Author: inavatiq

Anand Shrivastava, Ankit Bhandari & Mudassir – [2026] 183 taxmann.com 502 (Article)

In the past decade, India’s approach to clean energy transition has been shaped by a simple but compelling logic to prioritize renewable energy capacity deployment at scale over resolution of systemic challenges, with the intent that increasing capacity will force their resolution with time. Solar parks and wind corridors became the primary indicators of India’s ambition for clean energy transition. At the same time, discussions on structural issues such as grid stability, industrial emissions, and intermittency management were largely deferred. Nevertheless, the Union Budget 2026 suggests that the Government is beginning to re-evaluate this approach. By explicitly elevating energy storage, Carbon Capture, Utilisation and Storage (“CCUS”), and allied emerging technologies, the Budget signals a pragmatic shift away from a narrow renewables deployment centric framework towards a more integrated and cohesive energy transition strategy.

This recalibration is significant because India’s energy challenges have evolved. The main concern is no longer the pace of clean power deployment alone. As renewable penetration increases, the focus has moved to system integration ensuring reliability, managing peak demand, and addressing emissions from energy-intensive industries. The Budget 2026 reflects a growing policy awareness that decarbonisation is not driven by brute technology, but by a coordinated ecosystem that must balance environmental objectives along with structured growth and development.

1. From Installed Capacity to System Performance

One of the most significant aspects in the Budget is promotion of energy storage as a strategic priority. Through customs duty exemptions for battery energy storage systems, the Government has implicitly acknowledged their central role to renewable capacity enhancement, which without storage are not ideally placed for ensuring system stability. This represents a departure from earlier Budgets, where storage was treated largely as a pilot intervention rather than essential infrastructure.

By reducing costs for grid-scale storage and associated supply chains, the Budget seeks to address a persistent mismatch between renewable generation patterns and electricity demand. However, this transition remains only partially realised. While fiscal incentives are meaningful, public investment in transmission expansion and grid modernisation has not kept pace with the scale of integration required. Without faster upgrades to grid infrastructure, storage risks remaining under-deployed, limiting its potential as a system-wide enabler.

2. CCUS Gains Policy Legitimacy

The significant development in Budget 2026 is the recognition of CCUS. Dedicated, multi-year funding has brought CCUS firmly into India’s mainstream climate policy discourse for the first time. This inclusion is not simply about technology adoption; it reflects a strategic reassessment of how India intends to decarbonise while continuing to industrialise.

India’s emissions profile is heavily influenced by sectors such as steel, cement, refining, and chemicals, where renewable substitution and electrification offer only partial solutions in the short to medium term. CCUS provides a pathway to mitigate emissions from these industries without dismantling productive capacity that supports employment, exports, and economic resilience. The inclusion of CCUS signals a more dynamic climate strategy, one that recognises the limits of a renewables-only transition for an industrialising economy. Further, this also aligns India more closely with global decarbonisation pathways.

That said, the gap between ambition and readiness remains wide. India lacks a comprehensive regulatory framework governing carbon storage, long-term liability, and monitoring. CCUS projects are capital-intensive and difficult to commercialise without strong market signals, such as carbon pricing or long-term offtake mechanisms. While the budget establishes policy intent, its success will depend on regulatory clarity and implementation at the administrative level.

Click Here To Read The Full Article

The post [Opinion] Union Budget 2026 and India’s Energy Transition | Moving Past The Renewables Only Lens appeared first on Taxmann Blog.

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Case Details: Manikanta Electronics Services Center vs. State of Telangana, Department of Commercial Tax [2026] 183 taxmann.com 314 (Telangana)

Judiciary and Counsel Details

• Aparesh Kumar Singh, CJ. & G.M. Mohiuddin, J.
• Kailash Nath P S S, Learned counsel for the Petitioner.
• Swaroop Oorilla, Learned Special Govt. Pleader for the Respondent.

Facts of the Case

The petitioner filed a writ challenging the actions of the Department of Commercial Tax. It had voluntarily applied for cancellation of its GST registration, indicating zero tax liability. The jurisdictional officer under CGST issued a show cause notice (SCN) alleging that it had failed to declare the correct input and output taxes in its returns and had not filed any reply to the SCN. The Assessing Authority proceeded to impose tax and penalty. It also filed an application for rectification under Section 161 of the CGST Act, which was rejected on the ground that it was seeking re-examination of the entire subject matter. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that cancellation of GST registration does not absolve a taxpayer of any existing liability. The Court observed that the Assessing Authority was correct in proceeding to impose tax and penalty where it had failed to respond to the SCN. It was further held that the rejection of the rectification application under Section 161 was valid, as it sought re-examination beyond the statutory scope. The Court relied on the provisions of Section 29, read with Section 161 of the CGST Act, and Rule 142(2)/142(3) of the CGST Act, concluding that the impugned order did not suffer from any infirmity warranting interference.

