The week ending 18 August 2024 saw notable regulatory updates across various domains. In Income Tax, exemptions were granted to the West Bengal Transport Workers Social Security Scheme and Unique Identification Authority of India under Section 10(46) for specified incomes. The Delhi High Court ruled against reassessment under Section 148 post-approval of a resolution plan in the case of Asian Colour Coated Ispat Ltd. It also clarified that settlement consideration should be taxed as capital gains in the Akash Poddar case and upheld a Section 263 revision regarding the assessment under Section 44ADA in the Harjot Singh case. GST updates included the launch of the second All-India drive against fake registrations and guidelines for addressing non-payment due to industry practices. In Central Excise, the special additional excise duty on domestically produced crude was reduced, while the Customs Department updated the tariff value of key commodities. DGFT amended export policies and enhanced the eBRC system for exporters. SEBI issued multiple consultation papers to improve liquidity in the bond market, ease compliance for non-convertible securities, and expand the scope of sustainable finance. Lastly, the Ministry of Corporate Affairs amended rules for foreign companies’ registration and Indian Accounting Standards, updating regulatory requirements.
A. Income Tax
Exemptions to West Bengal Transport Workers Social Security Scheme: West Bengal Transport Workers Social Security Scheme, a body established by the Government of West Bengal, has been notified under section 10(46) for exemption on income arising from grants received from state government, cess, registration fees and Interest on bank deposits. (Income Tax Notification 99/2024 Dated 12/08/2024)
Exemptions to Unique Identification Authority of India: Unique Identification Authority of India, a statutory Authority established under the provisions of the AADHAAR Act, 2016 by the Government of India, has been notified under section 10(46) for exemption on income arising from grants/subsidies received from central government, fee/ subscriptions, service charges and Interest on bank deposits. (Income Tax Notification 100/2024 Dated 12/08/2024)
HC, Reassessment action u/s. 148 post approval of resolution plan unsustainable: Case of Asian Colour Coated Ispat Ltd vs ACIT, Delhi HC Judgement Dated 7th August 2024. The petitioner Asian Colour Coated Ispat was engaged in the business of manufacturing, processing, importing and exporting steel products, tubes, pipes and other allied articles. State Bank of India, asserting itself to be a financial creditor, filed an application u/s. 7 of the IBC. That petition was admitted by NCLT on 20 July 2018 when an Interim Resolution Professional was appointed and a moratorium enforced. According to the petitioners, the Additional Commissioner of Income Tax was duly apprised of the aforesaid developments in terms of a letter dated 26 July 2018. The NCLT, by its order of 26 October 2020, approve the resolution plan. It is only thereafter and on 31 March 2021 that the impugned notice under Section 148 for reassessment was issued. Delhi High Court held that reassessment action under section 148 post approval of the resolution plan unsustainable as validity of resolution plan not questioned at any stage. (Delhi HC Judgement Dated 07/08/2024)
HC, Settlement consideration to be treated as taxable under the head capital gains: Case of Akash Poddar vs ACIT, Delhi HC Judgement Dated 7th August 2024. The appeal is against the order of ITAT on the question of law as reagrds, whether the Tribunal erred in law in artificially and illegally bifurcating the treatment to be accorded to the composite amount of Rs.3.03 crores received by the appellant in pursuance of a settlement for relinquishment of rights and interests in the shares, holding that part amount is to be treated as capital gains under section 48, and the remaining amount is to be treated as income from salary under section 17(3)(iii) of the Act. HC held that the settlement consideration as received was liable to be recognized as capital gains and couldn’t justifiably be placed in the category of ‘profit in lieu of salary’. (Delhi HC Judgement Dated 07/08/2024)
HC Upholds Section 263 revision for Assessment of Income Under Section 44ADA instead of 44AD: Case of Harjot Singh vs PCIT, HC Judgement Dated 25th July 2024. During a search operation, Harjot Singh surrendered additional income of Rs. 15.12 Lac. The AO assessed the income considering it under Section 44AD, for the assessment year 2018-19. Section 44AD and 44ADA deal with taxation on presumptive basis. The appeal was filed against an order by the ITAT, which affirmed the PCIT’s decision that the assessment made by the Assessing Officer (AO) was erroneous and prejudicial to the revenue. The AO had assessed the income under Section 44AD, but the PCIT argued that it should have been assessed under Section 44ADA. The PCIT noted discrepancies in the assessment, stating that the professional receipts and related expenses should have been evaluated under Section 44ADA, which mandates a 50% assessment of professional receipts. HC upheld the PCIT revision order under Section 263 of the Income Tax Act. (P&H HC Judgement Dated 25/07/2024)
