TaxCorp Daily Digest

Your trusted source for Indian tax, regulatory & legal intelligence

📋 Quick Summary

• GST Compliance Alert: Multiple High Court rulings this week reshape ITC eligibility rules — covering Section 16(2)(c) buyer protections, extended timelines under Section 16(5), and the mandatory year-wise segregation of assessment orders
• Income Tax Filing Season: AY 2026-27 brings complex compliance obligations with revised capital gains rates, a dual legislative framework, and stricter penalty provisions — professionals must act now
• Search & Reassessment Limits Clarified: Gujarat High Court sets a definitive formula for computing the 10-year block under Section 153A, invalidating notices issued beyond jurisdictional limits
• Audit Firm Alert: NFRA has published a provisional default roster for Form NFRA-2 non-filers; firms must verify their status immediately before the assessment date of 30.04.2026

📂 Category-wise Updates

🔵 Income Tax

1. Critical ITR Filing Errors to Avoid for AY 2026-27: Deadlines, Capital Gains Rates & Compliance Guide

AY 2026-27 is unusually complex due to the transitional overlap between the Income Tax Act, 1961 and the newly enacted Income Tax Act, 2025 — returns for FY 2025-26 remain fully governed by the 1961 legislation. Post-Budget 2024 capital gains rates now apply (STCG at 20%, LTCG at 12.5% above ₹1.25 lakh), and Budget 2026 introduces penalties up to 200% for deliberate misreporting.

⚡ Action Item: ITR-3 and ITR-4 filers have an extended deadline of 31 August 2026. Reconcile all income entries against the upgraded AIS immediately to avoid underreporting flags.

2. Capital vs Revenue Receipts Under Income Tax Act 1961: Practical Analysis and Key Case Law

The capital vs. revenue classification of receipts directly determines tax liability, applicable rate, and eligibility for beneficial provisions such as Section 112A. Courts apply a multi-factor test examining the purpose of payment, nature of rights affected, and whether the receipt represents loss of source versus loss of future profits. With GAAR in Chapter X-A, structures aimed solely at re-characterising revenue receipts warrant heightened scrutiny.

⚡ Action Item: Review all one-time receipts and compensation payments in your client portfolio and map them against the judicial tests established in landmark rulings before filing.

3. Reassessment Beyond 10-Year Limit After Search: Gujarat High Court Explains How to Count the Block of Years

In Dilipbhai Prabhudas Patel Vs DCIT, the Gujarat High Court confirmed that for search-based assessments under Section 153A, the assessment year relevant to the year of search is included as Year 1 of the 10-year block. A search conducted on 08.02.2024 anchors the block at AY 2024-25, rendering any Section 148 notice for AY 2014-15 or earlier jurisdictionally invalid.

⚡ Action Item: Where clients have received post-search reassessment notices, immediately verify the search date and map all notices against the correct 10-year block. Challenge any notice falling outside the computed window.

4. ITAT Delhi Quashes Massive Cash Payment Disallowances and Unsecured Loan Additions in Contractor Scrutiny

In ACIT Vs United Hitech Pvt. Ltd., the ITAT Delhi deleted a Section 40A(3) disallowance of ₹3.14 crore, holding that bulk internal cash transfers to remote project sites do not violate the ₹10,000 daily limit when individual disbursements to labourers remain below the threshold. The tribunal also confirmed that interest on delayed EPF/ESI/Service Tax payments is compensatory and fully deductible under Section 37(1).

⚡ Action Item: Contractors and infrastructure companies should maintain site-level disbursement registers to substantiate that individual cash payments stay within prescribed limits.

5. ITAT Delhi on Notional Interest, Section 14A and Forex Amortization: Key Principles from ACIT Vs Aamby Valley Ltd.

The ITAT Delhi reaffirmed three foundational principles: (i) notional interest on business advances cannot be taxed absent actual accrual or contractual right; (ii) Section 14A disallowance is impermissible in years where no exempt income is earned; and (iii) deductions are allowable in the year liability crystallises, regardless of the period to which they relate.

⚡ Action Item: Review all Section 14A disallowance orders for assessment years where no exempt income was actually earned — these are challengeable on the strength of this ruling.

6. Calcutta High Court Directs Refund of Excess Section 245 Adjustment Beyond 20% of Disputed Demand During Pending Appeal

In P. S. Srijan Height Developers Vs ACIT, the Calcutta High Court held that adjusting a refund under Section 245 on the very next day after issuing intimation violates natural justice. The Court further clarified that while filing an appeal does not create a deemed stay, the Assessing Officer must exercise adjustment powers fairly and cannot recover beyond 20% of the disputed demand during a pending appeal.

