Weekly Round-up on Tax and Corporate Laws | 03rd November to 08th November 2025

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Nov 03^rd to Nov 08^th 2025, namely:

1. AO has discretion to levy penalty for non-disclosure of foreign assets in ITR; penalty is not mandatory: ITAT;
2. SEBI proposes to upgrade Certification and Training Standards for Associated Persons in Securities Markets;
3. GSTN introduces Simplified GST Registration Scheme under Rule 14A to ease compliance for small taxpayers;
4. GST not leviable on road restoration reimbursement by electricity distributor as activity is municipal function, not supply: HC;
5. Accounting treatment of Employee Benefits and Food Trial Costs during the testing phase under Ind AS 16; and
6. Enhanced disclosure requirements under Ind AS 7 for supplier finance arrangements.

1. AO has discretion to levy penalty for non-disclosure of foreign assets in ITR; penalty is not mandatory: ITAT

The assessee, a resident individual, was subjected to a penalty under Section 43 of the Black Money Act for not disclosing their foreign investment in Schedule FA in the return of income. The assessee contended that the investment was made from tax-paid income through banking channels under the RBI LRS from their bank accounts and hence was not an ‘undisclosed asset’.

The Assessing Officer (AO) held the assessee liable and imposed a penalty of Rs. 10 lakhs, stating that once non-disclosure in Schedule FA is established before issuance of summons, a penalty follows.

The Special Bench of Tribunal was constituted to decide the following issue:-

“Whether the use of the word ‘may’ in Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 should be construed as ‘shall’. In other words, whether the imposition of a penalty is mandatory once the requirements of Section 43 of the said Act are satisfied, or there is a discretion in the Assessing Officer to impose the penalty or otherwise ?”

The Tribunal held that the charging/penal provisions of a taxing statute have to be construed strictly. It is a well-established principle of interpretation of statutes that the words must be given their plain and ordinary meaning unless it leads to absurd results or consequences that could never be intended. Applying this test, the use of the word “may” would clearly indicate that it is discretionary in nature.

It is significant to note that the concluding part of Section 43 of the BM Act employs both “may” so far as the imposition of penalty is concerned and “shall” as far as the quantum of Rs. 10 lakhs is concerned. Even where the minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty when there is a technical or venial breach of the provisions of the Income Tax Act.

The interpretation that imposition of penalty is automatic, on the failure of the assessee to make the disclosure in Schedule FA, would make the provision for the opportunity of hearing being granted to the assessee before imposition of penalty redundant or superfluous. It is the fundamental principle of interpretation that the legislature can never be attributed to such redundancy or superfluousness.

Accordingly, the word “may” used in Section 43 of the BM Act has to be given its plain meaning as being directory in nature and cannot be construed as “shall”. Thus, the imposition of a penalty is not mandatory. There is discretion in the AO to impose the penalty or not, depending on the facts and circumstances of each case.

Read the Ruling

 2. SEBI proposes to upgrade Certification and Training Standards for Associated Persons in Securities Markets

On November 6, 2025, SEBI released a consultation paper inviting public comments on proposed amendments to the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007. The key proposals include (a) a review or expansion of the definition of ‘Associated Persons’, (b) the manner of obtaining a certificate and (c) the inclusion of an electronic mode of participation for Continuing Professional Education (CPE) programs. Comments may be submitted by November 27, 2025.

a) Background and Rationale

SEBI, vide the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, may mandate “Associated Persons” to obtain the requisite certificate from NISM for engagement or employment with regulated intermediaries.

The Regulations specify the manner of obtaining the NISM certificate and also the manner of renewing the certificate by way of Continuing Professional Education requirements. To obtain the NISM Certificate for the first time, candidates must pass the relevant Certification Examination, which is valid for 3 years.

At the time of notification of these Regulations in 2007, certain exceptions were provided for specific categories, such as principals, persons aged more than 50 years as on the date of notification of the regulations, and persons having more than 10 years of experience in the securities markets as on date of notification of regulations, from passing the certification examination.

In view of the changes taking place in the Indian securities market and to strengthen and bring more clarity, SEBI felt the need to review the existing Regulations. Accordingly, various proposals have been suggested.

b) Key Proposals

The key proposals are as follows:

• • Expansion of the definition of ‘Associated Persons’
    As per Regulation 2(1)(c) of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, the term ‘Associated Person’ means a principal or employee of intermediary or an agent or distributor or other natural person engaged in the securities business and includes an employee of a foreign portfolio investor or a foreign venture capital investor working in India.
    SEBI observed that certain persons associated with the securities market are not specifically covered within the definition of ‘Associated person’. Therefore, SEBI has proposed to broaden the definition of Associated Person by adding the words, ‘a regulated entity’, intending to be engaged, and ‘directly and indirectly’, with an objective of encouraging wider participation in the securities market.

