MM TAX CLUB

Instruction No. 02/2023-GST dated 26th May, 2023

Standard Operating Procedure for Scrutiny of Returns for FY 2019-20 onwards

          Attention is invited to the Instruction No. 02/2022-GST dated 22nd March, 2022, wherein a Standard Operating Procedure (SOP) was provided for scrutiny of returns under section 61 of Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act) read with rule 99 of Central Goods and Service Tax Rules, 2017 (hereinafter referred to as “the CGST Rules”) for FY 2017-18 and 2018-19. It was mentioned in the said instruction that the said SOP was issued as an interim measure till the time a Scrutiny Module for online scrutiny of returns is made available on the ACES-GST application.

1.2 In this regard, it is to inform that DG Systems has developed functionality “Scrutiny of Returns”, containing the online workflow for scrutiny of returns in the CBIC ACES-GST application. Advisory No. 22/2023- Returns dated 16.05.2023 has also been issued by DG Systems in this regard, along with a User Manual providing for the detailed workflow of the said functionality. The GSTINs selected for scrutiny for the Financial Year 2019-20 have also been made available on the scrutiny dashboard of the proper officers on ACES-GST application.

1.3 The functionality provides for the detailed workflow for communication of discrepancies noticed, in relation to the details furnished in the returns, by the proper officer in FORM GST ASMT-10 to the registered person, receipt of reply from the registered person in FORM GST ASMT-11, issuance of order in FORM GST ASMT-12 or taking further action for issuance of show cause notice under Section 73 or 74 of CGST Act, 2017 or for referring the matter for Audit or investigation, as the case may be.

2. In view of this, the SOP for scrutiny of returns provided in the Instruction No. 02/2022-GST dated 22nd March 2022 stands modified to the following extent in respect of scrutiny of returns for financial years 2019-20 onwards:

3. Selection of returns for scrutiny and communication of the same to the field formations:

3.1 Selection of returns for scrutiny will be done by the Directorate General of Analytics and Risk Management (DGARM) based on various risk parameters identified by them. DGARM will select the GSTINs registered with the Central Tax authorities, whose returns are to be scrutinized for a financial year, based on identified risk parameters. The details of GSTINs selected for scrutiny for a financial year will be made available by DGARM through DG Systems on the scrutiny dashboard of the concerned proper officer of Central Tax on ACES-GST application.

3.2 The details of the risk parameters, in respect of which risk has been identified for a particular GSTIN, and the amount of tax/ discrepancy involved in respect of the concerned risk parameters (i.e. likely revenue implication), will also be shown on the scrutiny dashboard of the proper officer for their convenience. It is re-emphasized that as the data made available on the dashboard has been generated at a particular point of time for calculation of risk parameters, this data may undergo change at the time of scrutiny of returns, due to subsequent compliances carried out by the taxpayer or by the suppliers of the taxpayer. The proper officer shall, therefore, rely upon the latest available data.

4. Scrutiny Schedule:

4.1 Once the details of GSTINs selected for scrutiny for a financial year are made available on the scrutiny dashboard of the concerned proper officer of Central Tax on ACES-GST application, the proper officer, with the approval of the divisional Assistant/ Deputy Commissioner, shall finalize a scrutiny schedule in the format specified in Annexure A of Instruction 02/2022- GST dated 22nd March 2022. Such scrutiny schedule will specify month[1]wise schedule for scrutiny in respect of all the GSTINs selected for scrutiny. While preparing the scrutiny schedule, the scrutiny of the GSTINs, which appear to be riskier based on the likely higher revenue implication indicated on the dashboard, may be prioritized. The Principal Commissioner/ Commissioner of the concerned Commissionerate will monitor and ensure that the schedule identified in Scrutiny Schedule is adhered to by the officers under his jurisdiction.

