ITAT Appeals After the 2025 Amendment: Digital Institution as a Jurisdictional Condition

 By CA Surekha S Ahuja

Form 36, DSC Authentication, and the End of Physical Filing

Effective from 3 January 2026

The Income-tax (Appellate Tribunal) Amendment Rules, 2025, notified under section 255(5) and published in the Official Gazette on 3 January 2026, mark a decisive procedural inflection point in ITAT practice.

The amendment does not merely prescribe electronic filing. It redefines the legal act of instituting an appeal. Post-amendment, an appeal before the ITAT comes into existence only through valid electronic filing authenticated by a Digital Signature Certificate (DSC). The Tribunal’s jurisdiction is now invoked digitally—not presumed through paper submission.

Effective Date: The Jurisdictional Cut-Off

Rule 1(2) expressly provides that the amended rules come into force from the date of publication, i.e., 3 January 2026.

• Appeals instituted prior to this date continue to be governed by the erstwhile procedure

• Appeals instituted on or after this date must strictly comply with the amended digital framework

There is no transitional or saving clause. Any appeal attempted to be filed otherwise than in accordance with the amended Rule 6 after the effective date is non est, with attendant exposure to limitation risk.

Rule 6: Reconstitution of the Filing Act

Rule 6 has been entirely substituted to provide that:

A memorandum of appeal to the Appellate Tribunal shall be filed by the appellant or by an agent authorised by him under his digital signature.

The legal consequences are immediate and unambiguous:

• Electronic filing is mandatory

• Authentication by DSC (as recognised under section 3 of the Information Technology Act, 2000) is jurisdictional

• An appeal uploaded without DSC authentication is defective ab initio

The earlier distinction between filing and signing does not survive the amendment.

No Concept of an “Unsigned” Appeal

Handwritten signatures have ceased to have independent legal relevance. The commonly used expression “with or without signature” is legally inaccurate in the post-amendment context.

Digital authentication is the sole recognised mode of execution of an appeal.
Anything short of this does not constitute a valid institution in law.

Exclusive Portal-Based Filing

All appeals and applications before the ITAT must now be filed exclusively through the e-filing portal:

https://itat.gov.in/efiling

• Assessees: Login through OTP or Pre-Validation Code (PVC)

• Departmental Representatives: Login through bench-registered credentials

There is no counter filing, physical submission, or parallel mode available post-amendment.

Filing Discipline: Form 36 in Practice

An appeal is legally instituted only upon completion of the following sequence:

• Portal login and correct bench selection

• Accurate completion of Form 36, including email address and mobile number (now statutorily relevant for service)

• Upload of prescribed Rule 9 enclosures (single electronic copies)

• Online payment of Tribunal fee

• DSC authentication via EmSigner

• Generation of system acknowledgement and appeal number

Anything short of this sequence does not result in a cognisable appeal.

Enclosures, Revisions, and Paper Books — The Compressed Position

• Rule 9 rationalises annexures to single electronic copies, with specific codification for DRP and Commissioner-level appeals

• Rule 9A mandates filing a Revised Form 36 for any change in address, email, or mobile; informal intimation is legally irrelevant

• Rule 18 eliminates physical paper books; all compilations must be digitally filed and authenticated in accordance with Rule 6

Stays, Miscellaneous Applications, and Defects

• Stay applications and miscellaneous applications now follow the same digital procedure as appeals

• Prior applications under section 254(2) and related Tribunal orders must be disclosed and uploaded

• Defects are system-generated, dashboard-based, and rectifiable only electronically

• Service of notices and orders through registered email and mobile is conclusive

Closing Note: The Professional Position

The 2025 Amendment completes the Tribunal’s transition from a paper-administered forum to a system-administered court.

In this regime:

Limitation protects an appeal only if jurisdiction is correctly invoked.

For professionals, the message is clear. DSC readiness, portal discipline, and procedural exactitude are no longer ancillary—they are foundational. Post-2026 ITAT litigation will be tested first on institutional validity, and only thereafter on merits.

Income-tax Act, 2025: A Re-Codification of Law, Not a Re-Creation of Liability

By CA Surekha S Ahuja

Why the New Act Changes How We Read the Law — Not What the Law Is

“When Parliament rewrites a statute to simplify its language, interpretation must preserve continuity of principle, not surrender to novelty of words.”

The Real Question the 2025 Act Poses

The enactment of the Income-tax Act, 2025 has caused a degree of interpretative unease that is unusual for a statute which, by legislative declaration, does not alter tax policy or tax rates. The uncertainty arises not from what the law does, but from how different it looks.

For taxpayers, Chartered Accountants, tax administrators, and courts, the central question is therefore precise and fundamental:

Does a change in statutory language, structure, and terminology amount to a substantive change in law?

When examined with interpretative discipline and fidelity to legislative intent, the answer is unequivocal: No.

