Weekly Round-up on Tax and Corporate Laws | 4th to 9th September 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from September 04^th to 9^th, 2023, namely:

(a) RBI expands UPI functionality, allows transactions through pre-sanctioned credit lines issued by banks;

(b) Extended time limit provided by TOLA isn’t applicable for sanction of notice under Section 151: HC;

(c) Analysis of changes introduced in Guidance Note on Tax Audit released by ICAI;

(d) Valuation Rules notified for supply of online gaming and actionable claims in casino;

(e) Opportunity of personal hearing under GST is a must before passing an adverse order even if assessee didn’t opt for it: Allahabad HC;

(f) SEBI revises disclosure format of Abridged Prospectus for public issues of Non-Convertible Debt Securities;

(g) SEBI opens a new bank account for crediting funds to ‘Investor Protection and Education Fund’ via online mode only; and

(h) Mandatory Audit Documentation to be secured by Statutory Auditors before signing the Audit Report.

1. RBI expands UPI functionality, allows transactions through pre-sanctioned credit lines issued by banks

 UPI transactions occur between bank deposit accounts, sometimes intermediated by prepaid instruments, including wallets. As of now, only savings accounts, overdraft accounts, prepaid wallets, and credit cards can be linked to UPI.

The RBI, in its Statement on Developmental and Regulatory Policies, dated April 6^th, 2023, suggested expanding the functionality of UPI to include transfers to and from approved bank credit lines, in addition to regular deposit accounts.

This significant step means that the UPI network can now support payments backed by bank credit, potentially reducing costs and fostering the development of innovative products tailored for the Indian market.

Now, the RBI has approved transactions to be conducted via the UPI system using pre-sanctioned credit lines offered by banks. This facility allows individuals to make payments using pre-sanctioned credit lines issued by Scheduled Commercial Banks, subject to the prior consent of the individual customer.

Further, banks may stipulate the terms and conditions for utilizing these credit lines in accordance with their Board-approved policies. These terms may include the credit limit, period of credit, interest rate, etc.

Read the Article

Read the Circular

2. Extended time limit provided by TOLA isn’t applicable for sanction of notice under Section 151: HC

Assessee was a Non-Banking Finance Company and classified as an Asset Finance Company. On June 2021, it received Section 148 notice stating that there was reason to believe that income chargeable to tax for AY 2016-2017 had escaped.

Later, Assessing Officer (AO) referred order of the Supreme Court in the case of Union of India vs. Ashish Agarwal (2022) 138 taxmann.com 64 (SC) and treated section 148 notice as show cause notice in terms of Section 148A(b). Later, an order was passed under section 148A(d).

Assessee contented that the Finance Act 2021 amended section 151, which provides for sanction for issue of notice. AY 2016-2017, three years elapsed on March 31 2020; hence, the provisions of amended Section 151(i) and 151(ii) would have to be fulfilled, which have not been complied with. The matter reached before the Bombay High Court.

The Bombay High Court held that the Taxation and Other Laws (Relaxation and Amendment of certain provisions) Act, 2020 [TOLA] provided for a relaxation of certain provisions of the Income-tax Act, 1961. Where any time limit for completion or compliance of an action, such as completion of any proceedings or passing of any order or issuance of any notice, fell between the period March 20^th 2020, to December 31^st 2020, the time limit for completion of such action stood extended to March 31^st 2021.

Thus, TOLA only seeks to extend the limitation period and does not affect the scope of section 151. AO cannot rely on the provisions of TOLA and the notifications issued thereunder as Finance Act, 2021, amended section 151, and the provisions of the amended section would have to be complied with by AO, w.e.f., April 01^st 2021.

Hence, the Assessing Officer cannot seek to take the shelter of TOLA as subordinate legislation cannot override any statute enacted by the Parliament. Further, the notification extending the dates from March 31^st 2021 till June 30^th 2021 cannot apply once the Finance Act 2021 is in existence.

The sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained; therefore, the sanction must be obtained by applying the amended section 151(ii). Since the sanction was obtained in section 151(i), the impugned order and notice were bad in law and should be quashed and set aside.

Read the Ruling

3. Analysis of changes introduced in Guidance Note on Tax Audit

The Institute Of Chartered Accountants of India (ICAI) has released the Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2023) [hereinafter referred to as ‘2023 GN’ for short]. The 2023 GN makes a lot of changes in recommendations vis-a-vis Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2022)[‘2022 GN’].

In this article, we have discussed the changes introduced in the Guidance note. Further, we have revised the FAQs in alignment with the “Guidance Note on Tax Audit (Revised 2023)” released by the ICAI.

Read the Article on Changes

Read the Updated FAQs

4. Valuation Rules notified for supply of online gaming and actionable claims in casino

As recommended in the 51st GST Council meeting, the CBIC has issued CGST (Third Amendment) Rules, 2023 and introduced Rule 31B and Rule 31C under the CGST Rules, 2017 for the valuation of supply by way of online gaming and actionable claims in casino respectively.

Rule 31B provides that the value of online gaming, including online money gaming, would be the total amount paid to the supplier by the player. Rule 31C provides that the value of actionable claims in casinos would be based on the total amount paid by the player for the purchase of the tokens, chips, coins, or tickets, by whatever name called, for use in casino or participating in any event, including game, scheme, competition or any other activity or process in the casino, in cases where the token, chips, coins or tickets are not required.

Notably, for both of the above rules, the amount refunded by the supplier/casino would not be deductible from the supply value. Further, if a player uses winnings for further play without withdrawal, it won’t be considered an amount paid to the supplier and hence would not be taxable.

