Taxmann – This Week
Welcome to Taxmann.com | Newsletter – Reporting the Facts with Taxmann’s Analysis. This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from February 17th to 15th, 2025, namely:
a) SEBI proposes SIM-binding and biometric authentication to secure trading accounts;
b)?Money in bank accounts is a property liable for provisional attachment under section 281B: HC;
c)?Order rejecting refund application to be set aside as deficiency memo in Form GST RFD-03 was not issued to petitioner: HC;
d)?Rejection of refund application on grounds of delay is unjustified as refund of pre-deposit is a vested right: HC;
e)?AASB of ICAI has issued the 2025 edition of the Guidance Note on audit of banks and
f) Accounting treatment for investments in debentures of a subsidiary in standalone financials under Ind AS framework.
1.?SEBI proposes SIM-binding and biometric authentication to secure trading accounts
a) Introduction
With the rapid evolution of technology, trading has become more accessible than ever. However, it has also introduced risks such as unauthorized access, SIM spoofing, identity theft, and fraudulent account modifications. To mitigate these threats, SEBI formed a working group to recommend security enhancements for trading platforms. Now, the SEBI has issued a consultation paper dated February 18, 2025, proposing new technology-based measures to strengthen authentication measures, ensuring greater security for trading and demat accounts while protecting investors from unauthorized transactions, fraud and identity theft.
b) Proposed Framework– Enhancing Authentication and Preventing Fraud
SEBI's proposed framework focuses on robust authentication mechanisms and additional security layers to prevent unauthorized trading activities. The primary measures include:
Hard Binding of SIM-Linked Devices for Secure Trading
Stock exchanges will implement a hard binding mechanism linking a client’s Unique Client Code (UCC) with their registered mobile number (SIM) and device IMEI number, making it the primary SIM-bound device. Clients may register one additional device as a secondary SIM-bound device, with both devices remaining active only if within a 100-meter proximity.
However, trading can be conducted from only one device at a time, and if the secondary device moves beyond the specified distance, it will be logged out automatically. This one-time binding process allows for revocation and re-registration through KYC via IPV or virtual IPV in case of device change or loss.
Biometric Authentication
Biometric authentication (such as fingerprint or facial recognition) will be required to log into primary SIM-bound devices. This ensures enhanced security by preventing unauthorized access, even if login credentials are compromised.
Multiple Device Logins and Family Account Access
To enhance security, logging in from additional devices like desktops or laptops will require proximity-sensitive QR code-based authentication. Family members with linked accounts (such as HUF or joint accounts) can access trading platforms using the same primary device with proper authorization.
Temporary Lock-In and Session Management
Investors will have the option to temporarily lock their trading accounts to prevent unauthorized access. Additionally, they can track active sessions across multiple devices, similar to social media platforms that notify users of logins from new locations.
Call and Trade Security Enhancements
To enhance security in call and trade transactions, SEBI proposes that brokers use dedicated phone numbers or email addresses for client communication. All calls must be recorded with timestamps, ensuring transparency while OTP-based authentication will be mandatory for order execution to prevent unauthorised trades.
c) Applicability and Implementation
The framework will be implemented in a phased manner, starting with the top 10 Qualified Stock Brokers (QSBs), who must adopt these measures within 6 months. Initially, investors can opt-in for enhanced authentication, with mandatory adoption in later phases. Additionally, all stock brokers and depository participants must comply with these provisions other than the authentication mechanism.
d) Conclusion
SEBI's proposed framework is expected to enhance the security of trading and demat accounts through advanced authentication measures such as SIM-based device binding, biometric authentication, and session management. These measures will help prevent unauthorized access, fraudulent transactions, and identity theft while giving investors greater control over their accounts. With a phased implementation, SEBI aims to ensure a smooth transition, strengthening the overall security and integrity of the trading ecosystem. Public Comments may be submitted by March 11, 2025.
2.??Money in bank accounts is a property liable for provisional attachment u/s 281B: HC
The police seized a huge amount of cash from a car in which the assessee was riding. After recording reason to believe that income chargeable to tax had escaped assessment, proceedings were initiated in relation to the same by the issuance of notice under Section 148.
The expected demand on assessment, including penalty, would be a substantial amount exceeding two crores. The competent authority of the Department ordered provisional attachment of the Bank accounts of the assessee under section 281B.
The matter reached the Kerala High Court.
The High Court held that the word 'property' is a word of very wide connotation. It is relevant to note that section 281B(1) provides for the provisional attachment of 'any property'. The prefix 'any' to the word 'property' has much significance. It indicates that the word 'property' occurring therein is not to be comprehended in a restricted sense.
Therefore, 'any property' mentioned in section 281B(1) would take within its sweep, money lying in the bank account also. Section 281B(1) provides for the provisional attachment of any property belonging to the assessee in the manner provided in the Second Schedule to the Act. The Second Schedule to the Act is titled, 'Procedure for Recovery of Tax'. Evidently, except for the property exempted from attachment under the Code of Civil Procedure, 1908 (CPC), other properties are liable to attachment.
Section 60 CPC provides the property liable to attachment. Noticeably, section 60(1) CPC specifically states that money is an attachable property. Properties that are not liable to attachment have been specified in the proviso to the section. Therefore, money in a bank account is property liable to attachment.
There could be instances where the assessee does not own immovable property sufficient enough to secure the likely demand, but there are sufficient funds in the bank account. The power for provisional attachment is provided to protect the interest of the revenue. There is no warrant to hold that money lying in a bank account is not liable to attachment.
