Weekly Round-up on Tax and Corporate Laws | 16th to 21st March 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from March 16^th  to March 21^st 2026, namely:

1. ITAT Questions ₹12.54 Crore Gift from Husband to Shilpa Shetty; PAN & Gift Deed Alone Not Sufficient Proof
2. SEBI Introduces New Intraday Borrowing Rules for Mutual Funds Effective from 1st April 2026
3. Acquittal on Benefit of Doubt in Serious Offence Can Be Valid Ground to Justify Denial of Police Recruitment: SC
4. GSTN Issues Advisory on Pre-Deposit Payment for Filing Appeal Before Appellate Authority
5. Oilfield Contract Supplying Mud-Engineering Services with Drilling Chemicals Held Composite Supply Being Naturally Bundled & in Conjunction: HC
6. NFRA Issues Inspection Reports on Big Four Firms, Highlights Key Audit Quality Review Areas
7. Classification of Perpetual Loans – Debt or Equity? A Detailed Analysis Under the Ind AS Framework

1. ITAT Questions ₹12.54 Crore Gift from Husband to Shilpa Shetty; PAN & Gift Deed Alone Not Sufficient Proof

The assessee, Shilpa Shetty Kundra, was an individual who earned income from a business or profession and interest income. During the relevant assessment year, she received a gift from her husband amounting to Rs. 12.54 crores.

During the assessment proceedings, the assessee furnished copies of the gift deed and the acknowledgement for the income tax return filed by her husband. However, the Assessing Officer (AO) found that the husband had shown income of Rs. 27,71,020 in his return of income for A.Y 2020-21, which is not commensurate with the amount of gift of Rs. 12,54,54,594.

The AO issued a show-cause notice to the assessee and, unsatisfied with the response, made additions to the assessee’s income under section 68. On appeal, the CIT(A) affirmed the addition made by the AO. The matter reached the Mumbai Tribunal.

The ITAT observed that although the assessee had produced the gift deed and PAN details, she failed to demonstrate the actual movement of funds, as neither the bank statements nor clear evidence of transfer were produced before the authorities. The assessee failed to provide details of the transaction involved and/or the mode of payment for the gift. The assessee did not file the bank statement, despite the AO specifically asking on various occasions. Even her husband’s income tax return was not commensurate with the amount gifted.

The assessee claimed that she had received a gift from her husband out of natural love and affection. However, the mode of payment/mode of gift/detail of transferring the gifted amount was nowhere mentioned in the Gift Deed.

The Tribunal further observed discrepancies in the explanation regarding the source of the funds. The assessee claimed that the donor had received funds from an overseas entity (Kuki Investments), but the relevant entries were not properly correlated with disclosures in the donor’s income-tax returns, particularly in Schedule FA relating to foreign assets.

The financial details and schedules in the donor’s returns also did not clearly substantiate the availability of funds or their subsequent transfer as a gift. Consequently, the Tribunal held that the assessee had not fully discharged the primary onus under Section 68 to establish the identity of the donor, the genuineness of the transaction, and the donor’s creditworthiness with cogent documentary evidence.

At the same time, the Tribunal noted that certain additional documents, including income-tax returns and bank statements, had been produced only at the appellate stage and required proper verification. Considering the overall circumstances, the Tribunal remanded the matter back to the jurisdictional Assessing Officer for fresh examination.

Read the Ruling

2. SEBI Introduces New Intraday Borrowing Rules for Mutual Funds Effective from 1st April 2026

The Securities and Exchange Board of India (SEBI), vide notification dated January 14, 2026, has notified the SEBI (Mutual Funds) Regulations, 2026, effective from April 01, 2026. Pursuant to this, SEBI has now laid down a detailed framework governing intraday borrowings by mutual funds and clarified borrowing provisions for equity-oriented index funds and ETFs.

The framework aims to address operational liquidity mismatches while ensuring investor protection and discipline in fund management.

2.1 Background and Regulatory Context

In practice, mutual funds, especially liquid and overnight schemes, process redemption payouts on a T+1 basis in the morning, while inflows from instruments such as TREPS and reverse repo are received later in the day. This creates a temporary liquidity gap.

