Author: inavatiq

Shobhit Mishra – [2026] 184 taxmann.com 130 (Article)

1. Introduction

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the “Black Money Act”) was enacted with the specific objective of addressing the persistent problem of undisclosed foreign income and assets held by persons resident in India. The Preamble of the Black Money Act reflects the legislative intent to establish a comprehensive statutory framework for the identification, taxation, and penal consequences associated with such undisclosed foreign holdings.

The Act came into force with effect from 1 July 2015, marking a decisive legislative step by the legislature to combat the menace of black money stashed abroad. This move was bolstered by India’s commitment to international transparency norms like the Common Reporting Standard (CRS). Recognising the limitations of the existing regime under the Income-tax Act, 1961 (“Income Tax Act”) in dealing with offshore non-disclosures, Parliament introduced a separate and stringent code providing for the imposition of tax on undisclosed foreign income and assets, along with robust enforcement mechanisms.

Although the objective of the Act is to curb the pervasivemenace of undisclosed foreign income and assets, its penalty framework has often been viewed as excessively stringent. The scheme under Sections 42 and 43 of the Black Money Act operates as a ‘one-size fits all’ model in a manner that even minor or technical lapses, such as failure to disclose a dormant foreign account or inadvertent omission of particulars in the return may attract substantial fixed penalties. The provisions of the Black Money Act lacks a clear distinction between wilful concealment and bona fide, unintentional error, thereby creating a de facto strict liability regime in practice.

Unlike the comparatively graded and discretionary penalty structure found under the Income-tax Act, the Black Money Act adopts a deterrence-driven approach with limited scope for considering assessee’s intent or the principle of proportionality. As a result, even small or incidental compliance failures may trigger severe civil penalties and, in certain cases, prosecution. While this stringent framework may be justified in targeting deliberate offshore evasion, its uniform application to all non-disclosures raises significant concerns regarding fairness, proportionality, the fundamental principles of natural justice and reasonableness and the due process under Article 21 of the Indian constitution.

2. Invocation of Penalty under Sections 42 & 43 – Scope and Threshold

Section 42 of the Black Money Act imposes a fixed penalty of INR 10 lakh where a resident (other than “not ordinarily resident” within the meaning of Section 6(6) of the Income-tax Act) is required to file a return under Section 139(1) of the Income-tax Act and, during the relevant previous year, held a foreign asset (including financial interest therein), was a beneficiary of such asset, or earned income from a foreign source, but fails to furnish the return before the end of the relevant assessment year. The provision is triggered by non-filing of the return itself, not merely by non-disclosure within a filed return. The penalty is uniform and does not depend on the value of the foreign asset or income, subject to a limited carve-out where the aggregate value of foreign asset or assets (other than immovable property) does not exceed INR 20 lakh at any time during the year. In essence, Section 42 of the Black Money Act is invoked where there is a complete failure to file the return despite the existence of a foreign asset or foreign income during the relevant year.

Section 43 of the Black Money Act operates in a distinct but related field. It applies where a resident (other than not ordinarily resident) has filed a return of income under Section 139(1), 139(4), or 139(5) of the Income-tax Act but fails to disclose, or furnishes inaccurate particulars regarding, any foreign asset, financial interest, beneficiary interest, or foreign-source income held at any time during the previous year. Unlike Section 42 of the Black Money Act, the default here is not non-filing of the return, but misreporting or defective or inaccurate/ incomplete disclosure within a filed return. Upon such failure or inaccuracy, the Assessing Officer (the “AO”) may direct payment of a fixed penalty of INR 10 lakh, again subject to the limited exemption wherein the aggregate value of such foreign asset or assets (excluding immovable property) does not exceed INR 20 lakh during the year. Therefore, Section 43 of the Black Money Act is invoked in cases of omission or misreporting of foreign assets or income in the return, even where the taxpayer has otherwise fulfilled their general filing obligations i.e., return itself has been duly filed.

3. Section 72(c) – Deeming Fiction and the Question of Retrospective Operation

Section 72(c) of the Black Money Act specifically employs a “removal of doubts”, provision that creates a legal fiction in respect of foreign assets acquired unreported prior to the commencement of the Black Money Act (i.e., prior to 1 July 2015). It declares that where such an asset was acquired before the Black Money Act came into force and no declaration was made under the one-time compliance window, the asset shall be deemed to have been acquired in the year in which a notice under Section 10 of the Black Money Act is issued by the AO. This fiction bridges the temporal gap, enabling taxation and penalties post 2015 without historical tracing. By shifting the “date of acquisition” to the date of discovery, the Black Money Act effectively bypasses the traditional bar on retrospective taxation, as the tax is technically levied in the year of the notice.

A significant interpretative nuance lies in the language of Section 72(c) that the deeming fiction applies only to “asset” and not to “undisclosed income.” The provision does not declare that undisclosed income relating to such assets shall be deemed to arise in the year of notice. This distinction is critical. This statutory asymmetry creates a significant jurisdictional hurdle, while the asset can be taxed under the Black Money Act by virtue of the deeming clause, the absence of corresponding deeming provision in respect of income raises questions about the extent to which past income streams connected to that asset can be subjected to the Black Money Act’s penal regime. Taxpayers frequently challenge additions to “income” by citing this omission, arguing that “income” must be taxed in the year it was actually earned, subject to the limitation periods of the Income-tax Act.

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The post [Opinion] An Analytical Review of Penalty under Sections 42 & 43 of the Black Money Act appeared first on Taxmann Blog.

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Raising Finance from Capital Markets refers to the process through which companies obtain long-term funds from the public by issuing securities such as equity shares, preference shares, debentures, or convertible securities through recognised stock exchanges. Companies access the capital market primarily through instruments such as Initial Public Offer (IPO), Follow-on Public Offer (FPO), Rights Issue, Qualified Institutional Placement (QIP), and private placements. These securities are offered to investors in order to mobilise capital for business expansion, project financing, debt repayment, or other corporate purposes.

Table of Contents

1. REG – 7 General Conditions for Public & Right Issue
2. Appointment of Merchant Bankers & Other Intermediaries
3. REG – 6 Conditions for Initial Public Offer (IPO)
4. REG – 28 Pricing
5. REG – 29 Price & Price Band
6. REG – 30 Differential Pricing
7. REG – 14 Minimum Promoter Contributions
8. REG – 16 Lock-In of Specified Securities Held by Promoters
9. Book Building Process (BBP) – SCH XI
10. REG – 32 Allocations in Net Offer

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1. REG – 7 General Conditions for Public & Right Issue

A public or right issue of equity shares & convertible securities cannot be made by an issuer under following conditions:

• SEBI has debarred the issuer, any of its promoters, promoter group or directors or selling shareholders from accessing the capital market.
• SEBI has debarred any other company whose promoters, directors are also director or promoter of the issuer, from accessing the capital market.
• If any of its promoters/directors is fugitive (runaway) offender, the restriction (a) & (b) shall not apply to persons who were debarred in the past and the period is over on the date of filing of prospectus.
• A public issue cannot be made if promoter/director is wilful defaulter.
• Issue cannot be made unless an application for in principles approval of listing of equity shares & convertible securities is made to Recognised Stock Exchanges (RSE) & one of them is chosen as Designated Stock Exchange (DSE).
• In case of IPO, application is to be made to at least 1 RSE having nation-wide terminals.
• Unless an agreement is entered into with depositories for dematerialisation of equity shares & convertible securities already issued or proposed to be issued.
• Unless firm arrangements of finance through verifiable means for 75%of stated means of finance, excluding amount to be raised through proposed public or right issue or existing identifiable internal accruals.
• Promoter’s holding before filling of offer document must be in dematerialised form.
• The amount for general corporate purposes mentioned objects in draft offer document should not exceed 25% of amount raised.
• Unless the existing partly paid up shares are either forfeited or are fully paid up.
• Issue shall be open for at least 3 days & not more than 10 days.
• Minimum subscription shall be 90% of issuer size. If not then, amount will be refunded within 15 days of closure of issue.

2. Appointment of Merchant Bankers & Other Intermediaries

The issuer will appoint one or more merchant bankers (MR) of whom at least 1 will be lead merchant banker (LMR).

