Weekly Round-up on Tax and Corporate Laws | 27th April to 2nd May 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from April 27^th  to May 02^nd 2026, namely:

1. Cost of Improvement for Compensation Paid to Encroachers to Obtain Vacant Possession Allowable for LTCG: ITAT
2. SEBI Operationalises Fast-Track Mechanism for Processing of Placement Memorandum of AIFs Filed With SEBI
3. Gratuity Cannot Be Released During Pending Criminal Proceedings as Rule 69(1)(c) of Central Civil Services (Pension) Rules Bars It: SC
4. IGST Refund Permitted Only After Deduction of Higher Duty Drawback Availed, Thus Preventing Double Benefit: HC
5. Goods in Transit Through Intermediary State; Officers of That State Not Cross-Empowered to Detain or Confiscate Goods: HC
6. Deferred Tax Measurement When Recovery Manner Is Uncertain Under Ind AS 12

1. Cost of Improvement for Compensation Paid to Encroachers to Obtain Vacant Possession Allowable for LTCG: ITAT

The assessee was engaged in the business of land development, as well as the buying and selling of land and buildings. During the year under consideration, the assessee sold land and offered Long-Term Capital Gain (LTCG) on the sale. While computing LTCG, the assessee claimed improvement cost as compensation paid to encroachers to obtain vacant possession. The Assessing Officer (AO) disallowed the entire improvement cost, as the assessee failed to furnish complete details of the persons, including their names, PANs, and the nature of payments (cash or bank), etc. Aggrieved by the order, the assessee preferred an appeal to the CIT(A).

The CIT(A) upheld the additions made by the AO. The matter then reached the Ahmedabad Tribunal.

The Tribunal held that it was an admitted position that the land in question was encroached upon by various encroachers. Even after protracted litigation and various efforts, the assessee was unable to secure the land’s vacating. The assessee had to pay compensation to the said encroachers. The short issue raised before the Tribunal was only relating to the quantum of the amount of compensation paid and the veracity of evidence, such as bills and vouchers, etc., furnished by the assessee to claim the aforesaid compensation.

The CIT-DR stated at the bar that he had thoroughly examined the evidence furnished by the assessee, including the separate agreements entered into with each of the encroachers and also the details of payments made by the assessee to various encroachers, most of which were through the banking channel. He has pointed out that, though some payments were made in cash, they were preceded by an immediate withdrawal from the assessee’s bank account. The DR also did not dispute the justification for the payments made. There was protracted litigation between the AMC, Ahmedabad, and the encroachers to have the land vacated, along with police complaints. There were also newspaper cuttings, and the encroachers had allegedly threatened and filed complaints with the police against the family members and Directors of the assessee company.

Accordingly, the assessee pursued all available legal remedies, including approaching various authorities, both legal and administrative. Despite the orders of the Hon’ble Gujarat High Court in a petition filed by the encroachers against the Municipal Corporation, Ahmedabad, seeking removal of their encroachments on the land, the assessee was unable to remove the encroachers from the land.

The bills and vouchers, and the entire evidence, having been thoroughly examined by the CIT-DR, and there being no dispute about the factum of compensation paid by the assessee to the encroachers, there was no justification for the lower authorities in not allowing the said claim of improvement on account of the payments of compensation to the encroachers.

Therefore, the claim of improvement on account of payments of compensation to encroachers was to be allowed.

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2.1 Objective

The revised framework has been introduced as an ease of doing business measure with a view to enabling faster launch of AIF schemes and efficient deployment of capital, while continuing to ensure that adequate disclosures are made to investors.

2.2 Fast-Track Mechanism – Framework

The SEBI has operationalised a Fast-Track Mechanism in respect of the Angel Funds and AIF schemes other than Large Value Funds for Accredited Investors (LVFs), collectively referred to as non-LVF schemes. Under this mechanism, AIFs are permitted to proceed with the launch of their schemes and circulate the PPM to investors for soliciting funds after the expiry of 30 days from the date of filing of the application with the SEBI, unless otherwise advised.

In the case of the first scheme of an AIF, such a launch can be undertaken from the date of grant of registration or after 30 days from the filing of the application, whichever is later. Further, any comments issued by SEBI within the said 30-day period are required to be duly incorporated before the launch of the scheme or circulation of the PPM.