4.2 The proper officer shall conduct scrutiny of returns pertaining to minimum of 4 GSTINs per month. Scrutiny of returns of one GSTIN shall mean scrutiny of all returns pertaining to a financial year for which the said GSTIN has been selected for scrutiny.

5. Process of scrutiny by the Proper Officer:

5.1 The Proper Officer shall scrutinize the returns and related particulars furnished by the registered persons to verify the correctness of the returns. Information available with the proper officer on the system in the form of various returns and statements furnished by the registered person and the data/ details made available through various sources like DGARM, ADVAIT, GSTN, E-Way Bill Portal etc. may be relied upon for this purpose.

5.2 As mentioned in Para 3.2 above, for the convenience of proper officers, details of the risk parameters involving risk/ discrepancies in respect of the GSTIN, along with the amount of tax/discrepancy involved in respect of the concerned risk parameters (i.e. likely revenue implication), will be made available in the scrutiny dashboard of the proper officer. Besides, DGARM will also make available to the field formations the details of all the risk parameters taken into consideration by them for the selection of GSTINs for scrutiny of returns for the particular financial year. In addition to these parameters, proper officer may also consider any other relevant parameter, as he may deem fit, for the purpose of scrutiny.

5.3 It may be noted that at this stage, the proper officer is expected to rely upon the information available with him on records. As far as possible, scrutiny of return should have minimal interface between the proper officer and the registered person and, there should normally not be any need for seeking documents/ records from the registered persons before issuance of FORM GST ASMT-10.

5.4 The proper officer shall issue a notice to the registered person in FORM GST ASMT-10 through the scrutiny functionality on ACES-GST application, informing him of the discrepancies noticed and seeking his explanation thereto. There may be cases where the registered person may already have made additional payment of tax, cess, interest, etc. after filing of the returns for the relevant tax period, through FORM DRC-03. The payments thus made through FORM DRC[1]03 may also be taken into consideration while communicating discrepancies to the taxpayer in FORM GST ASMT-10. The notice in FORM GST ASMT-10, issued by the proper officer through scrutiny functionality on ACES-GST application, shall be communicated by the system to the concerned registered person on the common portal and therefore, there will be no need for sending any manual communication of notice in FORM GST ASMT-10 by the proper officer to the registered person separately. While issuing such notice, the proper officer may, as far as possible, quantify the amount of tax, interest and any other amount payable in relation to such discrepancies. It may also be ensured that the discrepancies so communicated should, as far as possible, be specific in nature and not vague or general. In this regard, the user manual issued by DG Systems may be referred to regarding the detailed procedure for issuance of FORM GST ASMT-10 on scrutiny functionality on ACES-GST application. The proper officer shall mention the parameter-wise details of the discrepancies noticed by him in FORM GST ASMT-10 and shall also upload the worksheets and supporting document(s)/ annexures, if any.

5.5 For each GSTIN identified for scrutiny, the proper officer is required to scrutinize all the returns pertaining to the corresponding Financial Year under consideration and a single compiled notice in FORM GST ASMT-10 may be issued to the registered person for that financial year.

5.6 On receipt of such notice in FORM GST ASMT-10 on common portal, the registered person may accept the discrepancy mentioned in the said notice, and pay the tax, interest and any other amount arising from such discrepancy and inform the same or may furnish an explanation for the discrepancy in FORM GST ASMT-11, through the common portal, to the proper officer within the time period prescribed under rule 99 of CGST Rules.

5.7 The reply furnished by the registered person in FORM GST ASMT-11 on the common portal shall be made available to the concerned proper officer in the scrutiny dashboard on ACES-GST application. Where the explanation furnished by the registered person or the information submitted in respect of acceptance of discrepancy and payment of dues is found to be acceptable by the proper officer, he shall conclude the proceedings by informing the registered person in FORM GST ASMT-12 through the scrutiny functionality on ACES-GST application.