List of Cases Referred to

• Katyal Industries v. State of UP [2024 (2) TMI 1447] (para 3).

The post GST Registration Cancellation Doesn’t Wipe Out Tax Liability | HC appeared first on Taxmann Blog.

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1. Facts

Skyline Developers Limited, hereinafter referred to as “the company”, is a real estate developer. In the year 2024, the company enters into an agreement with a customer for the sale of a residential flat in a project currently under construction. The agreed sale price of the flat is Rs. 1,00,00,000. Under a 10:90 payment scheme, the customer is required to pay 10% of the consideration, i.e. Rs. 10,00,000 at the time of booking, while the remaining 90%, i.e. Rs. 90,00,000, is payable upon delivery of the completed flat.

As per applicable local real estate regulations, the customer has the legal right to withdraw from the transaction at any time before delivery, regardless of the contractual arrangement. However, in such cases, the developer is entitled to forfeit the booking amount of Rs. 10,00,000.

During the construction period, real estate prices decline significantly. Consequently, the customer decides not to proceed with the purchase and refuses to take delivery of the flat. Under the law of the land, the company cannot legally compel the customer to complete the purchase or recover the remaining Rs. 90,00,000.

In 2026, the customer formally cancels the booking, and in accordance with the agreement and applicable regulations, the Rs. 10,00,000 booking amount becomes non-refundable and is forfeited by the developer.

While finalising the financial statements, the management of the company is faced with uncertainty regarding the appropriate accounting treatment of the forfeited booking amount of Rs. 10,00,000 under Ind AS 115,Revenue from Contracts with Customers, particularly whether such forfeited amount should be recognised as revenue and, if so, the appropriate timing of its recognition in the books of account.

2. Relevant Provisions

Ind AS 115 – Revenue from Contracts with Customers

Para 106 of Ind AS 115

If a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (i.e. a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer.

Para 15 of Ind AS 115

When a contract with a customer does not meet the criteria in paragraph 9 and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred:

(a) the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or

(b) the contract has been terminated, and the consideration received from the customer is non-refundable

Para B44 of Ind AS 115

In accordance with paragraph 106, upon receipt of a prepayment from a customer, an entity shall recognise a contract liability in the amount of the prepayment for its performance obligation to transfer, or to stand ready to transfer, goods or services in the future. An entity shall derecognise that contract liability (and recognise revenue) when it transfers those goods or services and, therefore, satisfies its performance obligation.

Click Here To Read The Full Story

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Case Details: Union of India vs. Heavy Vehicles Factory Employees’ Union [2026] 182 taxmann.com 563 (SC)

Judiciary and Counsel Details

• Rajesh Bindal & Manmohan, JJ.
• P. S. Patwalia, Sr. Adv., Ms Aastha Mehta, Premal Joshi, Ms Prerana Mohapatra, Ms Prina Sharma, Advs. & Anshuman Srivastava, AOR for the Petitioner.

Facts of the Case

In the instant case, the Respondents were employee unions of government factories engaged in the production of defence equipment under the Ministry of Defence. The dispute concerned whether compensatory allowances such as House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA) and Small Family Allowance (SFA) were to be included in ‘ordinary rate of wages’ for computing overtime under Section 59(2) of the Factories Act, 1948. The Executive communications reflected varying positions over time.

The Respondents filed multiple Original Applications before the Central Administrative Tribunal challenging the exclusion of such allowances from the ‘ordinary rate of wages’ for overtime computation. The Tribunal dismissed applications.

Thereafter, Respondents filed writ petitions before the High Court. The High Court set aside the Tribunal’s order. Then, an appeal was made before the Supreme Court.

It was noted that different Ministries of the Government of India cannot assign different meanings to a provision in the Act of Parliament, which otherwise is clearly evident from the plain reading of Section 59(2) of the Act. Further, none of the sections empowers the Central Government to even frame rules.

Supreme Court Held

The Supreme Court observed that all power is vested in the State Governments. Further, all that the Central Government can do is to issue directions to State Governments.

The Supreme Court held that the sudden exclusion of these allowances via Office Memorandum lacked legal authority and was contrary to the literal mandate of Section 59 of the Act. Therefore, no case was made out for interference with the impugned judgment of the High Court.