B. GST
Guidelines for Second special All-India Drive against fake registrations: The second Special All-India Drive shall be launched by from 16th August 2024 to 15th October 2024 to detect suspicious/ fake GSTINs and to conduct requisite verification and further remedial action to weed out these fake billers from the GST eco-system and to safeguard Government revenue. GSTN will identify suspicious/ high-risk GSTINs, based on detailed data analytics and risk parameters, for the purpose of verification during the said drive. If, after detailed verification, it is found that the taxpayer is non- existent and fictitious, then the tax officer may immediately initiate action for suspension and cancellation of the registration. Action may also be taken to identify the masterminds/ beneficiaries behind such fake GSTIN for further action, wherever required, and also for recovery of Government dues and/ or provisional attachment of property/ bank accounts, etc. (CBIC GST Instructions 02/2024 Dated 12/08/2024)
Applying Instruction regarding non-payment or short payment due to industry practice in audit matters : Instruction No. 01/2023-24-GST (Inv.) dt. 30th March 2024 provide guidelines for maintaining ease of doing business while engaging in investigation with regular taxpayers. The para 2(g) provides that the scenario may arise where an issue investigated is based on an interpretation of CGST provisions, and it is in the direction of proposing non-payment or short payment of tax, however, the background is that the taxpayer(s) is/are following a prevalent trade practice based on particular interpretation on that issue in the sector/industry. In such cases, it is desirable that a self-contained reference be made to the relevant policy wing of the Board. The endeavour, to make such reference before concluding investigation, may be useful in promoting uniformity or avoiding litigation if the matter gets placed before the GST Council. The Board desires that during the process of audit, the procedure and endeavour prescribed in para 2(g) of above Instruction be followed. (CBIC GST Instructions 03/2024 Dated 14/08/2024)
C. Central Excise
Special Additional Excise Duty on domestically produced Petroleum Crude: Special Additional Excise Duty on domestically produced Petroleum Crude reduced from earlier Rs 4600/- to Rs 2100/- per tonne with effect from 17th August 2024. (Central Excise Notification 20/2024 (T) Dated 16/08/2024)
D. Custom Duty
Fixation of Tariff Value of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver: CBDT notified the Tariff Values of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver w.e.f. 15th August 2024. (Custom Notification 54/2024 (NT) Dated 14/08/2024)
E. Directorate General of Foreign Trade (DGFT)
Amendment in Export Policy of De-oiled Rice Bran: Export of De-oiled Rice Bran is ‘Prohibited’ up to 31st January 2025. (DGFT Notification 23/2024 Dated 16/08/2024)
Powers for approval of authorisations under SCOMET: Para 10.06(iii) of Handbook of Procedures (HBP) has been amended to notify changes in delegation of powers for approval of authorisations under SCOMET, where comments/views/ NOC are received from all concerned agencies with no divergence views. This relates to cases deferred in Inter Ministerial Working Group (IMWG), after receipt of comments/views/ NOC with no divergence views, authorisations shall be issued with approval of Chairman. (DGFT Public Notice 17/2024 Dated 14/08/2024)
API Integration and Bulk Upload Facility for Self-Certification of eBRC: DGFT has integrated banks with the electronic Bank Realisation Certificates (eBRC) system for automatic transmission of Inward Remittance Messages (IRMs). Exporters can now use two new features i.e. bulk upload and API integration. The bulk upload function allows exporters to certify multiple eBRCs at once by uploading a spreadsheet with IRM, Shipping Bill, and invoice details, reducing manual errors and increasing efficiency. The API integration enables real-time data exchange between exporters’ systems and the DGFT eBRC system, facilitating faster and secure certification. Exporters must complete online registration for API use and manage access credentials themselves. (DGFT Trade Notice 12/2024 Dated 14/08/2024)
