Weekly Round-up on Tax and Corporate Laws | 28th February to 5th March 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 28th February to 5th March 2022, namely:

(a) High Court upheld the addition made to the income of a politician for the cash recovered from party workers kept for distribution to voters

(b) Key highlights of the Limited Liability Partnership (Second Amendment) Rules, 2022

(c) Implementation of automation in IGCR Rules, 2017 with effect from 01-03-2022

(d) Order on the basis of SCN, which was issued without indicating the date of hearing, shall be set aside: High Court

(e) Mandatory requirement for disclosure of accounting ratios in the Financial Statements

1. Cash recovered from party workers kept for distribution to voters rightly added to the income of politician: HC

The Madras High Court has justified Section 69A additions in the hands of a politician, D.M. Kathir Anand, Lok Sabha Member. The Court held that merely providing a sworn statement by a person claiming ownership over seized money and settling the case before SetCom isn’t sufficient to prove that money belongs to such person.

Facts

The assessee was a politician who contested the election from Vellore Parliamentary Constituency. On 01-4-2019, Rs. 11.49 crores in cash was recovered from the house of the party workers. The cash was kept for distribution to the voters to secure the victory of the assessee in the parliamentary election.

Mr S. Srinivasan, brother of a party worker, came forward and gave a voluntary statement that such cash belonged to him. He also said that he earned money in his real estate business. Later, he applied to settle the case before the Settlement Commission by declaring the seized cash to his income.

The Assessing Officer (AO) added the cash recovered from the party worker as income in the hands of the assessee under Section 69A. The assessee contended that such cash did not belong to him and thus, could not be added to his income. AO rejected the assessee’s contention and passed the order. The assessee filed the writ petition before the Madras High Court.

Ruling

The Madras High Court held that the statement of Mr S. Srinivasan claiming that the cash belonged to him does not satisfy the test of preponderance of probability that the cash indeed belongs to him. He had not produced any records to substantiate that the cash belonged to him. Thus, there was a preponderance of probability that the cash belonged to the assessee.

Merely because Mr S. Srinivasan came forward and gave a sworn statement claiming ownership over seized money does not mean that the liability that can be fastened on the assessee can be shifted on him. Further, applying to settle the case before the Settlement Commission by declaring the seized cash was irrelevant.

The cash was not found under control and the possession of Mr S. Srinivasan. It was found in the residence of party workers with packet markings of the Municipal Wards, falling under the Vellore Parliamentary Constituency from where the assessee was contesting. The presumption under Section 132(4A) and Section 292C though a rebuttable presumption, was to be presumed against the assessee.

Read the Ruling

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2. Key Highlights of the Limited Liability Partnership (Second Amendment) Rules, 2022

The Ministry of Corporate Affairs (MCA) has notified the Limited Liability Partnership (Second Amendment) Rules, 2022. The amended rules would come into force from the date of publication in the Official Gazette. Highlights of the amended rules are as under:

(a) Increase in the number of DPINs that can be applied at the time of incorporation

The amendment has been made w.r.t allotment of Designated Partner Identification Number (DPIN) at the time of incorporation. Now Five DPINs can be applied at the time of incorporation. Earlier, application for a maximum of two DPINs was allowed at the time of incorporation of LLP.

(b) Allotment of PAN & TAN along with Certificate of Incorporation

The amended provisions provide that now PAN and TAN would be allotted to LLPs along with the Certification of Incorporation (COI). The amendment has been made to align the Incorporation process of LLPs with the company.

(c) Signing of Statement of Accounts & Insolvency

The Statement of Account and Solvency may be signed on behalf of the LLP by an Interim Resolution Professional or Resolution Professional, or Liquidator or LLP Administrator in a case where the Corporate Insolvency Resolution Process (CIRP) has been initiated against the LLP under the IBC, 2016 or the LLP Act, 2008.

Rule 25(2) of the LLP Rules, 2009 prescribes the procedure for filing of the annual return of the Company in Form-11 (Annual Return). Earlier, no specific procedure was prescribed with regard to the signing of the Statement of Account and Solvency of the LLPs under insolvency. The same has been prescribed now.

The amended provisions prescribe that where the CIRP has been initiated against the LLP, its annual return may be signed by an interim resolution professional or resolution professional or liquidator or limited liability partnership administrator. No certification by a designated partner shall be required.

(d) Reply to the registrar against notice received under Rule 36(6) shall be given in form 32

As per Rule 36(6) of the LLP Rules, 2009 when a notice is received from the registrar regarding the rectification/defect or incompleteness in any document/form filed with the registrar, the reply on the same is to be filed with the registrar within the prescribed timeline. The amended rules prescribe that such reply is to be filed in the “Form-32” (form for filing an addendum for rectification of defects or incompleteness).

(e) No physical attachment of statement of account disclosing nil assets and nil liabilities is required in case of striking off

As per Rule 37 (1A), certain enclosures are enclosed with Form 24 (Application to the registrar for Striking off the name of the LLP). As per the amended rules, the words “enclose along with Form 24” have been substituted with “Furnish with Form 24” meaning thereby there is no need to attach the documents physically. The information is to be filed in the form itself.