Regulation 42(1) permits borrowing up to 20% of net assets for specified purposes, subject to a maximum tenure of 6 months. However, Regulation 42(2) excludes intraday borrowings from this limit, subject to conditions prescribed by SEBI.

2.2 Framework for Intraday Borrowings

SEBI has now formalised conditions for intraday borrowing, effective April 01, 2026:

• The policy governing such borrowings must be approved by both the AMC Board and Trustees and disclosed on the AMC website.
• Intraday borrowings are strictly restricted to meeting redemption obligations or payout commitments to unitholders.
• Borrowings cannot exceed the value of guaranteed same-day receivables.

Eligible receivables include:

• Maturity proceeds from TREPS
• Reverse repo proceeds
• G-Sec, T-bill, SDL and STRIPS maturities or sale proceeds
• Interest receivable on G-Sec/SDL

Further, the cost of such borrowing, and any loss arising from delays or mismatches, must be borne entirely by the AMC, not the scheme.

2.3 Compliance and Governance Requirements

AMCs are required to ensure adherence to clauses 6 and 7 of the Fourth Schedule of the SEBI (Mutual Funds) Regulations, 2026 and para 16.8 of SEBI Master Circular for Mutual Funds dated June 27, 2024.

Further, in line with para 10.9 of SEBI Master Circular for Mutual Funds dated June 27, 2024, the cost of intraday borrowing, if any, shall be borne by the AMC. Further, any loss or cost incurred on account of any unforeseen event or delay in receiving the funds from receivables as mentioned in para 4.3 shall be borne by the AMC.

2.4 Borrowing by Equity-Oriented Index Funds and ETFs

SEBI has also clarified the scope of borrowing by equity-oriented index funds and ETFs.

With the introduction of the Closing Auction Session in the equity cash segment (effective August 03, 2026), such funds are permitted to borrow only for participation in this session in cases of under-executed sell trades.

This restricts borrowing to a specific operational need, ensuring it is not used for broader liquidity management.

2.5 Conclusion

SEBI’s framework brings much-needed clarity to intraday liquidity management in mutual funds. By linking borrowings strictly to receivables and placing the cost burden on AMCs, the regulator ensures that operational gaps do not impact investors.

At the same time, the targeted permission for ETFs and index funds aligns borrowing with evolving market mechanisms, such as the closing auction, balancing flexibility with discipline.

Read the Circular

3. Acquittal on Benefit of Doubt in Serious Offence Can Be Valid Ground to Justify Denial of Police Recruitment: SC

The Supreme Court, in the matter of State of Madhya Pradesh vs. Rajkumar Yadav [2026] 184 taxmann.com 279 (SC), ruled that a person acquitted of a serious crime may be denied recruitment to the police force, even if the acquittal is based on the benefit of doubt.

3.1 Brief Facts of the Case

In the instant case, the Respondent applied for the post of constable (driver) in the police force. During character verification, the screening committee rejected his candidature on account of his involvement in a criminal case relating to the kidnapping and rape of a minor girl, which was a conduct undoubtedly amounting to moral turpitude.

The Respondent challenged the rejection by filing a writ petition. The Single Judge dismissed the writ petition, treating the acquittal as not clean and upholding the refusal to induct him into the police service.

On appeal, the Division Bench of the High Court set aside the Single Judge’s order, quashed the screening committee’s decision and directed the competent authority to reconsider the respondent’s case for appointment as a constable (driver) by treating the acquittal as clean and honourable. Thereafter, an appeal was made before the Supreme Court.

3.2 Supreme Court Observations

It was noted that an acquittal based on the benefit of doubt is essentially an acquittal on a technical ground, where the accused is not convicted due to a lack of conclusive evidence.

Further, it was noted that the screening committee was within its rights to cancel a candidate’s candidature, even if the candidate was acquitted of criminal charges, by taking into account the nature of the acquittal. Persons involved in grave offences involving moral turpitude could properly be kept out of the police force, even if they are acquitted or discharged.

The purpose and utility of verifying a character’s and background to judge a person’s suitability for the post need not be overemphasised. In Avtar Singh v. Union of India (2016) 8 SCC 471, it was held that such verification is one of the important criteria that must be fulfilled before an appointment is made, and that a person should not have a past record or background of such a nature as to render him unsuitable for the post.