Launch of Revamped Non-Preferential Certificate of Origin (eCoO) 2.0 System: The revamped system introduces several user-friendly features aimed at streamlining the certification process for exporters. Key features include multi-user access under a single Importer Exporter Code (IEC), the addition of Aadhaar-based e- signing alongside digital signatures, and an integrated dashboard that consolidates access to eCoO and related services like Free Trade Agreement (FTA) information and trade events. The onboarding of issuing agencies, including Chambers of Commerce and other authorized entities, is scheduled 19th – 27th August 2024. The system will run parallel with the existing legacy eCoO 1.0 system until the full transition is complete. Existing e-wallet balances from the legacy system will not transfer immediately but will remain usable for Preferential Certificates of Origin until the migration is finalized. (DGFT Trade Notice 13/2024 Dated 16/08/2024)
F. Securities and Exchange Board of India (SEBI)
Draft Circular on Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism: This initiative aims to enhance liquidity in the corporate bond market, particularly for retail investors, by allowing issuers to offer a put option on non-convertible securities at pre-specified intervals. The Liquidity Window would be available only for new issuances of debt securities and is intended to boost investor confidence by providing a structured exit route. SEBI has outlined the conditions and operational guidelines for this facility, including the need for board approval, transparency in its implementation, and ensuring market integrity. The comments are invited from stakeholders. (SEBI Consultation Paper Dated 16/08/2024)
Consultation paper on measures towards Ease of Doing Business- review of LODR regulations applicable to Non Convertible securities: It is aimed at streamlining compliance for entities with listed non-convertible securities, aligning these regulations with those applicable to equity-listed entities. The proposals include aligning provisions for the approval and authentication of financial results, fraud and default disclosures, and reducing the timeline for record date intimations to stock exchanges from seven to three working days. Additionally, SEBI proposes requiring these entities to submit disclosures in XBRL format, in line with current requirements for equity-listed entities. The comments are invited from stakeholders. (SEBI Consultation Paper Dated 16/08/2024)
Consultation Paper on Expanding Scope of Sustainable Finance in Indian Securities Market: The paper proposes redefining “green debt security” to “sustainability-linked security” to encompass a broader range of instruments beyond environmental sustainability, including Social, Sustainable, and Sustainability-linked Bonds, collectively termed ESG Debt Securities. The proposal includes introducing a framework for Sustainable Securitised Debt Instruments, which would allow originators to pool assets tied to sustainable finance and offer them as securities. SEBI proposes implementing mandatory independent external reviews to ensure transparency and credibility in ESG Debt Securities and Sustainable Securitised Debt Instruments. The comments are invited from stakeholders. (SEBI Consultation Paper Dated 16/08/2024)
Consultation paper on streamlining disclosure in respect of appointment of Debenture Trustee (DT) in the offer document: It is aimed at simplifying the disclosure process for Debenture Trustees (DTs) in offer documents. The paper seeks public comments on a proposal to replace the term ‘consent letter’ with ‘debenture trustee agreement’ (DTA) in the National Stock Exchange (NSE) Regulations, 2021. The consultation also includes making the DTA accessible to investors through QR codes in offer documents. The comments are invited from stakeholders. (SEBI Consultation Paper Dated 17/08/2024)
G. Ministry of Corporate Affairs (MCA)
Amendment to Companies (Registration of Foreign Companies) Rules 2014: It introduce changes to the registration process for foreign companies operating in India. The amended rules requires foreign companies to file Form FC-1 with the Registrar within thirty days of establishing a business in India, accompanied by a fee and documents. This filing must include an attested copy of approval from the Reserve Bank of India under the Foreign Exchange Management Act and other relevant regulators, or a declaration stating no such approval is needed. The registration documents must be submitted to the Registrar, Central Registration Centre, New Delhi. (MCA Notification Dated 12/08/2024)
Amendment to Companies (Indian Accounting Standards) Rules 2014: The amendments involve updates to the treatment of insurance contracts as per Ind AS 117. Specifically, in Ind AS 101, changes have been made to paragraphs related to insurance contracts and the transition provisions. In Ind AS 103, updates include exceptions to the classification and measurement of assets and liabilities, particularly those related to insurance contracts. Ind AS 105 has been revised to include groups of contracts within the scope of Ind AS 117. The notification also omits Ind AS 104, reflecting its incorporation into other standards. (MCA Notification Dated 12/08/2024)