• • Introduction of long-term courses by NISM for obtaining certificate and CPE
    Introduction of long-term courses offered by NISM will add more value by imparting in-depth knowledge in comparison to passing the certification examination, which will serve as certifications while aiding capacity building. Therefore, including these long-term courses as an alternative to certain certification examinations will give more options to the participants.
    SEBI has proposed including appropriate long-term courses/long-duration programs of NISM (with a course duration of 3 months or more, offered in either physical/classroom, online, or hybrid mode) as a new mode of obtaining the NISM certificate and CPE.

• • Inclusion of electronic mode of participation for CPE programs
    As per Regulation 2(1)(f) of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, the term “Continuing Professional Education” (CPE) refers to any course, programme, training programme, activity, conference, seminar that has been accredited or approved by NISM to enhance the knowledge, skills and professional competency of associated persons in the areas of securities, governance and ethics.
    To enhance the convenience of securities market participants, SEBI has proposed to include an electronic mode of participation. Accordingly, CPE programs can be conducted in physical, electronic or hybrid mode. This will increase the reach of NISM’s certifications and enhance the convenience for individuals appearing for CPE courses.

• • Review of the exception criteria for manner of obtaining certificate and CPE
    Currently, persons who are ‘principals’ as defined in the regulations or persons above 50 years of age or persons with 10 years of experience in the securities market, are given certain exemptions in the mode of getting certified. Instead of giving exams, they can get certified by obtaining classroom credits by attending classes on subjects specified by NISM or by delivering of formal classroom sessions.
    However, NISM has reported misuse of these exemptions. Several instances have come to light where market intermediaries have issued a ‘letter of designation’ (i.e. the required document to become eligible to attend the NISM-approved CPE program under the ‘Principal’ category) to individuals who did not meet the actual criteria.
    Therefore, SEBI has proposed to discontinue the exemptions provided to such persons and replace them with a new exemption criterion applicable to individuals aged a minimum of 50 years with relevant experience of at least 10 years in the securities market as on the date of examination/CPE.

Further, for ease of doing business, the calculation of ‘Age’ and ‘experience’ for a candidate is proposed to be linked to the date of examination/CPE rather than the date of notification or as specified by the board.

c) Conclusion

The proposals aim to broaden the regulatory coverage, enhance accessibility through electronic participation, and strengthen the quality of professional certification. They are expected to improve market competence, promote transparency and align certification norms with the evolving needs of the securities market.

Read the consultation paper

3. GSTN introduces Simplified GST Registration Scheme under Rule 14A to ease compliance for small taxpayers

The GSTN has issued an advisory introducing the Simplified GST Registration Scheme under Rule 14A to streamline registration for small taxpayers. The scheme allows eligible persons to obtain automatic electronic registration within three days, subject to Aadhaar authentication and specified compliance conditions. This was stated in GSTN Advisory, Dated 01-11-2025.

About the Update

The GSTN has issued an advisory introducing the simplified registration scheme under Rule 14A, effective from 01-11-2025. The new mechanism enables small taxpayers having a total output tax liability on the supply of goods or services, or both, to registered persons, of not more than ₹2.5 lakh, to obtain automatic, electronic GST registration within three days from the date of submission of the application.

Under Rule 14A, a person can have only one registration per State or Union Territory under the same PAN. Applicants must select ‘Yes’ for the Rule 14A option in FORM GST REG-01 and complete mandatory Aadhaar authentication for the primary Authorised Signatory and at least one Promoter or Partner. To withdraw, taxpayers must file all due returns from registration to withdrawal, with at least three months’ returns if the withdrawal is before 01-04-2026 or one tax period if the withdrawal is after. Withdrawal is not permitted if any amendment, cancellation application, or cancellation proceeding is pending.

Read the Update

4. GST not leviable on road restoration reimbursement by electricity distributor as activity is municipal function, not supply: HC

The High Court held that reimbursement of road restoration charges paid by an electricity distributor to the municipal corporation did not constitute a taxable supply. It observed that the corporation recovered such costs while discharging its statutory municipal function and that the payment represented mandatory compensation under the Electricity Act, 2003, rather than consideration for any service.

