Foreword by CA (Dr.) Arpit Yadav, Co-founder - TwoTax

Greetings from the team at TwoTax!

We’re excited to bring you the May 2025 edition of our newsletter—a vibrant curation of everything that matters in the world of taxation, compliance, and regulatory affairs. At TwoTax, we make sense of complexity and deliver insights that are actionable, relevant, and easy to understand.

This month’s edition dives into accounting treatments around bill discounting, regulatory overhauls by SEBI and RBI, landmark judicial rulings, and updates impacting your tax and financial strategies. Whether you’re a business owner, finance professional, or tax enthusiast—this is your essential monthly pit stop.

Stay curious. Stay compliant.

Warm regards,

CA (Dr.) Arpit Yadav | Co-founder, TwoTax

WHAT'S INSIDE THIS MONTH?

• Accounting Update: Ind AS on Bill Discounting
• Regulatory Rundown: ICAI, SEBI & RBI
• Tax Trends: Direct, Indirect & Transfer Pricing
• ESG, REITs, InvITs & Mutual Fund Proposals
• Landmark Court & Tribunal Rulings
• TwoTax Expert Take

ACCOUNTING INSIGHT: BILL DISCOUNTING CLARIFIED UNDER IND AS

A public sector undertaking in power and coal queried ICAI’s Expert Advisory Committee on derecognition of trade receivables under Sales Bill Discounting (SBD). The company claimed risk transfer; the EAC ruled otherwise.

Key Points:

• Risk remains with the company if the agreement is "with recourse"

• Historical repayment patterns do not justify derecognition

• Maintain receivable as an asset; record bank proceeds as a financial liability

TwoTax Tip: Always assess legal transfer of risk before accounting for derecognition—even if actual defaults are rare.

REGULATORY RUNDOWN

ICAI INITIATIVES:

• Auditing standards tailored for LLPs
• Proposed amendments to Ind AS 107/109 for renewable-linked electricity contracts
  
  

SEBI HIGHLIGHTS:

• HVDLE threshold raised to ?1,000 crore

• Enhanced disclosure norms for SME-related party transactions

• ESG Rating Providers (ERPs) must publish methodology and ensure transparency

• T+0 trade settlement for QSBs deferred to Nov 2025

RBI MOVES:

• Repo rate reduced to 6.00%

• Draft FEMA (2025) tightens export-import reporting norms for amounts above ?25 crore

• Consolidated Master Directions on risk, deposits, inter-bank dealings
  
  

TAX TRENDS: WHAT YOU NEED TO KNOW

DIRECT TAX

New Form 3CD changes effective April 1, 2025:

• Clause 12: Includes Section 44BBC income

• Clause 21 & 22: Stricter compliance on legal expenses & MSME dues

• Clause 36B: Reporting on buybacks widened

 INDIRECT TAX

• Reverse charge scope expanded

• More precise documentation norms for ITC and export claims

TRANSFER PRICING

• Clear focus on economic substance, risk, and BEPS alignment
  
  

TwoTax Insight: Be proactive with documentation—especially for intercompany arrangements.

ESG & MARKET DYNAMICS

MUTUAL FUND FLEXIBILITY:

• SEBI proposes classifying REITs/InvITs as equity for MF exposure limits
  
  

ESG RATING FRAMEWORK:

• ERPs must disclose methodology, offer rating rationale to both issuers & subscribers, and implement transparent withdrawal policies
  
  

JUDICIAL & TRIBUNAL UPDATES

SUPREME COURT:

1. DTH Services Subject to Dual Taxation

On May 23, 2025, the Supreme Court upheld that Direct-to-Home (DTH) television services can be taxed under both entertainment tax (by states) and service tax (by the Centre). The Court confirmed that while the central government retains legislative powers to levy service tax under the Finance Act, state governments are equally competent to impose entertainment tax. This decision draws a clear demarcation between broadcasting services and the content being consumed—acknowledging that both can attract separate levies.

Impact: DTH providers must now factor in dual compliance and pass-through costs, while state and central authorities have clarity on jurisdiction.