5.8 In case no satisfactory explanation is furnished by the registered person in FORM GST ASMT-11 within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to pay the tax, interest and any other amount arising from such discrepancies, the proper officer, may proceed to determine the tax and other dues under section 73 or section 74 of CGST Act. Needless to mention, for proceedings under section 73 or section 74 of CGST Act, monetary limits as specified in Circular No. 31/05/2018-GST dated 9th February 2018shall be adhered to. The user manual issued by DG Systems may be referred to for the procedure for initiating proceedings under section 73 or 74 of the CGST Act on the scrutiny functionality on ACES-GST application.

5.9 However, if the proper officer is of the opinion that the matter needs to be pursued further through audit or investigation to determine the correct liability of the said registered person, then he may take the approval of the jurisdictional Principal Commissioner / Commissioner through the divisional Assistant/ Deputy Commissioner, through e-file or other suitable mode, for referring the matter to the Audit Commissionerate or anti-evasion wing of the Commissionerate, as the case may be.The copy of the said approval needs to be uploaded while referring the matter to the concerned formation through the scrutiny functionality, as per the procedure detailed in the user manual issued by DG Systems.

6. Timelines for scrutiny of returns:

6.1 Scrutiny of returns is to be conducted in a time bound manner, so that the cases may be taken to their logical conclusion and that too expeditiously. In this regard, the following timelines may be observed by all concerned:

6.2 It may also be ensured that the requisite actions must be initiated well ahead of the time limits as specified in section 73 or section 74 of the CGST Act, as the case may be, in respect of a return identified for scrutiny for a financial year.

7. Reporting and Monitoring:

7.1 The details of action taken by the proper officer in respect of GSTINs allocated to him for scrutiny will be available in the form of two MIS reports in the scrutiny dashboard on the ACES[1]GST application. MIS report ‘Monthly Scrutiny Progress Report’ (in the format specified in Annexure-D of Instruction No.02/2022 dated 22.03.2022) displays summary information of the status of scrutiny of returns for the selected month of a financial year for the selected formation. Besides, the GSTIN-wise details of action taken in respect of scrutiny of returns in respect of allotted GSTINs is made available in the MIS report ‘Scrutiny Register’ (in the format specified in Annexure-C of Instruction No.02/2022 dated 22.03.2022) on the scrutiny dashboard.

7.2 In view of this, the requirement of compiling and sending the Monthly Scrutiny Progress Report by the CGST zones to DGGST is hereby dispensed with for the Financial Year 2019-20 onwards. However, the CGST zones will continue to send Monthly Scrutiny Progress Reports to DGGST in respect of the Financial Years 2017-18 and FY 2018-19 till the completion of scrutiny of returns for these financial years, as per the timelines mentioned in Instruction No. 02/2022- GST dated 22nd March, 2022.

7.3 It is also added that the progress of the scrutiny exercise as per the scrutiny schedule shall be monitored by the jurisdictional Principal Commissioner/ Commissioner on regular basis.

8. It is clarified that since the scrutiny functionality has been provided on ACES-GST application only for the Financial Year 2019-20 onwards, the procedure specified in Instruction No. 02/2022 dated 22.03.2022 shall continue to be followed for the scrutiny of returns for the financial years 2017-18 and 2018-19.

9. The online scrutiny functionality on ACES-GST application will further boost the efforts of the department to leverage technology and risk-based tools to encourage self-compliance and to conduct scrutiny of returns with minimal interaction with the registered person. All Principal Chief Commissioners (PCCs)/ Chief Commissioners (CCs) of CGST Zones are requested to closely monitor timely scrutiny of returns of the selected GSTINs within their jurisdictions.

10. Difficulties, if any, in implementation of these instructions may be informed to the Board

          Clause (viib) of sub-section (2) of section 56 of the Income-tax Act, 1961 (the Act), prior to amendment vide Finance Act 2023, inter alia, provided that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the fair market value of the shares, it shall be chargeable to income-tax under the head 'Income from other sources' . Rule II UA of the Income-tax Rules, 1962 (the Rules) provides the method for computation of the fair market value of unquoted equity shares for the purposes of the Clause (viib) of sub-section (2) of section 56 of the Act.

