This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from April 13th to 18th 2026, namely:
- Buy-Back of Own Shares, Being Capital Reduction With Extinguishment, Not “Property”; Sec. 56(2)(x) Addition Untenable: HC
- SEBI Launches SUPCOMS, E-Adjudication & AI-Based C-SAC to Streamline Communication, Proceedings & Cybersecurity
- ESI Act Not Applicable as New Firms Post-Partnership Dissolution Had Fewer Than Ten Employees and Operated Independently: HC
- SCN Under Sec. 73 CGST/PGST Set Aside as It Was Vague, Lacked Factual Particulars and Relied on Non-Existent Audit: HC
- Section Allows Use of Material Regardless of Source; Illegality or Flaws in Section 67 Search Do Not Vitiate Valid Adjudication: HC
- ICAI Constitutes Expert Panel to Address Audit-Related Queries for FY 2026 Audit Season; and
- Accounting for Construction of Assets on Leased Land – PPE or Right-of-Use Asset Under Ind AS 116?
1. Buy-Back of Own Shares, Being Capital Reduction With Extinguishment, Not “Property”; Sec. 56(2)(x) Addition Untenable: HC
The assessee-company, engaged in the business of share broking and trade clearing, made a buyback of 28.62 lakh equity shares. During the assessment, the Assessing Officer (AO) noticed that the fair market value of shares was Rs. 370.46 per share. However, the assessee made a buy-back at Rs. 313.40 per share. AO held that the buy-back resulted in the acquisition of “property”. According to him, the difference should be taxed as income under the head “Income from other sources”.
On appeal, CIT(A) deleted the additions made by the AO. The Tribunal also affirmed the order of CIT(A). The matter reached the Delhi High Court.
The High Court held that the case involved an interesting issue of law. The facts were not in dispute that the assessee-company had purchased its own shares under the buy-back offer. It can also be seen that the payment was made from free reserves and security premiums. But for Section 68 of the Companies Act and the procedure provided thereunder, there is no way a company can buy its own shares.
Buying its own shares is otherwise alien to the concept of the corporate entity and the provisions of the Companies Act. Securities or shares of a company can, in a given case, be property in the hands of a corporate entity, but for the issuing company, they are certificates issued to its members in lieu of the contributions they have made towards the capital or for subscribing to the shares.
Buy-back of shares essentially means a reduction in the company’s capital, which is otherwise impermissible unless recourse is taken to Section 68 of the Companies Act. One has to bear in mind that Section 68 of the Companies Act mandates that after the completion of the buy-back under this section, the company shall extinguish and physically destroy the shares or securities so bought back. In other words, Section 68 of the Companies Act, in so many words, expresses that the buy-back of shares is a reduction of the share capital.
There can be no doubt that, as per Section 68, the assessee-company must have mutilated or destroyed the shares or so-called property which the AO has sought to tax. A person cannot be taxed for the so-called deemed profit from the property (shares) which accrues to it consequent to the destruction of the very same property. Once the shares are bought back, the purported property extinguishes. Hence, the very hypothesis that the assessee-company had acquired an asset at a rate lower than its fair market value has no legs to stand on. Buy-back of its own shares is the antithesis of buying an asset.
The interpretation which the AO seeks to give to Section 56(2)(x) at first blush appears to be attractive, but if the same is tested on the anvil of principles of the Companies Act, common prudence, and provisions of the Income Tax Act, the same turns out to be holding no water.
2. SEBI Launches SUPCOMS, E-Adjudication & AI-Based C-SAC to Streamline Communication, Proceedings & Cybersecurity
The Securities and Exchange Board of India has taken a significant step towards modernising regulatory processes with the launch of three technology-driven platforms aimed at improving ease of doing business, enhancing transparency, and strengthening supervisory capabilities.
These initiatives were formally launched on March 24, 2026, by the Chairman of SEBI. The platforms collectively focus on three critical areas, namely communication efficiency, adjudication processes, and cybersecurity oversight.
2.1 SUPCOMS as a Unified Communication Platform
The Single Universal Platform for Communications or SUPCOMS represents a clear shift from fragmented email-based interactions to a centralised and structured communication framework.