(f) Revamping of 21 forms; web-based LLP filing

The amended rules modify 21 forms by migrating them to a web-based process. These forms are modified to make the LLP filing a complete web-based, as mentioned by the MCA. The changes are made to align the forms with the MCA V3 model, which talks about the Web-based filing of the LLP.

(g) Additional disclosures in the revamped forms

Some additional information is required in the revamped form, such as:

• • Every change in LLP Deed will have to be marked in Form 3 itself with precise details. Earlier, just deed was to be attached.
  • Now, Form 9 (Consent to act as a Partner) will be web-based. Earlier, it was an offline format that has to be physically signed by the partners.
  • As Form 9 has become web-based, resultantly, all Designated Partner’s Digital Signatures will be required at the time of Incorporation of LLP. Earlier, only 1 DSC of any one DP was required.
  • Penalties and Compounding of offences shall be mentioned in Form 11 (Annual Return).
  • Place of maintenance of accounts, other than the registered office of LLP, where service of notice can be made shall be intimated in Form 12 (form for intimating other address for service of documents). Just like AOC-5 filed by the Companies.
  • In Form FiLLiP, the Latitude and Longitude of the address of the Registered Office of the LLP is compulsory to mention.
  • In Form FiLLiP, the basic details of the Designated Partners can now be fetched from the Digi Locker Database.

Read the Rules

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3. Implementation of automation in IGCR Rules, 2017 w.e.f. 01.03.2022

Earlier, CBIC issued a notification to amend existing Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017. These changes shall come into effect from 1st March 2022. The amendments aim to simplify the procedures with a focus on automation and making the entire process contactless. These include:

(a) The individual transaction-based permissions and intimations, such as – intimation of the intent to import goods at a concessional rate of duty, intimation of the receipt of goods, permission to re-export or clear goods domestically, etc. all being done away;

(b) The various forms have been standardized and notified for electronic submission of details;

(c) The importer would submit a monthly statement on the common portal;

(d) A procedure for inter-unit transfer of the imported goods has been provided;

(e) An electronic option for voluntary payment through the common portal is also being developed for implementation.

In this regard, Circular No. 04/2022-Customs, dated 27-02-2022 has been issued to explain the procedure set out in the IGCR Rules, 2017 and the clarifications for smooth implementation. This circular also clarifies the procedure to be followed by an importer for import of goods at concessional rate, receipt of goods from the job worker, inter-unit transfer of goods, re-export or clearance for home consumption etc.

Read the Circular

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4. Order based on SCN, which was issued without indicating the date of hearing liable to be set aside: HC

The Honorable Andhra Pradesh High Court has recently held that order passed by the authority without serving on the assessee a notice of personal hearing indicating date of hearing is illegal and liable to be set aside. The High Court of Andhra Pradesh gave this ruling in the case of GRT Hotels & Resorts (P.) Ltd. v. State of Andhra Pradesh.

Facts

The Competent Authority issued a show-cause notice to the assessee to explain why tax should not be imposed. The authority granted fifteen days to file objections and arguments, but the assessee did not file any objection within the stipulated time. Thereafter, the Competent Authority passed an order under Section 74 on the assessee. The assessee challenged the order on the ground that an opportunity of hearing was not granted and filed a writ petition.

High Court

The Honorable High Court observed that as per Section 75(4) of the GST Act, an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person. In the instant case, a show-cause notice was issued to submit objections, but the notice of personal hearing, indicating the date of hearing, was not served before resorting to the impugned action. Since the mandatory requirement was not complied with, the Court held that petition was allowed, and the matter was required to be remanded to Competent authority for fresh consideration.

Read the Ruling

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5. Mandatory requirement for disclosure of accounting ratios in the Financial Statements

In order to bring greater transparency in the financial statements, an amendment to Schedule III to the Companies Act, 2013 was introduced by the MCA. Wherein several new disclosures that are grouped under “Additional Regulatory Information” (ARI) were mentioned. Disclosure of the 11 key accounting ratios, such as the Current ratio, Debt-equity ratio, Debt service coverage ratio etc., is one of the mandatory disclosures specified under ARI.

Along with such disclosures, an explanation with respect to change in such ratios by more than 25% (whether positive or negative) in comparison to the preceding year’s ratio shall also be provided.

In case there is any change in the current period in relation to any item in the numerator or denominator of any ratio, the same change shall be made for the comparative period as well, and a footnote explaining the change in the item shall be added along with the reason thereof.

Read the Story

To read our previous stories on Ind AS Schedule III:

1. Presentation of Assets under Development Click Here

2. Presentation of Equity Click Here

3. Presentation of Property, Plant and Equipment Click Here

4. Presentation of Financial Liabilities Click Here

5. Presentation of Trade Receivables Click Here

6. Presentation of Trade Receivables (Impairment) Click Here

7. Presentation of Trade Payables Click Here