2. In the Finance Act, 2023, an amendment was introduced in this provision to bring the consideration received from non-residents within the ambit of Clause (viib) of sub-section (2) of section 56 of the Income-tax Act, 1961.

3. As a result of the above amendment, representations were received from various stakeholders raising their concerns that genuine non-resident investors may have to face undue hardship in matters related to valuation of shares etc. In view of this, rule II UA of the Rules is proposed to be amended.

 4. The draft notification with proposed amendment to rule II UA of the Rules is enclosed. It is requested that all the stakeholders as well as the general public may provide suggestions/ comments on the same and send them at the email address ustpI2@nic.in latest by 5th June, 2023.

Draft Rule can be read as under;

          In exercise of the powers conferred by sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. Short title and commencement: - (I) These rules may be called the Income tax ... . .. (Amendment), Rules, 2023.

(2) They shall come into force from the date of publ ication of the notification in the Official Gazette.

2. In the Income-tax Rules, 1962, in rule II UA,-

(i) For sub-rule (2), the following sub-rule shall be substituted, namely:-

" (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub rule (I), the fair market value of un quoted equity shares for the purposes of sub clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner :-

(i) under clause (a) or clause (b) or clause(c) or clause (e), at the option of the assessee, where the consideration received by the assessee is from a resident;

And

(ii) under clause (a), clause (b) ,clause (c), clause (d) or clause (e) at the option of the assessee, where the consideration received by the assessee is from a non-resident, namely:-

(a) the fair market value of un quoted equity shares =(A- L)x [PV/PE].

where,

 A       =       book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;

L        =       book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:-

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

 (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE           =             total amount of paid up equity share capital as shown in the balance-sheet;

PV      =       the paid up value of such equity shares; or

(b)          the fair market value of the un quoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method.

(c) where any consideration is received by a venture capital undertaking for issue of shares, from a venture capital fund or a venture capital company or a specified fund, the price of the equity shares corresponding to such consideration may, at the option of such undertaking, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from a venture capital fund or a venture capital company or a specified fund;

Provided that the consideration has been received by the undertaking from a venture capital fund or a venture capital company or a specified fund, within a period of ninety days of the date of issue of shares which are the subject matter of valuation.

 Explanation: for the purposes of this clause, "venture capital undertaking", "venture capital fund" , "venture capital company" and "specified fund" shall have the same meaning as respectively assigned to them in the Explanation to clause (viib) of sub-section (2) of section 56.

Illustration: If a venture capital undertaking receives a consideration of Rs50000 from a venture capital company for issue of 100 shares at the rate of Rs.500 per share, then such an undertaking can issue 100 shares at this rate to any other investor within a period of 90 days of the receipt of consideration from venture capital company.

(d) the fair market value of the unquoted equity shares determined by a merchant banker in accordance with any of the following methods:

(i) Comparable Company Multiple Method;

(ii) Probability Weighted Expected Return Method;

(iii) Option Pricing Method;

(iv) Milestone Analysis Method;

(v) Replacement Cost Methods;

(e) where any consideration is received by a company for issue of shares, from any entity notified under clause (ii) of the first proviso to clause (viib) of subsection (2) of section 56, the price of the equity shares corresponding to such consideration may, at the option of such company, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from the notified entity:

Provided that the consideration has been received by the company from the entity notified under clause (ii) of the first proviso to clause (viib) of subsection (2) of section 56, within a period of ninety days of the date of issue of shares which are the subject matter of valuation."

(ii) after sub-rule 2, the following sub-rules shall be inserted, namely:-

"(3) Where the date of valuation report by the merchant banker for the purposes of sub rule (2) is not more than ninety days prior to the date of issue of shares which are the subject matter of valuation, such date may, at the option of the assessee, be deemed to be the valuation date.

