Weekly Round-up on Tax and Corporate Laws | 11th to 16th May 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from May 11^th  to 16^th 2026, namely:

1. ITAT Upholds Reassessment Against Actor Sonu Sood Over Alleged Accommodation Entry Transactions
2. SEBI Proposes Phased Physical Settlement Framework for Select Agricultural Commodity Derivatives Contracts
3. Stay on EPF Recovery Does Not Bar Prosecution for Default Under Section 14; Quashing Petition Dismissed: HC
4. Assessment Order Under Section 62 Deemed Withdrawn on Valid Return Filing With Tax, Barring Recovery or Attachment: HC
5. ECL Blocking Without Pre-Decisional Notice Held Unsustainable as Per Rule 86A; Ledger Unblocked: HC
6. Prior Period Errors Routed Through P&L – Can Companies Disguise Accounting Errors as Changes in Estimates Under Ind AS?

1. ITAT Upholds Reassessment Against Actor Sonu Sood Over Alleged Accommodation Entry Transactions

The assessee, an actor engaged in professional acting and brand endorsements, was subjected to reassessment proceedings pursuant to a search conducted under section 132. The Assessing Officer reopened the assessment based on a statement recorded under section 131, alleging that the unsecured loans received by the assessee were accommodation entries routed through conduit entities.

The assessee contended that the issue of unsecured loans had already been examined during the original scrutiny proceedings, and the reopening amounted to a mere change of opinion. It was further submitted that all loans were received and repaid through banking channels, and no incriminating material evidencing cash transactions was found during the search.

The matter then reached the Mumbai Tribunal.

The Tribunal held that the reopening was made under the deeming provision of Explanation 2(ii) of section 148, which provides for reopening in cases where a search has been conducted. While it is true that a previous assessment concluded the issue, the subsequent search action brought to light the statement of a third party, recorded under section 131.

In the said statement, a specific modus operandi was confessed, implicating the assessee in the procurement of bogus loans in exchange for cash. This constitutes “new tangible material” that was not available to the AO during the original assessment. The discovery of fresh evidence that fundamentally alters the complexion of the facts precludes the application of the “change of opinion” doctrine. Reopening based on new information discovered post-assessment does not constitute a ‘change of opinion’ but rather a discovery of escapement. Accordingly, jurisdictional requirements under sections 147/148 were satisfied.

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2. SEBI Proposes Phased Physical Settlement Framework for Select Agricultural Commodity Derivatives Contracts

On May 12, 2026, the SEBI had proposed allowing stock exchanges to introduce a phased approach to physical settlement for select agricultural commodity derivatives contracts. Under the proposal, exchanges would be permitted to revive existing illiquid contracts and/or launch new delivery-based contracts for select agricultural commodities, which would initially trade as financially settled contracts before mandatorily transitioning to physical settlement upon the occurrence of predefined criteria.

Think of it less as a policy shift and more as a phased transition

This move is expected to support market development while maintaining the integrity of agricultural derivatives markets.

2.1 Why Has Physical Settlement Traditionally Mattered?

Commodity derivatives markets play a vital role in the efficient functioning of agricultural value chains by enabling price discovery, risk management, and market transparency. In India, agricultural commodity derivatives have traditionally been designed to maintain a close linkage with the physical market, with physical settlement serving as a key mechanism for ensuring convergence between futures and spot prices.

Over the years, the regulatory framework governing commodity derivatives has progressively strengthened delivery-based settlement norms, particularly for agricultural commodities. The emphasis on physical settlement has been driven by the objective of promoting hedging by genuine participants, discouraging excessive speculation, and ensuring that futures prices reflect underlying physical demand and supply conditions.

2.2 The “Thin Liquidity” Problem

Market experience suggests that imposing compulsory physical settlement from contract inception may, in certain cases, constrain liquidity and limit wider market participation, especially during the early stages of contract development.

The phased introduction of physical settlement is particularly relevant for agricultural commodity derivatives, which have historically faced issues such as contract discontinuation and thin liquidity.

Low liquidity often creates a self-reinforcing cycle – limited participation reduces confidence, which, in turn, further suppresses participation.

In this regard, a calibrated and phased approach to physical settlement could help strike a balance between promoting market development objectives and preserving the regulatory goal of maintaining a strong linkage with the physical market.

2.3 The Solution – A Softer Launch for Select Agri Commodities

To address this, SEBI has proposed allowing exchanges to revive existing illiquid contracts and/or launch new delivery-based contracts for select agricultural commodities, which would initially trade as financially settled contracts and mandatorily transition to physically settled contracts upon the occurrence of predefined objective thresholds.

Such contracts may be exempted from settlement from physical delivery until the contract crosses a certain Average Daily Traded Volume (ADTV) and/or Open Interest, or until the expiry of two years, whichever is earlier.

A selected agri-commodity may be introduced under the framework, allowing market participants to build familiarity and liquidity while giving time to strengthen the backend infrastructure. Once sufficient depth and participation are achieved, a gradual transition to physical delivery can help to reduce the risk of repeated contract failures.

