Financial and Management Consultancy

To enable companies undergoing insolvency resolution process to comply with statutory compliances, MCA vide its circular dated 17 February 2020 has detailed out the procedures to be followed by Insolvency Professionals viz. lnterim Resolution Professional (lRP) or a Resolution Professional (RP) or a Liquidator (“IPs”), appointed under IBC, 2016, with respect to filing of required e-forms on behalf of such companies.

To enable statutory compliances of Company, which is under insolvency and Insolvency Professional has been appointed, forms shall be filed by IP as mentioned below:

MCA amends Companies (Issue of Global Depository Receipts) Rules, 2014 replacing the term “abroad” with “convenient jurisdiction”

Under the earlier rules, depository receipts can be issued by way of public offering or private placement or in any other manner prevalent abroad and may be listed or traded in an overseas listing or trading platform.

To help companies in having another avenue for raising funds, the MCA vide its notification dated 13 February 2020 has amended the Companies (Issue of Global Depository Receipts) Rules, 2014 (“GDR Rules”), whereby proceeds from a GDR issue can be remitted in an International Financial Services Centre Banking Unit (IBU).

Time-limit for companies to declare themselves as Nidhi’s extended

The MCA, vide its notification dated 14 February 2020, has extended time-limit for every company functioning on the lines of a Nidhi company or Mutual Benefit Society as per Rule 2(b) and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019 (i.e. 15 August 2019), to register and get itself declared as “Nidhi” within a period of one year from the date of its incorporation or 9 months (earlier 6 months) from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later.

Consequently, Nidhi’s incorporated/functioning prior to 15 August 2019 need to complete their registration by 14 May 2020 failing which they will not be allowed to file e-form No. SH-7 (Notice to Registrar of any alteration of share capital) and e-form PAS-3 (Return of Allotment) in terms of the proviso to Rule 23A

Government has modified the guidelines of ‘Interest Subvention Scheme for Incremental Credit to MSMEs 2018’ on 13th December, 2019. In the modified guidelines, requirement of Udyog Aadhar Number (UAN) has been dispensed with for units registered for Goods and Service Tax (GST). However, in the case of units which are not registered under GSTN, may either submit Income Tax Permanent Account Number (PAN) or their loan account should be categorised as MSME by the concerned bank. This information was given by Shri Nitin Gadkari, Union Minister for Micro, Small and Medium Enterprises in written reply to a question in Rajya Sabha on 7th March 2020.

To identify cases of fraudulent claims under Goods & Services Tax (GST), the Government of India has taken measures to apply stringent risk parameters-based checks driven by rigorous data analytics and Artificial Intelligence (AI) tools based on which certain taxpayers are taken up for further verification.

Moreover, a standard operating procedure has been prescribed for exporters vide Circular No. 131/1/2020-GST dated 23.01.2020 to mitigate the risk of wrongful refund claims of Integrated Goods and Services Tax (IGST). This was stated by Shri Anurag Singh Thakur, Union Minister of State for Finance & Corporate Affairs, in a written reply to a question in Rajya Sabha on 11th February 2020. Shri Thakur further stated that to curb cases of wrongful claims of input tax credit, sub-rule (4) of rule 36 has been inserted to Central Goods and Services Tax Rules, 2017 vide notification No. 49/2019 – Central Tax dated 09.10.2019. Vide notification No. 75/2019 – Central Tax dated 26.12.2019, rule 86A has been inserted to CGST Rules, 2017 which empowers tax officer, not below the rank of Assistant Commissioner, to block input tax credit available in the electronic credit ledger of a taxpayer if he has reasons to believe that such credit is ineligible or has been availed fraudulently.

Based on the valuable feedback and suggestions received from multiple stakeholders including State Governments, the GST Council makes recommendations and necessary action is taken by the Government.

Income Tax 7th Amendment Rules 2020 The CBDT (Central Board of Direct Taxes) has further amended the Income Tax Act 1962 in a notification dated 5th March 2020 to be called as Income Tax 7th Amendment Rules 2020. This is released in Gazette as per the requirement of Government of India and this article will provide details on the same.

Gist of the Income Tax 7th Amendment Rules 2020 The amendment has added a new mode of investment to the list of investments allowed for a charitable or religious trust or institution under Income Tax Rules. From now, religious or charitable institutions can also invest in a company involved with digital payment settlement or retail payment system either in India or outside India, provided the company has obtained the approval of RBI. Also, a minimum 51% of equity shares of such a company need to be held by the National Payments Corporation of India.

