Revenue Split vs TNMM in Transfer Pricing

Choosing the Most Appropriate Method under Section 92C – A Strategic Assessment Guide (Delhi ITAT – 2025 TaxPub(DT) 6050)

“Arm’s length begins with pricing logic — not with margins discovered later.”

Choosing the Most Appropriate Method under Section 92C – An Assessment-Grade & Policy-Ready Professional Guide

*“In transfer pricing, adjustments are rarely born from numbers.

They are born from incorrect method selection.”*

In the vast majority of transfer pricing cases, adjustments do not originate because margins are low or comparables are imperfect.

They originate far earlier — at the moment TNMM is mechanically adopted, without first asking the legally mandated question:

Is CUP feasible for this transaction?

This phenomenon is most visible in freight forwarding, logistics coordination, and intermediary service models, where business reality operates on pre-agreed pricing formulas, not on residual profit expectations.

The recurring controversy is therefore fundamental, not technical:

Can a revenue split represent a valid CUP, or must the transaction inevitably collapse into TNMM merely because margin benchmarking is easier?

Reasoned Reality

TNMM is frequently preferred because it:

• Requires minimal understanding of transaction mechanics

• Aggregates outcomes instead of analysing pricing behaviour

• Provides statistical comfort to the authority

However, ease of application is not a criterion recognised by Section 92C.

Professional Caution

Once TNMM is prematurely adopted:

• Transaction-level pricing logic is irretrievably lost

• Intermediary economics are mischaracterised as entrepreneurial

• The taxpayer is forced into a margin defence — a structurally weak position

Why the Delhi ITAT Decision Matters (2025 TaxPub(DT) 6050)

The Delhi ITAT ruling does not create taxpayer preference.
It restores statutory discipline.

It reiterates that:

• Method selection is a legal exercise, not an administrative one

• TNMM is not a default or “safe” method

• CUP cannot be rejected without demonstrating why it fails

This post is therefore not commentary.
It is a professional operating manual for:

• Method selection at TP policy stage

• Assessment-stage defence

• Documentation architecture

• Litigation risk containment

Statutory Framework — Section 92C as Enacted, Not as Conveniently Applied

Section 92C mandates that ALP be determined using the most appropriate method, considering:

• Nature of the international transaction

• Class of associated enterprise

• FAR profile

• Availability and reliability of data

Reasoned Interpretation

The statute does not prioritise methods based on:

• Officer familiarity

• Ease of benchmarking

• Litigation convenience

Professional Caution

There exists no statutory hierarchy making TNMM the default.

Under Rule 10B(1)(a):

• CUP is the first method where price can be directly determined

• TNMM is permissible only after CUP is shown to be unworkable

TNMM is a method of last resort — not administrative convenience.

Foundational Principle Reaffirmed by Courts

Price precedes profit. Always.

Arm’s length analysis tests:

• Whether independent parties would agree to the same price or pricing formula

It does not test:

• Whether the resultant margin appears reasonable or comfortable

Reasoned Logic

Profit is an outcome.
Testing outcomes instead of pricing behaviour reverses the statutory design.

Professional Caution

When margin comfort becomes the test:

• Thin-margin intermediaries become structurally vulnerable

• Commercial behaviour is replaced by statistical averages

Where pricing mirrors market behaviour, ALP is satisfied — even if margins fluctuate.

Revenue Split: CUP or Profit Split? — The Decisive Characterisation Test

Revenue authorities frequently misclassify revenue split models as Profit Split Method (PSM).

This is not a nomenclature issue.
It is methodologically fatal.

Revenue Split qualifies as CUP when:

• The split is embedded contractually

• It governs invoice-level billing

• It operates before profit determination

• It reflects how independent agents are remunerated

Revenue Split becomes PSM only when:

• Applied after profit computation

• Allocates residual entrepreneurial returns

• Depends on subjective contribution analysis

Judicial Clarity

👉 Delhi ITAT (2025 TaxPub(DT) 6050) confirms:
What governs pricing governs method characterisation.

Professional Caution

Mischaracterisation typically arises where:

• Agreements are loosely drafted

• Pricing logic is not contemporaneously documented

• Invoices fail to reflect the pricing mechanism

Non-Negotiable Thumb Rules (Settled Law)

The following principles are now crystallised:

• CUP overrides TNMM where pricing logic is demonstrable

• Revenue split is not PSM if it governs pricing

• Industry practice must be proven, not asserted

• Past acceptance is persuasive, not binding

• Rule 46A invocation mandates adjudication on merits

• TNMM requires demonstrated failure of CUP

Professional Warning

Ignoring even one of these principles:

• Silently shifts the burden to the taxpayer

• Makes adjustment nearly inevitable

Strategic Method Selection — The Practitioner’s Reality Test

Revenue Split (CUP) is appropriate where:

• Origin and destination entities are functionally symmetric

• Both are asset-light intermediaries

• Pricing is pre-agreed and formula-driven

• Pass-through costs are clearly excluded

• Documentation exists at transaction level

TNMM is strategically safer where:

• One entity bears entrepreneurial risk

• Functions are asymmetric

• Split is selectively applied

• Pricing mechanics cannot be evidenced contemporaneously

Professional Insight

Method selection is not ideological.
It is about risk containment and credibility.