List of Cases Reviewed

• Order of Division Bench of Madras High Court in W.P. Nos. 609, 1276, 1466, 1980, 1981, 1982 and 21035 of 2011, dated 30-11-2011 (para 17) affirmed
• Bridge and Roofs Co. Ltd. v. Union of India 1962 SCC Online SC 164 (para 11)
• Union of India v. Suresh C. Baskey (1996) 11 SCC 701 (para 11.1)
• Govind Bapu Salvi v. Vishwanath Janardhan Joshi (1995) Supp (1) SCC 148 (para 11.2) distinguished
• V.E. Jossie v. FLAG OFFICERS COMMANDING-IN-CHIEF NAVAL BASE [2011] 7 taxmann.com 898 (Kerala)/2011 SCC OnLine Ker 4030 (para 16) disapproved

List of Cases Referred to

• Bridge and Roofs Co. Ltd. v. Union of India 1962 SCC Online SC 164 (para 5)
• Union of India v. Suresh C. Baskey (1996) 11 SCC 701 (para 5),
• Govind Bapu Salvi v. Vishwanath Janardhan Joshi (1995) Supp (1) SCC 148 (para 5)
• Rajasthan State Industrial Development & Investment Corpn. v. Subhash Sindhi Coop. Housing Society (2013) 5 SCC 427 (para 6.4)
• Gujarat Mazdoor Sabha v. State of Gujarat [2020] 10 taxmann.com 1689 (SC) (para 6.4)
• V.E. Jossie v. FLAG OFFICERS COMMANDING-IN-CHIEF NAVAL BASE [2011] 7 taxmann.com 898 (Kerala) (para 16).

The post Compensatory Allowances Included in Overtime Wages Under Factories Act | SC appeared first on Taxmann Blog.

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Case Details: Deputy Commissioner of Income-tax vs. Kemper Holding (P.) Ltd. [2026] 183 taxmann.com 294 (Mumbai-Trib.)

Judiciary and Counsel Details

• Sanjay Garg, Judicial Member & Sanjay Arora, Accountant Member
• Surinder Jit Singh for the Appellant.
• Pradeep Sagar for the Respondent.

Facts of the Case

Assessee, a company, was allotted 7,00,000 warrants of Rs. 100 each, paying 10% of the warrant’s cost. The assessee later converted the warrant into equity shares on the payment of the remaining cost price.

The Assessing Officer (AO) treated the difference between the market value and exercise price as long-term capital gain and also invoked the proviso (iv) to section 48. Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) deleted the addition, and the matter reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the conversion of the warrant into shares by paying the remaining 90% amount was neither an extinguishment nor a relinquishment of any rights in the assets. The assessee purchased the warrants by paying 10% of the predetermined share price. The assessee had the option to convert the said warrants into shares by paying 90% of the amount within the stipulated period. The non-payment of which would have resulted in forfeiture of the money. The money paid for the warrants was an advance payment for the purchase of shares, and the assessee exercised his rights within the stipulated time and received the shares, paying the remaining 90% at the predetermined share value. It can be considered an investment in shares.

The capital gain would have arisen if the assessee had sold the said shares in the market at a higher price. The shares have been retained by the assessee, and the gain or fall in the market value of the said shares does not itself constitute any transfer under the Act. The purchase of shares at a specified rate, which was booked by paying 10% amount in advance, neither amounts to any transfer of shares or warrants by the assessee nor does it invite any tax liability under the Act.

The AO wrongly and illegally interpreted proviso (iv) to section 48 of the IT Act. A bare perusal of the said proviso reveals that the same is attracted in case the shares, debentures or warrants are transferred by the assessee to some other person without receiving any consideration in terms of money. In the case in hand, the assessee has not transferred any warrant or share to any other person; rather, he has just exercised his option to purchase the shares at a stipulated rate by paying the remaining 90% amount, which, in clear term falls in the definition of investment and not in the definition of sale or transfer on his part.

Therefore, the conversion of warrants into shares did not constitute a transfer under section 2(47), and no capital gains were chargeable under section 48.

The post Conversion of Warrants into Shares Not Transfer – No Capital Gains | ITAT appeared first on Taxmann Blog.

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Circular No. HO/38/11/(5)2026-MIRSD-POD/I/5130/2026, Dated: 17.02.2026

The Securities and Exchange Board of India (SEBI) has specified application forms and certificate-of-registration formats for stock brokers and clearing members under the SEBI (Stock Brokers) Regulations, 2026.