⚡ Action Item: Any client whose full refund has been adjusted while an appeal is pending should immediately file a rectification/representation and, if necessary, approach the High Court for recovery of the excess adjusted amount.

7. Jurisdictional Boundaries of CIT(A) Under Section 251: ITAT Mumbai Quashes Unexamined Income Enhancement in Skyline Greathills Vs DCIT

The ITAT Mumbai quashed a CIT(A) enhancement that introduced entirely new income heads not examined by the Assessing Officer, holding that such action falls outside appellate jurisdiction under Section 251. Any investigation into new income sources must follow the designated route of Section 263 or Section 147. The ruling also confirms that JDA security deposits received by non-shareholders are not subject to deemed dividend treatment under Section 2(22)(e).

⚡ Action Item: When facing appellate proceedings, proactively object to any enhancement attempt covering heads not in the original assessment order — such enhancements are jurisdictionally unsustainable.

8. Decoding the Mechanics of Tax Deducted at Source and Advance Tax: Statutory Mandates, Applicability, and Penalties

A comprehensive guide to TDS and Advance Tax obligations covering the legislative matrix, staggered quarterly payment requirements, and the full spectrum of penal consequences including mandatory interest under Sections 234B and 234C for default. In an era of AI-based tax analytics, precise compliance with deduction, remittance, and reporting timelines is non-negotiable.

⚡ Action Item: Conduct an immediate TDS calendar audit for all clients. Verify Q1 FY 2025-26 advance tax calculations and ensure timely remittance to avoid cascading interest liabilities.

9. ITAT Indore Mandates Verification of Form 16A and Form 26AS for Resolving TDS Credit Mismatches

In Shree G. T. Sales Vs DCIT/ACIT-1(1), the ITAT Indore directed physical verification of Form 16A and updated Form 26AS to resolve TDS credit mismatches arising from automated Section 143(1) processing. The tribunal also condoned a 130-day filing delay, recognising practical challenges with electronic communication, and reinforced that legitimate tax credits cannot be denied on account of temporary systemic discrepancies.

⚡ Action Item: Periodically reconcile books with Form 26AS and AIS. Where mismatches exist, collate Form 16A from all deductors well before filing season to preempt demand notices.

🟠 GST

10. AP High Court Invalidates Composite GST Assessment Order Spanning Multiple Financial Years in Avika Steel Mart Case

The Andhra Pradesh High Court in Avika Steel Mart Vs Union of India ruled that composite assessment orders covering multiple financial years violate the foundational structure of Sections 73 and 74 of the GST Act. Each financial year must be assessed through a separate, self-contained order — consolidated multi-year demands are legally untenable.

⚡ Action Item: Scrutinise all pending show-cause notices and assessment orders for the tax period covered. If a single order spans multiple years, raise a preliminary legal objection citing this judgment.

11. Andhra Pradesh High Court on Extended ITC Timelines Under Section 16(5) of GST Act

In Kameswari Agencies Vs Assistant Commissioner, the AP High Court held that Section 16(5)'s extended deadline of 30.11.2021 prevails over the general Section 16(4) restriction for ITC pertaining to FY 2017-18 through FY 2020-21. The Court quashed DRC-07 orders rejecting such ITC claims and remanded the matter for fresh consideration.

⚡ Action Item: Identify all clients whose ITC claims for FY 2017-18 to FY 2020-21 were rejected invoking Section 16(4). File rectification applications or writ petitions relying on this ruling.

12. Section 16(2)(c) & 180-Day Payment Condition Under GST: Why Genuine Buyers Are Being Forced to Pay Twice

A critical analysis of how Section 16(2)(c) read with Rule 37A effectively penalises bona fide buyers for their suppliers' defaults in tax remittance — even where the buyer has received genuine supplies and paid full consideration including GST. While Gujarat and Kerala High Courts uphold the framework strictly, courts in Tripura, Karnataka, Allahabad, and Gauhati have adopted protective approaches for genuine purchasers.

⚡ Action Item: Build a supplier compliance monitoring system. Before ITC claims, verify supplier GSTR-3B filing status on the GST portal. Maintain documentary evidence of payments to establish bona fide purchaser status.

13. GST Treatment of Canteen Facilities in Offices and Factories: Complete Scenario-Based Guide

ITC eligibility on canteen services turns on whether the factory has a statutory obligation under Section 46 of the Factories Act (250+ workers). Post-01.01.2022, ITC is available for mandatory canteen provisions via contractors, and nominal employee recoveries do not trigger a separate taxable supply. Where no statutory obligation exists, ITC is blocked and employee recoveries may constitute taxable outward supply.

⚡ Action Item: Factories approaching the 250-worker threshold should reassess their canteen contract structures. All employers should document whether their canteen obligation is statutory or voluntary to correctly determine ITC eligibility.