Strategic maturity lies in choosing the right battle — and sometimes, the right retreat.

How CUP Must Be Presented in TP Documentation

CUP must never be presented defensively.

Documentation should demonstrate:

• Why CUP naturally fits the industry

• How pricing is determined ex ante

• Why TNMM distorts intermediary economics

• How independent parties would price identically

Professional Reminder

Courts evaluate commercial behaviour, not spreadsheet comfort.

Documentation That Actually Withstands Scrutiny

Core (Mandatory)

• Inter-company agreements specifying revenue split

• Invoices reflecting identical pricing mechanics

• Cost sheets segregating pass-through costs

• FAR analysis establishing symmetry

High-Impact Support

• SOPs / internal emails explaining pricing logic

• Industry publications

• Prior year accepted TP orders

• Third-party confirmations

Instant Weakness Indicators

• Post-facto rationalisation

• Unexplained changes in split ratios

• Split applied only to AEs

• Absence of invoice-level proof

TPO-Ready Argument Note 

Procedural Shield — Rule 46A

Where:

• Additional evidence is called for by CIT(A), or

• Matter is remanded for comments

Rejection without adjudication on merits is per se invalid.

This procedural ground alone has reversed numerous adverse orders.

Consistency — Correct Framing

❌ Accepted earlier, therefore binding
✔ Identical facts examined earlier; deviation requires justification

Courts protect reasoned consistency, not entitlement.

Assessment-Room Reality Check

Revenue Objection	Correct Counter
Revenue split is PSM	It governs pricing → CUP
No comparables	Internal CUP exists
Margins are low	ALP tests price
Industry practice unproven	Agreements + invoices
TNMM is safer	Safety is not law

One-Line Practitioner Rule

A revenue split survives scrutiny not because it is popular, but because it is commercially inevitable, provable, and consistently applied.

TP Policy Insert for Logistics & Freight Groups

Policy Objective

To ensure arm’s length pricing for intra-group freight forwarding and logistics services by adopting pricing mechanisms that reflect commercial reality and statutory intent under Section 92C.

Policy Principle

Group entities engaged as logistics intermediaries shall be remunerated based on pre-agreed pricing formulas, not residual profit outcomes.

Approved Pricing Method

• Primary Method: CUP based on revenue split where:

  • Entities are functionally symmetric

  • Services are asset-light

  • Pricing governs billing stage

• Fallback Method: TNMM only where CUP is demonstrably unworkable

Pricing Architecture

• Revenue base defined net of pass-through costs

• Revenue split ratio pre-agreed and contractually embedded

• Pricing applied consistently across periods

Documentation Standards

• Inter-company agreements to expressly define pricing formula

• Invoices to mirror pricing mechanics

• FAR analysis to be updated annually

• Deviations to be documented contemporaneously with justification

Governance & Review

• Annual method validation under Rule 10B

• Any change in pricing mechanism to be approved by Group Tax Head

• TNMM adoption requires documented CUP failure analysis

Risk Control Statement

TNMM shall not be adopted merely for benchmarking convenience where transaction-level pricing is demonstrable.

Final Professional Note

The Delhi ITAT decision in 2025 TaxPub(DT) 6050 does not tilt the balance.

It restores discipline.

Those who:

• Understand their business

• Document pricing contemporaneously

• Choose methods strategically

Will find this ruling a powerful ally.

Those who rely on margin comfort will not.

TDS Under Section 194J Does Not Decide Your Income Nature: Section 44AD vs 44ADA Explained With Judicial Support

By CA Surekha S Ahuja

If Form 26AS could decide your tax liability, courts would be irrelevant.
Fortunately, law still prevails over algorithms. 

A growing number of taxpayers are receiving CPC adjustments and scrutiny notices merely because their Form 26AS reflects TDS under Section 194J. The assumption is automated, mechanical, and deeply flawed:

“If TDS is under 194J, income must be professional. Apply Section 44ADA at 50%.”

This article explains—using clear statutory interpretation and binding ITAT rulings—why TDS under Section 194J does not determine the nature of income, and why eligible business assessees can lawfully opt for Section 44AD, even where tax is deducted under 194J.

This is not planning.
This is settled law.

Why Section 194J Cannot Decide Whether Income Is Business or Professional

What Section 194J Really Is (and What It Is Not)

Section 194J is a tax deduction at source provision, enacted to protect revenue by placing responsibility on the payer. It is intentionally broad and conservative.

Critically:

• Section 194J is not a charging section

• It does not classify income

• It does not override Sections 28, 44AD, or 44ADA

Courts have consistently held that TDS provisions are machinery provisions, not determinants of income character.