This change has been made by adding a new clause (va) after clause (v) in the Rule 17C of the Income Tax Rules

FEMA

Foreign Exchange Management (Manner of Receipt and Payment) (Second Amendment) Regulations, 2020:

The Reserve Bank of India (RBI) has amended the manner of receipt and payment under Foreign Exchange Management (Manner of Receipt and Payment) (Second Amendment) Regulations, 2020.

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Manner of Receipt and Payment) (Second Amendment) Regulations, 2020 whereby Regulation 3 and 5 have been amended. The Notification was issued in the name of Chief General Manager-in-Charge, Mr. Ajay Kumar Misra and the regulation came to be known as Foreign Exchange Management (Manner of Receipt and Payment) (Second Amendment) Regulations, 2020 which amended the principal Act namely Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016.

The amendments were made mainly in 2 regulations of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, which were as follows: Regulation 3(1)(A) the word “Member of Asian Clearing Union (ACU)” was substituted. In the sub-Clause (a) of Clause (i) of Regulation 3(1)(A) the following was substituted:

“Receipt for export of eligible goods and services by debit to the ACU Dollar account and/or ACU Euro account and/or ACU Japanese Yen account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the ACU Dollar account and/or ACU Euro Account and/or ACU Japanese Yen account of the authorized dealer-maintained with the correspondent bank in that member country.”

We all know the Reserve Bank of India exercises control over foreign exchange transactions and drafts and decides all policies, issues circulars, master directions in connection with foreign exchange and the various provisions of FEMA. However, implementation of such policies and procedures laid down by RBI under FEMA does not lie with RBI. It has been entrusted to a separate “Directorate of Enforcement” formed for this purpose.

APPOINTMENT

Directors of Enforcement, Additional Director, Special Director, Joint Director, Deputy Directors and Assistant Directors of Enforcement are appointed by Central Government (section 36 of FEMA).
The designations of various officers have been notified in Notification No. SO 534(E) dated 1-6-2000 amended on 30-5-2012.

POWERS TO OFFICERS

Section 37 of FEMA grants powers to officers to investigate contraventions of FEMA. The officers have powers similar to those conferred on Income Tax authorities under Income Tax Act. These powers can be exercised subject to limitations laid down under Income Tax Act.

It may be noted that under Income Tax Act, following powers are available

Powers regarding discovery and production of evidence
Search and seizure
Power to requisition books of account etc.
Power to call for information
Power to inspect registers of companies [sections 131 to 136 of Income Tax Act].

Power to Encash draft/cheque/instrument

In case the Enforcement authorities obtain possession of draft/cheque/other instrument during an investigation, they can give the same for encashment to RBI or an authorized person. The manner of dealing with any kind of draft/cheque/other instrument/ Indian currency found during investigation is as below:

Found during Investigation	Manner to be dealt with
draft/cheque/other instrument	To be encashed with RBI or authorized person and kept in a separate account in the name of “Directorate of Enforcement”
Indian Currency	To be deposited in a separate account in the name of “Directorate of Enforcement”

INDEMNIFICATION

RBI or authorized person which encashes the cheque/draft/instrument will be indemnified by Central Government for any liability that may be incurred by them.

RETURN OF FUNDS ON COMPLETION OF INVESTIGATION

The amount in credit may be returned to the person by adjudicating authority/investigating officer if it is found that the draft/cheque/instrument is not relevant for investigation. If it is found that there is no contravention, Indian currency seized will be returned with 6% interest. - Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000.

SEIZURE AND CONSEQUENT CONFISCATION OF ASSEST IN INDIA OF VALUE EQUAL TO ASSETS HELD OUTSIDE INDIA IN CONTRAVENTION OF FEMA

When a person holds assets like foreign exchange, foreign securities and immovable property outside India in contravention of provisions of section 4 of FEMA, it becomes very difficult to confiscate those assets which are outside India.
Hence, as per section 37A of FEMA (inserted w.e.f. 8-9-2015), if such asset is held outside India in contravention of provisions of FEMA, other assets in India of same person of equivalent value can be seized.
The seizure can be only if aggregate value of foreign exchange, foreign securities and immovable property is Rs. 1 crore or above.
'Authorized Officers' shall be appointed by Central Government for this purpose under section 18 of FEMA. All officers of Directorate of Enforcement, not below the rank of Assistant Director, have been appointed as Authorized Officers for this purpose.
The order of seizure shall be placed before 'Competent Authority' appointed by Central Government, within 30 days from date of seizure. The Competent Authority (not below rank of Joint Secretary) will decide within 180 days whether to continue seizure or set aside seizure. Before taking any decision, the Competent Authority shall hear the representatives of Directorate of Enforcement and the aggrieved person.
It may be noted that this section only provides for seizure of assets.

