This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 10th to 15th April 2023, namely:
(a) Section 271C penalty cannot be imposed for belated or non-payment of TDS: Supreme Court;
(b) GSTN issued an updated advisory on the time limit for reporting invoices on the IRP Portal;
(e) Borrowers rejoice as RBI stops banks from charging penal interest on defaults; and
1. Section 271C penalty cannot be imposed for belated or non-payment of TDS: Supreme Court
The assessee, a private limited company, was engaged in a software development business. It deducted tax at source (TDS) in respect of salaries, contract payments, etc., for the relevant assessment year. The assessee deposited the amount of TDS in instalments with a delay ranging from 5 days to 10 months.
During the survey conducted by the AO, the delay in depositing the amount of TDS was noticed, and interest under Section 201(1A) was charged. Further Additional Commissioner of Income Tax (ACIT) levied a penalty equivalent to the amount of TDS under Section 271C on the assessee. The High Court confirmed the penalty order imposed by ACIT. Aggrieved by the order, the assessee preferred an appeal to the Supreme Court.
The Supreme Court held that Section 271C(1)(a) applies in case of a failure on the part of the assessee to “deduct” the whole or any part of the tax as required under the provisions of the Act. The words used in Section 271C(1)(a) are very clear, and the relevant words used are “fails to deduct.” It does not speak about the belated remittance of the TDS.
Only a limited text involving Section 115-O(2) or covered by the second proviso to Section 194B alone would constitute an instance where a penalty can be imposed in terms of Section 271C(1)(b) for the non-payment of TDS. The consequences of non-payment or belated remittance/payment of the TDS, the legislature has provided the same as in Section 201(1A) and Section 276B of the Act.
As per the settled position of law, the penal provisions are required to be construed strictly and literally. The cardinal principle of interpretation of the statute and, more particularly, the penal provision are needed to be read as they are. Nothing is to be added, or nothing is to be taken out of the penal provision.
The words “fails to deduct” occurring in Section 271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted”. Therefore, on the plain reading of Section 271C, no penalty under Section 271C(1)(a) can be levied on belated remittance of the TDS after the same is deducted by the assessee.
Read the Ruling
2. GSTN issued an updated advisory on the time limit for reporting invoices on the IRP Portal
The GSTN has issued an updated advisory to inform that a time limit is imposed on reporting of documents on the e-invoice IRP portals for taxpayers with Aggregate Annual Turnover (AATO) greater than or equal to Rs. 100 crores. To ensure timely compliance, the taxpayers in this category will not be allowed to report documents older than 7 days from the date of reporting.
Earlier, it was mentioned that there would be no time restriction on reporting debit/credit notes. However, in this updated advisory, it is specifically mentioned that this restriction will apply to all document types for which IRN is to be generated. It is also clarified that there will be no such reporting restriction on taxpayers with AATO less than Rs. 100 crores. In this regard, GSTN has issued an updated advisory dated 13-04-2023 on www.gst.gov.in.
Read the Story
3. No violation of the principles of natural justice when the assessee had no bona fide intention to produce documents: HC
The Calcutta High Court has held that principles of natural justice are not in violation when the assessee has no bona fide intention to produce documents but only sought to buy time by way of seeking an adjournment. The court has also held that if the conduct of the assessee does not appear to be bona fide, then the matter shall not be required to be remanded for reconsideration.
The petitioner was aggrieved by the Order-in-Original passed by the Additional Commissioner. It filed a writ petition stating that the said order was passed without giving the petitioner any reasonable opportunity for the hearing.
The department contended that the notice was issued, following which a reply was submitted after a lapse of almost 10 months. It was also contended that multiple opportunities for personal hearings were granted, but adjournment was sought because of the non-availability of relevant details and on account of COVID.
The High Court noted that on each and every occasion, the petitioner replied to the notices and requested an adjournment on account of the non-availability of necessary details from his accountant. Thereafter, an order-in-original was passed against which no appeal was preferred, and after the expiry of the period to file an appeal, the writ petition was filed seeking relief.
The court observed that there was no violation of the principles of natural justice since adjournments were sought all along. Still, the necessary documents were never produced before the authority either in person or via virtual mode. Thus, it was held that the matter was not required to be remanded for reconsideration as the conduct of the assessee did not appear to be bona fide, and there was no violation of the principle of natural justice.
Read the Ruling
4. Resolution Professional appointed under IBC is a ‘public servant’ for the Prevention of Corruption Act 1988: HC
The High Court ruled that a Resolution Professional appointed under the IBC would be considered a public servant under Section 2(c) of the Prevention of Corruption Act, 1988. The court held that the Resolution Professional performs functions that are in the nature of public duty.
In the present case, the petitioner (an Insolvency Professional) was appointed as an Interim Resolution Professional for two companies by the Committee of Creditors and the Adjudicating Authority (NCLT).
The complainant, a director of one of the companies, alleged that the petitioner demanded a bribe of Rs. 2,00,000 per month for showing leniency in the insolvency resolution process and extending the CIRP process from 9 months to 2 years.
Further, the petitioner also allegedly demanded Rs. 20,00,000 for obtaining a favourable forensic audit/valuation report from his chosen Forensic Auditor/Valuer and for assisting in the re-possession of a plant or company.
Thereafter, the complaint was discreetly verified, and a trap team was constituted to carry out a raid at the company office. The petitioner was caught red-handed accepting illegal gratification from the complainant in the presence of independent witnesses. Then, criminal proceedings were instituted against the petitioner, and an FIR was registered under Section 7 of the Prevention of Corruption Act, 1988.