• “TDS under wrong section”

• “Does 194J mean professional income”

• “Form 26AS mismatch income nature”

Section 44AD vs Section 44ADA – The Legal Difference That CPC Ignores

When Section 44AD Applies

Section 44AD applies where the assessee:

• Carries on business

• Meets turnover limits

• Is not engaged in a profession specified under Section 44AA(1)

There is no statutory requirement that:

• TDS must be under 194C or 194H

• 194J disqualifies 44AD

Why Section 44ADA Is Not Automatic

Section 44ADA applies only if the assessee is engaged in a profession listed in Section 44AA(1).

That list is exhaustive, not illustrative.

If the assessee does not legally fall within Section 44AA(1), Section 44ADA cannot be forced, regardless of the TDS section used by the payer.

High-Intent SEO Keywords

• “44AD vs 44ADA difference”

• “Can I opt 44AD if TDS under 194J”

• “CPC applied 44ADA wrongly”

Judicial Position: Substance Over TDS Form 

Indian courts have repeatedly ruled that:

• Income is taxed based on real activity

• Payer’s TDS choice cannot bind the assessee

• CPC cannot recharacterise income under Section 143(1)

Vishnu Dattatraya Ponkshe vs CPC (ITAT Mumbai)

The Tribunal categorically held that:

• Section 44ADA applies only to professions under Section 44AA(1)

• Educational qualification and statutory recognition are relevant

• TDS under Section 194J is irrelevant for presumptive eligibility

The CPC adjustment applying Section 44ADA was deleted in full.

Arthur Bernard Sebastine Pais vs DCIT (ITAT Bangalore)

The Tribunal ruled that:

• Section 194J has a wide payer-centric sweep

• Section 44ADA has a narrow statutory gate

• CPC exceeded jurisdiction by substituting 44AD with 44ADA

This ruling is now routinely relied upon in CPC rectification appeals.

SEO Case-Law Keywords

• “ITAT on 44AD and 194J”

• “CPC 143(1) wrong presumptive taxation”

• “ITAT ruling 44ADA not applicable”

Recruitment, Manpower & Facilitation Services – Business Income by Law

Recruitment and manpower services involve:

• Candidate sourcing

• Screening and coordination

• Operational execution

They:

• Do not require professional qualification

• Are not notified under Section 44AA(1)

• Are business activities in substance

Even if corporates deduct TDS under Section 194J for compliance safety, the assessee remains eligible for Section 44AD.

Wrong TDS Section Does Not Harm the Assessee

Courts have consistently held that:

• TDS credit must be allowed as per Form 26AS

• Payer’s mistake cannot prejudice the deductee

• Income need not be reclassified due to TDS error

SEO Keywords

• “Wrong TDS section credit”

• “TDS under wrong head treatment”

• “Form 26AS error income tax”

Why CPC Adjustments Fail in Appeal

CPC can correct:

• Arithmetical errors

• Apparent inconsistencies

CPC cannot:

• Decide business vs profession

• Apply Section 44ADA by inference

• Override judicial interpretation

Such adjustments are routinely struck down by CIT(A) and ITAT.

How to Defend Section 44AD When TDS Is Under 194J

A legally strong defence includes:

• Service agreements showing execution-based work

• Proof of absence of Section 44AA(1) qualifications

• Correct business code in ITR

• Turnover eligibility under Section 44AD

• Binding ITAT precedents

Rectification under Section 154 is the first step. Appellate success rates are high where facts are properly documented.

Section 194J does not decide whether income is professional.

Section 44ADA does not apply by default.
Section 44AD remains available where the activity is business in substance.

This position is now judicially settled.

Automated CPC assumptions may continue—but they do not survive appellate scrutiny.

If Form 26AS could decide tax liability, courts would be redundant.
Thankfully, law still governs taxation—not algorithms.

TDS under Section 194J does not automatically make income professional. Learn when Section 44AD applies instead of 44ADA, with ITAT rulings, legal interpretation & CPC defence.

Form AOC-4 XBRL for FY 2024-25 – Complete Applicability, Due Date, Fees, Penalties & Filing Guide

By CA Surekha S Ahuja

Statutory filing of audited financial statements in XBRL format
(April 1, 2024 – March 31, 2025)

Introduction – Why Form AOC-4 XBRL for FY 2024-25 Is a High-Risk Compliance Area

If you are a company, director, CFO, auditor, or compliance professional, Form AOC-4 XBRL for FY 2024-25 is no longer a routine ROC filing. With MCA tightening digital governance, introducing mandatory signed PDF attachments, and fixing professional accountability through GSR 371(E), XBRL filings have become a high‑exposure compliance event.

Thousands of companies commit avoidable errors every year due to incorrect applicability assessment, outdated taxonomy use, mismatches between XBRL and signed financials, or missed timelines—leading to heavy additional fees, penalties under Section 137, and even prosecution risk.

This authoritative guidance note is written to answer, in one place, the exact questions professionals search for:

• Who is required to file AOC-4 XBRL for FY 2024-25?

• What are the due dates, extensions, fees, and penalties?

• Which attachments are now mandatory post‑July 2025?