2.3 Timeline for First Close

The circular also prescribes that the first close of the scheme shall be declared within a period of 12 months from the date on which the AIF becomes eligible to launch its scheme under the fast-track mechanism. This modifies the relevant provisions of the existing Master Circular for AIFs.

2.4 Responsibility for Disclosures

The responsibility for ensuring the accuracy, adequacy and completeness of disclosures in the PPM has been expressly placed on the Merchant Banker and the Manager of the AIF. They are required to ensure that the disclosures are true, fair and sufficient to enable investors to take an informed investment decision, and comply with the applicable regulatory framework.

2.5 Filing Requirements and Disclosures

PPMs for non-LVF schemes must be filed on the SEBI intermediary portal, along with the prescribed documents, including the Merchant Banker Due Diligence Certificate, fit-and-proper declarations, sponsor/manager commitments, and relevant PAN details. The circular also mandates the inclusion of a standard disclaimer in the PPM clarifying that submission of the document to SEBI does not constitute its approval, and that the responsibility for disclosures rests with the Merchant Banker and the Manager.

2.6 Conclusion

The fast-track mechanism reflects a shift towards a disclosure-based regime, reducing procedural delays while placing greater reliance on intermediaries such as Merchant Bankers. The framework is expected to facilitate quicker fund launches and improve capital deployment efficiency within the AIF ecosystem.

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3. Gratuity Cannot Be Released During Pending Criminal Proceedings as Rule 69(1)(c) of Central Civil Services (Pension) Rules Bars It: SC

The Supreme Court, in Bikram Chand Rana v. Himachal Pradesh Road Transport Corporation [2026] 185 taxmann.com 289 (SC), held that gratuity cannot be released during pending criminal proceedings as Rule 69(1)(c) of Central Civil Services (Pension) Rules, 1972 operates as a statutory bar prohibiting payment of gratuity until completion of such proceedings.

3.1 Brief Facts of the Case

In the instant case, the appellant, an employee of the respondent–State Transport Corporation, served as a Clerk from 1979 and was promoted to the rank of senior assistant in 2000. Allegations subsequently arose that he was involved in the CPMT 2006 question paper leak. An FIR was registered against him under Sections 406, 418, 420 and 120B of the IPC. He was arrested on 24.11.2006 and released on bail the next day.

The Departmental proceedings under Rule 14 of the Central Civil Services (Classification, Control and Appeal) Rules, 1965, were initiated against him on 19.01.2007, on charges of his alleged involvement in the CPMT leak and of violating the CCS (Conduct) Rules.

The Inquiry Officer, in his report dated 26.02.2009, concluded that there was no material to establish the appellant’s involvement in the alleged misconduct or any violation of the conduct rules. The appellant superannuated on 28.02.2009. Although provisional pension was released, gratuity and other terminal benefits were withheld due to the pendency of the criminal proceedings arising from the FIR.

Post-retirement, the appellant made several representations seeking release of his retirement benefits, including a detailed representation and requested a copy of the inquiry report. On 28.05.2015, the charges were found not proved and a copy of the inquiry report was supplied to him.

Thereafter, the appellant filed an Original Application before the Himachal Pradesh State Administrative Tribunal seeking release of gratuity and regular pension along with consequential benefits.

Upon abolition of the Tribunal, the matter stood transferred to the High Court, where it was dismissed by the Single Judge. The appellant thereafter preferred Letters Patent Appeal (LPA), which was disposed of with concurrence to the Single Judge’s decision, while urging expeditious conclusion of the criminal trial.

On appeal before the Supreme Court, the appellant contended that under Rule 69(1)(c), gratuity became payable upon conclusion of either the departmental or the judicial proceedings since he was exonerated in the departmental inquiry. The respondent–corporation, however, maintained that Rule 69 imposed an embargo on payment of gratuity so long as either proceeding was pending.

3.2 Legal Provision

Rule 69(1)(c) of Central Civil Services (Pension) Rules, 1972, reads as follows:

No gratuity shall be paid to the Government servant until the conclusion of the departmental or judicial proceedings and issue of final orders thereon.

Provided that where departmental proceedings have been instituted under Rule 16 of the Central Civil Services (Classification, Control and Appeal) Rules, 1965, for imposing any of the penalties specified in Clauses (i), (ii) and (iv) of Rule 11 of the said rules, the payment of gratuity shall be authorised to be paid to the Government servant.”