The rights, obligations & responsibilities relating to disclosures, allotment, refund & underwriting should be pre-determined & disclosed in offer document, if more than 1 merchant banker is appointed.

The issuer should also appoint SEBI registered intermediaries, in consultation with LMR for carrying out the obligations relating to issue.

The issuer shall in case of BBP, appoint syndicate members & in other case appoint bankers to issue at various centers.

The issuer shall appoint Registrar to issue registered with SEBI having connectivity with all depositories.

The issuer shall appoint compliance officer who shall be responsible for monitoring the compliance of securities laws & for redressal of investors.

3. REG – 6 Conditions for Initial Public Offer (IPO)

All of the following conditions are to be fulfilled:

• The issuer must have Net Tangible Assets (NTA) of at least Rs. 3 crores in each of the preceding 3 years (of 12 months each).

1. 1. Out of which not more than 50% NTA must be held in monetary assets.
   2. If more than 50% of NTA are held in monetary assets, then firm commitment to use the excess in business projects must be made.
   3. The 50% will not apply in case of IPO entirely through offer for sales.

• The issuer must have average pre-tax operating profit of Rs. 15 crores during 3 most profitable years out of preceding 5 years.
• The issuer must have Net Worth (NW) of at least Rs. 1 crore in each of preceding 3 full years.
• If the issuer has changed its name within last 1 year, then at least 50% of revenue for preceding 1 year must be earned from activities conducted under changed name.

If any of the above conditions are not fulfilled then the issuer may make an IPO by fulfilling following conditions:

1. Issue is made through Book Building Process (BBP).
2. Issuer undertakes to allot at least 75% of net offer to public to Qualified Institutional Buyers (QIB).
3. Issuer must refund the entire subscription money, if it fails to make allotment to QIB.

• The issuer must have at least 1000 prospective allottees.
• An issuer can make IPO of convertible debt instruments without making a prior public issue of its equity shares & listing, provided company has not defaulted payment of interest/principal for a period of 6 months.
• IPO can be made only if there are no outstanding convertible securities or any other rights entitling person an option to convert into equity after IPO.
• If the issue size is more than Rs. 100 crore, a bank, PFI shall monitor on quarterly basis till 95% of utilization of funds.
• The issuer may obtain grading for its IPO from 1 or more Credit Rating Agencies registered with SEBI.

4. REG – 28 Pricing

The issuer in consultation with LMR or through BBP may determine the prices of equity shares.

The issuer in consultation with LMR or through BBP may determine the coupon rate & conversion price in case of issue of convertible securities.

The issuer may mention a price or price band in offer document & floor price in red herring prospectus.

The issue price shall not be less than the face value.

5. REG – 29 Price & Price Band

The issuer may in case of:

• Fixed Price Issue – Price or price band in offer document
• Book Built Issue – Floor price or price band in red herring prospectus

The floor price shall not be less than the face value.

The cap price should not be more than 20% of floor price.

Face value may be less than Rs. 10 but not less than Rs. 1 per share, if the issue price is Rs. 500 or more.

The face value shall be Rs. 10 per share, if the issue price is less than Rs. 500.

6. REG – 30 Differential Pricing

The issuer may offer its specified securities at different prices subject to following:

7. REG – 14 Minimum Promoter Contributions

The promoter’s contribution varies case to case as follows:

8. REG – 16 Lock-In of Specified Securities held by Promoters

In case of public issue of IPO, the promoter’s contribution shall be locked

9. Book Building Process (BBP) – SCH XI

A process undertaken to arise demand & assess price for determining the quantum or value of specified securities or IDR as per SEBI (ICDR) Regulations, 2018 is called book building process.

10. REG – 32 Allocations in Net Offer

In an issue made through book building process, the allocation in net offer to public is made as follows:

In an issue made through the book building process, the issuer may allocate up to 60% of the portion available for allocation to QIB to an Anchor Investor in accordance with the conditions specified.

Any unsubscribed part of RII or NII may be allocated to applicants in any other category. Along with 5%, the mutual funds are also eligible for allocation under balance available for QIB.

In an issue made through book building process under REG 6(2), the allocation in net offer to public is made as follows:

In an issue made other than through book building process, the allocation in net offer to public is made as follows:

Any unsubscribed part in remaining section can be allocated to any other applicant.

If RII’s are entitled to more than 50% on proportionate basis, then they will be allocated that higher percentage.

The post Raising Finance from Capital Markets – IPO | Book Building appeared first on Taxmann Blog.

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Case Details: DGAP vs. Pacifica Developers (P.) Ltd. - [2026] 184 taxmann.com 88 (GSTAT-NEW DELHI)

Judiciary and Counsel Details

• Anil Kumar Gupta, Technical Member

Facts of the Case

The applicant, a homebuyer, submitted that the developer failed to pass on the benefit of additional input tax credit (ITC) in respect of construction services supplied. The Directorate General of Anti-Profiteering (DGAP) conducted a re-investigation and observed that the credit-to-purchase ratio for the respondent was 7.09 percent in the pre-GST period and 6.44 percent in the post-GST period, indicating a decrease of 0.65 percent. It concluded that no additional ITC benefit had accrued to the respondent, and the applicant contended that the benefit should be passed on. The matter was accordingly placed before the Goods and Services Tax Appellate Authority (GSTAT).

GSTAT Held

The GSTAT held that since the credit-to-purchase ratio had decreased in the post-GST period, no additional ITC benefit had accrued to the respondent and, therefore, no benefit was required to be passed on to the applicant. It was noted that the DGAP report had correctly applied the methodology to assess the ITC benefit, with no errors in calculation or approach. The report was accepted, recording no contravention of Section 171 of the CGST Act and the Delhi GST Act, and the applicant’s contentions were rejected, upholding the respondent’s compliance with anti-profiteering provisions.

List of Cases Referred to

• Reckitt Benckiser India (P.) Ltd. v. Union of India [2024] 158 taxmann.com 675/102 GST 495/82 GSTL 344 (Delhi) (para 2).

The post No Anti-Profiteering as ITC Ratio Fell Post-GST | GSTAT appeared first on Taxmann Blog.

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Case Details: DGAP vs. Axis Infratech LLP - [2026] 184 taxmann.com 78 (GSTAT-NEW DELHI)

Judiciary and Counsel Details

• Anil Kumar Gupta, Technical Member

Facts of the Case

The Directorate General of Anti-Profiteering (DGAP) conducted an investigation and identified 11 buyers who had booked units prior to the issuance of the completion certificate and were therefore eligible for an incremental input tax credit (ITC) benefit. Applying the area-based methodology, it determined an incremental ITC ratio and computed the profiteered amount on the post-GST purchase value. However, examination of records revealed that ITC benefits had already been passed to the eligible buyers. It was further noted that a minor shortfall for one buyer was subsequently transferred via NEFT and confirmed by the buyer. The matter was accordingly placed before the GST Appellate Authority (GSTAT).

GSTAT Held

The GSTAT held that, since the entire incremental ITC benefit had been passed on to all eligible buyers and the nominal shortfall had also been rectified, the statutory obligation to pass the benefit was fully discharged. It was observed that the DGAP report, along with documentary evidence and buyer confirmations, established compliance with the anti-profiteering provisions. Accordingly, it was held that the requirement under Section 171 of the CGST Act and the Delhi GST Act had been satisfied, and the investigation report was accepted, concluding that no further action was warranted under Rule 129 of the CGST Rules.

List of Cases Referred to

• Reckitt Benckiser India (P.) Ltd. v. Union of India [2024] 158 taxmann.com 675/82 GSTL 344/102 GST 495 (Delhi) (para 3).

The post Builder Passed ITC Benefit to Buyers – No Profiteering | GSTAT appeared first on Taxmann Blog.

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Cost Audit Report is a formal report issued by a cost auditor after examining and verifying the cost accounting records, cost statements, and related information of a company to ensure that they are maintained in accordance with applicable cost accounting standards and statutory requirements.

Table of Contents

1. Introduction
2. Critical Elements of Cost Audit Report and Related Evidences (Physical and Digital)
3. Qualified Audit Report
4. Adverse Audit Report
5. Filing of Cost Audit Reports to MCA IN XBRL Format (As Per Taxonomy)

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1. Introduction

The primary responsibility of preparation of the Annexures to the Cost Audit Report lies with the company. However, the same should be prepared in consultation with the cost auditor to ensure that the reporting conforms to the prescribed rules and at the same time the report is in conformity with the cost accounting records.