H. Insolvency and Bankruptcy Board of India (IBBI)
Generation of Valuation Report Identification Number for valuation conducted by Register Valuer (RV/RVEs) under IBC: At present, RV/RVEs submit the valuation reports upon its completion with or without mentioning any reference number. In order to ensure authenticity and to have a unique reference number of the valuation reports, it has been decided to provide a Valuation Report Identification Number (VRIN) for each valuation conducted under the Code. An online module in consultation with Registered Valuers Organisations, has been developed by IBBI. Before the submission of valuation report, the respective RV/RVEs shall generate a unique VRIN and mention the VRIN on the front page of each valuation report. The IPs shall not accept any valuation reports without VRIN in all such cases. (IBBI Circular Dated 12/08/2024)
Amendment to IBBI Inspection and Investigation Regulations: Regulation 13 deals with disposal of Show-cause notice by disciplinary committee. The amendment extends the timeframe for disposal of show cause notices. It revises the deadline from thirty five days of the date of issuance of show cause notice to sixty days from the due date for receiving a reply to the show-cause notice. (IBBI Notification No. IBBI/2024-25/GN/REG115. Dated 13/08/2024)
Amendment to IBBI Information Utilities Regulations: The amendments extends the time for certain procedural actions to seven days. The updated regulations mandate information utilities to verify debtor details and proof of debt before issuing a default record, and to handle disputes more effectively. Financial creditors, particularly banks under the RBI Act, must now have their records of default categorized as ‘authenticated’ or ‘disputed’ based on the status of the default amount. (IBBI Notification No. IBBI/2024-25/GN/REG114. Dated 13/08/2024 )
NCLT, IPE can be appointed as IP to carry out duties & functions under IBC: Case of Piramal Capital and Housing Finance Ltd vs Notion Real Estate Private Ltd, CLT Mumbai Judgement Dated 18th July 2024. Notion Real Estate Private Limited was admitted into the CIRP by the NCLT. Following this admission, an application was filed by the Committee of Creditors (CoC) requesting the replacement of the Interim Resolution Professional (IRP) with a new Resolution Professional (RP) from an Insolvency Professional Entity (IPE). This request was made under Section 22(3)(b) of the IBC, which allows for the replacement. The case in question concerns the appointment of IPEs as RPs in corporate insolvency proceedings. This judgment addresses a critical issue, examining the eligibility of IPEs to act as RPs and setting a precedent for future insolvency cases. (NCLT Mumbai Judgement Dated 18/07/2024)
IBBI suspends registration of IP Vijendra Kumar Jain for failure to perform his duties: The findings reveal significant delay on his part, in responding to Kanoria’s repeated requests and the failure to provide clear information about admitted claim as well as failure to supply the updated list of creditors to the Adjudicating Authority and the IBBI. IBBI suspended the registration of Mr. Vijendra Kumar Jain for a period of one years. (IBBI Order Dated 12/08/2024)
I. Reserve Bank of India (RBI)
Review of regulatory framework for Housing Finance Companies (HFCs) and harmonisation of regulations applicable to HFCs and NBFCs: The regulations for HFCs and NBFCs have been revised to harmonize their operational frameworks. This updates includes significant changes to deposit acceptance norms for HFCs. HFCs accepting public deposits will now adhere to stricter prudential parameters, including a phased increase in the liquid assets maintenance requirement from 13% to 15%. The regulations also mandate that HFCs align with NBFC rules on liquid asset custody, full cover for public deposits, and investment limits in unquoted shares. Additionally, deposit- taking HFCs must now meet minimum investment grade credit ratings and adhere to reduced deposit ceilings. Other updates include allowing HFCs to hedge risks using derivatives, issue co-branded credit cards, and follow stricter internal limits on capital market exposures. (RBI Notification 61/2024 Dated 12/08/2024)
Review of Risk Weights for Housing Finance Companies (HFCs): The updates to risk weight guidelines mainly cover two aspects. The risk weighted assets for undisbursed housing and other loans has been capped at the level of risk weighted assets for an equivalent amount of disbursed loans, correcting potential discrepancies. The risk weight for fund-based and non-fund based exposures to Commercial Real Estate Residential Buildings classified as standard has beenn set at 75%. For non-standard exposures in this category, the risk weight will follow the ‘Other Assets (Others)’ category, which is currently at 100%. (RBI Notification 62/2024 Dated 12/08/2024)