For a long time, regulatory correspondence has suffered from scattered email trails, inconsistent record keeping, and lack of continuity. SUPCOMS directly addresses these issues by bringing all communication between SEBI and external entities onto a single platform. This ensures that interactions are organised, searchable, and easily retrievable.
One of the most important outcomes of this platform is the creation of what SEBI describes as institutional memory. All communications are preserved in a structured manner, creating a reliable audit trail that can be referred to at any stage. This also reduces the chances of miscommunication arising from broken email chains or missed correspondence.
The platform is already operational through SEBI’s eServices portal, and intermediaries along with other regulated entities can access it through dedicated logins. Over time, SUPCOMS is expected to become the primary mode of regulatory communication, making interactions more transparent and accountable.
2.2 e-Adjudication Portal for Digital Proceedings
The e adjudication portal marks a significant step towards fully digital quasi-judicial processes within SEBI.
Earlier, adjudication proceedings involved a mix of physical documents, email exchanges, and in person hearings. This often resulted in delays, inefficiencies, and limited visibility on the progress of cases. The new portal aims to streamline this entire process through a single digital interface.
Noticees and their authorised representatives can access show cause notices, submit replies, upload documents, and participate in hearings through an online module. The platform also allows users to submit requests such as inspection of documents or extension of time in a structured manner.
A key strength of the portal is its integration with SEBI’s internal Case Management System. This ensures that external interactions are seamlessly aligned with internal workflows, reducing duplication and improving processing timelines.
The overall objective is to create a paperless, efficient, and transparent adjudication framework that benefits both the regulator and the regulated entities.
2.3 C SAC for Enhanced Cybersecurity Supervision
The Cyber Sec Audit Compliance platform or C SAC reflects SEBI’s focus on strengthening cybersecurity oversight through technology and data driven tools.
C SAC uses artificial intelligence to analyse cyber audit reports submitted by regulated entities. Instead of relying entirely on manual review, the system identifies compliance gaps, highlights risk areas, and generates actionable insights in a structured manner.
The platform also assigns risk scores and enables comparative analysis across entities. This is particularly important in the context of SEBI’s move towards a risk-based supervision approach, where regulatory attention is prioritised based on the level of risk.
By integrating with the SI Portal for submission of audit reports, C SAC ensures continuous monitoring and timely feedback to entities. This helps in improving overall cybersecurity preparedness across the ecosystem.
2.4 Conclusion
These initiatives reflect a clear shift in the SEBI’s regulatory approach towards technology-driven governance and greater process efficiency. SUPCOMS streamlines communication, the e adjudication portal enhances speed and transparency in proceedings, and C SAC enables more structured and intelligent risk monitoring. The emphasis is not just on digitisation, but on building systems that improve accountability, traceability, and decision-making.
For regulated entities, this means more structured interactions, faster responses, and tighter compliance expectations, while for the Securities and Exchange Board of India, it creates a scalable and future ready framework suited to an increasingly complex financial ecosystem.
3. ESI Act Not Applicable as New Firms Post-Partnership Dissolution Had Fewer Than Ten Employees and Operated Independently: HC
The Kerala High Court, in PGP & Sons v. Regional Director, Employees’ State Insurance Corporation [2026] 185 taxmann.com 75 (Kerala) (30-03-2026), held that where a partnership firm ceased business and was effectively dissolved, and new independent firms were set up thereafter with fewer than ten employees, such new entities would not be covered under the ESI Act from the date of their commencement.
3.1 Brief Facts of the Case
In the instant case, the erstwhile firm ‘P.G. Parameswara Iyer and Sons’ was engaged in trading activities and was covered under the ESI Act. Upon the death of the founder, his sons decided to dissolve the partnership to facilitate partition of family properties, and the business was discontinued on 31.03.2001.
Subsequently, two new firms were formed independently by different sets of family members at Kozhikode and Palakkad, each carrying on similar business but employing fewer than ten persons. The ESI authorities contended that these new firms were merely a continuation of the earlier establishment and hence covered under the Act.
While one ESI Court accepted the claim of non-coverage, the other held the new firm to be a continuation and thus covered, leading to appeals before the High Court.
