easing the Path to Regulatory Approvals

‘PRAVAAH’, which stands for Platform for Regulatory Application, Validation and Authorization, is a secure, centralized web-based portal designed to streamline the process of obtaining regulatory approvals from the RBI. The portal makes it convenient for individuals or entities to apply online for various regulatory approvals in a seamless manner.

The key features include submitting applications online on the portal, tracking and monitoring their status, responding to any clarifications or queries sought by the RBI regarding the applications, and receiving decisions from the RBI in a time-bound manner.

Presently, 60 application forms across various RBI regulatory and supervisory departments have been made available on PRAVAAH, with more to be added as needed. This requirement would streamline the regulatory approval process, providing ease, cost efficiency, and convenience for making applications and tracking their status.

b) Retail Direct Mobile App: Making investing effortless

The retail direct portal was launched in November 2021 to facilitate retail investors in opening their Retail Direct Gilt Accounts with the RBI under the Retail Direct Scheme. The scheme allows retail investors to buy G-Secs in primary auctions and buy and sell G-Secs in the secondary market.

Further, with the launch of the retail direct mobile app, retail investors can now transact in G-Secs using the mobile app on their smartphones. The mobile app can be downloaded from the Play Store for Android users and App Store for iOS users. This requirement would make government securities more accessible to retail investors, promoting broader participation in the financial markets.

c) FinTech Repository: A comprehensive database

The FinTech Repository serves as a centralized database capturing essential information about FinTech entities, their activities, and the technologies they use. It is designed to provide a comprehensive view of the FinTech landscape from a regulatory perspective, assisting policymakers in designing informed regulations and policies and offering valuable data and trends for industry stakeholders.

Simultaneously, a related repository, called EmTech Repository, focuses on adopting emerging technologies like AI, ML, Cloud Computing, and Blockchain by RBI-regulated entities (banks and NBFCs). The FinTech and EmTech Repositories are secure web-based applications managed by the Reserve Bank Innovative Hub (RBIH), a wholly-owned subsidiary of RBI. This requirement would provide clear information about FinTech and new technologies, helping policymakers make better regulations and offering useful data to industry stakeholders.

Overall, the launch of PRAVAAH, the Retail Direct Mobile App, and the FinTech Repository highlights the RBI’s dedication to fostering innovation, improving regulatory efficiency and advancing financial inclusion. These forward-thinking initiatives are set to transform India’s financial regulatory and investment environment, making it more efficient, transparent and accessible to all.

Read the Press Release

3. Recovery proceedings under Section 79 can be initiated before 3 months only in exceptional cases, detailed Instructions issued by CBIC

The CBIC has observed that some field formations are initiating recovery proceedings before the stipulated 3-month period without explicit orders for early payment. Consequently, the CBIC has issued detailed guidelines for the CGST field formations for initiating recovery proceedings before the specified period of 3 months from the order’s service date. The CBIC has clarified that such recovery can be initiated only in exceptional cases before the specified time period.

Also, the Jurisdictional Principal Commissioner/ Commissioner shall examine the reasons provided. If he considers it expedient in the interest of the revenue to recover the amount before the 3 months, they must record the reasons in writing. Thereafter, he may issue the directions to the concerned taxable person and send the copy of such directions to the Jurisdictional Deputy or Assistant Commissioner. It is further clarified that there must be specific reasons clearly outlining the circumstances prompting such early action. Such reasons could include:

• High risk to revenue involved in waiting till the completion of three months;
• Concerned taxable person may close their business operations in the near future;
• Possibility of default by the taxable person due to his declining financialconditions or impeding insolvency;
• There are chances that proceedings may be initiated under IBC Act.

Read the Instruction

4. HC restored registration of assessee which was cancelled by merely mentioning “obtained by fraud or misstatement or suppression”

The High Court of Telangana has recently held that assessee’s registration can’t be cancelled if show cause notice did not mention factual backdrop of the breach, on the strength of which conclusion of fraud or misstatement or suppression of facts was drawn. This ruling is given by the Honorable Telangana High Court in case of T S R Exports v. Superintendent, GST.