• How to file correctly on MCA V3 without rejection or resubmission.

Unlike generic blogs, this guide is law-backed, MCA-notification aligned, and practitioner-tested, making it suitable for reliance by companies and professionals alike.

Statutory Architecture (Law That Governs)

• Section 137, Companies Act, 2013 – Obligation to file financial statements with ROC.

• Companies (Filing of Documents and Forms in XBRL) Rules, 2015 (as amended) – XBRL mandate.

• Schedule III (Division I/II/III) – Financial statement formats.

• Companies (Indian Accounting Standards) Rules, 2015 – Ind AS companies.

• GSR 371(E) dated 06.06.2025 – Mandatory authenticated PDFs and professional certification.

• MCA V3 Portal – Exclusive filing platform.

Position in law: AOC‑4 XBRL is no longer a technical upload; it is a statutory declaration of financial truth with enhanced professional accountability.

What is Form AOC‑4 XBRL

Form AOC‑4 XBRL is the prescribed e‑form for filing audited financial statements in XBRL format with the Registrar of Companies for entities notified under the XBRL Rules.

It replaces normal AOC‑4 for eligible companies and applies to both standalone and consolidated financials.

Applicability – Who Must File AOC‑4 XBRL

A. Mandatory (Irrespective of Size)

1. All listed companies (NSE/BSE)

2. Indian subsidiaries of listed companies

3. Companies required to prepare Ind AS financial statements

4. Companies that have filed AOC‑4 XBRL in any earlier year
   (Continuity rule: once XBRL, always XBRL, even if thresholds fall)

B. Unlisted Companies – Threshold Test

Based on latest audited financial statements, an unlisted company must file AOC‑4 XBRL if any one condition is met:

Criterion	Threshold
Paid‑up share capital	≥ ₹5 crore
Turnover	≥ ₹100 crore

C. Sector‑Specific Clarification

Entity Type	Filing Mode
NBFCs	AOC‑4 (Non‑XBRL)
Banks	Non‑XBRL
Insurance Companies	Non‑XBRL
Housing Finance Companies	Non‑XBRL
Listed NBFC / Bank / Insurer	AOC‑4 XBRL mandatory

Explicit Exemptions from XBRL

The following entities are outside XBRL applicability:

• Small Companies (Paid‑up capital < ₹50 lakh and turnover < ₹2 crore)

• One Person Companies (OPC)

• Dormant Companies (Section 455)

• Companies under strike‑off process

• Section 8 companies (unless listed or Ind AS applicable)

Due Dates – FY 2024‑25 (Critical Update)

AGM Timeline

Event	Due Date
AGM	On or before 30 September 2025
Extended AGM	Up to 31 October 2025 (via approval / GNL‑1)

AOC‑4 XBRL Filing Due Date

Scenario	Due Date
Normal rule	Within 30 days of AGM
AGM on 30 Sept	30 October 2025
AGM on 31 Oct	30 November 2025
MCA extension (FY 2024‑25)	31 December 2025

Government Fees & Additional Fees

Normal Filing Fees

Authorised Capital	Fee
Up to ₹1 lakh	₹200
₹1–10 lakh	₹300
Above ₹10 lakh	₹600

Additional (Late) Fees

• ₹100 per day of delay

• No maximum cap (post‑2018 amendment)

Penalties & Legal Consequences (Section 137)

Nature of Default	Consequence
Company & officers	₹10,000 + ₹100/day
Serious default	₹50,000 – ₹3,00,000
Extreme cases	Imprisonment up to 6 months
Remedy	Compounding under Section 441

Mandatory Attachments (Post‑14 July 2025 – Non‑Negotiable)

A. XBRL Instance Documents (Mandatory)

• Standalone XBRL (.xml)

• Consolidated XBRL (.xml), where applicable

• Generated using MCA Taxonomy 2024

• Validated through MCA Validation Tool (zero errors)

B. Mandatory Authenticated PDFs – GSR 371(E)

For filings on or after 14 July 2025, the following digitally signed PDFs are compulsory:

1. Balance Sheet

2. Statement of Profit & Loss

3. Cash Flow Statement

4. Notes to Accounts

5. Auditor’s Report

6. Board’s Report (Section 134)

PDFs must be digitally signed and marked as “authenticated copies”.