In service law jurisprudence, mere involvement of a person in an offence or in a conduct amounting to moral turpitude without anything else may become a relevant consideration to judge his fitness for the post and to assess credentials for allowing such a person into the employment.

Thus, whether it is a question of recruiting a person into the service or continuing him in service or extending an employee some service benefit, his criminal antecedents, involvement in criminal activity, the conduct amounting to moral turpitude, registration of a criminal case, as well as the nature of his acquittal in a criminal case, are all germane considerations to be taken into account.

3.3 Supreme Court Ruling

The Supreme Court held that the area of discretion vested with the screening committee in this regard is wide enough to permit it to exclude a candidate or reject him for the purpose of giving appointment.

Accordingly, in a given case where the facts are stark, mere involvement of a person in an alleged offence or in the act of moral turpitude may become sufficient enough to apply it as a debilitating factor for such a candidate to be offered employment. Antecedents of a candidate play an important role in the decision-making process by the screening committee.

Further, the Supreme Court held that the domain of considering the fitness and suitability of a candidate for the purpose of taking him into service belongs to the employer. Where the employer or the screening committee of the employer has acted to discard, exclude or reject the candidature by applying relevant considerations and has not acted arbitrarily or whimsically, the Courts have no role to interfere. However, a demonstrably mala fide approach by the employer would give the Courts scope to exercise their power of judicial review.

Therefore, the Single Judge was justified in dismissing the petition and upholding the decision of the screening committee. However, the Division Bench of the High Court interfered with the functional domain of the screening committee and undermined its discretion, which had been validly exercised in treating the respondent as unsuitable for employment in the police force.

Thus, the impugned order passed by the Division Bench of the High Court could not be sustained in the eyes of the law, and the same was liable to be set aside.

Read the Ruling

4. GSTN Issues Advisory on Pre-Deposit Payment for Filing Appeal Before Appellate Authority

The GSTN issued advised taxpayers to link payments made through Form GST DRC-03 with the relevant Demand ID by filing Form GST DRC-03A for the purpose of appeal pre-deposit. It clarified that only payments reflected in the Electronic Liability Register against the Demand ID are considered while calculating the mandatory pre-deposit. This was stated in GSTN Advisory dated 14-03-2026.

4.1 About the Update

The GSTN has issued an advisory clarifying the treatment of payments made during investigation through Form GST DRC-03 when filing an appeal before the First Appellate Authority. It explains that when a demand order, such as Form GST DRC-07, is issued, a Demand ID is created in Part II of the Electronic Liability Register on the GST portal. Payments made using the ‘Payment towards Demand’ functionality are automatically adjusted against the relevant Demand ID. However, payments made through Form GST DRC-03 are not automatically linked to the Demand ID and therefore do not appear as adjusted against the demand in the Electronic Liability Register, resulting in the portal continuing to prompt for pre-deposit while filing an appeal.

The advisory states that while filing an appeal, the system automatically calculates the required amount comprising the admitted amount and mandatory pre-deposit and checks the payment already reflected against the Demand ID in the Electronic Liability Register. If the amount already paid equals or exceeds the required amount, the portal allows filing of the appeal without further payment; otherwise, the balance amount must be paid. To ensure that payments made through Form GST DRC-03 are recognized for this purpose, taxpayers must file Form GST DRC-03A to link such payments with the relevant Demand ID so that the entry becomes available in the Electronic Liability Register. Taxpayers are accordingly advised to file Form GST DRC-03A, wherever applicable, before filing an appeal so that the payment already made is considered while calculating the mandatory pre-deposit.

Read the News

5. Oilfield Contract Supplying Mud-Engineering Services with Drilling Chemicals Held Composite Supply Being Naturally Bundled & in Conjunction: HC

The High Court held that the contract involving mud engineering services, along with the supply of drilling chemicals, constituted a composite supply. It held that such supplies were naturally bundled and intrinsically linked for efficient drilling, and separate invoicing does not alter their composite character under the CGST provisions. This was held in Halliburton Offshore Services Inc. vs. Union of India [2026].