As a result, the petitioner filed a Criminal Miscellaneous petition praying for the quashing of the FIR, on the ground that Section 7 of the Prevention of Corruption Act does not apply to Resolution Professionals since they do not meet the definition of a public servant as defined under Section 2(c) of the Prevention of Corruption Act or Section 21 of the Indian Penal Code.
The following questions were placed before the High Court for consideration –
(a) Whether a Resolution Professional appointed under IBC is a public servant under Section 2(c) of the Prevention of Corruption Act, 1988 (PC Act)?
(b) Whether the functions of a Resolution Professional possess the character of a ‘public duty’?
The High Court, while considering the facts, observed that the appointment of a Resolution Professional is made during the resolution process before the NCLT with its approval, and therefore, he would be a public servant under Section 2(c)(v) of the PC Act. The functions and obligations of Insolvency Professionals are as set out under Section 208 of IBC, 2016, which are public in nature.
The High Court further observed that the IBC is a self-contained code. It does not cover matters such as the present case, where a Resolution Professional takes bribes to favour a party to which the PC Act is squarely applicable. Thus, the plea that the petitioner was not a public servant and was immune from criminal prosecution under the PC Act is not tenable.
The High Court held that a Resolution professional appointed under IBC would come within the meaning of a public servant under Section 2(c) of the Prevention of Corruption Act, 1988 for the reason that the definition of a public servant under the PC Act is very wide and expansive. Further, it is not limited to those serving under the Government or its instrumentalities and drawing a salary from the public exchequer.
The High Court further held that a Resolution Professional has a key role to play in the insolvency resolution process and in protecting the assets of the corporate debtors. From the nature of his assignment and the duty to be performed, his office entails the performance of functions that are in the nature of public duty. It, therefore, would come within the meaning of public servant under both sections 2 (c)(v) & (viii) of the Prevention of Corruption Act.
Accordingly, Criminal Miscellaneous Petition stands rejected.
Read the Ruling
5. Borrowers rejoice as RBI stops banks from charging penal interest on defaults
The RBI has released a draft circular on Fair Lending Practice Penal Charges in Loan Accounts to establish transparent and equitable practices for imposing penal charges.
The RBI observed that many REs apply penal rates of interest, over and above the applicable interest rates, in the event of defaults or non-compliance by the borrower with the terms on which credit facilities were sanctioned.
Accordingly, penalties for default in repayment of a loan must be treated as penal charges rather than a penal rate of interest on the loan amount. Also, there shall be no capitalisation of penal charges, i.e., no further interest will be computed on such charges.
The key takeaways of the draft circular are as follows:
(a) Regulated Entities (REs) are to be prohibited from introducing additional components to interest rates;
(b) Penalties for default to be treated as ‘penal charges’ rather than ‘penal interest’;
(c) Recognition of Credit Risk Premium in Loan Interest Rates;
(d) Proportionate penal charges are to be levied for breaches beyond the loan default threshold;
(e) Penal charges for loans granted to individual borrowers not to exceed charges levied on non-individual borrowers;
(f) RBI recommends communication of applicable penal charges to borrowers; and
(g) Regulated Entities (REs) to ensure mandatory Board-approved policy on the penal charges for loans.
Read the Guidelines
6. Accounting treatment of stressed investments of the PF trust by the company when the company guarantees benefits
Para 29 of Ind AS 19 provides examples of extending the Defined Contribution Plan (DCP) to cover the benefit obligations. An example where an entity’s obligation is not limited to the amount that it agrees to contribute to the fund is when the entity has a legal or constructive obligation through a guarantee, either indirectly through a plan or directly, of a specified return on contributions. A company has established Exempted PF trust, which is under obligation to pay interest to their members not lower than the interest declared by the EPFO. Further, the company has extended a guarantee to PF trust to make good the loss suffered by the Trusts due to any fraud, defalcation, wrong investment decision and shortfall in earnings.
During earlier years, the PF Trusts invested in certain companies, which turned stressed during the past few years. Following the principles stated in para 29 of Ind AS 19, the company has accounted for the loss in fair value of the plan assets due to the re-measurement of the investments in OCI and any loss towards interest in profit or loss. However, the auditor is of a different opinion in this regard. As per the auditor, the change in the fair value of plan assets is an actual loss and not an actuarial gain/loss due to the re-measurement of the PF liability or change in the fair value of plan assets. Loss in value of investments and interest is required to be made good by the company through actual payment, and this loss needs to be recognised in profit or loss and not through OCI. In this regard, the company sought the opinion of the Expert Advisory Committee.
The Expert Advisory Committee (EAC) noted that PF trust is under obligation to pay interest at the rate declared by the GoI for the reasons that return on investment is less or for any other reason; then, the deficiency shall be made good by the company. That is company guarantees a specified rate of return on the contributions made, and the company’s liability is not restricted to the contribution it makes to the PF fund but also extends to any deficiency. Therefore, the PF benefit to the company’s employees meets the definition of the Defined Benefit Plan (DBP) as enforced by para 29 of Ind AS 19. Accordingly, the accounting treatment made by the company for recognising the loss in respect of obligation arising out of the re-measurement of the plan, including that of stressed assets, would be in line with Ind AS 19.
Read the Story
The post Weekly Round-up on Tax and Corporate Laws | 10th to 15th April 2023 appeared first on Taxmann Blog.