The circular introduces updated documentation requirements aligned with the new regulatory framework.

1. Replacement of Earlier Prescribed Forms

The newly specified forms:

• Replace the earlier application and registration formats
• Which were prescribed under now repealed regulations
• Ensure consistency with the updated Stock Brokers Regulations, 2026

This update harmonises documentation with the revised regulatory structure governing intermediaries.

2. Authority to Specify Forms

The circular provides that:

• Application forms and certificate formats
• Shall be specified by SEBI or recognised stock exchanges

This enables flexibility in updating formats and operational processes as required.

3. Retrospective Applicability

The provisions of the circular:

• Apply retrospectively from 7 January 2026
• Cover applications and registrations governed under the new regulatory regime

This ensures continuity and legal alignment from the commencement of the revised framework.

4. Directions to Exchanges and Clearing Corporations

Recognised stock exchanges and clearing corporations have been directed to:

• Implement necessary amendments
• Update their systems and documentation
• Ensure alignment with the revised application and registration formats

This will facilitate smooth implementation across market infrastructure institutions.

5. Key Takeaway

SEBI has standardised application and registration formats for stock brokers and clearing members under the 2026 regulatory framework, replacing earlier forms and ensuring uniform compliance, with retrospective effect from 7 January 2026.

Click Here To Read The Full Circular

The post SEBI Updates Registration Forms for Stock Brokers & Clearing Members appeared first on Taxmann Blog.

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Editorial Team – [2026] 183 taxmann.com 503 (Article)

World Corporate Law News provides a weekly snapshot of corporate law developments from around the globe. Here’s a glimpse of the key corporate law update this week.

1. Securities Law

1.1 UAE Government Issues Two Federal Decree Laws on the Capital Market Authority and the Regulation of Capital Markets

On February 12, 2026, the President of the United Arab Emirates issued Federal Decree Law No. (32) of 2025 and Federal Decree Law No. (33) of 2025, which establishes the regulatory framework for the capital markets sector and the Capital Market Authority. Both Decree-Laws entered into effect on January 1, 2026.

This legislative step forms part of the UAE’s ongoing efforts to modernize the financial sector’s legislative and supervisory frameworks; strengthen market stability, efficiency, and competitiveness; and ensure conformity with international best practices. The Decree-Laws further reinforce the stability of the Capital Market Authority and bolster its role in maintaining market integrity while promoting fair and orderly competition.

The key provisions include:

(a) Renaming the Securities and Commodities Authority as the Capital Market Authority.

(b) Introducing new regulated financial activities.

(c) Strengthening the Capital Market Authority’s supervisory powers over the capital markets sector.

(d) Regulating the Investor Protection Fund and the Settlement Guarantee Fund.

(e) Defining the Capital Market Authority’s role in prudential oversight and the management of exceptional circumstances.

(f) Granting the Capital Market Authority the power to enter into conciliation before the initiation of criminal proceedings.

(g) Establishing the Capital Market Authority’s jurisdiction to designate systematically important persons and to regulate early interventions, settlement, and resolution mechanisms.

Source – Official Announcement

Click Here To Read The Full Article

The post [World Corporate Law News] UAE Capital Market Law & Malaysia Social Exchange appeared first on Taxmann Blog.

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Ind AS applicability for non-financial companies is determined under the Companies (Indian Accounting Standards) Rules, 2015 based primarily on net worth thresholds and listing status. Ind AS became mandatory in phases: Phase I (from 1 April 2016) applied to listed companies and unlisted companies with a net worth of ₹500 crore or more, while Phase II (from 1 April 2017) extended applicability to all listed companies (other than SME exchanges) and unlisted companies with a net worth of ₹250 crore or more. Net worth is assessed based on standalone financial statements as of the prescribed cut-off date and must be reassessed annually until thresholds are met. Once triggered, Ind AS applies company-wide to both Standalone and Consolidated Financial Statements, and applicability continues even if net worth subsequently falls below the threshold. Companies in the process of listing are also required to adopt Ind AS from the financial year in which listing begins.

Table of Contents

1. Introduction
2. Phased Implementation and Key Adoption Issues of Ind AS for Companies
3. Net Worth Criteria for Determining Ind AS Applicability for Companies
4. Conclusion

Taxmann presents Practical Insights on Ind AS and SAs, a weekly series exclusively for Accounts and Audit Module subscribers of Taxmann.com, focusing on the practical application of Ind AS and Standards on Auditing through structured, issue-based analysis.