3.2 High Court Observations
The High Court noted that the material on record clearly indicated a complete break from the erstwhile firm. The partners in the new firms were different, fresh capital had been introduced, and new registrations including sales tax, EPF, and labour registrations had been obtained.
It was further observed that all employees of the earlier firm had been given terminal benefits, new bank accounts were opened, and fresh PAN cards were obtained. The constitution of the new firms had also been duly intimated to the Registrar of Firms.
The Court held that these factors established that the new entities were independent establishments and not a continuation of the earlier firm. It further clarified that dissolution of a partnership could be inferred from surrounding circumstances and need not depend solely on the execution date of a formal dissolution deed.
Accordingly, the mere fact that the dissolution deed was executed later could not imply that the old firm continued till that date.
3.3 High Court Ruling
The High Court held that the erstwhile partnership firm stood effectively dissolved on cessation of business on 31.03.2001, and the new firms constituted thereafter were independent entities.
Since both new establishments employed fewer than ten persons, they did not meet the threshold for coverage under the ESI Act. Accordingly, the applicants were held not liable under the Act from 01.04.2001.
4. SCN Under Sec. 73 CGST/PGST Set Aside as It Was Vague, Lacked Factual Particulars and Relied on Non-Existent Audit: HC
The High Court held that the SCN issued under section 73 was liable to be set aside as it was vague, lacked factual particulars, and was based on a CAG audit which had not been conducted on the assessee company. It noted that the audit relied upon pertained to the GST department in the State of Punjab and the SCN disclosed no basis or particulars regarding excess ITC, mismatches, undischarged liability, or short payment under RCM. This was held in Abbott Healthcare (P.) Ltd. vs. Excise and Taxation Commissioner, Punjab [2026].
4.1 Facts
The assessee company was issued a show cause notice (SCN) under section 73(1) of the CGST Act, read with the Punjab GST Act and IGST, wherein allegations were raised regarding excess input tax credit (ITC) as per GSTR-9 tables 8A and 8D, ITC mismatches with financials and GSTR-2A, undischarged liability, and short payment under the reverse charge mechanism (RCM). The SCN was stated to be based on a special audit conducted by the Comptroller and Auditor General of India (CAG). It was, however, admitted that CAG had conducted no audit of the assessee company. The audit forming the basis of the SCN was, in fact, a CAG audit of the GST department in the State of Punjab. Thus, the SCN was premised on audit of GST department, and not on an audit of the assessee company. The matter was accordingly placed before the High Court.
4.2 Held
The High Court held that the very foundation of the SCN was factually incorrect. It was noted that the SCN was based on a special audit by CAG. No audit of the assessee company had been conducted by CAG and the audit relied upon was in respect of the GST department in the State of Punjab. Further, it was held that the SCN was vague as it disclosed no basis or particulars for the alleged excess ITC, mismatches, undischarged liability, or short payment under RCM. It was observed that the law mandated disclosure of specific details of tax liability or wrongly availed ITC in the notice itself. Consequently, the SCN was set aside with liberty to proceed as per law.
5. Section 74 Allows Use of Material Regardless of Source; Illegality or Flaws in Section 67 Search Do Not Vitiate Valid Adjudication: HC
The High Court held that section 74 permits adjudication on the basis of material in possession of the proper officer irrespective of its source and is not contingent upon proceedings under section 67. It clarified that alleged procedural defects in search or investigation do not vitiate a valid SCN where substantive material exists and is furnished to the assessee, and such material can be independently examined and incorporated in the notice. This was held in Additional Commissioner of Central Tax vs. Vigneshwara Transport Company [2026].
5.1 Facts
The respondent-assessee was subjected to an investigation for alleged invoice manipulation, e-way bill irregularities, and clandestine removal of goods. Based on information gathered through summons and inquiry, a show cause notice (SCN) was issued under Section 74 of the CGST Act and Karnataka GST Act alleging tax evasion. The assessee challenged the notice in writ proceedings contending that the underlying search and investigation under Section 67 suffered from procedural irregularities, lack of jurisdiction, and borrowed satisfaction, and therefore the notice and reliance on such material were invalid. It was further submitted that incriminating material, including e-way bills and statements collected during search, could not be used in adjudication when the search itself was alleged to be illegal. The matter was accordingly placed before the High Court.