Facts

The petitioner was served with a show cause notice for cancellation of registration, and in the said notice itself, it was mentioned that the petitioner’s registration stands suspended. The petitioner was directed to reply and appear in person for hearing at the appointed date. The said notice was followed by the impugned order cancelling the petitioner’s registration.

The petitioner submitted application for revocation of cancellation, but the same was rejected. It filed writ petition against the order and contended that the factual backdrop and alleged breach on the part of the petitioner was not spelled out.

Held

The Honorable High Court noted that the show cause notice showed that the singular reason for taking action was that registration was liable to be cancelled on ground that “registration is obtained by means of fraud, wilful misstatement or suppression of facts” but it did not mention factual backdrop of breach. If minimum factual backdrop and nature of breach was not mentioned with accuracy and precision, the petitioner was not in a position to file reply. Therefore, it was held that the show cause notice and impugned order were to be set aside and the Court also directed that the registration of assessee to be restored.

Read the Ruling

5. Checklist for Clauses 5 to 10 of Form 3CD in Tax Audit under the Income Tax Act, 1961

To ensure the compliance of Section 44AB of the Income Tax Act, 1961, the entity needs to furnish the details in Form No. 3CD. The details are furnished under the respective clauses. Clause 5 specifies the reporting of the status of the assessee. Under Clause 6 and Clause 7, the previous year and assessment year need to be reported, respectively. Clause 8 requires the entity to indicate the relevant clause of Section 44AB under which the audit has been conducted. Further, clause 9 requires details regarding partners/members of firms/LLPs/AOPs/BOIs and their Profit Sharing Ratio (PSR) and clause 10 requires the tax auditor to state the nature of the assessee’s business or profession.

Each clause has its own requirement; hence, a checklist can be pivotal in efficient and effective reporting. For reporting under clauses 5 to 10, the tax auditor shall ensure the following checkpoints:

(a) For reporting under clause 5, check the status mentioned in the assessee’s PAN card.

(b) Check whether the provisions of Section 184(2) of the Act have been considered while selecting the right alternative between “firm” and “AOP” in the dropdown.

(c) Check if there was any dispute regarding the status. If yes, report in Para 3 of Form No. 3CA / Para 5 of Form No. 3CB, as the case may be.

(d) Check whether the ‘previous year’ for which the accounts have been audited is clearly mentioned in Clause 6.

(e) In the case of a business or profession newly set up during the previous year under audit, have you noted that the commencement date of the previous year is the date of setting up the business or profession?

(f) For reporting under clause 7 of Form 3CD, check whether the assessment year mentioned in clause 7 is relevant to the previous year for which the accounts are being audited.

(g) Check whether the relevant clause of Section 44AB in Clause 8 in the e-filing utility has been appropriately selected by selecting the correct alternative from the dropdown.

(h) For reporting under clause 9, check whether an assessee is a partnership firm or LLP. If the assessee is a partnership firm, has any minor been admitted to partnership benefits either during the year or any preceding years?

(i) Verify whether the relevant documents, if required, have been filed with the concerned authorities.

(j) Ensure whether minutes have been inspected or other understandings recording any changes in the partners/members or their profit-sharing ratios have been obtained.

(k) For reporting under clause 10, obtain MRLs from the assessee regarding the nature of his business/profession during the previous year under audit and changes in the nature of his business/profession during the previous year.

(l) Where reporting the nature of assessee’s business or profession in Clause 9(a) in the e-filing utility, check whether the appropriate sector and the sub-sector have been selected.

(m) Corroborate information in MRLs with annual reports/statutory audit reports/audited accounts where the assessee is a company, and you did not conduct the statutory audit but some other audit firm (i.e. you are only certifying Form 3CD and will issue a tax audit report in Form 3CA-3CD).

Read the Checklist of clause 9 and 10
Read the Checklist of Clause 5 to 8