3.3 Supreme Court Observations

The Supreme Court noted that the narrow question of law that arose for consideration was the correct statutory interpretation of Rule 69(1)(c) of the Central Civil Services (Pension) Rules, 1972. The appellant contended that the expression “departmental or judicial proceedings” in Rule 69(1)(c) must be construed to mean that gratuity becomes payable upon the conclusion of either set of proceedings.

Such a submission totally misapprehends the nature of the Rule. As the learned Single Judge had rightly noted at the first instance, Rule 69(1)(c) of the Rules, 1972 operates as an ’embargo’ or a statutory bar, and not as an enabling provision.

The Supreme Court, further observed that the use of the ordinary disjunctive “or” expands the scope of this bar, indicating that gratuity shall not be paid so long as either departmental or judicial proceedings remain pending.

3.4 Supreme Court Ruling

The Supreme Court held that Rule 69(1)(c) of the Rules, 1972 has a wide import and operates in respect of any proceeding that may be pending against an employee at the time of retirement; indeed, the breadth of the provision reflects its protective character.

If the appellant’s interpretation were accepted, an employee could contend that once any one set of proceedings against him/her stands concluded, the embargo stands lifted and gratuity must be released. This would altogether defeat the purpose of the provision, which is to safeguard the financial interests of the State.

Further, the Supreme Court held that the appellant relies on the above Rule to urge that the respondent Corporation would not be left remediless, as any amounts disbursed could be recovered in the event of a subsequent conviction. This submission has already been clearly negatived by the Division Bench.

Simply put, Rule 9(1) of the 1972 Rules is downstream in its operation and cannot be invoked to justify the release of gratuity during an interregnum when proceedings are admittedly pending, on the premise that recovery could be effected at a later stage.

Since the criminal case against the appellant was still pending, gratuity was not payable to the appellant. Therefore, there was no reason to interfere with the impugned judgment. Accordingly, the appeal was dismissed

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4. IGST Refund Permitted Only After Deduction of Higher Duty Drawback Availed, Thus Preventing Double Benefit: HC

The High Court held that IGST refund on zero-rated exports is not admissible in full where a higher duty drawback has been availed. Such a refund can be granted only after deduction of the differential drawback amount. It observed that refund is admissible only where rates under Column A and Column B are identical or where the excess drawback component is neutralised. This is because, a full refund, along with a higher drawback, would result in duplication of export incentives.

4.1 Facts

The petitioner engaged in the export of various stainless steel items, effected zero-rated supplies and paid IGST on such exports. The petitioner thereafter sought refund of the IGST so paid under the zero-rated export mechanism. The jurisdictional officers under CGST withheld the refund on the ground that the petitioner had already availed a higher duty drawback by selecting ‘Column A’ in the shipping bills, thereby rendering the claim ineligible for a full IGST refund. The petitioner contended that it was entitled to a refund of IGST notwithstanding the drawback option exercised and disputed the withholding of the amount. The matter was accordingly placed before the High Court.

4.2 Held

The High Court held that IGST refund on zero-rated exports cannot be granted in a manner that results in impermissible double benefit when the higher duty drawback has already been availed. It was observed that under Section 54 of the CGST Act and the Maharashtra GST Act, Section 16 of the IGST Act and Rule 96 of the CGST Rules, a refund is admissible only where the rates under Column A and Column B of the shipping bills are identical or where the excess drawback component is neutralised. The Court reasoned that availing higher duty drawback while simultaneously claiming full IGST refund would amount to duplication of export incentives since pre-GST levies stand subsumed under the GST regime. It further held that the petitioner could not be granted the full refund unless the differential drawback was repaid or adjusted, and directed that the refund be allowed only after deducting the differential drawback amount along with 7% interest calculated from the date of the shipping bill.

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5. Goods in Transit Through Intermediary State; Officers of That State Not Cross-Empowered to Detain or Confiscate Goods: HC

The High Court held that officers of an intermediary State are not empowered to detain or confiscate goods under section 129 or section 130 in respect of inter-State consignments merely transiting through the State. It held that cross-empowerment applies only to taxpayers administratively assigned to the respective State authorities. In the absence of such cross-empowerment, such officers can only verify documents and forward discrepancies to the proper jurisdictional officer.