Facts of the case

The petitioner, engaged in the business of transmitting and distributing electricity, submitted that it excavated roads owned by the Ahmedabad Municipal Corporation (AMC) for the purpose of laying and maintaining electricity lines and reimbursed the AMC for the restoration costs. The GST Authority alleged that these reimbursements were subject to GST under the reverse charge mechanism. It was submitted that the payments constituted statutory compensation. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the reimbursements did not constitute a supply under Schedule II of the CGST Act and the Gujarat GST Act. It was observed that the AMC recovered costs as part of its municipal function and did not agree to tolerate the excavation. It further noted that statutory provisions under Section 42, read with Section 67(3), of the Electricity Act, 2003, and Article 243W mandated full compensation without constituting consideration for supply. Consequently, the Court quashed the Show Cause Notice and Order-in-Original.

Read the Ruling

5. Accounting treatment of Employee Benefits and Food Trial Costs during the testing phase under Ind AS 16

Companies in the hospitality sector often conduct extensive food and beverage trials before opening new outlets to ensure consistency in taste, presentation, ambience, and service quality. These trials typically involve employee participation and consumption of materials such as food and beverages. A key question arises on whether the employee benefit costs and food trial costs incurred during such testing phases can be capitalised as part of the cost of Property, Plant and Equipment (PPE) under Ind AS 16, Property, Plant and Equipment.

Under Ind AS 16, only those costs that are directly attributable to bringing an asset to the location and condition necessary for it to operate in the manner intended by management qualify for capitalisation. Ind AS 16 specify that such costs include employee benefits directly related to the construction or acquisition of an asset and costs of testing whether an asset is functioning properly. However, Ind AS 16 also explicitly excludes costs of opening a new facility or conducting business in a new location, including staff training and trial operations.

For Example, a company operating luxury restaurants proposed to capitalise the employee benefits and food trial costs incurred during the testing phase before opening a new outlet. However, the auditor objected, noting that these expenses relate to the pre-opening phase and not to the process of bringing any specific asset (such as kitchen equipment or lighting systems) to its intended operating condition. In this case the Expert Advisory Committee (EAC) clarified that individual items such as kitchen equipment, air conditioning, and lighting are separate PPE items, and the testing activities undertaken to ensure consistency in service or ambience do not contribute to making any of these assets operational.

Accordingly, employee benefit costs and food trial costs incurred during pre-opening activities are considered costs of opening a new facility and must be charged to the Statement of Profit and Loss as incurred. These costs are not directly attributable to any specific asset’s operational readiness and therefore do not qualify for capitalisation under Ind AS 16.

However, if a portion of the employee benefit cost can be clearly linked to the technical setup of a specific asset, such as technicians calibrating or fixing kitchen equipment to make it functional, such directly attributable costs may be capitalised to that limited extent.

Thus, under the Ind AS framework, while general employee and food trial costs incurred during pre-opening or testing phases must be expensed as incurred, only those employee costs that are directly related to bringing a particular asset to its operational condition may be capitalised as part of PPE.

Read the News

6. Enhanced disclosure requirements under Ind AS 7 for supplier finance arrangements

The Central Government, in consultation with the National Financial Reporting Authority (NFRA) vide Notification No. G.S.R. 549(E) [F. NO. 01/01/2009-CL-V (PART. XIV)], dated 13-8-2025, has amended the Indian Accounting Standard (Ind AS) 7, Statement of Cash Flows. Under this amendment, some new paragraphs like 44F, 44G, 44H have been inserted under Ind AS 7.

The amendment to Ind AS 7 was considered necessary as transactions involving Supplier Finance Arrangements were often subject to misinterpretation, leading in some cases to the overstatement of operating cash flows. Supplier Finance Arrangement, also referred to as supply chain financing, or payables financing, is a financial arrangement that allows an entity to offer its suppliers an option of early payment through a third-party financier.

Paragraph 44G has provided the detailed definition of the term “Supplier Finance Arrangements,” whereas paragraph 44F requires an entity to disclose information about its supplier finance arrangements. Furthermore, paragraph 44H requires an entity to provide detailed disclosure about the terms and conditions of the arrangements. The entity shall, at the beginning and end of each reporting period, disclose the carrying amounts and other associated line items of each of the financial liabilities that are part of the supplier finance arrangements, along with the range of payment due dates.

An entity shall apply the aforesaid amendments for annual reporting periods beginning on or after the 1st April 2025. Furthermore, the entity is not required to disclose any comparative information for any reporting periods presented before the beginning of the annual reporting period in which the entity first applies these amendments.

The amendment to Ind AS 7 on “Supplier Finance Arrangements” represents a major step toward ensuring faithful representation and transparency in financial statements. Entities are now required to clearly explain how such financing structures affect their liabilities, payment terms, and liquidity risk.

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