Sec 197 and proviso to Sect 149 (9) – Remuneration (exclusive of any fees payable) in accordance with Sch V of the Act, was allowed to directors including Managing or Whole time Director in case of no profits or inadequate profits. W.e.f. 18.03.2021, such remuneration can be paid to other Non-Executive Directors (NED) also including Independent Directors (ID).

MCA vide notification dated 18.03.2021 has, after the words “managerial person” included the words “other director or directors” at various places under Part II of Sch V of the Companies Act. Consequently, remuneration can be paid to NEDs & IDs in case of inadequate profits as per limits below:

CS Ramaswami Kalidas, an eminent Practicing Company Secretary has analysed this notification and relevant provisions in depth and has expressed his views through the article titled “Payment of remuneration to non-executive directors in case of absence or inadequacy of net profits – Notification of MCA dated March 18, 2021 – A Study”. The article has 10 minutes read time.

MCA vide Notification dated 24.03.2021, has notified the Companies (Audit & Auditors) Amendment Rules, 2021 which shall come into force on 01.04.2021. Changes brought about by the Rules are as follows:

• From 01.04.2021, only accounting softwares capable of recording audit trail i.e. trail of every transaction and edit log, shall be used by Companies. The Auditor shall report if the same has been complied with and that the audit trail facility has not been disabled or tampered with during the year.
• Whether or not dividend paid during the year is in compliance with Section 123 of the Companies Act, 2013, shall also form part of the Audit Report.
• The Auditor shall include in his report if the company has given any amounts as loan, investment or guarantee to any person / entity / foreign entities (collectively called as “intermediaries”) in addition to the amounts disclosed in the Notes to accounts and if the same has been advanced, invested or loaned by the intermediaries by / on behalf of the company or if the company has received funds from any entity (Funding parties) which the company has advanced, invested or loaned for / on behalf of the funding parties.

Our CA Associate is of the view that this is an existing problem with fraudulent corporates which record entries in the books like investments seemingly to an ‘unrelated’ party on the face of it but would have arrangements with the investee company to indirectly lend such money on behalf of the company or provide guarantees. Auditors many times are unable to identify these as diversion of funds or investments that are ultra vires the MOA or Companies Act or may be completely fraudulent. Similar is the case with receipt of funds which may actually carry a different character altogether. Companies may manufacture documentary evidence to prove otherwise which on the face of it may look genuine. Auditors are not likely to investigate these type of entries. Instead, they take a management representation which also may be inadequate. Therefore, the law now requires specific reporting by the auditor w.r.t. certain type of funds.

MCA vide notification dated 24.03.2021 has notified the Companies (Accounts) Amendment Rules, 2021, amending the Companies (Accounts) Rules, 2014 as follows:

• Companies using a software to maintain books of accounts are required to ensure that the software is capable of maintain an edit log and audit trail, from 01.04.2021. This is a welcome move to prevent companies from playing mischief through their accounting books. It calls for a security feature in the accounting software that does not allow any modification / deletion of accounting entries. Any changes will have to be done only through rectification entries that create a proper audit log. This also requires real-time accounting which some of the smaller companies may be negligent about.
• Following additional matters are required to be mentioned in the Board’s Report:
  • Details of applications made, or proceedings initiated under Insolvency & Bankruptcy Code, 2016, if any during the year.
  • Details of difference in valuation amounts at the time of one settlement and while availing loan from Banks or Financial Institutions along with reasons.

These disclosures are not applicable to One person companies and small companies.

The Companies (Amendment) Act, 2020 brought about following changes to the Companies Act, 2013 w.e.f.24.03.2021:

• Sec 124 (Unpaid dividend account) – (Fine to penalty) In case of contravention of the provisions, instead of fine, penalty shall be payable by the company and the officer in default (OID) as below:
  • Company – penalty of Rs. 1 lakh + Rs. 500 per day for continuing default, capped at Rs.10 lakhs.
  • OID – penalty of Rs. 25,000 + Rs. 100 per day for continuing default, capped at Rs.2 lakhs.
• Sec 247 (Registered valuer) – (Fine to penalty) In case of any default by the Registered Valuer (RV) in complying with provisions of this Section, the RV shall be liable to a penalty of Rs. 50,000.

Several changes have been brought about to Schedule III of Companies Act under Division I, II & III which include change in nomenclatures, reclassification of certain headings and greater disclosure w.r.t:

• Assets, payables, receivables, promoter’s shareholding, amounts borrowed from Banks & FIs but utilised for some other purpose, title deeds of Immovable Property not held in name of the Company, capital-work-in progress ageing schedule and completion schedule, benami properties held, relationship with struck-off companies, pending charges to be registered / satisfied beyond the statutory period, ratios, utilisation of borrowed funds and share premium both under Companies Act, 2013 and FEMA.
• Disclosures under P&L Account – CSR, Crypto currency.
• Above changes to be reported under IND-AS and NBFC (IND-AS).