2.4 Who is This Really for?

The proposed framework appears particularly relevant for agricultural commodity derivatives, which have historically faced issues such as contract discontinuation and thin liquidity.

For market participants, particularly traders and hedgers, the financially settled phase may lower initial participation barriers and allow familiarity with the contract to develop before physical delivery obligations kick in.

On a pilot basis, a couple of commodities could be considered under the proposed framework, for example, maize, groundnut, or chilli.

2.5 Why the Proposal Matters?

The proposal to permit select delivery-based agricultural commodity derivatives contracts to trade as financially settled contracts initially reflects SEBI’s attempt to adopt a calibrated regulatory approach that supports market development while preserving the foundational role of physical settlement in agricultural derivatives.

The proposal incorporates objective and transparent triggers, such as average daily traded value, open interest thresholds, or a predefined time period, for transitioning to mandatory physical settlement.

So yes, flexibility is provided, but with guardrails

This ensures that the flexibility provided is neither open-ended nor discretionary.

The proposed approach does not represent a departure from physical settlement as a regulatory principle. The contracts will continue to be designed as delivery-based instruments from inception, with full specifications relating to quality, delivery centres, and settlement procedures.

The financially settled phase of the contract is treated purely as a temporary transitional arrangement and applies only to agricultural commodities that meet predefined criteria. Comments on the proposal may be submitted until June 2, 2026.

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3. Stay on EPF Recovery Does Not Bar Prosecution for Default Under Section 14; Quashing Petition Dismissed: HC

The High Court, in Rana Polycot Ltd. v. Regional Provident Fund Commissioner [2026] 186 taxmann.com 85 (HC), held that a stay on EPF recovery proceedings does not shield the petitioner company from criminal prosecution for statutory default under Section 14 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

3.1 Brief Facts of the Case

In the instant case, the petitioner company was an establishment to which the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and EPF Scheme applied. The Respondent No. 3-PF Inspector alleged that the petitioner was required to deposit statutory contributions for April-May 2017 of about Rs 2.24 lakhs in Account No. 10, but failed to do so even after the due date.

An order under Section 7A of the Act, determined EPF dues of about Rs. 87.83 lakhs for the period from January 2015 to March 2019 against the petitioner. The petitioner filed an appeal under Section 7-I, together with an application under Section 7-O, before the EPF Appellate Tribunal.

On 22.08.2019, the Tribunal directed the petitioner to deposit 50% of the assessed amount and ordered that no coercive steps be taken till the disposal of the appeal. The appeal remained pending, and the interim order continued to operate.

During the pendency of the appeal and the interim order, a sanction for prosecution was accorded by the Regional PF Commissioner for the alleged default, and Respondent No. 3 filed complaints under Section 14 of the Act. The Trial Court took cognizance of the matter and issued summons by order.

Thereafter, the petitioner filed a petition under Section 482 of the CrPC seeking quashing of the criminal complaint and the order taking cognisance of the offence under Section 14 of the Act. Then, an appeal was made before the High Court.

3.2 High Court Observations

The High Court noted that, once it was an admitted fact that the petitioner had committed a default in deposit of contribution towards the Schemes framed under the Act, the offence under Section 14 stood committed.

Further, the High Court noted that both recovery and prosecution are independent remedies and could be initiated simultaneously by the respondents. Therefore, if the Tribunal passed a stay order with regard to 50% of the due amount, the said stay order could have been operative only with regard to the civil remedy, i.e., recovery proceedings.

The High Court further noted that merely because recovery of 50% of the due amount was stayed, it did not mean that there was a bar for respondent No.3 to seek a sanction for prosecuting the petitioner for the commission of an offence under Section 14 or to file a complaint for an offence under Section 14 of the Act.

3.3 High Court Ruling

The High Court held that, since the competent authority had taken cognisance, if any amount was due to the petitioner, the same had to be proved before the Trial Court by taking a proper defence at the appropriate stage.

Thus, in the given fact situation, this inference could not be drawn that the continuation of the complaint against the petitioner amounted to an abuse of the process of law. Therefore, the instant petition was to be dismissed.

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4. Assessment Order Under Section 62 Deemed Withdrawn on Valid Return Filing With Tax, Barring Recovery or Attachment: HC

The High Court held that an assessment order passed under Section 62 of the CGST Act is deemed withdrawn upon filing of a valid return along with payment of tax, interest, and late fee, and consequently, recovery and garnishee attachment cannot survive thereafter. It was observed that the deeming provision under Section 62(2) of the CGST Act automatically nullifies the assessment proceedings once statutory compliance under Sections 47 and 50 of the CGST Act is completed.

