In a groundbreaking verdict, the National Company Law Appellate Tribunal (NCLAT) has affirmed the National Financial Reporting Authority’s (NFRA) authority to retrospectively oversee and take punitive action against Chartered Accountants for misconduct predating its establishment in October 2018. This ruling grants NFRA, the country’s exclusive independent audit regulator, the power to penalize auditors and audit firms for misdeeds that occurred before October 2018.

The NCLAT, in a comprehensive 156-page order by Rakesh Kumar Jain and Naresh Salecha, dismissed all four appeals from different Branch Auditors of Dewan Housing Finance Ltd (DHFL). The ruling emphasizes that NFRA holds superior and overriding powers in matters related to professional misconduct of chartered accountants, particularly concerning listed entities and certain other companies, as per Section 132 of the Companies Act 2013.

The landmark ruling establishes NFRA’s retrospective jurisdiction, drawing on Supreme Court judgments in SEBI vs Classic Credit and New India Assurance vs Shanti Misra. The NCLAT justified its decision by considering the need to restore public and investor confidence and prevent adverse impacts on the Indian economy in the wake of proven financial scams.

The case pertains to the financial year 2017-18, with NFRA having imposed penalties of 1 lakh and a one-year debarment on each of the four appellants for professional misconduct in the DHFL branch audit work. The appellants, Engagement Partners of K Varghese & Co, a mandated audit firm for various DHFL branches, were collectively penalized for their role in audits covering 17 branches.

Importantly, the NCLAT ruling rejected all defenses raised by the auditors, asserting that Standards of Auditing are mandatory, not advisory, and apply to branch audits as well. It held auditors accountable for their crucial role in the overall audit of the company, stating that the auditors of a branch cannot absolve themselves of responsibilities.

Addressing the allegations of a 31,000 crore fraud by DHFL, including a 3,700 crore banking fraud by DHFL Directors, the NCLAT stressed that auditors cannot claim ignorance. Upholding the penalty and debarment periods, the tribunal deemed them appropriate given the magnitude of the fraud.

• No tax on income up to ₹3 Lakhs
• 5% for income between ₹3 Lakhs to ₹6 Lakhs
• 10% for income from ₹6 Lakhs to ₹9 Lakhs
• 15% for income from ₹9 Lakhs to ₹12 Lakhs
• 20% for income from ₹12 Lakhs to ₹15 Lakhs
• 30% for income exceeding ₹15 Lakhs

1. Tax exemption limit in the new tax regime: The tax exemption limit has been increased in the new tax regime. People adopting the new tax system will get tax exemption on income of up to ₹3 Lakhs, which until now was available only up to ₹2.5 Lakhs. That means tax exemption on additional ₹50,000 will be available from this year.
2. New tax regime becomes default: The new tax regime has been made the default regime. That is, while filing an ITR, it will by default show the new tax regime. If you want to go with the old tax system, you will have to select it manually.
3. Increase in Tax Rebate: Under Section 87A of the Income Tax Act, the Rebate limit has been increased from ₹12,500 to ₹25,000 in the new tax regime.
4. Standard deduction of ₹50,000: Till last year, employees and pensioners paying income tax used to get tax deductions of ₹50,000 only under the old tax system. From this year, employees and pensioners who choose the new tax regime will also get a standard deduction of ₹50,000.

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Facts:
1. The appellant/assessee operates in the wholesale trading sector, dealing with stainless steel items, crockery, aluminium, and electric items. A survey was conducted at the business premises of the assessee.

2. The AO concluded the assessment by noting that the physical stock at the business premises exceeded the inventory recorded during the survey. Upon comparing it with the stock in the books of accounts, the survey team identified excess stock valued at Rs. 1,04,00,600.

3. Upon being notified, the assessee voluntarily included a sum of Rs. 1,04,00,600 for taxation. The assessee argued that the excess stock had been categorized as ‘business income’ and therefore should not be considered for addition under Section 69B of the Income Tax Act.

4. However, the Assessing Officer (AO) determined that the excess stock should be treated as an unexplained investment under Section 69B and subjected to taxation according to the provisions of Section 115BBE. Consequently, the AO assessed the income offered during the survey as an unexplained investment and levied tax.

Note: The income earned from undisclosed sources is taxed at a flat rate of 60% under Section 115BBE, significantly higher than the normal rate.

ITAT Chennai held as under:
1. The assessee has declared additional income attributable to excess stock discovered during the survey as arising from business income earned during the current year or previous year.

2. The AO has not done anything to dispute the claim of the assessee that the source of excess stock was from the Business income.

3. Thus, the admitted difference of Rs. 1,04,00,600 should be taxed as ‘normal business income’ and not as an ‘unexplained investment’ under Section 69B of the Income Tax Act.

1. The Income Tax (IT) department is concerned about the increase in tax arrears, which reached ₹24.51 lakh crore as of March 31, 2023.
2. The department aims to reduce tax arrears to 40% of total tax demands in the current fiscal year.
3. The target is to collect a minimum of ₹2.06 lakh crore of arrears this fiscal.
4. Unpaid taxes by both corporations and individuals contribute to tax arrears, including demands in litigation or under dispute.
5. Arrears accumulate with interest and penalty, leading to a rise in the overall figure. The tax department has instructed officers to make concerted efforts to reduce arrears promptly.
6. Mumbai tops the list of regions with the highest arrears at ₹6.97 lakh crore, followed by Delhi, Gujarat, and Tamil Nadu with arrears at 4.21 lakh crore, 1.65 lakh crore and 1.62 lakh crore respectively according to sources.
7. The Chief of the income tax department emphasizes time-bound tasks like reconciliation, appeals disposal, and rectification orders to meet reduction targets.
8. The outcome remains uncertain regarding how much of the arrears will be successfully collected, impacting overall tax collections. An amnesty scheme and expedited litigation resolution are suggested approaches to reduce arrears

If you have any o/s tax demand or any sort of refunds/ any sort of litigation are pending with Income tax department you can reach us anytime

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