14. Orissa High Court Directs GST Assessee to Approach GSTAT After Tribunal Becomes Functional

In Fayaj Infratech Private Limited Vs Joint Commissioner (Appeal), the Orissa High Court disposed of the writ petition now that GSTAT is operational, directing the assessee to approach the tribunal. Critically, the Court reaffirmed that the mandatory pre-deposit under Section 112(8) — full admitted dues plus 10% of disputed tax, capped at ₹20 crore — cannot be bypassed through writ proceedings.

⚡ Action Item: All assessees with pending writ petitions filed solely due to GSTAT's non-functionality must transition to GSTAT before the extended deadline of 30 June 2026 and arrange the requisite pre-deposit.

15. GST Burden on Pre-Regime Works Contracts: Comprehensive Analysis of the Chhattisgarh High Court Verdict

The Chhattisgarh High Court Division Bench in State of Chhattisgarh Vs D.A. Enterprises held that contractors cannot claim GST reimbursement from the State where the contract explicitly assigns all tax liability to the contractor. The court further directed use of the prescribed arbitration mechanism under the Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983, rather than invoking writ jurisdiction prematurely.

⚡ Action Item: Contractors executing government contracts entered into before 01.07.2017 should review all contractual tax clauses before initiating any reimbursement claims or litigation.

16. GST in India: Evaluating the 'One Nation One Tax' Vision — Achievements, Structural Challenges & the Road Ahead

A comprehensive policy analysis of GST's seven-year journey — from its constitutional innovations under Articles 246A and 279A to persistent challenges including multiple tax slabs, exclusion of petroleum, compliance burdens on MSMEs, delayed refunds, and the constitutional implications of the Supreme Court's ruling in Mohit Minerals. The piece charts structural reforms needed to fulfil GST's original promise.

⚡ Action Item: Businesses with pending GST refund claims should audit their refund applications for completeness and engage proactively with jurisdictional officers given the systemic delays identified.

🟣 Company Law

17. Regulatory Alert: NFRA Issues Provisional Roster of Audit Firms Defaulting on Annual Return Form NFRA-2 for 2024-25

NFRA has published a provisional list of audit firms that have failed to file Form NFRA-2 for the 2024-25 reporting period under Rules 3 and 5 of the NFRA Rules, 2018. The original deadline covered audit reports signed between 01.04.2024 and 31.03.2025, with the assessment date set at 30.04.2026. The filing window remains open for late submissions.

⚡ Action Item: All audit firms covered under Rule 3 must immediately verify their status on the NFRA provisional roster. Firms that have already filed or face technical difficulties must contact the regulatory helpdesk before 30.04.2026.

18. ICAI NIRC Member's Seat Vacation Quashed: Delhi High Court Rules 70th Meeting Notice Procedurally Invalid Under Regulation 142

In Gaurav Aggrawal Vs ICAI, the Delhi High Court upheld Regulation 135(3)'s self-executing deeming fiction but held that Regulation 142's notice requirement — specifically the need for majority member approval when meetings are convened on less than seven clear days' notice — is mandatory, not directory. Applying the "exclude both terminal dates" principle, the 70th meeting was effectively held on only six clear days' notice, making the entire chain of actions procedurally invalid.

⚡ Action Item: All ICAI regional committees must strictly adhere to the seven clear-day notice requirement under Regulation 142. Where shorter notice is unavoidable, majority member approval must be formally documented before proceeding.

🔴 SEBI

19. FAQs on SEBI Annual Activity Report (AAR) for Alternative Investment Funds: Interpretational Guidance for AIF Managers

SEBI's AAR framework under the AIF Regulations 2012 and the Master Circular dated 07.05.2024 requires scheme-level disclosure of investor commitments, leverage, co-investments, and related party transactions. Key defined terms — Corpus, Investable Funds, First/Final Close, Uncalled Commitment, and Leverage — carry specific regulatory meanings, and where definitions are absent, Fund Managers must adopt internally consistent, PPM-aligned interpretive positions.

⚡ Action Item: AIF Fund Managers should conduct a complete AAR readiness audit, align internal definitions with regulatory meanings, and ensure all scheme-level disclosures are consistently documented across fund documentation and regulatory filings.

⚪ Others

20. The Illusion of Solvency: Why 'Profitable' Indian MSMEs Are Succumbing to Cash Flow Paralysis

Indian MSMEs are collapsing not from lack of sales but from the inability to convert receivables into liquid cash. Accrual-based tax obligations drain working capital while extended credit cycles worsen the gap. Financial institutions now scrutinise GST compliance consistency, real-time cash flows, and digital banking behaviour — making statutory discipline as critical as revenue generation.