If, as a result of the examination of the books of the accounts, the cost auditor wants to point out any material deficiency or give a qualified report, he shall indicate the same against the relevant paragraph in the prescribed form of the cost audit report giving details of discrepancies noticed by him. It implies that the cost auditor should put his comments in the respective paragraphs of the cost audit report itself.

The report, suggestions, observations and conclusions given by the cost auditor shall be based upon data duly verified, and reference to which shall be made in the report and shall be included after an opportunity is given to the company to comment on them. The cost auditor is required to point out any deficiency or reservation to the management first. In case he is satisfied with the response of the management, he may decide to drop the issue. However, if he is not satisfied with the explanation of the management, he may decide to qualify the report to that extent.

2. Critical Elements of Cost Audit Report and Related Evidences (Physical and Digital)

A cost audit comprises the following:

Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing technique. Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures and objective.

Cost audit helps in detection of errors and frauds. The management gets accurate and reliable data based on which they can make day-to-day decisions like price fixation, margin, continuity or outsourcing, make or buy etc. It helps in cost control and finding avenues of cost reduction.

The Cost Audit and requirement of details are informative for better and clear understanding of the Users of Report.

Accordingly, the prescribed Format (Ref. CRA-3) i.e. the Cost Audit Report includes Unit-wise, Product/Service-wise Cost Statements and Schedules, deviation for the same need to be reported. Part – D of CRA-3 is a measure towards performance orientation which includes the following aspects:

• Product and Service profitability statement
• Profit reconciliation
• Value addition and distribution of earnings
• Financial position and ratio analysis

It is needless to point out that appropriate documentation (Working papers, Files, process document in physical or electronic form/mode) and additional supporting, if any, to be to be filed along with XBRL.

The following critical elements must be stated in the cost auditor’s report:

• Whether the machines and labour remained idle during the year because of the shortage of raw materials.
• Whether a large quantity of raw materials were stocked which remained unutilised for a long time, thereby locking up the working capital of the company.
• He should state whether the cost records maintained by the company were adequate for the purpose of audit.
• He should state whether the broad policy laid down by the management was faithfully followed.
• The report should concentrate more on the cost of production, comparative profitability, and operating efficiency of different lines in which the company is engaged rather than the routine statistical or financial information.
• The cost auditor should state if there has been a rise in the cost of production as compared to that of the previous year. He should analyse the causes of such a rise. He should clearly point out where the problem originates from.
• The report should state if there has been any wastage during the process of manufacture and how it could be avoided.
• The cost auditor should also mention the areas in which it is possible to reduce the cost of production.
• He should state whether or not the cost statement reveals a true and fair view of the cost of production.

Every Company covered under this rules, within a period of 30 days from the receipt of the cost audit report to submit/upload in XBRL Format the detail and report with full information and explanations on every reservations or quantification contained therein in CRA-4 as specified in the Companies’ Filing of Documents and Forms in XBRL Rules 2015 in MCA Portal. This helps Companies to integrate Financial and Cost datum across all operational areas for better control.

3. Qualified Audit Report

A qualified audit report is given by the cost auditor when the cost statements are materially misstated due to misstatement in one particular cost element, class of transaction or disclosure that does not have pervasive effect on the cost statements and when the cost auditor is unable to obtain audit evidence regarding particular cost element, its allocation and apportionment, class of transaction or disclosure that does not have pervasive effect on the cost statements.

A qualified audit report issued when the cost auditor encounters any of these situations which do not comply with the generally accepted cost accounting principles and is not in conformity with the principles laid down in CRA-1.

Case Study – Under what circumstances is a qualified audit report to be issued?

A qualified audit report is issued when the cost auditor concludes that there is a limitation or deviation in the audit that materially affects the cost statements, but is not pervasive to the extent of rendering them misleading as a whole. The report in which Cost Auditors express a qualified view of cost statements is a qualified audit report. It means that the company’s cost records are not maintained in accordance with Generally Accepted Accounting Principles (GAAP) but no misinterpretations are involved.

• Non-compliance with Cost Accounting Standards – If the company fails to follow mandatory CAS without justification.
• Improper Maintenance of Cost Records – When records are incomplete, inaccurate, or not maintained as prescribed under the Companies Act and Cost Audit Rules.
• Material Misstatements or Omissions – Errors or omissions in cost statements that affect decision-making.
• Non-availability of Information – If necessary records or explanations are not provided by the company despite repeated requests.
• Discrepancies in Resource Utilisation – If there is excessive wastage or inefficiency not addressed by the management.
• Conflict with Financial Statements – If cost data materially differs from financial records without reconciliation.

A qualified audit report is issued when the cost auditor encounters any of these situations which do not comply with the generally accepted cost accounting principles and is not in conformity with the principles laid down in CRA-1.

4. Adverse Audit Report

An adverse audit report on the cost accounting records and cost statements of a company means that the cost statements are materially misstated and such misstatements have pervasive effect on the cost of production, cost of sales and margin of the products. An adverse opinion is issued when the cost auditor determines that the cost statements of an auditee are materially misstated and when considered as a whole, do not conform to the generally accepted cost accounting principle. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the company’s operational results.

5. Filing of Cost Audit Reports to MCA IN XBRL Format (As Per Taxonomy)

Rule 6(6), of the Companies (Cost Records and Audit) Rules, 2014, as amended by the Companies (Cost Records and Audit) Amendment Rules, 2016,

“Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 along with fees specified in the Companies (Registration Offices and Fees) Rules, 2014.”.

Accordingly, all the cost audit reports have to be filed online, with MCA, in XBRL format, attached to the prescribed Form CRA-4. XBRL international, and the MCA portal, provide detailed information about XBRL and its applications. The necessary information and procedure for understanding XBRL in general and filing of cost audit report in that format, as extracted from these portals is briefly recited below:

XBRL is the open international standard for digital business reporting, managed by a global not for profit consortium called “XBRL International”. XBRL is used around the world, in more than 50 countries. Millions of XBRL documents are created every year, replacing older, paper-based reports with more useful, more effective and more accurate digital versions. The change from paper, PDF and HTML based reports to XBRL is like the change from film photography to digital photography, or from paper maps to digital maps.

XBRL makes reporting more accurate and more efficient. It allows unique tags to be associated with reported facts, allowing:

• People publishing reports to do so with confidence that the information contained in them can be consumed and analysed accurately.
• People consuming reports to test them against a set of business and logical rules, in order to capture and avoid mistakes at their source.
• People using the information to do so in the way that best suits their needs, including by using different languages, alternative currencies and in their preferred style.
• People consuming the information to do so confident that the data provided to them conforms to a set of sophisticated pre-defined definitions.

5.1 Potential Uses of XBRL

XBRL can be applied to a very wide range of business applications including financial and cost data. XBRL has applications in the following areas:

• Reporting for internal and external purposes by an entity involving financial and costing data/information.
• Business reporting to all types of regulators, including tax and financial authorities, central banks and governments.
• Filing of loan reports and applications; credit risk assessments.
• Exchange of information between government departments, institutions and banks.

5.2 Benefit from Using XBRL

All types of organisations can make use of XBRL to automate their process of data collection and distribution to various stakeholders. It helps in saving costs and improving the efficiency in managing business information, financial or cost. XBRL being extensible and flexible, can be adapted to a wide variety of requirements. All stakeholders whether they are preparers, transmitters or users of business data in the financial information supply chain can benefit from the use of XBRL.

5.3 Future of XBRL

XBRL has a bright future ahead of it that goes way beyond the current focus on regulatory reporting and compliance. Businesses that are now creating XBRL filings for regulatory bodies should be thinking about how they can leverage their investment in understanding and using XBRL to drive more consistent and comparable internal reporting. By tagging data at the account/transaction level, by investigating how XBRL can help to deliver new holistic reports that integrate and connect financial and non-financial data, and by leveraging emerging online XBRL data streams for better industry performance and peer group analytics, every business can power its own journey towards financial transformation.

5.4 Benefits of Having Cost Related Data in XBRL Format

Government and Regulators require cost data of different sectors for policy making. The availability of cost data [without compromising on the confidentiality] in XBRL format enables informed decision making and for sectoral studies.