5.2 Held
The High Court held that Section 74 of the CGST Act permits initiation of adjudication proceedings on the basis of material in possession of the proper officer irrespective of its source, and does not make adjudication contingent upon the legality or outcome of proceedings under Section 67. It held that alleged procedural defects in search or investigation do not vitiate a valid SCN when substantive material exists and is furnished to the assessee, who can contest its relevancy and admissibility during adjudication. It further held that reliance on material collected through summons or search and its transmission to the jurisdictional officer does not amount to impermissible borrowed satisfaction when independently examined and incorporated in the notice. It was concluded that interference at the stage of SCN is premature where an effective opportunity of reply is available. Accordingly, the writ appeal was allowed and the challenge to the SCN was rejected.
6. ICAI Constitutes Expert Panel to Address Audit-Related Queries for FY 2026 Audit Season
The Institute of Chartered Accountants of India (ICAI), through its Auditing and Assurance Standards Board (AASB), has constituted an Expert Panel to provide technical guidance on issues relating to statutory audit and allied areas. This initiative, continuing from previous years, aims to support auditors in dealing with an increasingly complex business and regulatory environment.
The Panel will function from 16th April 2026 to 30th September 2026, during which members may submit audit-related queries via email for guidance on practical issues encountered in engagements.
It is clarified that the responses of the Panel represent the personal views of the experts and do not constitute the official position of ICAI or AASB. Accordingly, no responsibility is assumed for actions taken based on such guidance, and the views are not admissible in judicial or quasi-judicial proceedings. The AASB also reserves the right to decline any query without assigning reasons.
7. Accounting for Construction of Assets on Leased Land – PPE or Right-of-Use Asset Under Ind AS 116?
Gamma Limited, hereinafter referred to as “the Company”, is a public sector undertaking engaged in railway infrastructure development. The company undertakes projects on behalf of the Ministry of Railways (MoR), where assets created are owned by the Railways and not recognised in the Company’s books.
In a specific instance, pursuant to policy guidelines, the Company constructed residential quarters on land owned by the Railways using its own funds, with ownership of both land and structures continuing to vest with the Railways. In consideration, 50% of the units are licensed to the Company for a period of 30 years at a nominal rent, while the remaining units are retained by the Railways. The Company has capitalised the entire construction cost as property, plant and equipment and amortised the same over the lease term on the basis of deriving economic benefits from usage.
This treatment requires evaluation in light of the principles of Ind AS. Although the Company has incurred the construction expenditure, it neither acquires ownership nor obtains unfettered control over the underlying assets, as both legal title and overarching control remain with the Railways. Consequently, recognition of such expenditure as property, plant and equipment is not appropriate. What is more relevant is the substance of the arrangement, which indicates that the Company incurs the construction cost in exchange for obtaining the right to use specified residential units for a defined period.
Ind AS 116 provides that a contract contains a lease where it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In the present case, the residential units are identifiable, and the Company has the right to use a specified portion of such units for 30 years. The Company also derives economic benefits from their use, primarily through employee accommodation, and has the ability to direct its use, including allocation and utilisation, albeit within the framework of policy restrictions imposed by the Railways. Such restrictions are generally protective in nature and do not negate the existence of control. Accordingly, the arrangement meets the definition of a lease.
Viewed in this context, the construction cost incurred by the Company is, in substance, consideration paid to obtain the right to use the underlying asset rather than expenditure resulting in ownership of a tangible asset. Ind AS 116 requires that such consideration be reflected in the measurement of a right-of-use asset, with a corresponding lease liability recognised at the commencement of the lease.
Accordingly, the capitalisation of the construction cost as property, plant and equipment is not in compliance with Ind AS. The arrangement should instead be accounted for as a lease, with recognition of a right-of-use asset and a corresponding lease liability, and the construction cost forming part of the measurement of the right-of-use asset.
The post Weekly Round-up on Tax and Corporate Laws | 13th to 18th April 2026 appeared first on Taxmann Blog.
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