CONFISCATION OF ASSETS

This section or any other section in FEMA does not provide for confiscation of such assets. Provisions for confiscation of such assets have been made in section 8(5) of Prevention of Money Laundering Act. Thus, even if there was violation of provisions of FEMA, seized assets can be confiscated only if there was violation of provisions of Money Laundering Act. Otherwise, these assets will have to be returned after payment of penalties, if imposed.

Enforcement powers

Cases involving amount exceeding Rs 10 crores	Director of Enforcement and Special Director of Enforcement
Cases involving amount between Rs 5 crores and Rs 10 crores	Additional Director
Cases involving amount between Rs 2 crores and Rs 5 crores	Joint Director
Cases involving amount between Rs 1 crore and Rs 2 crores	Deputy Director
Cases involving amount upto Rs 1 crore	Assistant Director

Certain powers to customs/excise officers

In respect of following, powers of enforcement have been conferred on customs/excise officers:

Offences u/s 6(3)(g) of FEMA which pertains to restrictions/prohibitions on export, import or holding of currency or currency notes
Offences u/s 7(1)(a) of FEMA which relates to furnishing of export value of goods exported.

Companies Act 2013

CARO 2020

CA Santhipriya

With less than two months remaining to commence Statutory Audits for Companies by the Auditors for FY 2019-20, the MCA has introduced Companies (Auditor’s Report) order,2020 (CARO 2020) to replace the existing Companies (Auditor’s Report) Order,2016 (CARO 2016) which will be applicable for financial statements prepared for financial years commencing on or after 1st April 2019. There are no changes on the applicability of CARO to different classes of companies; it remains the same as the previous CARO 2016.

CARO is a supplementary report to be submitted by the auditors of certain classes of companies to report on specific matters about the company. The CARO 2020 has been brought in to provide additional information and further clarity on the specific activities of the Company during the year. CARO 2020 shall be expected to bring transparency in reporting and detailed information which will be useful especially for it’s stakeholders, investors, bankers and financing institutions.

There were 16 paragraphs in CARO 2016, out of which one paragraph on Managerial remuneration is removed, one paragraph on preferential placement or private placement is clubbed along with the paragraph on monies raised by way of initial public offer (in Previous CARO, 2016 there two were different paragraphs for these matters, now it is clubbed under a single paragraph X) and 7 new paragraphs on various topics are included. Hence, now there are totally 21 paragraphs in CARO,2020 on which detailed reporting has to be made by the Auditor.

Amendments to the existing Paragraphs

Fixed Assets – ( Referred in this CARO,2020 as Property Plant and Equipments (PPE) or Intangible assets or both)
A new format has been added to disclose the details of immovable properties which are not held in the name of the Company along with reasons for not being held in the name of the company.
Revaluation of PPE or Intangibles or both carried out during the year. Auditor has to state whether it was carried out by a registered valuer and also to specify the amount of the changes due to revaluation, if the change is 10% or more in aggregate of net carrying value of each class of PPE or Intangible assets.
Auditor is expected to report if the Company is holding any Benami property under the Benami transactions (Prohibhition) Act, 1988 and whether the details are disclosed in the financial statements.

Inventory

Auditor to opine whether the coverage and procedure of physical verification conducted by the Management are appropriate.
Auditor has to report if discrepancies of 10% or more in aggregate for each class of inventory were noticed, and dealt in the books of accounts.
For working capital limits sanctioned to the Company in excess of Rs.5 crores in aggregates from Banks/FIs on the basis of security of current assets, the auditor has to verify the quarterly returns or statements filed by the company with such banks/FIs and report if those returns or statements are in agreement with the Books of accounts of the Company.

Grant of loans and advances

In respect of the loans, guarantees provided by the Company (not applicable to companies whose principal business is to give loans), the following has to be reported:

Aggregate amount during the year and balance outstanding at balance sheet in respect of loans, guarantees to subsidiaries, JVs and associates
Aggregate amount during the year and balance outstanding at balance sheet in respect of loans, guarantees to parties other than subsidiaries, JVs and associates
Any loan or advance fallen due during the year has been renewed or extended or granted fresh loan to settle the overdues of existing loans or advances given to the same parties and the details of aggregate amount of such dues renewed and the percentage of the aggregate to the total loans granted during the year has to be reported by the Auditor.
Auditor has to report if any loan or advance has been granted without specifying the terms or period of repayment.