C. Conditional / Optional Attachments

Document	When Required
AOC‑1	Subsidiaries / JVs
CSR‑2	CSR‑applicable companies
INC‑28	Revision u/s 130 / 131
Prior AOC‑4 SRN	Revised filing
Board Resolution	Best practice

File size limits:

• Total attachments ≤ 20 MB

• Each non‑XML file ≤ 10 MB

Step‑by‑Step Filing Process (Practitioner‑Ready)

1. Confirm applicability (listing, thresholds, Ind AS, past XBRL).

2. Complete statutory audit (CARO 2024 where applicable).

3. Board approval of financials (date ≥ 31‑03‑2025).

4. Create XBRL using MCA Taxonomy 2024; map Schedule III / Ind AS accurately.

5. Validate XML using MCA Validation Tool (no errors).

6. Login to MCA V3 → MCA Services → Company e‑Filing → AOC‑4 XBRL.

7. Enter CIN, FY, AGM date, financial type, SRN nature.

8. Affix DSC of authorised signatory (Director / CEO / CFO / Manager).

9. Professional certification by CA / CS / Cost Accountant confirming XBRL–PDF parity.

10. Pre‑scrutiny → Pay fees → Generate SRN → Download acknowledgement.

Key Field‑Level Instructions

• Financial year: 01‑04‑2024 to 31‑03‑2025

• Select correct Schedule III Division or Ind AS

• CSR disclosures must reconcile with CSR‑2

• Government companies: disclose CAG comments

• Revised filings require INC‑28 + order SRN + prior AOC‑4 SRN

Major MCA Updates – FY 2024‑25

• GSR 371(E): Mandatory signed PDFs + professional certification

• MCA V3 only – no V2 fallback

• CSR‑2 integration

• Updated taxonomy aligned with Schedule III & Ind AS

• Extended filing deadline to 31 December 2025

Common Errors & Corrective Actions

Error	Corrective Action
XBRL rejection	Re‑validate using latest taxonomy
PDFs not signed	Digitally sign before attachment
Size exceeds limit	Compress / split attachments
DSC mismatch	Use authorised signatory only
Certification missing	Upload professional certificate
Wrong FY	Use correct date range
Prior SRN pending	Close earlier filing first

Pre‑Filing Compliance Checklist

• CIN active; no strike‑off / name change pending

• Class‑3 DSC valid for signatory

• Audit & Board approval completed

• XBRL validated (zero errors)

• PDFs digitally signed & identical to XBRL

• No pending prosecution under Section 137

Conclusion – The New Compliance Reality of AOC-4 XBRL

Form AOC-4 XBRL for FY 2024-25 represents a decisive shift in MCA’s compliance philosophy—from form-based disclosure to data integrity, traceability, and professional accountability.

Post 14 July 2025, XBRL filings are legally incomplete unless digitally signed financial statements, Board’s Report, and Auditor’s Report are attached and certified to be identical to the XBRL instance. Any mismatch now exposes companies, directors, CFOs, and certifying professionals to direct statutory consequences under Section 137.

For companies, this means AOC-4 XBRL must be treated as a board-level compliance item, not a clerical task. For professionals, it is a high-liability certification assignment demanding strict controls, validation discipline, and documentation integrity.

This guide is designed to function as a single-source compliance reference—covering applicability, exemptions, timelines, penalties, attachments, filing mechanics, and error resolution—so that your AOC-4 XBRL filing withstands ROC scrutiny, audit review, and future regulatory verification.

Income-Tax Automated Emails on AIS Mismatch, Foreign Assets & High-Value Transactions

By CA Surekha S Ahuja

Legal Validity, Real Impact and the Correct Response before 31 December 2025

Data can alert, but only law can decide.

Over the last few weeks, a large number of taxpayers have received automated emails from the Income-tax Department flagging AIS mismatches, cash deposits, property transactions, and alleged non-disclosure of foreign assets or foreign income. The timing of these communications — just before 31 December 2025, the last date for filing a belated or revised return for Assessment Year 2025-26 — has led to widespread concern.

Although these emails are officially positioned as facilitative compliance nudges, their tone and presentation have prompted many taxpayers to treat them as enforcement-driven directives. As a result, even legally correct returns are being revised defensively, explanations are being replaced with artificial admissions, and fear is overtaking legal reasoning.

This post examines the real legal status of these emails, the systemic reasons behind AIS mismatches, the special sensitivity surrounding foreign asset alerts, and most importantly, the correct action plan a taxpayer should adopt before the 31-12-2025 deadline.

Core Content

AIS is an information tool, not a legal conclusion

The Annual Information Statement (AIS) is fundamentally a data aggregation system. It compiles transaction-level information reported by banks, employers, registrars, deductors, financial institutions, and overseas reporting mechanisms. Its purpose is to enhance visibility and transparency.

However, AIS does not apply the Income-tax Act. It does not determine the correct head of income, evaluate accrual versus receipt, test ownership or beneficial interest, apply DTAA provisions, or incorporate judicial interpretation. All these functions are discharged only through the Income-tax Return, which represents the taxpayer’s statutory act of self-assessment.

Legally, AIS is subordinate to the return. Treating AIS as the benchmark reverses the very architecture of the tax law.

Why AIS mismatches are common and often unavoidable

Most mismatches arise not from concealment, but from structural differences between data reporting and tax law.

TDS sections are frequently mistaken for charging provisions. Rent reported under section 194I does not automatically become “Income from House Property”. Commission-type receipts may not always be business income. Section 194Q deductions often relate to capital assets rather than trading activity. AIS follows deduction logic; the Act follows charging logic.

AIS also flags the movement or deployment of funds — cash deposits, fixed deposits, property purchases — even though tax law taxes income, not explained use of funds. A transaction being visible does not, by itself, make it taxable.