(4) Where the issue price of the shares exceeds the value of shares as determined in accordance with –

(i) clause (a) or (b) of sub-rule (2), for consideration received from a resident, by an amount not exceeding ten percent of the valuation price, the issue price shall be deemed to be the fair market value of such shares.

(ii) clause (a) or (b) or (d) of sub-rule (2), for consideration received from a non- resident, by an amount not exceeding ten percent of the valuation price, the issue price shall be deemed to be the fair market value of such shares."

SB Order No. 12 12023 Dated:25.05.2023

Revision of Know Your Customer (KYC) / Anti Money Laundering (AML) / Combating the Financing of Terrorism (CFT) norms in respect of POSB

Master Circular No. I on AML/CFT norms applicable for Small Savings Schemes has been circulated in SB Order No.l4D0l2 dated 09.10.2012.

2. Department Economic Affairs, Ministry of Finance has notified Govt. Savings Promotion General Rules 2018 (GSPR 2018) and National Savings Schemes Rules 2019 which have been implemented from 18.12.2019. GSPR 2018 prescribes the mandatory documents and other optional documents to be obtained from the depositors.

3. After implementation of CBS, the process of reporting of transactions has also got changed.

4. Further, in order to comply with the guidelines of Financial Intelligent Unit - India (FIU-IND) and Financial Action Task Force (FATF), it has been decided to issue revised guidelines on AML/CFT norms to be followed in the post offices in respect of National (Small) Savings Schemes and accordingly, Master Circular No. 2 of KYC I Al\il- I CFT norms is attached herewith. This will supersede all previous orders issued on the subject,

5. Appendix I of POSB (CBS) Manual (Connected up to 31.12.2021) is amended and the contents of Master Circular No. 2 which is attached herewith shall be the amended text.

6. This may be circulated to all the Offices for information and necessary actions.

7. This is issued with the approval of competent authority.

Introduction

1. Know Your Customer (KYC) Norms/Anti Money Laundering (AML) Measure/Combating Financing of Terrorism (CFT)/Obligations under PMLA, 2002 (amended from time to time)

The objective of KYC/AMUCFT guidelines is to prevent money laundering or terrorist financing activities by use of Post Office Savings Bank intentionally or unintentionally by criminal elements. KYC procedures also enable to post office Savings Banks to know/understand their customers better which in tum help them manage their risks prudently.

1. Definition of Customer

For the purpose of KYC policy, a customer is defined as:

 . An individual that maintains an account and/or has a cash certificate or has a business relationship with the Post Office Savings Bank.

. An individual on whose behalf the account is maintained (i.e beneficial owner).

2. Guidelines

2.1 General

All Post Office Savings Banks should keep in mind that information collected from the customer for the purpose of opening of account or purchase of savings certificates is to be treated as confidential and details thereof are not to be divulged for cross selling or any other purposes.

 2.2 KYC Policy

Under PMLA provisions, Post Office Savings Bank declares its KYC Policy on the following four elements:

 (a) Customer Acceptance Policy.

(b) Risk Management

(c) Customer Identification Procedure.

(d) Monitoring of Transactions; Record keeping and Reporting.

2.3 Customer Acceptance Policy (CAP)

(i) No account is opened in anonymous or fictitious name,/benami.

(ii) Not to open an account or close an existing account where the Post Office Savings Bank is unable to apply appropriate Customer Due Diligence measures i.e unable to verify the identity and/or obtain documents required as prescribed due to non- cooperation of the customer or non-reliability of data/information furnished by the customer. However, the customer should not be harassed and any decision to close the account should be taken by head of the Postal Division by giving suitable notice to the customer.