Each week features a focused topic with real-world illustrations. This week’s edition examines the issues faced by non-financial listed companies in converging to Ind AS.

1. Introduction

Convergence to Ind AS is not merely a change in accounting standards; it represents a structural shift in financial reporting, governance, and group-level coordination. For non-financial listed companies, transition under the Companies (Indian Accounting Standards) Rules, 2015 requires careful evaluation of net worth thresholds, listing status, group relationships, consolidation mechanics, voluntary adoption options, and timing considerations.

This write-up presents a comprehensive, issue-based discussion, supported by practical illustrations that reflect real-life implementation challenges.

2. Phased Implementation and Key Adoption Issues of Ind AS for Companies

Ind AS was implemented in phases to facilitate an orderly transition from Indian GAAP.

Under Phase I, applicable to financial years beginning on or after 1 April 2016, Ind AS became mandatory for listed companies (equity or debt listed, other than SME exchanges) and for unlisted companies with a net worth of ₹500 crore or more.

Under Phase II, applicable to financial years beginning on or after 1 April 2017, Ind AS became mandatory for all listed companies (other than SME exchanges), irrespective of net worth, and for unlisted companies with a net worth of ₹250 crore or more but less than ₹500 crore.

The initial reference date for determining net worth was 31 March 2014. If a company did not meet the prescribed threshold on that date, it was required to reassess its net worth at each subsequent balance sheet date until the applicability criteria were triggered.

2.1 Whether Ind AS Can Be Voluntarily Adopted for A 15-Month Transitional Period Beginning Before 1 April 2015?

In case a company has historically followed the calendar year (1 January to 31 December) as its financial year and, to comply with the requirement under the Companies Act, 2013 to align its financial year to 31 March, prepares financial statements for a transitional period of 15 months from 1 January 2015 to 31 March 2016, a question may arise as to whether it can voluntarily adopt Ind AS for such transitional period.

The applicability of Ind AS, whether mandatory or voluntary, is determined with reference to the beginning of the financial year and not the end date. As per the notified roadmap, voluntary adoption of Ind AS was permitted only for financial years commencing on or after 1 April 2015.

Since the transitional financial year in this case commenced on 1 January 2015, i.e., prior to 1 April 2015, the company would not be permitted to adopt Ind AS for the 15-month period ending 31 March 2016. Ind AS can be adopted only from a financial year that begins on or after the date specified under the roadmap.

2.2 Whether Ind AS Can Be Adopted Only for Consolidated Financial Statements (CFS)?

In case a non-listed non-financial company, which is not mandatorily covered under the Ind AS roadmap, proposes to adopt Ind AS only for the purpose of preparing its Consolidated Financial Statements (CFS), while continuing to prepare its Standalone Financial Statements (SFS) under Accounting Standards, 2006 (AS) in order to avoid tax and revenue-sharing implications, a question arises whether Ind AS can be applied only at the consolidated level.

Ind AS adoption is required at the company level and applies uniformly to both Standalone Financial Statements and Consolidated Financial Statements. Further, Section 129(3) of the Companies Act, 2013 mandates that consolidated financial statements be prepared in the same form and manner as standalone financial statements.

Accordingly, such a company cannot adopt Ind AS only for the preparation of CFS while continuing to follow AS 2006 for SFS. The same accounting framework must be consistently applied to both SFS and CFS.

2.3 Whether the Selective Adoption of Certain Ind AS is permissible?

In case a company that is not covered under the mandatory Ind AS roadmap does not wish to adopt Ind AS in its entirety but proposes to apply a specific standard, such as Ind AS 109 for fair valuation of investments, while continuing to follow Accounting Standards, 2006 (AS) for all other accounting matters, a question arises whether such partial or selective adoption of Ind AS is permissible.

The notified roadmap requires that a company either adopt Ind AS in its entirety or continue to apply the existing Accounting Standards, 2006 in their entirety. Selective application of individual Ind AS standards is not permitted.

Accordingly, a company cannot apply Ind AS 109 while continuing to follow AS for other accounting areas. However, in situations where AS does not provide specific guidance on a particular matter, reference may be made to the principles laid down in Ind AS, provided such reference does not conflict with the provisions of the notified  AS.

3. Net Worth Criteria for Determining Ind AS Applicability for Companies

For unlisted non-financial companies, net worth is the primary trigger. Net worth is assessed based on standalone financial statements. If a company did not meet the threshold as at 31 March 2014 but later crosses it, Ind AS becomes applicable from the immediately succeeding accounting year.