Timing differences further widen the gap. AIS captures payment or TDS deduction events, whereas taxability depends on accrual, transfer, or crystallisation under the Act. Chronology is system-driven; chargeability is law-driven.

Foreign asset and foreign income emails: high fear, low legal precision

Emails alleging non-disclosure of foreign assets or foreign income have the greatest psychological impact because they are implicitly associated with black money concerns. However, these alerts are often generated without applying essential legal filters such as residential status, ownership versus signatory authority, period of holding, or DTAA allocation of taxing rights.

As a result, assets held during non-resident years, employer-controlled ESOP or RSU holding accounts, overseas pensions governed by treaty provisions, or mere signatory authority on foreign accounts are mechanically flagged as “non-disclosure”.

Legally, every foreign asset is not reportable, and every reporting lapse is not an undisclosed foreign asset. Wilful intent is central to penal consequences — a nuance entirely absent from automated communications. In such cases, blind revision can create exposure that did not legally exist earlier.

Legal character and enforceability of these emails

These emails are system-generated administrative communications. They are not notices issued under sections 143, 147, 148 or 156 of the Income-tax Act. They do not initiate assessment, reassessment, penalty, or demand proceedings.

Accordingly, they do not create tax liability, do not reverse the burden of proof, and do not mandate revision of returns. A non-statutory email cannot achieve what the statute itself requires a formal legal process to accomplish.

The real impact: where analytics begin to overreach

Despite their limited legal force, these emails have had a disproportionate behavioural impact. Correct returns are being revised merely to “match AIS”. Income is being re-characterised without legal necessity. Explanations are being replaced by admissions.

In foreign asset cases especially, unnecessary revision can disturb DTAA positions, create artificial admissions, and expose taxpayers to risks under laws that were never applicable. Compliance is increasingly being driven by tone and fear, rather than legal correctness.

What the 31 December 2025 deadline actually means

The 31-12-2025 deadline closes the window for voluntary revision. It does not convert suspicion into default. It does not make a legally correct return incorrect. It merely limits opportunity — not legality.

The correct professional response framework

The decisive question is not what the email alleges, but whether the original return is incorrect in law.

If income has been correctly disclosed — even if classified differently from AIS — an explanation or AIS feedback is sufficient.
If a genuine factual omission or error is discovered by the taxpayer, revision before 31-12-2025 is prudent and protective.
If the return is legally correct, revision merely to align with system tags is unnecessary and may be harmful.

Correctness must precede conformity.

Closure

The Income-tax Department is justified in using analytics to improve compliance. What analytics cannot do is replace legal interpretation, contextual analysis, and adjudication.

AIS is a risk-identification tool, not a substitute for assessment. The Income-tax Act continues to rest on self-assessment guided by law, not automation driven by tone.

Correctness is compliance.
Explanation precedes correction.
Law overrides algorithms.

Until systems internalise legal nuance, taxpayers must respond with reasoned clarity — not reflexive revision.

Foreign Old-Age Benefits, Social Security, Carbon Credits & Family-Linked Foreign Receipts

 By CA Surekha S Ahuja

Complete Disclosure & Notice-Defence Guide -Indian Income-tax Law (AY 25-26)

Why Income-tax Notices Are Being Issued — and How to Respond Correctly Without Panic

In the CRS era, the Income-tax Department already knows about your foreign accounts, pensions and credits. Notices are not about intention — they are about disclosure.

Why This Issue Has Suddenly Become Critical for Indian Families

Thousands of Indian residents — especially senior citizens and parents whose children are settled abroad — are receiving Income-tax notices for:

• Foreign old-age pensions and social security

• Welfare and senior-citizen allowances

• Carbon credits and green incentives

• Foreign bank accounts held jointly with children

• Foreign properties where names appear only “for convenience”

Most recipients genuinely believed:

• “There was no TDS”

• “The money was spent abroad”

• “It was a welfare benefit”

• “It was my child’s account”

However, under CRS (Common Reporting Standard) and FATCA, foreign banks, governments and platforms automatically report this information to India.

Notices are issued because disclosure is missing — not because tax evasion is proven.

This guide explains what must be disclosed, what is taxable, what is not, and how to fix past omissions, in the simplest possible language.