With full adoption of XBRL, companies would be able to integrate its financial and cost data across its operational areas and exercise better control on its activities.

5.5 Costing Taxonomy

Costing Taxonomy is a dictionary of all cost elements required in the cost audit report. The costing taxonomy contains the properties and interrelationships of all these cost elements for the purposes of capturing the required reporting data in XBRL format.

5.6 Conversion of Cost Audit Report into the XBRL Format

XBRL is an open source technology. Any of the following methods can be adopted to create the instance document required for filing of the respective reports.

• XBRL-enabled software packages developed by different software vendors which support the creation of cost reports in XBRL format can be used to create the necessary document.
• Various elements of Cost Audit Report can be mapped into XBRL tags of the costing taxonomy using specialised XBRL software tools specifically designed for this purpose.
• Different third party packages can be integrated into the existing accounting systems to generate XBRL Cost statements.
• There are various web based applications available that take input reports in various formats viz. Microsoft Excel etc. and transform them into XBRL format.

The post Cost Audit Report under Companies Act and XBRL Filing appeared first on Taxmann Blog.

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Trading Mechanism refers to the structured system and procedures through which financial instruments such as securities, commodities, or derivatives are bought and sold on an exchange platform. It determines how orders are placed, matched, executed, and settled between market participants. In modern exchanges, trading mechanisms are primarily based on electronic screen-based trading systems, where buyers and sellers submit orders through a digital platform. These orders are automatically matched using predefined rules—typically price–time priority, meaning orders with the best price are executed first, and if prices are the same, the order placed earlier gets priority.

Table of Contents

1. Membership on Exchanges Having Commodity Derivatives Segment
2. Trading System in the Exchanges

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1. Membership on Exchanges Having Commodity Derivatives Segment

Membership of Exchange is governed by the SEBI Stock Brokers Regulation. The Regulation prescribes the procedures for the grant of recognition of a member, different types of members, net worth criteria, deposits, members’ fees and charges for different categories of members.

Clearing Corporation is an entity that is different from an Exchange. Exchanges are governed by SEBI’s Stock Exchange and Clearing Corporation Regulations, 2012. The same regulations provide governance norms for Clearing Corporations also. Clearing Corporation’s main role is to carry out settlement of the trades executed on the Exchange platform. The entity which guarantees settlement is Clearing Corporation. For trading purpose, Exchange membership is required while for clearing purposes, membership of a clearing corporation is required.

Commodity Exchanges prescribe different eligibility criterion for different classes of membership. While admitting members, the commodity exchanges generally take into account specific factors such as corporate structure, capital adequacy, track record, educational levels and the experience of the promoters, infrastructure set-up, manpower, etc. to ensure that the members are equipped to offer quality broking services so as to build and sustain confidence among investors in the Exchange’s operations. An applicant for commodity exchange membership must possess the minimum stipulated networth which varies across commodity exchanges as per their rules, regulations and bye-laws. The membership categories are more or less similar across the exchanges but vary considerably when we consider the membership criteria in terms of deposit/networth requirements, admission fees, and other membership requirements.

The members of the commodity exchanges are classified as below:

(a) Trading Member (TM) – A Trading Member can trade either on their own account or on behalf of the clients. This category of membership entitles a member to execute trades on his own account as well as for clients registered with him. The clearing and settlement of the trades done through a trading member is accomplished through a clearing member who is a member of clearing corporation where the security/commodity is being traded.

(b) Self Clearing Members (SCM)/Trading cum Clearing Member (TCM) – This category of membership entitles a member to execute trades on his own account as well as for his clients and also to clear and settle trades executed by himself as well as of  his clients. Clearing members are members of the clearing corporation. They help the clearing corporations carry out risk management activities effectively and provide for confirmation/inquiry of trades through the trading system.

(c) Professional Clearing Member (PCM) – A professional clearing member is entitled to clear and settle trades executed by other members of the commodity exchanges (TMs/TCMs) but does not have the right to execute trades. A professional clearing member is a clearing member and is not a trading member. Typically, banks and custodians become professional clearing members and clear and settle trades done by their trading members or the clients of the trading members. They are not entitled to execute any trades on the exchanges unless it is for the purpose of risk management.

Most of the members of the exchanges operate as Trading cum Clearing Members (TCMs) of more than one exchange. Most of the trades of  Institutional participants are done through the trading members and are cleared by the professional clearing member (PCM).

1.1 Authorised Persons (APs)

SEBI had earlier allowed spread of sub-brokership as well as Authorised Person’s network to expand the brokers’ network. However, SEBI Board in its meeting held on June 21, 2018 decided that sub-brokers as an intermediary shall cease to exist with effect from April 01, 2019. All existing sub-brokers would migrate to become Authorised Persons (APs) or Trading Members if the sub-brokers meet the eligibility criteria prescribed under Stock Exchange bye-laws and SEBI Regulations.

An Associated Person is an individual employed by a SEBI-registered intermediary (stockbroker, investment advisor etc.) who interacts with the clients or has access to client information. They are crucial in facilitating securities transactions but cannot act independently. Their responsibilities include, soliciting clients for securities transactions and handling their client accounts and transactions. They are expected to route all monetary transactions of their clients directly through the brokers and not to be handled by themselves. They must be qualified and certified by SEBI to ensure competent and ethical conduct within the securities market.

2. Trading System in the Exchanges

2.1 Screen Based Trading System

Derivative Exchanges offer a nation-wide online fully automated screen-based trading system (SBTS). In this system, the trading member of the exchange can put in the orders and the prices at which they would like to transact. The transaction gets executed as soon as a buy order matches with a sell order in terms of price.

The order matching is done on a price-time priority basis. This means that all the orders received are first sorted on ‘best-price’ basis i.e., orders are first ranked according to their prices and similar priced orders are then sorted on a time-priority basis (i.e., the order that comes in early gets priority over the order that came in later). Highest priced buy orders and lowest priced sell orders are matched first for trade, after which next highest buy order or next lowest sell order comes up for trade match. It indirectly means that reducing buy order limit will delay execution while increasing buy order price will increase the probability of the order getting matched and converted into trade. Also, reduction in quantity of the order from the original quantity will not change its price-time priority. SBTS enables market participants to see the prices on a real-time basis and trade with one another simultaneously, irrespective of their geographical location.

In this trading system, an order number or trade number is generated for the orders (that are entered into the system after being accepted) and for the executed trades (as the order gets matched for the price and quantity and becomes trade). A trading system also provides other live market information such as the last traded price, traded quantity, open, high, low, close price, total traded value, total traded quantity, etc. Connectivity to SBTS can be accomplished through laptops, tablet PCs, desktop computers, and mobile phones.

A commodity exchange provides a trading platform or an electronic trading system and lays down well defined trading rules such as:

Rules for Buy and Sell Side of Futures Contracts Sell Side	Buy Side
The seller needs to pay an upfront initial margin as prescribed by the exchanges to take a short position in the commodity futures market.	The buyer needs to pay an upfront initial margin as prescribed by the exchanges to take a long position in commodity futures market.
The open short position is exposed to mark to market.	The long position is exposed to mark to market if kept open.
Open short position may result in giving physical delivery or cash settlements on expiry date. Quality certification is a mandatory requirement.	Open long position may result in an obligation to receive physical delivery or cash settlements on expiry date depending on the settlement mode of the derivative contract.
The sell position can be squared off during the same day or any time during the life time of the contract.	The buyer if desires can square off his position during the same day or any time during the period of contract.
The margins are released if the short position is squared off.	The margins are released if the long position is squared off.

Other than the SBTS, trading in commodity derivatives can be done using algorithms which measures market movements and pushes orders for the best buy/sell executions given the market conditions.

2.2 Algorithmic Trading

Algorithmic trading is introduced and defined as trading in financial instruments where a computer algorithm automatically determines individual parameters of orders such as initiation of order, timing, price or quantity, managing the order post submission without/with limited human intervention.

Any order generated using automated execution logic is known as algorithmic trading. Algorithmic trading permits the use of programs and computers to generate and execute orders in markets with electronic access and does not require human intervention. It employs a defined set of instructions on timing, price, quantity, or any mathematical model for placing orders at a faster pace and with higher frequency.