The notification is effective from 01.04.2021 i.e. the changes will have to be factored in in the accounts for the financial Year 2021.

The Government of India has reviewed the FDI Policy w.r.t. Downstream Investment (DI) by an Indian entity owned and controlled by Non-Resident Indians (NRI) on non-repatriation basis. FDI policy has been amended to the effect that such investment will be treated as a domestic investment and accordingly shall not be considered as FDI for calculation of indirect foreign investment. DPIIT Press Note dated 19.03.2021 may be referred to.

IBBI vide notification dated 15.03.2021, has notified the timelines for filing Form CIRP-7 indicating completion of activities in the ongoing Corporate Insolvency Resolution Process (CIRP) by the Interim Resolution Professional or the Resolution Professional.

Revised Form CIRP-7 has also been notified as an Annexure to the Circular.

As part of the IT- revamp of the DGFT filing process, an online module for filing of electronic and paperless applications for import authorisation has been introduced w.e.f. 22.03.2021. Applications seeking for import authorisation for restricted matters shall be filed electronically w.e.f. 22.03.2021.

The Central Board of Direct Taxes (CBDT) notifies the forms for a new scheme for trusts which comes into effect from 01.04.2021, which is a completely new system of online registration. Even old trusts have to apply afresh. The Board notified the Income-tax (6th Amendment) Rules, 2021 which seeks to further amend Income-tax Rules, 1962. The amendments are related to Rule 2C, Form Nos. 10A, 10AB, Rule 5C, 5F, Rule 11AA, Rule 17A and insertion of Rule 5CA, 18AB. Please refer to Notification for complete text.

Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer (AO), to determine the appropriate proportion of such sum so chargeable. The tax shall be deducted only on such proportion of the sum determined by the AO as chargeable.

CBDT vide notification dated 16.03.2021 has inserted new rule 29BA and prescribed FORM No. 15E for the aforesaid purpose.

CBDT vide an Order dated 25.03.2021 deferred and postponed the reporting requirement of Clause 30C and Clause 44 related to GAAR and GST respectively in Tax Audit Report (Form 3CD) from 31.03.2021 to 31.03.2022.

Earlier, the date was extended to 31.03.2021 by the CBDT vide an Order dated 24.04.2020. Due to the continuing pandemic situation, CBDT has once again deferred and extended the reporting requirement under clauses 30C and 44 in Form 3CD to 31.03.2022.

1.Refund against deemed export – Clarified

Issue – recipient of deemed export supplies for obtaining the refund of tax paid on such supplies shall submit an undertaking that he has not availed ITC on invoices for which refund has been claimed but when they proceed to file refund on the portal, the system requires them to debit the amount so claimed from their electronic credit ledger.

Clarification – Circular dated 18.11.2019 is modified to remove the restriction of non – availment of ITC by the recipient of deemed export supplies on the invoices, for which refund has been claimed by such recipient. Now recipient claiming refund of deemed export can claim ITC and then subsequently proceed for its refund thereof.

2.Extension of relaxation for filing refund claim in cases where zero-rated supplies – wrongly declared

Issue – A validation check has been placed on common portal which prevented the value of refund of IGST / Cess declared in FORM GST RFD 01 A from being more than the amount of integrated tax / Cess declared in table 3.1 (b) of FORM GSTR-3B. However, in various cases, the taxpayers had inadvertently entered the details of export of services or zero-rated supplies to SEZ Unit / Developer in Table 3.1 (a) instead of Table 3.1 (b) of GSTR-3B.

Clarification – Through this circular, relaxation in filing of refund claims as provided in Circular dated 18.11.2019 had been extended till 31.03.2021.

3.Manner of Calculation of Adjusted Total Turnover

Issue – CBIC vide Notification dated 23.03.2020 imposed a restriction that the turnover of zero-rated supply of goods shall not exceed 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier. Now, the doubts had been raised if it would also apply for computation of “Adjusted Total Turnover” in the refund formula.

Clarification – CBIC has clarified that value of export/zero-rated supply of goods to be included while calculating “adjusted total turnover” will be same as being determined as per amended definition of “Turnover of zero-rated supply of goods” in the said sub-rule. The restriction of 150% of the value of like goods domestically supplied, as applied in “turnover of zero-rated supply of goods”, would also apply to the value of “Adjusted Total Turnover”.