Review of Master Directions on Peer to Peer Lending Platform: The Directions envisaged the Non-Banking Financial Company Peer to Peer Lending Platform (NBFC-P2P Lending Platform) to act as an intermediary providing online marketplace / platform to the participants involved in peer to peer lending. Some of these platforms have adopted certain practices which are violative of the directions. Such practices include, violation of the prescribed funds transfer mechanism, promoting peer to peer lending as an investment product with features like tenure linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders instead of being a platform. It has been decided to elaborate and clarify certain provisions with some modifications for proper implementation, and thus amended directions have been issued. (RBI Notification 63/2024 Dated 16/08/2024)
J. Miscellaneous
SC Upholds State Governments Tax Levy on Mining Activities w.e.f. April 1, 2005: Case of Mineral Area Development Authority (MADA) vs Steel Authority of India (SAIL), SC Judgement Dated 14th August 2024. SC in its earlier judgement dated 25th July 2024 had held that the power to tax mineral rights lies with state legislatures under Entry 50 of List II, and Parliament cannot tax these rights under Entry 54 of List I. Now it has been held that the submission that the decision should be given prospective effect is rejected. Bearing in mind the consequences that would emanate from the past period, the following conditionalities are directed to prevail:
1. While the States may levy or renew demands of tax, if any, pertaining to Entries 49 and 50 of List II of the Seventh Schedule in terms of the law laid down in the decision, the demand of tax shall not operate on transactions made prior to 1 April 2005;
2. The time for payment of the demand of tax shall be staggered in instalments over a period of twelve years commencing from 1 April 2026; and
3. The levy of interest and penalty on demands made for the period before 25 July 2024 shall stand waived for all the assesses. (SC Judgement Dated 14/08/2024)
Banking Laws Amendment Bill, 2024 introduced in Lok Sabha: The bill proposes changes to the Reserve Bank of India Act, 1934, including adjustments in the definition of “fortnight” and modifications in reporting schedules. The Banking Regulation Act, 1949, is updated to reflect new financial thresholds and extend terms for co-operative banks. The changes include the substitution of “alternate Fridays” with “last days of fortnights” in various reporting requirements and the introduction of clearer rules on nominations for bank deposits and lockers. The bill aligns the State Bank of India Act, 1955, and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 with recent provisions of the Companies Act, 2013, focusing on the transfer of unclaimed funds to the Investor Education and Protection Fund. (Bill No 110 introduced on 09/08/2024)
Carriage of Goods by Sea Bill, 2024 introduced in Lok Sabha: The bill aims to enforce rules regarding the carriage of goods by sea, incorporating international standards. The Bill aligns with the 1922 Brussels Convention and subsequent amendments. It defines carrier responsibilities, liabilities, and rights, emphasizing that carriers are not implicitly bound to provide seaworthiness. The Bill mandates the inclusion of specific details in bills of lading and sets limitations on carrier liability, incorporating exceptions and indemnities. The Bill also modifies certain rules related to sailing ships and bulk cargo, and empowers the Central Government to issue directions and amend provisions. It repeals the Indian Carriage of Goods by Sea Act, 1925. The Bill mandates the inclusion of specific details in bills of lading and sets limitations on carrier liability, incorporating exceptions and indemnities. (Bill No 112 introduced on 09/08/2024)
Railways Amendment Bill, 2024 introduced in Lok Sabha: The bill proposes the establishment of the Railway Board under Section 2A, detailing its composition, powers, and operational procedures, while retaining existing appointments and conditions of service. It repeals the Indian Railway Board Act, 1905, and incorporates its provisions into the Railways Act, 1989, thereby eliminating the need for reference to multiple laws. The bill also outlines financial implications, noting that the Railway Board’s operations will continue to be funded through the existing budgetary provisions without creating additional financial burdens. (Bill No 113 introduced on 09/08/2024)
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