Algo trading is tailored to perform according to the account type an investor chooses. For example, an investor who prefers a conservative investment profile will have an automatic trading protocol that is programmed to perform in a conservative manner, meaning if a commodity’s price movement is too volatile, it may sell that commodity automatically to prevent a potential loss. Another example would be the opposite scenario, where an investor may prefer an aggressive investment strategy. The algorithm on that particular account would be programmed to ride the wave of volatility, allowing for large market fluctuations without squaring off a trade or cancelling a standing order. Algo trading is permitted in commodity exchanges subject to the broad SEBI guidelines dated 27th September, 2016.

High Frequency Trading (HFT) is part of algorithmic trading that comprises
latency-sensitive trading strategies and deploys high speed networks to connect and trade on the trading platform. As per the regulatory norms, Immediate or Cancel and Market orders are not allowed for the algorithmic traders. Members are expected to prevent any unauthorised access to the software and should allow it to be handled by the authorised dealers only. There are provisions of audit. The regulations provide for disincentivizing higher number of orders which are not executed. The exchanges provide penalty provisions at different slabs of Order-to-trade ratio.

The algorithms need to be reviewed by the Exchanges before it is used by brokers. The algorithm which leads to the orders resulting in taking away liquidity from the market, or abnormal or manipulative prices are not approved for use.

If Algo trading is used without due care and diligence, it may throw huge risk to market integrity even with small error. The member should have adequate risk management system and control for the same. They should have separate dealer-wise limit, internal price bands so that ordered price doesn’t cross a level and order size limit.

2.3 Trading Hours

Trading in the commodity exchanges take place on all days except Saturdays and Sundays and the exchange-notified holidays. The holidays are notified in advance.

Types of Commodities	Trading Days and Time (IST)
Domestic Agricultural Commodities	Monday to Friday (9:00 AM – 5:00 PM)
Agricultural Commodities including agri-processed commodities	Monday to Friday (9:00 AM -9:00 PM)
Non-agricultural Commodities	Monday to Friday (9:00 AM – 11:30 PM/11.55 PM*) * After the end of US daylight savings (fall season)

Exchanges have flexibility to fix their own market timings within the above timing provided by SEBI. For non-agricultural commodities, trade timings are allowed up to 11:30/11:55 PM due to specific reasons. In case of market outages that leads to a delay in the relaunch of the markets within 30 minutes before scheduled closure of the respective market segment, the timing for the same can be extended by another 30 minutes. The intimation regarding the extension of trading hours would have to be sent at least 15 minutes before the scheduled closure of market timings (i.e. before 4:45 PM, 8:45 PM and 11:10 PM (only if the scheduled market closure is 11:25 PM). Most of the non-agricultural commodities’ futures markets follow international benchmark prices. For example, prices of Oil, Gold, Silver, Metals are based on internationally decided benchmark prices. Hence, to arrive at fair value of DSP or FSP in Futures trading in India, trading (timings) of these commodities in Indian exchanges would have to be in alignment with the international markets to provide for real time hedging opportunities when the benchmark markets are operational.

2.4 Trading Parameters Across Contracts

2.4.1 Base Price

When a new future contract is made available for trading, the exchange decides its base price, which is used to decide Daily Price Limit on first day. This price is determined on the basis of a few minimum number of trades happening during first half an hour of trading or up to an extended period of total one hour. Once the contract is listed on the exchange, the base price keeps changing from the second day of its launch as per the official closing price of that contract on the exchange on the preceding day.

2.4.2 Open, High, Low and Last Traded Prices

All commodity exchanges continuously disseminate open, low, high and last traded prices on a real time basis on their screen during the trading session.

2.4.3 Circuit Filters

Circuit filters, also known as the Daily Price Range (DPR) or Daily Price Limit (DPL), is the maximum price range within which contracts would be permitted to trade during a day. This is used as a risk management tool in highly volatile markets. DPL regulations provides a price limit and a cooling off time and a permanent closure of the market beyond a limit for domestic commodities. Details of separate pre-defined DPR for various agricultural and non-agricultural commodities are discussed in section 7.10 of this workbook.

2.4.4 Settlement Price

In commodities futures, there are two types of settlement price – one is the Daily Settlement Price (DSP), known as closing price, and the other is the final settlement price (FSP), also known as Due Date Rate (DDR). Daily settlement price is used to calculate the daily mark-to-market profit or loss. It helps the clearing corporations to avoid accumulation of losses on the part of participants. Final Settlement Price (FSP) is the price at which the delivery or final cash settlement is done at the expiry of the contract. FSP or DDR is also used for determination of “delivery default penalty” in case of non-delivery of short sell quantity. It is also used to determine delivery and payment obligations arising out of the expiry of Options on Goods or the devolved open positions from an expired Options on Futures contracts. FSP in case of Options on Futures is DSP of the underlying Futures itself while in the case of Options on Goods, it is the same as FSP of Futures expiring on the same day. There are regulatory guidelines to arrive at the Daily Settlement Price (DSP), Final Settlement Price or Due Date Rate and the delivery default penalty and working out compensation to the buyer in such case, using the FSP/DDR.

The procedure for arriving at FSP is generally defined in Contract Specifications which is very much standardized as per the SEBI prescribed guidelines based on the polled spot market prices from a portfolio of spot market ecosystem participants. Exchanges have their internal policies in addition to the regulatory guidance to arrive at FSP in case of non-availability of Spot Markets on the contract expiry day. Last Traded Price at the end of the day or on expiry of contract (LTP) may be different from the DSP/FSP/DDR. This is because DSP or FSP is arrived at by using documented methodology while LTP is actually the price at which the last contract of the day was traded.

2.4.5 Delivery Process

Each futures contract for the specified delivery month is deemed to have entered into the delivery period from such date of its expiry month, as specified by the Exchange in the relevant contract specification. Each commodity has its own pre-specified delivery logic as provided in the respective contract specification. Delivery logic means buyers and sellers’ choice on open positions during the tender/delivery period. Basically, two delivery options are available in the commodity derivative markets:

• Compulsory delivery
• Cash Settlement

In the compulsory delivery option, both buyer and seller having an open position during the tender/delivery period of the contract are obligated to take/give delivery of the commodity.

Other trading parameters that are mostly common across major commodities are as follows:

• Start Date of Trading and Last Date of Trading – These are generally common across a few commodities in an Exchange. These dates coincide with the trading cycle adopted by that Exchange. For example, many contracts on MCX ends on 5th of the month while on NCDEX, many contracts start on 1st of the start month and ends on 20th of the expiry month.
• Funds Pay-in Pay-out – All the obligations arising out of  Initial Margin, MTM loss, Option purchase price needs to be paid before the next day morning.
• Initial Margin & ELM – These are normally based on Value at Risk (VaR) calculated based on price volatility considering a holding period of 2 days. In normal situation for many contracts, we see Initial Margin to be around 4% while ELM of 1%. However, these are also flexible and vary depending upon volatility of prices, Margin Period of Risk (MPOR), etc. If the holding period or settlement period i.e., MPOR is considered more, then initial margin will also increase as the volatility risk is higher on longer settlement periods.
• Additional/Ad hoc or Special and Concentration Margins – Enabling provisions exist in contracts for Exchanges to levy these margins in case their imposition is warranted to maintain market integrity.
• Open Position Limit at the Broker Level and Client Level – Specified in the contract generally in line with SEBI norms. Member level limits are normally 10 times that of client level limit in numeric terms.
• Instrument Type – A specific code that clearly distinguishes derivative instruments such as Commodity Futures, Options on Futures, Options on Goods, Index Options and Index Futures from each other.
• Trading Days and Trading Time – These are provided in advance and specified for most agricultural commodities and non-agricultural commodities based on SEBI norms.
• Basis Centre and Additional Delivery Center – Provided as part of the contract specifications to enable a robust process for the discovery of commodity prices.
• Staggered Delivery Period and Delivery Period Margin – These are specified for the commodities that are settled through the physical delivery-based final settlement. In a recent change in the regulatory policy the mandatory minimum of 3 days has been prescribed as the minimum number of days for staggered delivery of any given commodity.
• Devolvement Margins for Options on Futures and Delivery Margins for Options on Goods – These enabling clauses exists so that the exchange can charge margins to cover up the gaps in margin if the opted and eligible Options on Futures devolve on to the underlying Futures Position or to cover up the gaps in payment, if instrument such as Options on Goods ends up in delivery-based settlement of goods upon expiry.