3.1 Cut-off Date to Decide Ind AS Applicability for Non-Financial Companies – Whether One-Time or Annual Assessment?

A non-financial company is required to determine the applicability of Ind AS based on its net worth as on the prescribed cut-off date under the roadmap.

For companies having a 31 March year-end, net worth as at 31 March 2014 is considered for the initial determination of Ind AS applicability. For companies with a different year-end, the net worth as at the immediately following balance sheet date, for example, 31 December 2014 for December year-end companies, is considered.

Although the roadmap specifically refers to net worth, it is logical to apply the same cut-off date for evaluating other criteria, such as listing status. If a company meets the Ind AS applicability criteria on the relevant cut-off date, it is required to adopt Ind AS from the phase applicable to it.

If a company does not meet the applicability criteria on the first cut-off date, it must reassess applicability at each subsequent balance sheet date. Once any of the applicability criteria is met, Ind AS becomes applicable from the immediately following financial year, as per the relevant phase.

For example, assume a non-listed non-financial company does not meet the Ind AS criteria as at 1 April 2017 and continues to apply AS. If its net worth exceeds INR 250 crores as at 31 March 2019, it becomes covered under Ind AS. Accordingly, the company must adopt Ind AS for financial years beginning 1 April 2019. Comparative information for the year ended 31 March 2019 would also be presented in accordance with Ind AS.

Thus, determining Ind AS applicability is not a one-time exercise. Companies that initially do not meet the criteria must reassess applicability at each balance sheet date.

3.2 Impact of Change in Net Worth on Ind AS Applicability for Non-Financial Companies

Assume a non-listed non-financial company has the following net worth (INR crores):

Scenario	31 March 2014	31 March 2015/2016
I	245	260
II	245	510
III	460	510
IV	510	460
V	510	245
VI	260	245

Under the Ind AS roadmap, a non-financial company having a 31 March year-end should first consider net worth as at 31 March 2014. If the company meets the applicability criteria on this cut-off date, it must apply Ind AS in the relevant phase. If not, it must reassess at each subsequent balance sheet date.

Net worth criteria:

• INR 500 crores or more – Phase 1 (from 1 April 2016)
• INR 250 crores or more – Phase 2 (from 1 April 2017)

Based on these principles, the position in each scenario is as follows:

(a) Scenario I

Net worth increases from INR 245 crores (2014) to INR 260 crores (2015/2016). The company did not meet the threshold as of 31 March 2014. However, it subsequently exceeded INR 250 crores. Therefore, it will be covered under Phase 2 of Ind AS.

It must apply Ind AS from the financial year beginning 1 April 2017, with comparatives for the year ended 31 March 2017. Thus, the transition date in this case will be 1 April 2016.

(b) Scenario II

Net worth increases from INR 245 crores (2014) to INR 510 crores (2015/2016). Since the INR 500 crore threshold is subsequently met, the company will be covered under Phase 1 of Ind AS. It must apply Ind AS from the financial year beginning 1 April 2016, with comparatives for the year ended 31 March 2016. Thus, the transition date in this case will be 1 April 2015.

(c) Scenario III

Net worth increases from INR 460 crores (2014) to INR 510 crores (2015/2016). As at 31 March 2014, the company met the Phase 2 threshold (INR 250 crores but less than 500 crores), so it was already covered under Phase 2. One view is that since it was originally covered under Phase 2, there is no need for reassessment, and it should continue under Phase 2.

However, the more appropriate view is that if net worth increases to INR 500 crores or more before implementation, the company should apply Phase 1. Accordingly, the company will be covered under Phase 1, applying Ind AS from the financial year beginning 1 April 2016, with comparatives for the year ended 31 March 2016.
Thus, the transition date in this case will be 1 April 2015.

(d) Scenario IV

Net worth decreases from INR 510 crores (2014) to INR 460 crores (2015/2016). Since the company met Phase 1 criteria as at 31 March 2014, it is covered under Phase 1, irrespective of subsequent reduction in net worth. It must apply Ind AS from the financial year beginning 1 April 2016.

(e) Scenario V

Net worth decreases from INR 510 crores (2014) to INR 245 crores (2015/2016). Despite the subsequent fall below the threshold, the company had already met Phase 1 criteria as at 31 March 2014. The Ind AS roadmap does not permit discontinuation once applicability is triggered. Therefore, the company remains covered under Phase 1, applying Ind AS from 1 April 2016.