Default in repayment of loans

A new format has been introduced for reporting the defaults of loan repayments made by the company.
Auditor to report if the company is declared as willful defaulter by any Bank/FIs or any other lender.
If the term loans were not utilized for the purpose for which it was obtained, the amount of loan so diverted and the purpose for which it was utilized to be reported.
If funds raised for short term utilized for long term purposes and the nature and amount to be indicated.
If the Company has taken funds from any party to meet the obligations of subsidiaries, associates, JVs
If the Company has raised loans on pledge of securities held in subsidiaries, JVs or associate companies and if there are any default in repayment of that loan.

Fraud by/on the Company

Auditor to state whether any report has been filed by the auditor in form ADT-4 (where the amount of fraud involved is more than a crore rupees)
If the auditor has considered any whistle-blower complaints received during the year has to be included in the report.

Nidhi Companies

If the Company is a Nidhi company, whether has it defaulted in payment of interest or deposits or repayment thereof for any period has to be reported by the Auditor.

Registration with RBI under section 45-IA

The auditor to verify and report if the Company has conducted any Non Banking financial, Housing finance activities without a valid certificate of registration from RBI.
Whether the Company is a Core Investment Company (CIC) as defined in the regulations by RBI.
If the group has more than one CIC, if yes the number of CIC in the group to be indicated.

Additionally for the 7 New Paragraphs added in the CARO 2020, the auditor has to report the following:

If there are any unrecorded transactions which are surrendered or disclosed income during the year in any tax assessments under the IT Act, if so whether the previously unrecorded income has been properly recorded during the year.

Internal Audit

If the Company has internal audit system commensurate with the size and nature of the business.
Whether the reports of the internal auditors were considered by the Statutory auditors.
Whether the Company has incurred cash losses during the year and the immediately preceding year and the amount of cash losses to be reported
If there has been any resignation of the statutory auditors during the year and whether the current auditor has taken into consideration the issues, objections and concerns raised by the outgoing auditor.
Whether the auditor is of opinion that there are no material uncertainties existing on the date of his report and that the Company is capable of meeting it’s liabilities existing at the balance sheet date as and when they fall due within a period of one year from the balance sheet date based on the basis of financial ratios, ageing, expected dates of realization of financial assets and expected dates for payment of financial liabilities, knowledge of BOD and management plans.

Corporate Social Responsibility (CSR)

In respect of projects other than ongoing projects, If the company has transferred unspent amount to a fund specified in Schedule VII within a period of six months from the end of the financial year
If the remaining unspent pursuant to any ongoing project has been transferred to a special account.
If there are any qualifications or adverse remarks in the CARO report of companies included in the CFS, details of companies and paragraph numbers of the CARO report containing the qualification or adverse remarks has to be indicated.

TAXATION

E-Invoicing under GST

The GST Council has approved introduction of ‘E-invoicing’ or ‘electronic invoicing’ in a phased manner for reporting of business to business (B2B) invoices to GST System, starting from 1st January 2020 on voluntary basis.
E-Invoicing is a process in which all the invoices created by accounting software will be authenticated electronically by GSTN for further use (like return preparation, E-way bill creation).
There are lots of myths or misconception about e-invoice. E-Invoice does not mean generation/ creation of invoice from central portal or tax department because practically it is not possible it will create unnecessary restrictions on trade and industry and different industry have different business requirement, which cannot be met out by software.
E-Invoice is a submission of already generated Invoices from accounting software to GST Portal and we all are aware that there are hundreds of accounting & billing software, which generate invoices, but they all use their own formats to store information electronically and data in such different formats cannot understand by the GST System, hence it was not possible to submit the data from accounting software (Like ERP/Tally/SAP) to GST System.
So, need was felt to issue a standard format (Schema) in which data will be shared with other systems, although from user prospective it’s same as earlier, there would not any change in print or electronically creation of invoice. Only standard schema needs to be implemented by all the accounting and billing software so that it can generate JSON of each invoice in such format which can be uploaded on GST Portal for further authentication and approval.

Offline Method of e-invoice Generation

The e-invoice system being implemented by tax departments across the globe consists of two important parts namely,

Generation of invoice in a standard format so that invoice generated on one system can be read by another system.
Reporting of e-invoice to a central system.