List of a few more typical contract specifications are specified in section 6.4, which are common components of all the contracts.

2.5 Introduction of Investor Risk Reduction Access (IRRA) Platform in Case of Disruption of Trading Services Provided by the Trading Member¹

Salient features of the SEBI circular are given below. For additional information participant may refer to the SEBI circular.

• A joint platform to provide Investor Risk Reduction Access (IRRA) service has been developed by the exchanges to provide the investors an opportunity to square off/close the open positions and/or cancel pending orders in case of disruption of trading services provided by the Trading Member.
• The IRRA service shall support multiple segments across multiple exchanges.
• TMs, upon facing technical glitches which lead to disruption of trading services, can request for enablement of the IRRA service as per the procedures specified by the stock exchanges from time to time and IRRA shall be enabled on receipt of such requests.
• Once the service is enabled, all the investors of the TM shall be informed by the exchange of the availability of the service through email/SMS and a public notice on exchanges’ website. TMs shall also communicate the same by displaying on their website.

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1. https://www.sebi.gov.in/legal/circulars/dec-2022/introduction-of-investor-risk-reduction-access-irra-platform-in-case-of-disruption-of-trading-services-provided-by-the-trading-member-tm-_66785.html

The post Trading Mechanism and Commodity Exchange Membership appeared first on Taxmann Blog.

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Documentation under the Companies Act, 2013 refers to the systematic creation, maintenance, storage, and management of corporate records, documents, registers, and information required to be maintained by a company in compliance with statutory provisions. The Act recognises documents to include notices, requisitions, orders, registers, forms, declarations, minutes, agreements, and other records maintained by a company either in physical or electronic form. Provisions such as Section 88 require companies to maintain statutory registers like the Register of Members, while Section 120 read with Rules 27 and 28 of the Companies (Management and Administration) Rules, 2014 permits companies to maintain documents and records in electronic form, subject to conditions relating to readability, retrievability, digital authentication, and secure storage.

Table of Contents

1. Purpose of Documentation
2. Electronic Repository of Documents
3. Physical Repository
4. Coding and Nomenclature
5. Safety and Retrieval of Records

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1. Purpose of Documentation

FAQ 1. A listed entity incorporated on 11th January 2018 under the Companies Act, 2013 having its registered office at a State X in the country. The company has a paid-up capital of Rs. 100 crore and a turnover of another Rs. 500 crore during the last three preceding financial years. The company at present has 13 lakh shareholders B, one of its shareholders inspected the companies records at the registered office and found that register of members is not properly maintained and accordingly complained to the Registrar of Companies (RoC). During the course of inquiry, it was noticed that the register of member was found to be incomplete. Based on the above fact and citing a leading case, explain who is responsible for maintaining a register of its members and related provisions as per the Companies Act, 2013?

The Company Secretary is responsible for maintaining, storing, retrieving, certifying and explaining corporate documents. Proper document management includes safe storage, backup of records, timely access and compliance with statutory retention requirements.

As per section 88 of the Companies Act, 2013, every company limited by shares must maintain a Register of Members in Form MGT-1 from the date of its registration.

Penalty for Non-Compliance

If a company fails to comply with section 88:

• The company and every officer in default are liable to a fine not less than Rs. 50,000 and up to Rs. 3,00,000.
• In case of a continuing default, an additional fine of Rs. 1,000 per day may be imposed.

Case Law – M/s SDU Holdings Private Limited

During an inquiry under section 206, the Registrar of Companies, Bangalore found that the Register of Members (Form MGT-1) maintained by the company was incomplete. After giving a reasonable opportunity of being heard, the Adjudicating Officer imposed penalties on the company and its directors for violation of Section 88.

Conclusion

The case highlights the importance of proper maintenance of statutory registers. Failure to maintain complete records attracts monetary penalties on the company and its officers. Therefore, the Company Secretary must ensure accurate and timely compliance with statutory record-keeping requirements.

FAQ 2. What is the meaning of document and records, and the manner in which the records in electronic form should be maintained as per the provisions contained in the Companies Act, 2013?

Section 120 of the Companies Act, 2013 read with Rule 27 & 28 of the Companies (Management and Administration) Rule, 2014 provides for maintenance of documents in electronic form.

The Rule 27 provides that every listed company or a company having not less than 1000 shareholders, debenture holders and other security holders, may maintain its records in electronic form.

Section 2(36) of the said Act relates to the definition of “document” which includes summons, notice, requisition, order, declaration, form and register, whether issued, sent or kept in pursuance of Companies Act or under any other law for the time being in force or otherwise, maintained on paper or in electronic form.

The term “records” means any register, index, agreement, memorandum, minutes or any other document required by the Act or the Rules made thereunder to be kept by a company. Therefore, such documents and records can also be maintained in electronic form.

However, the records in electronic form shall be maintained in such manner as the Board of directors of the company may think fit, provided that:

(a) the records are maintained in the same formats and in accordance with all other requirements as provided in the Act or the rules made there under;

(b) the information as required under the provisions of the Act or the rules made there under should be adequately recorded for future reference;

(c) the records must be capable of being readable, retrievable and reproducible in printed form;

(d) the records are capable of being dated and signed digitally wherever it is required under the provisions of the Act or the rules made there under;

(e) the records, once dated and signed digitally, shall not be capable of being edited or altered;

(f) the records shall be capable of being updated, according to the provisions of the Act or the rules made there under, and the date of updating shall be capable of being recorded on every updating.

FAQ 3. What do you mean by Good Documentation? What are some examples of Good Documentation Practices as well as Poor Documentation Practices?

The term documentation includes any and all forms of documentation recorded by a person in professional capacity in relation to his professional duties and includes written and electronic records, audio and video tapes, emails, facsimiles, images, charts, check lists, communication books, management reports, incident reports and working notes or any other type or form of documentation.

The good documentation promotes good corporate governance practices and compliance level of the company and also improves communication and dissemination of information between and across various stakeholders.

These guiding principles support professionals, employers, policy makers and managers in assessment, planning, execution and evaluation.

Examples of Poor Documentation Practices:

• Document with errors, correction, not signed/dated, and didn’t include a reason for the correction;
• Write-overs, multiple line-through & use of “White-out” or other masking device;
• Recording of events is not in sequence & tabled;
• The delegation of work is not recorded/documented;
• Standards operating procedures as adopted by the professional is not authorised.

Examples of Good Documentation Practices:

• Records should be completed at time of activity or when any action is taken;
• Superseded documents should be retained for a specific period of time;
• Concise, legible, accurate and traceable;
• Picture is worth a thousand words;
• Clear examples; Don’t assume knowledge/information.

FAQ 4. What is Good Documentation Practice, along with the Do’s and Don’ts of Good Documentation?

Good documentation practices is a set of best practices for documentation and record keeping. It aims to preserve the data integrity of important documents and records and can also serve as guidelines for how to record information and store data appropriately.

The good documentation promotes good corporate governance practices and compliance level of the company and also improves communication and dissemination of information between and across various stakeholders.

These guiding principles support professionals, employers, policy makers and managers in assessment, planning, execution and evaluation.

Good Documentation Do’s and Don’t

Do’s	Don’ts
Do record the data/document as soon as it is generated	Don’t delay in data/document recording
Do add the reference notes (if possible) to provide the context	Don’t make the data confusing, vague and unreadable
Do validate your computerised system or document software	Don’t encourage handwritten documentation
Do limit document access to authorised personnel	Don’t intentionally falsify the record/document
Do specify when the data/document was recorded, reviewed and approved	Don’t pre-date or back-date the data/document
Do keep data back-up, either automatically or by storing the true copy in separate location	Don’t archive data/documents unless explicitly authorised to do so

FAQ 5. What does the term documentation connote? What are the 10 C’s which form the guiding principles of good documentation?

The term documentation includes any and all forms of documentation recorded by a person in professional capacity in relation to his professional duties and includes written and electronic records, audio and video tapes, emails, facsimiles, images, charts, check lists, communication books, management reports, incident reports and working notes or any other type or form of documentation.