5.1 Facts

The petitioners, engaged in inter-state trade and transportation of goods, challenged interception proceedings initiated by officers during transit. The officers detained the consignments invoking the Section 129 of the CGST Act, and in several instances proceeded to confiscation under Section 130, contending that they were competent ‘proper officers’ even in respect of goods merely passing through the State. It was submitted that except in one case alleging absence of invoices and e-way bills, the consignments were accompanied by requisite statutory documents, and that the proceedings were nevertheless initiated on grounds such as alleged undervaluation, mismatch in description, and minor quantity variations. The petitioners contended that, even if assumed, such discrepancies did not indicate any intent to evade tax. The matter was accordingly placed before the High Court.

5.2 Held

The High Court held that the cross-empowerment mechanism under Section 6 of the CGST Act, read with Section 4 of the IGST Act, applied only in respect of taxpayers administratively assigned to the respective state authorities, and not to inter-state consignments merely transiting through a state without any tax revenue allocation. It further held that officers of an intermediary State could not assume jurisdiction to levy penalties, appropriate goods, or initiate confiscation proceedings under Section 129 or Section 130 for consignments originating and terminating outside the State. The Court observed that the role of such officers was limited to verifying documents and forwarding any discrepancies to the proper jurisdictional officers of the consignor or consignee, and that they could not undertake valuation or assessment at the interception stage. It was further held that detention or confiscation based on alleged undervaluation, description mismatch, or minor quantity variation was impermissible. Consequently, the proceedings were set aside.

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6. Deferred Tax Measurement When Recovery Manner Is Uncertain Under Ind AS 12

Deferred tax accounting often becomes complex when the tax consequences differ depending on whether an asset is recovered through use or through sale. This usually happens when management has not yet made a final decision and both options seem possible at the reporting date. It becomes important because tax rates and calculations can vary significantly across cases, which directly affects how deferred tax is measured. In such cases, the main question is whether deferred tax should be calculated based on use, sale, or a mix of both. To decide this, the focus should be on what management expects at the reporting date, not on future possibilities or plans that are still uncertain.

From an accounting perspective, this issue is governed by the principles laid down in Ind AS 12, Income Taxes. Ind AS 12 requires that deferred tax should be measured based on the tax consequences that would follow from the manner in which the entity expects to recover the carrying amount of its assets and liabilities. It further clarifies that where different tax consequences arise depending on the manner of recovery, the entity must use the tax rate and tax base consistent with the expected mode of recovery.

Ind AS 12 emphasises the “expected” manner of recovery, which implies a realistic, supportable, and evidence-based assessment at the reporting date. It does not permit a mechanical, hypothetical, or probability-weighted approach. Instead, the entity is required to identify a single most likely manner of recovery based on facts and circumstances existing at that point in time.

In scenarios where an entity has initiated discussions for a potential sale of an asset but the arrangement remains non-binding and subject to significant uncertainties such as regulatory approvals or financing, such developments may not be sufficient to conclude that recovery through sale is the expected outcome. The absence of a binding agreement, lack of formal approval by those charged with governance, and continued use of the asset in operations indicate that the existing pattern of recovery through use remains unchanged.

The presence of uncertainty does not justify the use of multiple tax rates or a blended approach. Instead, the entity must exercise judgment to determine which outcome is substantively expected. Only when there is convincing evidence, such as a firm commitment to sell, a binding agreement, or a high degree of certainty regarding completion, can the expectation shift from use to sale.

For example, a company has a turbine with a carrying amount of Rs. 120 crore and a tax value of Rs. 70 crore, leading to a temporary difference. The tax impact depends on how the asset is recovered, if it is used, a 25% tax rate applies, but if it is sold, a 15% tax rate applies with a different calculation. During the year, the company started exploring a possible sale, but the arrangement is not final and depends on approvals and funding. The turbine is still being used, and no formal sale plan has been approved. In this situation, even though a sale is being considered, it is not certain. So, the expected manner of recovery remains through use. Therefore, deferred tax should be calculated using the 25% rate, as Ind AS 12 requires using the most likely method of recovery at the reporting date and does not allow mixing of different outcomes.

Accordingly, where the expectation of sale is not sufficiently substantiated and the asset continues to be used in operations, deferred tax should be measured based on recovery through use, applying the tax rate and tax base relevant to that mode. This approach ensures that the financial statements present a faithful representation of the tax consequences associated with the asset as at the reporting date, while also maintaining compliance with the requirements of Ind AS 12.

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