THE GOLDEN RULE 

Residential Status Decides Everything

Status	What India Can Tax	What Must Be Disclosed
Resident & Ordinarily Resident (ROR)	Global income	All foreign assets & accounts
Resident but Not Ordinarily Resident (RNOR)	Limited	Generally no Schedule FA
Non-Resident (NR)	Indian source only	No foreign asset disclosure

🔴 CRS does not check residential status
🟢 Indian tax law applies it after data is received

COMPLETE LIST OF FOREIGN OLD-AGE & SOCIAL SECURITY RECEIPTS

Foreign Old-Age Pensions / State Pensions

Examples:

• Canada OAS

• UK State Pension

• EU government pensions

• Australia Age Pension

✔ Usually paid without TDS
✔ Still taxable in India if ROR
✔ Must be reported in Schedule FSI
✔ Foreign account must be disclosed in Schedule FA

Social Security / Contributory Pensions

Examples:

• Canada CPP

• US Social Security

• EU statutory schemes

✔ Covered under DTAA Article 18 (Pensions)
✔ India generally gets taxing right for residents
✔ FTC available only if tax actually paid abroad

Survivor, Spousal & Disability Benefits

Important clarification:

• These are not inheritances

• They are income replacements

✔ Periodic receipts taxable
✔ Lump-sum arrears taxable in year of receipt
✔ Disclosure mandatory as long as account exists

Guaranteed Income Supplements & Senior-Citizen Welfare Allowances

Often misunderstood as “non-income”.

✔ If cash is received, it is income
✔ No blanket exemption under Indian law
✔ Welfare label does not remove disclosure obligation

Medical, Care & Elder Support Payments

Type	Indian Treatment
Expense reimbursement	Not income
Fixed monthly allowance	Taxable
Home-care stipend	Taxable
Cash-value health plans	FA disclosure

⚠ Even if not taxable, account disclosure remains mandatory.

CARBON CREDITS, CARBON POINTS & GREEN INCENTIVES

(High-Notice-Risk Area)

Carbon Credits / Carbon Points

Examples:

• Carbon credits sold

• Carbon points converted to cash

• Climate incentive payments

Event	Tax Treatment
Credits generated	Asset
Credits sold / monetised	Capital gains
Incentive payments	Income
Wallet holding credits	FA disclosure

✔ Tax arises when monetised, not when earned
✔ CRS visibility starts at conversion or credit

Green Energy & Sustainability Incentives

Examples:

• Solar feed-in tariffs

• EV incentives

• Environmental bonuses

✔ Recurring cash → taxable income
✔ Capital subsidy → capital receipt (case-specific)
✔ Disclosure of receiving account mandatory

RECEIPTS LINKED TO CHILDREN SETTLED ABROAD

Gifts & Maintenance from Children

✔ Genuine gifts not taxable
❌ Still disclose foreign account if credited abroad
✔ Gift documentation strongly recommended

Joint Foreign Bank Accounts with Children

Most common reason for notices

✔ Income taxed only to real owner
✔ Schedule FA must be filed by every joint holder
✔ Full peak balance disclosed (not proportionate)

CRS tracks names, not family understanding.

Parents Named in Foreign Properties of Children

✔ Schedule FA (Table C) mandatory
✔ Ownership nature must be specified
✔ Rental income taxed only if legally belongs to parent

Foreign Credit Cards / Supplementary Cards

✔ Card itself is not income
✔ Linked bank / credit account may be reportable
✔ Spending is irrelevant — name linkage matters

WHAT IS NOT A VALID DEFENCE

The following do NOT remove disclosure or taxability:

❌ No TDS
❌ Below basic exemption limit
❌ Money spent abroad
❌ Not remitted to India
❌ Welfare / social security label
❌ Joint account
❌ Children sent the money

WHY NOTICES ARE BEING ISSUED NOW

Because:

• CRS reports balances, not explanations

• Matching is automated

• Schedule FA non-filing is a red flag

• Black Money Act focuses on non-disclosure

SIMPLE ACTION PLAN (NOTICE-READY)

1. Prepare a Global Asset & Receipt List

2. Check residential status every year

3. Disclose every foreign account where name appears

4. Tax income only in hands of real owner

5. File revised return by 31 December 2025 if required

6. Never ignore a notice — reconcile first

If your name appears anywhere abroad — bank, pension, property, credit or wallet — India already has the information.
Disclosure brings peace. Silence invites notices.

 

Export of Services vs Intermediary under GST: A Judicially Settled Guidance Framework for ITC Refund Eligibility

 By CA Surekha S Ahuja

In GST law, Input Tax Credit is not defeated by cross-border group structures; it is defeated only when the Indian entity abandons its role as a supplier and reduces itself to a facilitator.

Introduction: Why This Issue Needed a Guiding Framework

The classification of cross-border services rendered by Indian entities to overseas recipients has become one of the most contentious areas under GST. At stake is not merely taxability, but the very survival of accumulated Input Tax Credit (ITC).

If the service qualifies as an export of services, it is zero-rated under section 16 of the IGST Act, and refund of unutilised ITC becomes a statutory right.
If the same service is branded as an intermediary service, the place of supply shifts to India, GST becomes payable, and ITC refund is denied.

For years, tax authorities have attempted to stretch the intermediary definition—often relying on words such as assist, support, coordinate, or group entity. High Courts have now decisively intervened and drawn a clear, legally enforceable line.

This post distils that line into a guiding framework, anchored in statute, economics, and binding judicial precedent.