The good documentation promotes good corporate governance practices and compliance level of the company and also improves communication and dissemination of information between and across various stakeholders. Also, the good documentation practices and policies demonstrate the professional obligation, accountability and legal requirement to communicate and record client information and good secretarial practice.

The guiding principles for good documentation are as follows:

1. Clear
2. Correct
3. Concise
4. Comprehensive
5. Complete
6. Collaborative
7. Contemporary
8. Client Centric
9. Consecutive
10. Confidential

FAQ 6. What is the purpose of Documentation?

Client Service	Documentation is a tool for professionals to serve better to their clients in a timely and effective manner.
Communication	Documentation is the base for better communication between professionals. Clear, complete, accurate and factual documentation provides a reliable permanent record of client.
Accountability	Documentation demonstrates professional accountability and records the work of the professional. It may be used in relation to performance management, internal inquiries, regulatory proceedings and/or legal proceedings.
Professional Responsibility	Documentation is an integral part of professional practice and forms the basis for evidence of professional conduct.
Legal Requirement	Professionals are required to make and keep records of their professional work in accordance with practice standards followed and organisational policy. However, the laws mandate specific information to be recorded and maintained.
Quality	Documentation may be used to evaluate professional practice in terms of Peer reviews, Quality reviews, audits and accreditation processes, Regulatory inspections or critical incident reviews.
Research	Documentation is a valuable source of data for researchers. It provides information to professional, evaluates client outcomes and is a concise record, essential for accurate research data and evidence-based practice.

2. Electronic Repository of Documents

FAQ 7. What are the disadvantages of electronic records?

Advantages of the Electronic Records:

• Cost Effective – Storing and maintaining records in digital form is much cheaper than in any other format. With the increase in the technology advancement, the Digital media costs drop every day.
• Ease of Use – It’s very easy to locate and share electronic documents through Computer’s aid searching now a days the process of filing doesn’t exist anymore. The Document management system take care for finding and maintaining Records consistent locations.
• Labor Savings – The labour required to locate, manage and dispose of electronic documents is almost nil and minimum. With electronic documents, all the steps like filing collating, stapling etc. can be automated and that labour completely disappears.
• Search Ability – Electronic documents can be made searchable by doing OCR of a document and make the whole text keyword searchable. That is not possible with paper documents.
• Portability – It’s very easy to transport electronic documents. No more boxes of records and trucks and semi-trucks to haul records archives. They can easily be stored on a removable hard drive or thumb drive and taken to the courthouse or to the field office.
• Version Tracking – In case of the version tracking, it is very easy with electronic documents, making it easy to see who has made changes to a document, when they made those and what the document looked like before the change. Version tracking and document management in the hard copy world is much more complex and much more costly.

FAQ 8. What is DMS and its benefits, and its relevant provisions of the Companies Act, 2013?

Document management refer the process of managing and tracking of the documents and records through an electronic or physical source of documents. In an electronic repository, Document Management Systems (DMS) works by using a computer system and software to store, manage and track electronic documents and electronic images of paper-based information captured through the use of a scanner.

The term document management system can be defined as the software that controls and organises documents of an organisation. It incorporates document and content capture, workflow, document repositories and output systems, and information retrieval systems. Also, the processes used to track, store and control documents.

Advantages of DMS are as follows:

• Tracking on check-in/check-out by various officers
• Locking and unlocking of Document
• Simultaneous editing
• Document Version Control
• Roll-back options/Retrieve option
• Ease in Audit trail
• Annotation and Stamps

Section 120 of the Companies Act, 2013 (the Act) read with Rules 27 & 28 of the Companies (Management and Administration) Rule, 2014, provides for maintenance of documents in electronic form. The provisions also provide for inspection of documents maintained in electronic form. It states that any document, record, register, minutes, etc. that are required to be kept by a company or allowed to be inspected or copies to be given to any person by a company under the Act, may be kept or inspected or copies given, as the case may be, in electronic form. Rule 27 provides that every listed company or a company having not less than one thousand shareholders, debenture holders and other security holders, may maintain its records in electronic form.

3. Physical Repository

FAQ 9. What are Physical Data Room and Virtual Data Room?

No.	Basis	Physical Data Room	Virtual Data Room
1.	Form of documents	Papers, files, boxes or other tangible thing	Electronic/Digital/soft copies of documents including video/audio documents
2.	Security of documents	Lies with the integrity of person who is in-charge of the data room	More secured through specific log-in id and pass word. In addition, facilities like internet fire walls are there
3.	Time required for creation of data room	Longer time required	Can be created within 48 hours once demands of prospective bidders are identified
4.	Cost	Cost is high because of reasons like-Requirement of one person to take care of data room. Requires bidders to travel from their place to the place of location of data room, etc.	Cost is Low as the documents can be viewed from any location with internet security
5.	Convenience	Searching the documents is time consuming	More convenient as it enables multiple bidders to review documents at the same time with search facility also
6.	Accessibility to data room	Timings to access data may be restricted	Data may be accessed nearly any time
7.	Facility to restrict access of specific document	Difficult to implement any Restriction	Access can be restricted
8.	Ability to copy documents	Possible	Not possible always

4. Coding and Nomenclature

FAQ 10. In the naming of a document, what is the concept of a Descriptive file and a non-Descriptive file?

For naming of any documents adopting good file naming conventions can help ensure that files will work with different operating systems. Further, the file names can be either self-descriptive or non-descriptive.

• The Descriptive file names are useful for small, well-defined projects with existing identification schemes that link the digital object to the source material. However, inconsistent application of terms or typos will increase to indexing and sorting errors.
• Non-descriptive file names are usually system-generated sequential numerical string or the system based, such as a digital ID number, combination of Date and time, name of original file and are often linked to meta data stored elsewhere. Non-descriptive file names are often created for large scale digitization projects and may employ a digital ID number and numerical sequences to indicate batch or parent-child relationships. The advantage of non-descriptive names is that there is less chance of repeated or non-unique file names within a data structure.

Some applications and computer scripts could not recognize spaces or process files differently when using spaces. A best practice is to replace spaces in file names with an underline (_) or hyphen (-). However, the punctuation, symbols, or special characters (periods, commas, parentheses, ampersands, asterisks, etc.) should be avoided.

FAQ 11. What are the best practices for file naming?

The following are best practices for file naming.

The File names should:

• Be unique and consistently structured;
• Be persistent and not tied to anything that changes over time or location;
• Limit the character length to no more than 25-35 characters;
• Use leading 0s to facilitate sorting in numerical order if following a numeric scheme “001, 002, 010, 011 … 100, 101, etc.” instead of “1, 2, …10, 11 … 100, 101, etc.”;
• Contain a file format extension; Use a period followed by a file extension (for example, .tif, .jpg, .gif, .pdf, .wav, .mpg);
• Use lowercase letters. However, when a name has more than one word, start each word with an uppercase letter for example, “File_Name_Convention_001.doc”;
• Use numbers and/or letters but not characters such as symbols or spaces that could cause complications across operating platforms;
• Use hyphens or underscores instead of spaces;
• Use standard date notation (YYYY-MM-DD or YYYYMMDD);
• Avoid blank spaces anywhere within the character string; and
• Not use an overly complex or lengthy naming scheme that is susceptible to human error during manual input, such as “filenameconventionjoesfinal versioneditedfinal.doc”.

The strength of a folder and file naming convention is dependent on the proposed naming structure and the quality and quantity of the data elements chosen to build it. It should be of no surprise that for any business activity there is always an ideal naming structure. However, any structured naming convention that attempts to be all encompassing may result in overkill and unwieldiness.

FAQ 12. Citing the basic rules that could serve as a general guideline in structuring folder and file naming. Give nomenclature of the file in following cases:

(a) Annual Return MGT-7, Financial Year 2022-23 of TZ Pharma.

(b) Search Report of PTK RESORTS, Invoice dated 30 July, 2023, PDF document.

(c) Mohit Nair Max Life 8561 3 POLICY date 19/October/2022, white paper structured file naming Strategy document.

(a) D:TZPFY22-23ARMGT-7.doc

Rule – Avoid extra-long folder names and complex hierarchical structures but use information rich file names instead.

(b) PTKRESORTS_SearchReport_Invoice30.07.2023.pdf

Rule – Put sufficient elements in the structure for easy retrieval and identification but do not overdo it.