2. Pre-deposit for GST Appeals via Input Tax Credit Allowed

In a landmark decision on May 19, 2025, the Supreme Court ruled that the mandatory 10% pre-deposit required for filing a GST appeal can be paid using the balance in the Electronic Credit Ledger (ECL). This judgment overturned restrictive interpretations by tax departments, allowing businesses to utilize available Input Tax Credit (ITC) to meet appeal prerequisites without immediate cash outflow.

Impact: Massive relief for taxpayers, especially MSMEs, enabling liquidity preservation while availing appellate remedies.

3. ?5,712 Crore GST Demand Against Paytm's First Games Stayed

On May 26, 2025, the Supreme Court granted a stay on proceedings related to a ?5,712 crore GST notice served to Paytm’s gaming arm—First Games. The case involves the Directorate General of GST Intelligence (DGGI), which alleged tax evasion on gaming transactions. The stay boosted investor confidence and triggered a minor rally in Paytm’s stock.

Impact: While the matter remains sub judice, this interim relief provides breathing space to the company and sets a precedent for tax notices issued in similar gaming sector cases.

HIGH COURT:

4. Bombay High Court Quashes NBW Against Arjun Rampal

The Bombay High Court, on May 16, 2025, quashed a non-bailable warrant issued against actor Arjun Rampal in a 2019 tax evasion probe. The Court criticized the Magistrate’s order as being "cryptic" and "mechanical," lacking legal reasoning or justification. The ruling reiterates the importance of judicial application of mind before issuance of coercive legal tools.

Impact: Reinforces procedural fairness and offers relief in cases involving procedural lapses by lower courts.

5. GST Not Applicable on Solatium for Land Acquisition

In a critical ruling, the Karnataka High Court declared that solatium paid to landowners under compulsory acquisition proceedings does not qualify as a supply under GST law. Solatium is additional compensation offered for involuntary emotional loss. The Court concluded that this payment isn’t consideration for any supply of goods or services.

Impact: Clarifies the non-taxable status of compensation elements in land acquisition, offering relief to project-affected landowners.

ITAT:

6. ITAT Rules in Favour of Assessee on Key Disallowances

On May 12, 2025, the Income Tax Appellate Tribunal (ITAT) deleted major disallowances made by the Assessing Officer under Section 14A (exempt income) and Section 115JB (MAT). The Tribunal ruled that there was no actual expenditure incurred for earning exempt income and that MAT computation adjustments were improperly applied.

Impact: Strengthens jurisprudence against arbitrary disallowances and affirms the need for reasoned assessments.

ADDITIONAL TAX & LEGAL UPDATES

INCOME TAX

Section 9 – Income Deemed to Accrue in India

In CIT v. Springer Nature Customer Service Centre GMBH, the Delhi High Court ruled that subscription fees received by a German company for e-magazines and content were not fees for technical services under Explanation 2 to Section 9(1)(vii), as the content was standardized and not tailor-made for any individual customer.

Section 12A & 12AB – Charitable Trust Registrations

In Human Welfare Foundation v. DCIT (Exemptions), Delhi Tribunal ruled against cancellation of charitable registration. The Foundation demonstrated that its services benefited all sections of society, not just a religious community, and that retrospective cancellation under Section 12AB(4) was invalid as the provision is prospective (effective from 1 April 2022).

Section 68 – Bogus Liabilities

In Harsha Associates (P.) Ltd. v. DCIT, liabilities shown as cheques issued to suppliers were held bogus due to lack of supporting bank statements and documents. These entries were treated as unexplained credits under Section 68 and added to taxable income.

Section 246 – Maintainability of Writ Petitions

In Manoj Naraindas Motwani v. ACIT, Bombay High Court dismissed a writ petition against assessment without exhaustion of alternative remedies, reinforcing the rule that appeals should be pursued before approaching writ courts.

GST LAWS

Stamp Duty and Procedural Justice

In Anand Jain v. State of Chhattisgarh, Chhattisgarh HC quashed an order that rejected refund of stamp duty paid in excess without providing reasons, highlighting the need for reasoned orders.

Definitions & Civil Disputes

In Beacon Tiles v. Bidhannagar Municipal Corporation, Calcutta HC held that disputes over contractor dues must be resolved in civil court—not via writs—if evidence like completion certificates is lacking.