3.?Order rejecting refund application to be set aside as deficiency memo in Form GST RFD-03 was not issued to petitioner: HC
The Honorable Bombay High Court has recently held that order rejecting refund application to be set aside since deficiency memo in Form GST RFD-03 is not issued to petitioner. This ruling is given in case Raiden Infotech India (P.) Ltd. vs. State of Maharashtra.
Facts
The assessee, a petitioner seeking a refund of accumulated input tax credit (ITC) under the GST regime, filed a refund application. The proper officer raised concerns about deficiencies in the application and issued a show cause notice (SCN) to the petitioner. However, the petitioner failed to respond to the SCN or attend the scheduled personal hearing. Consequently, the refund application was rejected in Form GST RFD-06. Aggrieved by the rejection order, the petitioner filed a writ petition before the Bombay High Court, challenging the decision on the grounds that no deficiency memo in Form GST RFD-03 had been issued, and that procedural fairness had been violated.
Held
The Hon’ble Bombay High Court observed that the deficiency memo in Form GST RFD-03 may not have been issued to the petitioner and the petitioner failed to respond to the show cause notice or attend the personal hearing which led to the rejection of the refund application. The Court held that the petitioner must accept responsibility for not availing the opportunities provided to address the deficiencies. The refund application was restored, subject to the petitioner paying a cost of Rs. 2,00,000 within 4 weeks.
4.?Rejection of refund application on grounds of delay is unjustified as refund of pre-deposit is a vested right: HC
The Honorable Jharkhand High Court has recently held that refund of pre-deposit is a right vested on an assessee after an appeal is allowed in its favour and application can’t be rejected on grounds of delay by taking aid of a provision which on face of it is directory. This ruling is given in the case of BLA Infrastructure (P.) Ltd. vs. State of Jharkhand.
Facts
The petitioner, a registered dealer under the GST Act, received a show-cause notice under Section 74 of the JGST Act for a mismatch in GSTR-1 and GSTR-3B. The proper officer passed an order demanding tax, interest, and penalty. The petitioner appealed before the Appellate Authority with a 10% pre-deposit of the disputed tax. The appeal was allowed, and Form GST APL-04 was issued. The petitioner applied for a refund of the pre-deposit under Section 54(1), but it was rejected as time-barred. Aggrieved, the petitioner approached the Jharkhand High Court.
Held
The Hon’ble Jharkhand High Court held that the refund of a statutory pre-deposit is a vested right once an appeal is allowed. Since the pre-deposit is a statutory requirement and not an independent tax liability, its refund cannot be denied based on a directory provision. The Court found that interpreting "may" in Section 54(1) as mandatory would be unreasonable and conflict with the Limitation Act, 1963. Thus, the rejection order was set aside, and the Revenue was directed to process the refund.
5.?AASB of ICAI has issued the 2025 edition of the Guidance Note on audit of banks
The 2025 edition of the Guidance Note on Audit of Banks, issued by the Auditing and Assurance Standards Board (AASB) of ICAI, serves as a crucial resource for auditors, ensuring compliance with evolving regulatory and accounting standards. Covering both Statutory Central Audit and Bank Branch Audit, it provides structured guidance on financial reporting, internal controls, and compliance with RBI regulations. With updates including master circulars, directions, and FAQs, the Guidance Note helps auditors navigate the complexities of bank audits, enhancing risk assessment, transparency, and audit quality in the banking sector.
6.?Accounting treatment for investments in debentures of a subsidiary in standalone financials under Ind AS framework
The classification and accounting treatment of investments in debentures of a subsidiary in standalone financial statements is a crucial area under the Indian Accounting Standards (Ind AS) framework. A common challenge arises when companies need to determine whether such investments should be accounted for as an investment in a subsidiary under Ind AS 27, Separate Financial Statements or as a financial asset under Ind AS 109, Financial Instruments. This distinction is critical as it impacts the presentation, measurement, and recognition of financial instruments in financial statements.
For example consider a situation where a parent company holds 60% shareholding in its subsidiary and, in addition, invests in non-convertible debentures issued by the subsidiary. These debentures carry a fixed interest rate and are redeemable after a fixed term. The issue that arises is whether such debentures should be classified as part of the investment in subsidiary or as a separate financial asset in the standalone financials of the parent company.
Ind AS 27 states that investments in subsidiaries, joint ventures, and associates in separate financial statements should either be measured at cost or in accordance with Ind AS 109. However, to be classified as an investment in a subsidiary, an instrument must meet the definition of equity under Ind AS 32, which requires that it represents a residual interest in the net assets of the subsidiary. Since debentures are financial liabilities of the issuing entity (subsidiary), they do not meet the definition of an equity instrument and, therefore, cannot be treated as part of an investment in a subsidiary under Ind AS 27.
Instead, Ind AS 109 applies, which governs the classification and measurement of financial instruments. Under Ind AS 109, financial assets are classified based on the business model for managing the asset and the contractual cash flow characteristics. If the debentures are held to collect contractual cash flows consisting of solely principal and interest payments, they should be classified as financial assets measured at amortized cost. This ensures a proper reflection of the economic substance of the investment and aligns with Ind AS requirements.
Thus, in cases where a company has invested in debentures issued by its subsidiary, such investments should not be classified as an investment in subsidiary under Ind AS 27 but rather accounted for as a financial asset under Ind AS 109. Proper classification helps maintain clarity in financial reporting, ensuring that financial statements accurately reflect the nature of investments and comply with Ind AS framework.
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