(c) Mohit-Nair_Maxlife_8561_3_POLICY_2020-10-19.pdf | | WhitePaper_Structured File Naming Strategy.doc

Rule – Use the hyphen (-) to define it words within an element or capitalise the first letter of each word within an element.

5. Safety and Retrieval of Records

FAQ 13. What are the key measures which should be adopted for effective document control, and what key concepts should be considered to take care of records and archives?

To assure the best quality of documents, it is to be assured that sufficient records are maintained to furnish evidence of the activities affecting quality. The records should incorporate the following:

(a) Operating Logs – the names of the individuals who all have worked on the same documents;

(b) Results of Reviews – the recording of the changes suggested by each reviewer and basis of the rejection on Non agreement;

(c) Inspections – list of individuals who have access of the records and have inspection rights of the same;

(d) Monitoring of Work Performance – will ease in the monitoring of work performed by the person to whom the file is shared;

(e) Information Analyses – Provide ease in the Information system of the organisation and tracking of files.

Records should be identifiable and retrievable and should consistent with applicable regulatory requirements. The company should comply with requirements concerning record retention, such as duration, location, and assigned responsibility. Every record must be well managed in order to ensure that they are protected for both administrative purposes and to serve as evidence of the organization’s work.

Records management provides a professional approach to caring for records. The care of records and archives is governed by three key concepts.

The post Documentation under Companies Act – Coding | Nomenclature appeared first on Taxmann Blog.

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1. Facts

Delta Metals Limited (hereinafter referred to as “the company”) operates a large metal processing facility where production activities are highly dependent on a continuous and stable supply of electricity. Any interruption in the power supply, even for a short duration, can halt production and result in significant operational and financial losses.

To meet its energy requirements, the company has installed a captive power generation system within its manufacturing premises. The system includes a primary generator, which is regularly used to generate the electricity required for the plant’s day-to-day operations.

Considering the critical nature of an uninterrupted power supply, the company has also installed a backup generator. This generator is intended to function as a standby unit and will be operated only when the primary generator becomes unavailable due to an unexpected breakdown, major repairs, or scheduled maintenance.

Under normal operating conditions, the standby generator is expected to remain idle for most of the time, and its actual usage is likely to be infrequent. Nevertheless, management believes that the backup generator is essential to ensure operational continuity and prevent production disruptions in the event of the primary generator’s failure. The useful life of both generators is assessed to be the same, as they are designed to operate within the same power generation system and technological environment.

The company’s management is in a dilemma regarding the accounting treatment of the backup generator. Considering that the backup generator is expected to be used only in exceptional circumstances and may remain idle for most of its life, the management wants to understand whether the cost of the standby generator should be recognised as Property, Plant and Equipment and depreciated over its useful life, or should it be treated differently due to its infrequent use under the Indian Accounting Standard (Ind AS) framework?

2. Relevant Provision

Ind AS 16 – Property, Plant and Equipment

Para 7 of Ind AS 16

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

(a) it is probable that future economic benefits associated with the item will flow to the entity; and

(b) the cost of the item can be measured reliably.

Para 8 of Ind AS 16

Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Ind AS when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory.

Para 55 of Ind AS 16

Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.

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Case Details: Naseema Bano Personal Guarantor SRS Meditech Ltd. vs. State Bank of India – [2026] 183 taxmann.com 716 (NCLAT-New Delhi)

Judiciary and Counsel Details

• N. Seshasayee, Judicial Member & Arun Baroka, Technical Member
• Ms Kritika, Rajat K. Mittal & Ms Heena Khatun, Advs. for the Appellant.
• Harshit Gupta & Shaun Jomon, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellants stood as personal guarantors to a loan advanced to the corporate debtor. The corporate debtor defaulted on the loan, and it was eventually classified as a Non-Performing Asset (NPA).

The financial creditor issued a notice under section 13(2) of the SARFAESI Act, and, pursuant to the same notice, it also invoked the personal guarantee furnished by the appellants. In the aforesaid circumstances, the appellants invoked section 94 of the IBC.

The Adjudicating Authority (NCLT) dismissed the petition filed by the appellants under section 94 of the IBC, on a solitary ground that the petition was filed only after the financial creditor had invoked the SARFAESI Act for the realisation of debt. Then, an appeal was made before the NCLAT against the order passed by the NCLT.

NCLAT Held

The NCLAT held that the dismissal of the Section 94 application solely on the ground that the financial creditor had initiated proceedings by issuing a notice under Section 13(2) of the SARFAESI Act was not legally sustainable.

Therefore, the matter was to be remanded back to the Adjudicating Authority for its consideration, other than that which formed the line of its reasoning in the impugned order.

List of Cases Reviewed

• Naseema Bano, In re [2025] 171 taxmann.com 158 (NCLT-Chd.)
• Syed Mazahir Askari, In re [2025] 171 taxmann.com 329 (NCLT-Chd.) (para 5) reversed.
• Getz Cables (P.) Ltd. v. State Bank of India [2024] 169 taxmann.com 609 (NCLAT- New Delhi) (para 4) followed

List of Cases Referred to

• Getz Cables (P.) Ltd. v. State Bank of India [2024] 169 taxmann.com 609 (NCLAT- New Delhi) (para 3).

The post Section 94 IBC Plea Not Barred by SARFAESI Notice | NCLAT appeared first on Taxmann Blog.

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Case Details: Deys Medical (U.P.) (P.) Ltd. vs. Principal Commissioner of Income-tax - [2026] 184 taxmann.com 101 (Calcutta)

Judiciary and Counsel Details

• Rajarshi Bharadwaj & Uday Kumar, JJ.
• J.P. Khaitan, Pratyush Jhunjhunwala, Ms Sruti Datta & Ms Sakshi Singhi, Advs. for the Appellant.
• Prithu Dudhoria & Ms Sukanya Dutta, Advs. for the Respondent.

Facts of the Case

The assessee, a company, was a unit of the Dey’s Medical Stores Group and involved in manufacturing products. It used the Group Companies’ infrastructure, marketing, and sales promotion services on a reimbursement basis for incurred expenses. Such expenses were apportioned as a percentage of net sales based on historical data and treated as reimbursements.

The assessee did not deduct tax at source (TDS) on such payments. AO disallowed the reimbursement expenses under section 40(a)(ia) for failure to deduct TDS. On appeal, the CIT(A) deleted the disallowance, but the Tribunal partially restored it. The aggrieved assessee filed the instant appeal before the Calcutta High Court.

High Court Held

The High Court held that the Tribunal rightly emphasised that the payments did not correspond to actual, verifiable expenses incurred by the recipients. Genuine reimbursements are characterised by their nature as payments made post-facto, directly linked to specific, documented expenses supported by bills, vouchers or other tangible evidence.

In contrast, the payments in question lacked such detailed documentation. Instead, they appeared to be structured as fixed commissions or service fees, amounts that are inherently not reimbursements but contractual consideration for services rendered.

While commercial arrangements often involve apportioning costs based on historical data or arm’s-length negotiations, such practices cannot override the statutory requirement to deduct TDS at the time of payment or credit when the transactions are contractual in nature and fall within the scope of Section 194C.

Therefore, the Tribunal’s reasoning was sound, well-reasoned and supported by the record evidence. The payments in question, being contractual and not genuine reimbursements, squarely fall within the scope of Section 194C. The failure to deduct TDS in these circumstances justifies the disallowance under Section 40(a)(ia). The assessee’s arguments to the contrary lack merit and do not withstand scrutiny.

List of Cases Reviewed

• Shree Choudhary Transport Company v. ITO [2020] 118 taxmann.com 47/426 ITR 289/272 Taxman 472 (SC) (para 26) followed
• ITAT Appeal No. 1703/Kol/2018, dated 29-11-2023 (para 31) affirmed

List of Cases Referred to

• Zephyr Biomedicals v. Jt. CIT [2020] 122 taxmann.com 124/[2021] 276 Taxman 305/428 ITR 398 (Bombay) (para 9)
• Shree Choudhary Transport Company v. ITO [2020] 118 taxmann.com 47/426 ITR 289/272 Taxman 472 (SC) (para 25).

The post Sales-Linked Payments to Group Firms Attract TDS u/s 194C | HC appeared first on Taxmann Blog.

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