(f) Scenario VI

Net worth decreases from INR 260 crores (2014) to INR 245 crores (2015/2016). As at 31 March 2014, the company met the Phase 2 threshold (above INR 250 crores). Even though net worth later falls below the threshold, once applicability is triggered, it continues to apply. Accordingly, the company will be covered under Phase 2, applying Ind AS from the financial year beginning 1 April 2017, with the transition date being 1 April 2016.

3.3 Applicability of Ind AS to Companies in the Process of Listing

In case a company has a net worth of less than ₹250 crore as on 31 March 2023 and, during the financial year 2023–24, initiates the process of listing its equity securities, a question arises whether it is required to adopt Ind AS for the accounting period in which the listing process has commenced.

As per Rule 4(1)(ii) of the Companies (Indian Accounting Standards) Rules, 2015, companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India are required to comply with Ind AS.

Accordingly, once a company enters the listing process, it is mandatory to adopt Ind AS from the accounting period in which the process begins.

Therefore, in the given case, the company would be required to adopt Ind AS for the financial year 2023–24, along with comparative information for 2022–23, with the transition date being 1 April 2022.

3.4 Date of Transition to Ind AS Where IFRSs Were Previously Adopted

In case a company has prepared its financial statements in accordance with IFRSs for the year 2015–16, with comparatives for 2014–15, and selected 1 April 2014 as its date of transition by preparing an opening balance sheet in accordance with IFRS 1, and is subsequently required to adopt Ind AS under Rule 4(2)(ii) from the accounting year 2016–17, a question arises whether it can adopt Ind AS for the year 2015–16 with a transition date of 1 April 2014.

Adoption of Ind AS must be strictly in accordance with the criteria and timelines prescribed under the Companies (Indian Accounting Standards) Rules, 2015. The applicability of Ind AS is determined based on actual net worth and the specified thresholds under the notified roadmap, and not on prior adoption of IFRSs or on voluntary early application, unless specifically permitted.

Accordingly, the company cannot adopt Ind AS for the financial year 2015–16 unless it satisfies the prescribed criteria for that period. Ind AS should be adopted only in the phase applicable to the company, as per the Rules, based on the company’s actual net worth and the mandated implementation timelines.

3.5 Determination of Ind AS Applicability Based on Actual Net Worth vs Expected Net Worth

In case a company follows April–March as its financial year, and its net worth was ₹300 crore as on 31 March 2014 and ₹480 crore as on 31 March 2015, while the management expects that the net worth will exceed ₹500 crore as on 31 March 2016, a question arises whether the company is required to adopt Ind AS for the accounting period beginning 1 April 2016 (i.e., in the second phase) based on expected net worth.

The applicability of Ind AS is determined based on the actual net worth as per the audited financial statements of the immediately preceding financial year, and not on projected or anticipated net worth.

Accordingly, since the net worth did not exceed ₹500 crore as on 31 March 2015, the company does not meet the threshold for the second phase. Ind AS adoption must therefore be determined based on actual net worth as per the relevant reporting date and not on expected net worth.

4. Conclusion

Ind AS adoption for non-financial listed companies must follow a phased roadmap based on actual net worth, listing status, and prescribed timelines, with applicability determined on a company-wide basis for both Standalone and Consolidated Financial Statements. Voluntary or selective adoption is generally not permitted, and once thresholds are met, even if net worth later declines, the adoption cannot be deferred. Companies in the process of listing must adopt Ind AS from the period listing begins, and prior IFRS adoption or expected net worth does not alter the prescribed transition requirements. Careful planning and adherence to these rules are essential for a smooth and compliant convergence to Ind AS.

The post [Analysis] Ind AS Applicability for Non-Financial Companies – Net Worth Criteria | Phased Roadmap | Transition Rules appeared first on Taxmann Blog.

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Case Details: Watech RO Systems Pvt. Ltd. vs. State of Gujarat - [2026] 182 taxmann.com 885 (Gujarat)

Judiciary and Counsel Details

• A.S. Supehia & Pranav Trivedi, JJ.
• Akshay A Vakil & Samirkumar I. Siddhapuria for the Petitioner.
• Ms Nimisha Parekh, Asstt. Govt. Pleader for the Respondent.