Statutory Architecture: Rule vs Exception

Export of Services — Section 2(6), IGST Act

Export of services is a complete code. Once its five conditions are satisfied, the supply:

• Qualifies as export

• Becomes zero-rated under section 16

• Triggers refund entitlement under section 54

Intermediary — Section 2(13), IGST Act

The definition is narrow and exclusionary. Critically, it excludes:

“a person who supplies such services on his own account”

Courts have repeatedly held that this exclusion governs the entire analysis. Intermediary is not the starting point; it is the exception that must be strictly proved.

Judicial Method: How Courts Actually Decide ITC Allowability

Across decisions such as Infodesk India (Gujarat HC), Genpact India (P&H HC), Ernst & Young (Delhi HC) and OHMI Industries (Delhi HC), courts apply a substance-driven test, not a semantic one.

They ask four fundamental questions:

1. Who supplies the service?

2. Who bears the operational and tax risk?

3. Who controls pricing and earns profit?

4. Is any third-party supply being arranged or facilitated?

The answers to these questions determine ITC entitlement.

When ITC Refund Is ALLOWABLE — The Judicially Accepted Conditions

 Services Are Supplied on Own Account

Guiding reasoning:
A person supplying services on own account supplies the main service itself, not a facilitation layer.

Courts have consistently held that once services are performed, owned, and delivered by the Indian entity, the exclusion in section 2(13) applies automatically.

Practical indicators:

• Defined scope of work

• Deliverables owned by the Indian entity

• Performance responsibility lies with the Indian entity

Judicial support:
Ernst & Young and Genpact clearly recognise that backend, professional, and operational services supplied directly are exports when rendered on own account.

Contract Is Principal-to-Principal

Guiding reasoning:
An intermediary relationship cannot exist without three distinct parties. A purely bipartite agreement legally undermines any intermediary allegation.

In Infodesk, the Gujarat High Court categorically held that in the absence of a third-party supply being arranged, intermediary classification is unsustainable.

Practical indicators:

• Agreement only between Indian entity and foreign recipient

• No authority to bind third parties

• No customer contracting on behalf of another

Consideration Includes a Profit Element

Guiding reasoning:
Profit is the economic signature of independence.
Agents earn commission. Principals earn margin.

A cost-plus model with mark-up demonstrates:

• Independent pricing logic

• Entrepreneurial character

• Absence of agency behaviour

Courts have treated profit element as strong economic evidence against intermediary classification.

Indian Entity Bears Operational and Tax Risks

Guiding reasoning:
Risk allocation distinguishes a supplier from a conduit.

Where the Indian entity bears:

• Manpower costs

• Compliance obligations

• Tax exposure

• Delivery risk

it functions as an independent service provider, not as a facilitator.

In Infodesk, contractual clauses placing all costs and taxes on the Indian subsidiary were decisive.

No Third-Party Supply Is Arranged or Facilitated

Guiding reasoning:
Intermediary status arises only when the supplier arranges or facilitates a supply between two others.

Courts have consistently rejected the notion that:

• Internal coordination

• Support functions

• Group-level assistance

amount to facilitation.

Key test:
If no third-party contract comes into existence because of the Indian entity’s role, intermediary classification fails.

Outcome (Authoritative Position)

✔ Supply qualifies as export of services
✔ Zero-rated under section 16
✔ Refund of unutilised ITC under section 54 is a matter of right

When ITC Refund Is NOT ALLOWABLE — The Judicially Recognised Triggers

Supplier Merely Arranges or Facilitates a Supply

Where the Indian entity:

• Brings buyer and seller together

• Enables execution of another’s supply

• Does not itself deliver the main service

courts have upheld intermediary classification.

Remuneration Is Commission-Based

Commission or transaction-linked consideration indicates:

• Lack of pricing autonomy

• Absence of entrepreneurial risk

• Agency character

Courts treat this as a classic intermediary marker.

Risk and Pricing Controlled by Foreign Principal

If the Indian entity:

• Has no pricing discretion

• Bears no performance risk

• Acts entirely on instructions

it lacks the economic substance of a principal supplier.

Indian Entity Acts Merely as a Conduit

Where services flow through the Indian entity without substantive value addition, ITC accumulation cannot be refunded, as the supply is not on own account.

Outcome

✖ Place of supply shifts to India
✖ Supply becomes taxable
✖ Refund of accumulated ITC is legally barred

Why This Distinction Is Substantive, Not Cosmetic

Courts have unequivocally rejected:

• Literal reading of agreement language

• Over-reliance on words like assist or support

• Presumption of intermediary merely due to group structure

Instead, they apply a combined legal–economic–functional test.
Once principal supply is established, ITC refund is not discretionary—it is statutory.

Closure: The Settled Legal Compass

The judicial position is now clear and consistent:

Intermediary is a narrow exception. Export of services is the governing rule.

Where an Indian entity supplies services independently, earns profit, bears risk, and does not arrange third-party supplies, denial of ITC refund is not merely incorrect—it is unsustainable in law.

This post is intended to serve as a guiding reference—for structuring contracts, defending refund claims, and ensuring GST positions are aligned with judicial reality.

In GST, substance decides ITC—and substance now has strong judicial protection.