The e-invoice system provides a provision of offline method to generate the multiple Invoice reference number in one-go by the tax payers.

The excel formats are available in E-Invoice System which allows the user to enter the requests in excel file offline, validate and convert the same into JSON file for bulk upload in the system.

After entering the required data in the downloaded formats provided in ‘Bulk Generation Tools’ module, the tax payer logs in to the E-Invoice system and uploads the file containing the multiple requests for IRN . The system then generates the IRN for all these requests one-by-one and shows the result in table. Otherwise it shows error details. The table details can be cut and pasted into user’s system for further use and action.

Legal Provisions and Obligations

Rule 48 (4) & (5) of CGST Rules, 2017 gives sanctity to issue of e-invoice. As per the CGST notification 70/2019, Taxpayers with aggregate turnover exceeding Rupees 100 Crores in a financial year are required to mandatorily issue e-invoice. It is notified that the provisions would take effect from 1st April 2020. However, based on the feedback and lukewarm response to trail version of E-Invoice portal, the government is planning to defer the implementation of e-invoicing under goods and services tax (GST).

E-Invoice - Invoice Registration Portal

CGST Notification 69/2019 has notified an e-invoicing portal that will accept e-Invoices, verify the invoice and generate a unique Invoice Reference Number.
The role of the IRP is to accept e-Invoice document prepared by the taxpayer, verify that the document is valid as per the e-Invoice schema and perform additional checks on the contents of the e-Invoice. The IRP will then generate a unique Invoice Reference Number, digitally sign the e-Invoice, and generate an e-Invoice QR Code with high-level details of the invoice, and reply to the user with these details.
Because the e-invoice portal digitally signs the invoice, the supplier can use the invoice as proof that they have reported the invoice (as per CGST Rule 48(4), an invoice becomes valid only when it is registered with an IRP). The recipient can also verify that the invoice has been registered and be confident that they can receive Input Tax Credit (ITC).

Contents of e-invoice and limits

The e-invoice schema contains both mandatory and optional fields. The mandatory fields are those that must be compulsorily there for an invoice to be valid under the e-invoice standard. The optional fields are those that may be incorporated as per the business needs.

The maximum number of line items per e-invoice is 100. All the mandatory fields are to be filled in to register an e-invoice on the invoice registration portal (IRP). A mandatory field without any value can be reported as NIL.

The seller with JSON generated from excel/word/ERP/mobile app and the same will be uploaded to the IRP. The JSON file should contain all the mandatory fields, which are required to generate an e-invoice. The following are the basic contents in a JSON file:

GSTIN of the supplier
GSTIN of the recipient
Invoice number as given by the supplier
Date of the generation of the invoice
Invoice value (taxable value and gross tax)
The number of line items.
HSN Code of the main item (the line item having the highest taxable value)

Benefits of E-Invoice

E-invoice resolves and plugs a major gap in data reconciliation under GST to reduce mismatch errors.
E-invoices created on one software can be read by another, allowing interoperability and help reduce data entry errors.
Real-time tracking of invoices prepared by the supplier is enabled by e-invoice.
Backward integration and automation of the tax return filing process – the relevant details of the invoices would be auto-populated in the various returns, especially for generating the part-A of e-way bills.
Faster availability of genuine input tax credit.
Lesser possibility of audits/surveys by the tax authorities since the information they require is available at a transaction level.

Summary

E-invoices will not be generated by the GST Portal.
E-Invoice schema issued by GST System will be used by the all kind of businesses. The Schema has mandatory and non-mandatory fields, mandatory fields has to be filled by all the taxpayers. Non-mandatory field is for the business to choose.
E-Invoice will be authenticated with the digital signature of the IRP.
Each E-Invoice will be uploaded for registration on IRP within time line (will be notified by the Government) without registration of the e-invoice the same will not be valid (required changed will be made in the law).
E-Invoice cannot be partially cancelled it has to be fully cancelled.
E-Invoice mechanism has an option to cancel the invoice within 24 hours of registration of IRP. Any cancellation after 24 hours could not be possible through IRN, taxpayer have to manually cancel the same on GST Portal before filing the return.

MARCH 2020

Recent Updates

On Companies Act, 2013

MCA allows Insolvency Professionals to file eforms on MCA portal

To enable statutory compliances of Company, which is under insolvency and Insolvency Professional has been appointed, forms shall be filed by IP as mentioned below:

Time-limit for companies to declare themselves as Nidhi’s extended

FEMA

ENFORCEMENT OF FEMA