⚡ Action Item: MSME advisors should immediately implement daily cash flow dashboards for clients and review GST filing consistency — these now directly impact creditworthiness and loan eligibility.

21. Why Banks Reject MSME & Startup Loan Applications: 25 Critical Project Report Errors to Avoid in 2026

Banks now use AI-based underwriting, GST data matching, ITR verification, and independent market surveys to validate every claim in a Detailed Project Report. The 25 most common and consequential DPR errors include inflated sales projections, incorrect DSCR calculations, poor banking conduct, and generic copy-paste reports — all of which are now identified with far greater precision than previously.

⚡ Action Item: Before submitting any MSME or startup loan application, validate all financial projections against actual GST returns and ITR data. Ensure DSCR calculations reflect realistic repayment capacity.

22. NCLT Mumbai Sanctions Mantra Properties' Resolution Plan for Nirmal Lifestyle Following Unanimous CoC Approval and Re-Voting

The NCLT Mumbai approved a resolution plan under Regulation 39(3B) following re-voting that achieved unanimous CoC approval, providing procedural clarity on breaking CIRP deadlocks. The ruling confirms that resolution applicants acquire assets on an "as is where is" basis and that pending civil title suits over third-party properties are not extinguished by the CIRP.

⚡ Action Item: Resolution professionals and applicants should separately identify and disclose all third-party property disputes in the information memorandum to set bidder expectations accurately.

23. NCLT Indore Dismisses Liquidator's Confidentiality Breach Application: Inadvertent Email to Bidder Not a Deliberate Violation

The NCLT Indore dismissed an application alleging breach of liquidation confidentiality, finding that an inadvertent email chain including a prospective bidder — caused by an email auto-suggest feature — did not contain commercially sensitive information capable of prejudicing the bidding process. The Tribunal drew clear jurisdictional lines on SCC participant obligations.

⚡ Action Item: Liquidators and insolvency professionals should implement mandatory email address verification protocols before any communication involving bidder or SCC participant data.

24. Delhi HC Orders Xiaomi to Provide ₹272 Crore Security in FRAND–SEP Dispute: Key Legal Takeaways

In Malikie Innovations Ltd. & Anr. Vs Xiaomi Corporation & Ors., the Delhi High Court directed approximately ₹272 crore as interim security for alleged use of 3G/4G/5G SEPs without a concluded FRAND licence. The Court held that pro tem security can be mandated even before determinations on validity, essentiality, or infringement, and emphasised the reciprocal nature of FRAND obligations on both SEP holders and implementers.

⚡ Action Item: Technology companies using standardised communication protocols should conduct a proactive SEP/FRAND licence audit to identify and address any unlicensed use before litigation crystallises.

25. Tamil Nadu's Hung Assembly: Coalition Arithmetic, Constitutional Norms & Political Expediency

An analytical overview of the post-election constitutional dynamics in Tamil Nadu where TVK, with 108 MLAs, falls short of the 117-seat majority threshold. The piece examines the tension between constitutional convention and political expediency in governor discretion, coalition formation, and the long-term policy implications of unstable alliance governments.

⚡ Action Item: Businesses and investors in Tamil Nadu should monitor coalition stability closely given its direct impact on state fiscal policy, infrastructure commitments, and ease-of-doing-business measures.

⏰ Key Deadlines & Action Items

💡 Professional Takeaways

1. Procedural Compliance Is Now Substantive Defence
This week's rulings — from the NFRA default roster to the Delhi HC's ICAI notice quashing, the AP HC's year-wise GST assessment mandate, and the Calcutta HC's Section 245 ruling — collectively signal that procedural safeguards are being enforced with equal rigour as substantive tax law. For tax professionals, building compliance systems that are process-correct, not merely outcome-oriented, is no longer optional. Every notice, every assessment order, and every meeting resolution must be examined for procedural validity before engaging on merits.

2. ITC Architecture Under Stress — A Strategic Opportunity for Advisors
The juxtaposition of the AP HC's Section 16(5) ruling (protecting buyers), the Section 16(2)(c) analysis (exposing buyers to supplier defaults), and the canteen ITC guide reveals that the GST ITC framework remains deeply inconsistent and actively litigated. Professionals who build structured supplier vetting processes, maintain robust payment documentation, and monitor evolving High Court positions across jurisdictions will deliver measurable, quantifiable value to their MSME and corporate clients in the current environment.

3. The Convergence of Tax, Credit & Survival for MSMEs
The dual articles on MSME cash flow paralysis and project report errors underscore a paradigm shift: GST compliance records, ITR filing history, and banking behaviour are no longer just regulatory obligations — they are the primary determinants of credit access and business survival. Tax professionals serving MSME clients must evolve from compliance advisors to integrated financial health managers, actively connecting regulatory discipline to working capital strategy and loan readiness.

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