5.1 Facts

The petitioner, a foreign oilfield services company operating through its project office, executed a contract with Oil India Limited for provision of mud engineering services along with supply of drilling/completion fluid chemicals, laboratory/testing equipment, and related tools, with a condition that leftover chemicals would not be purchased by Oil India Limited. It sought an advance ruling on whether such supplies constituted a composite supply, however, the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) held that the supplies were not composite citing separate invoicing and absence of a single price. It was contended that the supplies were naturally bundled and supplied in conjunction as part of a single contractual obligation for efficient drilling. The matter was accordingly placed before the High Court.

5.2 Held

The High Court held that Section 2(30) of the CGST Act requires natural bundling and conjoint supply, and read with Sections 8 and 9, mandates taxation based on the principal supply. It was observed that mud engineering services and supply of specially prepared chemicals were intrinsically linked and inseparable for achieving safe and efficient drilling, and that separate invoicing or pricing would not alter the composite nature. Therefore, the Court held that the supply was a composite supply, set aside the rulings of the AAR and AAAR, and allowed the petitioner to seek a determination of the applicable rate.

Read the Ruling

6. NFRA Issues Inspection Reports on Big Four Firms, Highlights Key Audit Quality Review Areas

The National Financial Reporting Authority (NFRA), in exercise of its powers under Section 132 of the Companies Act, 2013, issued four inspection reports on 16^th March 2026 covering leading audit firms, including those from the Big Four network. These inspections form part of NFRA’s continued focus on strengthening audit quality and ensuring adherence to auditing standards in India.

The review was comprehensive, covering both firm-level controls and engagement-level audit work. At the firm level, NFRA evaluated key elements of the system of quality control, including human resources, consultation processes, and monitoring mechanisms, while also assessing the corrective actions taken by firms in response to deficiencies identified in previous inspections. At the engagement level, selected audit assignments were examined with a specific focus on critical areas such as revenue recognition and loans and advances, along with other entity-specific matters. The process involved on-site inspections, interactions with audit personnel, and detailed examination of policies, procedures, and supporting documentation.

NFRA adopted a structured approach wherein its observations were first communicated to the firms, followed by evaluation of their responses and issuance of draft reports before finalisation. The release of these reports underscores persistent audit quality concerns and reiterates the importance of robust audit methodologies, effective internal quality controls, and strict compliance with auditing and ethical standards.

Read the News

7. Classification of Perpetual Loans – Debt or Equity? A Detailed Analysis Under the Ind AS Framework

Perpetual loans often blur the line between debt and equity because they lack conventional features such as a fixed maturity date and, in some cases, mandatory interest payments. This naturally raises a critical accounting question under Ind AS: should such instruments be classified as financial liabilities or equity? While they may be intended to provide long-term capital support and appear equity-like in substance, classification cannot be based on intent or perception; it must strictly follow the contractual terms.

Ind AS 32 establishes a principle-based framework under which a financial liability exists if there is any contractual obligation to deliver cash or another financial asset. This obligation may be explicit, such as fixed repayment or mandatory interest, or even contingent, such as repayment upon liquidation or the occurrence of specific events. On the other hand, an instrument qualifies as equity only when the issuer has no contractual obligation to make any payment and possesses an unconditional right to avoid settlement at all times. This makes the analysis highly sensitive to the agreement’s fine print rather than its nomenclature.

In the context of perpetual loans, the evaluation hinges on key aspects: whether the principal is repayable under any circumstance, whether interest payments are mandatory or fully discretionary, and whether any embedded or contingent clauses create a potential obligation. Even a remote or conditional requirement to repay can tilt the classification towards a liability. Conversely, where the terms clearly establish that repayment is not required under any scenario and interest, if any, is entirely at the discretion of the issuer without triggering default, the instrument begins to exhibit characteristics of equity.

This approach has been reinforced by the Expert Advisory Committee (EAC) of ICAI in a case involving a government-owned entity, where an existing loan was converted into a perpetual, interest-free instrument with no repayment obligation. Despite being labelled as a “loan,” the absence of any contractual obligation to repay or service the amount led to its classification as an equity instrument, to be presented under “instruments entirely equity in nature.”

The takeaway is that the absence of a maturity date alone does not determine classification. The decisive factor is whether a contractual obligation exists at any point in time. If the entity cannot be compelled to deliver cash or another financial asset, the instrument may be treated as equity; otherwise, it remains a financial liability.

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