2.4 Categorization of Customers i,e. Risk categorization.

2.4.1 All customers according to the amount involved at the time of opening of account or purchase of Savings Certificates or credit into an existing account have been categorized with the perspective of risk involved. The categorization is as under:

(i) Low Risk

                Where the customer opens account or applies for purchase of certificates or applies for credit of maturity/prematurity value of any existing savings instrument with an amount up to (50,000/and balance in all accounts and savings certificates does not exceed Rs.50,000/-

(ii) Medium Risk

          Where the customer opens account or applies for purchase of certificates or applies for credit of maturity/prematurity value of any existing savings instrument with an amount exceeding t 50,000/- but up to Rs.10 lakh and balance in all accounts and savings certificates does not exceed Rs.10 lakh.

(iii) High Risk

          Where the customer opens account or applies for purchase of certificates or applies for credit of maturity/prematurity value of any existing savings instrument with an amount exceeding Rs.10 lakh and balance in all accounts and certificates does not exceed Rs.10 lakh.

Note l: Politically Exposed Persons (PEPs) are individuals who are or have been entrusted with prominent public functions by a foreign country, including the Heads of State/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials. The accounts related to Politically Exposed Persons (PEPs) residing outside India shall fall under High Rlsk Category.

For full Customer identification Procedure, click on below link.

Banks will be required to notify the income tax department about large cash deposits of ₹2,000 currency notes above a threshold as part of the statement of financial transactions (SFT) they are mandated to submit to the tax authority annually.

However, the exact currency denomination of the deposits does not need to be specified.

This would bring large cash deposits made during the ongoing phasing out of ₹2,000 notes under the radar of tax officials, who routinely comb through the data to detect tax evasion, two people informed about the development said on the condition of anonymity. The reporting thresholds stand at ₹10 lakh for term and savings deposits and ₹50 lakh for current account deposits.

To be sure, this reporting system has been in existence for a long time and is not a new provision in the wake of RBI’s decision to recall ₹ ₹2,000 notes, said a third person, who also spoke on condition of anonymity.

“Everyone may keep some funds in cash for a rainy day. But, can there be a genuine reason for anyone to maintain large piles of cash, especially high-denomination notes, instead of trying to earn interest? That behaviour should merit an explanation, especially if the deposit is disproportionate to the income reported in the tax return. So, that question will be asked," one of the two people cited above said on the condition of anonymity. The third person, who is knowledgeable about the working of the tax department, said it might be premature to speculate whether large cash deposits in the wake of the withdrawal of ₹2,000 notes reported by banks will attract scrutiny. “Let people exercise their right to deposit or exchange the cash. It is not the right thing to spook the public," the person said.

An email sent to the spokespeople for finance ministry and the Central Board of Direct Taxes (CBDT) on Wednesday seeking comments for the story remained unanswered.

The tax department has been emphasizing voluntary tax compliance, encouraging taxpayers to disclose any transaction that may not have been reported by updating their tax returns. The e-verification scheme launched in 2021 and the scheme to update tax returns introduced in 2022 enable assessees to update their returns for previous years and add back any erroneously omitted income or to come clean on under-reporting of earnings.

Sudhir Kapadia, partner, tax and regulatory services at EY said that those who have legitimate funds in cash need not worry about depositing to banks. "As per existing rules, unusually high cash deposits get reported to the department irrespective of the currency denomination. Nothing in the RBI's announcement of withdrawal of ₹2000 note changes that position."

As a measure of caution, some banks are insisting that people who make repeated attempts to exchange ₹2,000 notes at the counter furnish their IDs, bankers said. Reserve Bank of India governor Shatikanta Das is expected to meet senior officials of private sector banks next week on governance issues where the progress of ₹2,000 note exchanges and deposits would also be discussed, and problems faced in the process would be addressed, a banker said on the condition of anonymity.

Income Tax Department releases Excel utility of Form ITR-3 for Financial Year 2022-23 and A.Y 2023-24.

ITR-3 Return Form applicable “For individuals and HUFs having income from profits and gains of business or profession.”

To more about applicability of ITR return Form, ITR-1 to ITR-7, click on below link for the detailed video;