Supply & Management Fees

In DMI Alternatives (P.) Ltd. v. Additional Commissioner, Delhi HC ruled that whether operational expenses incurred by fund managers formed part of taxable management fee required factual examination, best left for appellate forums.

Cancellation of Registration

In Ed and F Man Commodities India (P.) Ltd., Calcutta HC invalidated cancellation of GST registration where the show cause notice lacked reasons and key documents (e.g., inspection report) were withheld, violating principles of natural justice.

Section 73 – Faulty ITC Demand

In Niranjan Paul v. Assistant Commissioner, Calcutta HC set aside ITC denial where authorities failed to consider evidence of physical movement of goods, reinforcing the importance of evidentiary scrutiny.

Section 74 – Audit Memo-Based Orders

In Magicon Impex (P.) Ltd., Delhi HC advised petitioner to pursue appeal under Section 107 as the demand was well-reasoned, based on multiple audit memos.

Section 107 – Appeals and Delay

In Tvl. Sri Hari Enterprises and Dilip Kumar Gupta cases, Madras and Allahabad HCs respectively emphasized that minor procedural lapses or ex parte orders without fair hearing should not override appellate rights.

 Section 130 – Detention and Penalty

In M R Lub Industries, Gujarat HC directed notice on GST confiscation under Section 130 where procedural lapses were evident, including delayed issuance of detention forms.

Section 132 – Jurisdiction and Hearing

In Jain Bhadri Graphics, Delhi HC upheld departmental jurisdiction and noted proper hearing was granted—thus, assessee was advised to approach the appellate forum.

COMPANY LAW & SEBI

SEBI Expands AIF Investments

SEBI has expanded Category II AIF scope to include listed debt securities rated ‘A’ or below and securitized instruments. This move broadens the investment framework for fund managers, encouraging diversified allocations.

Inclusive Investing

SEBI’s revised FAQs clarify that persons with disabilities can open demat accounts without mandatory guardianship (unless legally required). KYC processes are now accessible with thumb impressions and e-sign options.

 Compliance Penalty on Analysts

In Pritam Prabodh Deuskar, SEBI imposed penalties under Section 15EB for failure to conduct mandatory audits under SEBI (Research Analysts) Regulations.

 Shareholder Quorum

In Dhani Services Ltd., NCLAT ruled that NCLT has no power to determine quorum—meeting quorum shall follow Section 103 of the Companies Act.

COMPETITION LAW

 No Evidence of Bid Rigging

In CMM/ Loco BLW Varanasi v. Kharagpur Metal Reforming Industries, CCI closed bid rigging probe on supply of locomotive parts, citing lack of collusion evidence under Section 3 of the Competition Act.

RBI & FEMA

Form InVI Filing Relaxation

RBI’s Circular (23-May-2025) provides a grace period of 180 days for reporting pre-23-May-2025 issuance of partly paid units by Investment Vehicles. No late fee (LSF) to be charged.

Business Correspondents for KYC

New RBI guidelines allow Business Correspondents to assist with KYC for activating dormant accounts and in unclaimed deposit cases. Draft instructions invite comments until June 6, 2025.

IBC & INSOLVENCY

Liquidation Estate Enforcement

In Anil Kohli v. Punjab National Bank, NCLAT ruled that any funds received from guarantors during liquidation must be credited to the liquidation estate, adhering to waterfall distribution under Section 53.

Limitation Period Strictly Applied

In Canara Bank v. Daaj Hotels & Resorts, NCLAT Chennai held CIRP application was time-barred since it was filed nearly 8 years after NPA classification—reaffirming the importance of the 3-year limitation under IBC.

TWOTAX EXPERT TAKE: READY. RELEVANT. RELIABLE.

From SEBI’s regulatory tightening to the Supreme Court reshaping GST deposit norms—this edition is a call to action. Whether you're a CFO, CA, or founder, the message is clear: compliance is evolving.

TwoTax Recommendation:

• Revisit financial statement recognition policies

• Review TP agreements and documentation

• Ensure ESG and RPT frameworks are audit-ready
  
  

We're here to help you cut through the clutter.

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