4.1 Facts

The petitioner was subjected to assessment proceedings under Section 62 of the CGST Act and the Andhra Pradesh GST Act on account of non-filing of returns. An assessment order was passed along with summary in FORM GST DRC-07. Subsequently, the petitioner filed a valid return, along with payment of tax, interest, and late fee. Recovery and garnishee attachment were thereafter initiated pursuant to the said assessment order. It was contended that upon filing of the valid return together with applicable tax, interest and late fee, the deeming provision contained in Section 62(2) automatically rendered the assessment order and consequential summary withdrawn and, therefore, no recovery proceedings could continue thereafter. The matter was accordingly placed before the High Court.

4.2 Held

The High Court held that Section 62(2) of the CGST Act and the Andhra Pradesh GST Act contains a statutory deeming provision under which an assessment order passed for non-filing of returns stands withdrawn upon filing of a valid return together with payment of tax, interest and late fee. It was held that since the petitioner had filed the valid return and discharged the applicable liabilities under Section 47 and Section 50 of the CGST Act, the assessment order and summary stood deemed withdrawn by operation of law. Any recovery proceedings initiated on the basis of such withdrawn assessment order could not legally survive thereafter. It was also observed that garnishee attachment founded upon the said assessment proceedings was unsustainable once the deeming withdrawal under Section 62(2) had taken effect. Accordingly, the recovery proceedings and garnishee attachment were set aside.

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5. ECL Blocking Without Pre-Decisional Notice Held Unsustainable as Per Rule 86A; Ledger Unblocked: HC

The High Court held that blocking of the electronic credit ledger under Rule 86A of the CGST Rules without issuing a pre-decisional notice or granting an opportunity of hearing is unsustainable in law. It observed that Rule 86A, being a restrictive provision affecting vested ITC, requires strict compliance with procedural safeguards before blocking the ledger under Section 49 of the CGST Act.

5.1 Facts

The petitioner filed a writ petition challenging the blocking of its electronic credit ledger (ECL) under Rule 86A of the CGST Rules. The Department had blocked the ECL on the ground that input tax credit (ITC) was availed without receipt of goods or services, and that the supplier was found to be non-functioning. The petitioner contended that such blocking was carried out without issuing any pre-decisional notice or granting an opportunity of hearing, as required under Rule 86A. The matter was accordingly placed before the High Court.

5.2 Held

The High Court held that the blocking of the ECL was unsustainable in law in view of non-compliance with Rule 86A of the CGST Rules read with Section 49 of the CGST Act, particularly the absence of a pre-decisional notice or hearing. It was observed that Rule 86A, being a restrictive provision affecting vested credit, must be strictly complied with, including adherence to procedural safeguards. Accordingly, the Court held that the impugned blocking order was liable to be set aside and directed the Department to immediately unblock the ECL to enable the petitioner to file returns. It further granted the Department the liberty to initiate fresh proceedings in accordance with law, while keeping all contentions open for adjudication in appropriate proceedings.

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6. Prior Period Errors Routed Through P&L – Can Companies Disguise Accounting Errors as Changes in Estimates under Ind AS?

The distinction between a prior period error and a change in accounting estimate under Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors has significant implications for financial reporting. While prior period errors are required to be corrected retrospectively through restatement of earlier financial statements, changes in accounting estimates are recognised prospectively through the current and future period Statement of Profit and Loss. In practice, companies may sometimes route adjustments for earlier periods through current-year profit or loss by describing them as “changes in estimates”, thereby avoiding retrospective restatement and reducing scrutiny of previously reported financial results.

Ind AS 8 clearly distinguishes these concepts based on the nature of the underlying issue. A prior period error arises when reliable information existed in an earlier period but was ignored, misused, or incorrectly interpreted. In contrast, a genuine change in estimate arises because of new information, changed circumstances, or additional experience becoming available subsequently.

Consider a situation in which a company had significant trade receivables outstanding at year-end, and internal correspondence available before the financial statements were approved clearly indicated recovery concerns. However, only a minimal expected credit loss provision was recognised. In the subsequent year, the company recognised a substantial additional impairment and disclosed it as a “change in estimate” through current-year profit or loss. Since the information indicating a doubtful recovery already existed in an earlier period, the adjustment does not arise from new developments but from failure to use the available information appropriately. Accordingly, the matter represents a prior-period error requiring a retrospective restatement under Ind AS 8 rather than prospective recognition in profit or loss.

Similarly, issues such as incorrect revenue recognition, incomplete actuarial assumptions, or failure to consider available project information may constitute prior period errors, provided the relevant information existed when the earlier financial statements were approved. On the other hand, revisions arising from technological obsolescence, new market developments, or updated technical evaluations may represent genuine changes in accounting estimates because they are driven by new information or changed circumstances.

The distinction becomes particularly important because the inappropriate classification of prior-period errors as changes in estimates can distort profitability trends, conceal weaknesses in internal financial controls, and impair the comparability of financial statements. Accordingly, entities must carefully evaluate the substance of adjustments rather than rely solely on management descriptions or labels when determining the appropriate accounting treatment under Ind AS 8.

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