Facts of the Case

The petitioner, a GST-registered manufacturer and trader of RO systems and parts, was issued a show cause notice (SCN) alleging excess ITC availed in delayed GSTR-3B returns. It furnished explanations pursuant to the SCN; however, the jurisdictional officer under CGST disallowed major ITC on timing and matching grounds and issued a demand order in Form DRC-07 for tax, interest, and penalty. It preferred to appeal under Section 107 of the CGST Act, with an 18-day delay. The appeal was rejected as time-barred without considering the plea for condonation of delay or affording an opportunity to be heard. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the impugned order rejecting the appeal without considering the plea of delay and without affording an opportunity of hearing was unsustainable in view of the principles of natural justice. The Court recorded the statement made on behalf of the revenue that the impugned order would be withdrawn and a fresh order would be passed after granting the petitioner an opportunity to be heard. It was observed that the Appellate Authority under Section 107 of the CGST Act and the Gujarat GST Act is required to deal with all contentions raised and pass a reasoned order. The directions were issued to pass a fresh order after due opportunity of hearing and after addressing all contentions raised by the petitioner, and to complete the exercise within twelve weeks.

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1. Facts

Zenova Pharma Limited (hereinafter referred to as “the Company”) is an Indian pharmaceutical entity engaged in the research, development, and licensing of innovative drug compounds. During the Financial Year 2025–26, the Company entered into a collaboration agreement with Healix Therapeutics Inc. (hereinafter referred to as “the Customer”), a global biotechnology company, for the development and commercialisation of a drug compound intended for the treatment of autoimmune disorders.

Pursuant to the agreement effective 1st April 2025, the Company granted to the Customer a licence to intellectual property (IP) relating to the drug compound, which is currently undergoing Phase III clinical trials. In addition to granting the licence, the Company undertook to perform “Research and Development” (R&D) activities necessary to complete Phase III clinical trials and to support the process of obtaining regulatory approval. The R&D activities include patient enrolment, monitoring of clinical sites, statistical validation, and preparation of regulatory documentation. These services are not specialised in nature and may be performed by other pharmaceutical or contract research organisations. Further, the R&D services are not expected to significantly modify or customise the underlying IP.

Under the terms of the arrangement, the Company is entitled to receive a non-refundable upfront payment of Rs. 50 crore upon execution of the contract. In addition, the Company will be compensated for R&D services at Rs. 25,000 per hour. The total estimated effort required to complete Phase III clinical trials is 40,000 hours over a two-year period, resulting in an estimated consideration of Rs. 100 crore for R&D services. Further, the Company is entitled to receive a milestone payment of ₹80 crore upon receipt of regulatory approval from the Drug Controller General of India (DCGI) or any equivalent foreign regulatory authority.

The standalone selling price of the licence, if sold separately, is estimated at Rs. 60 crore, while the standalone selling price of the R&D services is estimated at Rs. 120 crore based on observable market benchmarks.

As at 31 March 2026, the Company has completed 12,000 hours of R&D services and has received the full upfront payment of Rs. 50 crore along with Rs. 30 crore towards R&D services performed. Regulatory approval remains uncertain as at the reporting date and, based on management’s assessment and past experience, there is an estimated 40% probability of obtaining such approval.

While finalising its financial statements for the year ended 31 March 2026, management is required to determine the appropriate accounting treatment of the arrangement under Ind AS 115, including identification of performance obligations, determination of the transaction price?

2. Relevant Provisions

Ind AS 115 – Revenue from Contracts with Customers

Para 22 of Ind AS 115

At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

(a) a good or service (or a bundle of goods or services) that is distinct; or

(b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer

Para 50 of Ind AS 115

If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.

Para 56 of Ind AS 115

An entity shall include in the transaction price some or all of an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Para B58 of Ind AS 115

The nature of an entity’s promise in granting a licence is a promise to provide a right to access the entity’s intellectual property if all of the following criteria are met:

(a) the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights

(b) the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities identified and

(c) those activities do not result in the transfer of a good or a service to the customer, as those activities occur

Para B60 of Ind AS 115

If the criteria in paragraph B58 are met, an entity shall account for the promise to grant a licence as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs. An entity shall apply paragraphs 39–45 to select an appropriate method to measure its progress towards complete satisfaction of that performance obligation to provide access.

Para B61 of Ind AS 115

If the criteria in paragraph B58 are not met, the nature of an entity’s promise is to provide a right to use the entity’s intellectual property as that intellectual property exists (in terms of form and functionality) at the point in time at which the licence is granted to the customer….

3. Analysis

The collaboration arrangement shall be accounted for in accordance with Ind AS 115 as a contract containing two distinct performance obligations, namely

(i) grant of licence to intellectual property and

(ii) provision of R&D services.

The accounting treatment involves the determination of transaction price, allocation of consideration, and recognition of revenue based on the nature of each performance obligation.

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