Read the Notification

5. Opportunity of personal hearing under GST is a must before passing an adverse order even if assessee didn’t opt for it: Allahabad HC

The High Court of Allahabad has recently held that the Assessing Authority must allow personal hearing before passing an adverse order of assessment, and writing ‘No’ in a column meant to mark the assessee’s choice to avail personal hearing would bear no legal consequence. The Honorable Allahabad High Court gives this ruling in the Dana Pani v. State of UP case.

Facts

In the present case, the notice was issued to the petitioner seeking its reply within 30 days. However, the Assessing Authority had chosen not to give the petitioner any opportunity to hear by mentioning “NA” against the column description “Date of personal hearing”. Thereafter, an order imposing demand was passed against the petitioner. It filed writ petition and contended that the opportunity of hearing was not granted.

High Court

The Honorable High Court noted that the department mentioned “NA” against the columns for “Time of personal hearing” and “Venue where personal hearing will be held” in the notice. The Court further noted that it had been laid down by way of a principle of law that a person/assessee is not required to request an “opportunity of personal hearing”.

It would be mandatory for the Assessing Authority to afford such an opportunity before passing an adverse order, and the mere fact that the petitioner might have signified ‘No’ in the column to avail of a personal hearing would bear no legal consequence. Therefore, it was held that the impugned order was to be set aside, and the matter was to be re-adjudicated.

Read the Ruling

6. SEBI revises disclosure format of Abridged Prospectus for public issues of Non-Convertible Debt Securities

Abridged Prospectus serves as a concise overview of a company’s complete Prospectus. It aims to give potential investors a brief yet informative glimpse into crucial details about the company and its forthcoming securities offering.

Recently, the SEBI vide Circular No SEBI/HO/DDHS/PoD1/CIR/P/2023/150, dated 04.09.2023, has revised the format of the abridged Prospectus for public issues of non-convertible debt securities and/or non-convertible redeemable preference shares. This format has been updated to further simplify and enhance clarity and consistency in the disclosures across various documents.

(a) SEBI enhances clarity and disclosure in an abridged prospectus format

The updated format now requires issuers to prominently display key information on the front page of the abridged Prospectus. This includes details such as the instrument type, base size, face value, whether over-subscription is permitted, coupon information, issue opening and closing dates, instrument rating, and the designated exchange for listing.

Further, the issuer must disclose the promoter’s details, experience and educational qualifications, Board of directors, business overview, risk factors, objects of the issue, and issue procedure.

(b) Abridged Prospectus to incorporate QR Code for improved accessibility

The format of the abridged Prospectus has been updated to include essential information on the front page of the offer document. Additionally, the issuer or merchant bankers are now required to incorporate a Quick Response (QR) code on the final page of the abridged Prospectus. Scanning this QR code will directly take you to the full Prospectus for further details.

(c) Conclusion

In conclusion, SEBI’s updated abridged prospectus format represents a substantial stride in bolstering transparency and streamlining information for prospective investors in public offerings.

Read the Article

Read the Circular

7. SEBI opens a new bank account for crediting funds to ‘Investor Protection and Education Fund’ via online mode only

SEBI, vide Circular No. SEBI/HO/GST/TAD/P/CIR/2023/149, dated September 04^th, 2023, has modified the mode of payment for crediting the amount to the SEBI Investor Protection and Education Fund (IPEF). SEBI has introduced a new bank account to streamline payments from market participants to IPEF. Pertaining to this, a link has been made accessible on the Homepage of the SEBI website (www.sebi.gov.in) to make payment to SEBI IPEF”.

This link allows the remitter to complete the payment using diversified methods among Net Banking, NEFT/RTGS, Debit Cards, and UPI. While making the payment, the remitter shall furnish the requisite information such as the Name of the Payer, PAN, Mobile Number, E-mail ID, the purpose behind the payment, the amount to be paid, etc.

Read the Circular

8. Mandatory Audit Documentation to be secured by Statutory Auditors before signing the Audit Report

Before signing the audit report, the statutory auditor should gather essential documentation from the client company. These documents are the foundation upon which auditors base their assessments and conclusions, ultimately shaping the audit report’s content and conclusions. Multiple orders and reports of NFRA observed many instances of a lack of audit documentation by the statutory auditor. The following key lessons can be drawn from these instances and should be heeded by auditors while assembling audit files in their forthcoming assignments:

1. Section 134(1) of the Companies Act 2013, mandates that the company’s Board must approve financial statements of Directors before they are signed and reported upon by the auditors. This is a fundamental requirement to ensure the accuracy and legality of financial reporting.
2. Auditors are responsible for verifying the authorization of financial statements by obtaining a certified copy of the Board resolution, which authorizes the directors to sign the financial statements.
3. The auditors cannot rely upon the “Doctrine of Indoor Management” because it is available to third parties that do not have access to internal company records. Auditors, having access to such records, cannot use this doctrine as a defence for their failure to verify the approval process.
4. The auditors’ failure to obtain and retain the necessary documentary evidence of Board approval is professional misconduct, as per the Chartered Accountants Act, 1949.
5. Auditors are required to maintain evidence of their verification of compliance with legal requirements, such as obtaining copies of Board Resolutions.
6. Financial statements must include the names of individuals signing on behalf of the company below their signatures. This is crucial for transparency and accountability.
7. Auditors play a critical role in ensuring the accuracy and compliance of financial statements by verifying adherence to statutory requirements, such as signatory disclosure on financial statements, etc.

Auditors should be professional, skeptical and diligent in verifying compliance with legal requirements. He should also maintain proper documentation to audit procedures performed by him. Failure to do so can lead to professional misconduct charges and disciplinary actions against statutory auditors.

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