The Income-tax Act, 2025 is a re-enactment undertaken for clarity, coherence, and modern presentation. It is not a re-legislation of substantive rights, obligations, or liabilities. It modernises the vehicle; it does not alter the destination.

Legislative Intent: The Primary Interpretative Anchor

The Statement of Objects and Reasons accompanying the Income-tax Act, 2025 is not ornamental. In statutory interpretation, it is foundational.

It records three unambiguous pillars on which the new Act rests:

1. Structural Simplification – to improve clarity, coherence, and navigability

2. Policy Continuity – no major tax policy changes are intended

3. Stability – tax rates and core principles remain unchanged

This legislative declaration carries a decisive interpretative consequence. Courts have consistently held that a re-enactment undertaken without an expressed policy shift cannot be read as a legislative reset.

Accordingly, where two interpretations are possible, the interpretation that preserves continuity must prevail over one that introduces disruption. Any other approach would defeat the very object of the re-enactment.

Drafting Reform Is Not Substantive Reform

The Income-tax Act, 2025 consciously adopts modern drafting techniques:

• Shorter and cleaner sections

• Plain, accessible language

• Consolidation of allied provisions

• Elimination of archaic expressions such as “Notwithstanding anything contained…”

However, drafting refinement is not doctrinal reform.

The Legislature has altered the manner of expression, not the legal effect. To assume that linguistic improvement automatically signals a change in law would be to elevate grammar over governance and syntax over substance.

Courts do not interpret tax statutes by counting words; they interpret them by discerning intent, continuity, and consequence.

“May” vs. “Shall”: A Textbook Case of Misread Change

The Apparent Shift

The most debated feature of the 2025 Act concerns provisions relating to unexplained income (Sections 102–106), corresponding to Sections 68–69D of the 1961 Act.

The linguistic shift is evident:

• Old Law (Section 68): The sum may be charged to income-tax

• New Law (Section 102): The sum shall be charged to income-tax

At first glance, this appears to remove discretion and mandate compulsory additions once an explanation is found unsatisfactory.

Why This Reading Fails in Law

Such a literal reading is legally untenable.

Under the 1961 Act, the Supreme Court in CIT v. Smt. P.K. Noorjahan (237 ITR 570) authoritatively held that the rejection of an explanation does not automatically compel an addition. The Court recognised that discretion based on facts and surrounding circumstances is intrinsic to fair taxation.

This judgment did not merely interpret a word; it declared a principle of tax jurisprudence.

Applying settled interpretative principles:

• Judicial continuity: A re-enactment does not nullify Supreme Court precedent unless it does so expressly

• Constitutional fairness: Mandatory language cannot override reasonableness and proportionality

• Legislative consistency: A statute that disclaims policy change cannot be read to effect one by implication

The Correct Reading

The word “shall” in Section 102 clarifies the charging framework; it does not mandate mechanical taxation divorced from facts. To read it otherwise would:

• Contradict the Statement of Objects and Reasons

• Impliedly overrule binding Supreme Court precedent

• Invite constitutional challenge

Such a construction is unlikely to withstand judicial scrutiny.

Virtual Digital Space: Codifying What Already Existed

The explicit inclusion of “Virtual Digital Space” in Section 261 has been misconstrued by some as a dramatic expansion of search and seizure powers.

The reality is far more restrained.

Even under the 1961 Act:

• Digital evidence was judicially recognised

• Emails, cloud data, and online accounts were accessed during proceedings

• Courts had already adapted search jurisprudence to technological reality

The omission earlier was linguistic, not legal.

The 2025 Act merely names and defines what was already implicit. Importantly:

• Authorization thresholds remain unchanged

• Procedural safeguards are intact

• Constitutional protections continue to govern

This is recognition, not expansion.

“Tax Year”: Simplification Without Extension

Replacing the dual concepts of Previous Year and Assessment Year with a single Tax Year is among the most taxpayer-friendly reforms in the Act. It removes decades of conceptual confusion and aligns Indian tax law with global norms.

Concerns that reassessment timelines under Section 282 have been extended stem from faulty comparison.

• Earlier law counted limitation from the end of the Assessment Year

• The new law counts from the end of the Tax Year

Once the reference points are correctly aligned, the effective reopening window remains substantially the same. There is no enlargement of limitation—only a cleaner starting point.

Conclusion: The Only Sustainable Legal Position

When read as a whole, and in light of its declared intent, the Income-tax Act, 2025 is best understood as:

• New in language

• Modern in structure

• Unchanged in substance

It does not create new liabilities by stealth, nor does it remove judicial discretion by linguistic substitution. Parliament has rewritten the statute for clarity and accessibility, not for augmenting revenue power.

As the profession transitions into this new legislative format, the advisory position must remain firm and consistent:

The law remains what it always was.
Only its expression has matured.

Form 26AS Is Evidence — Not Income

 By CA Surekha S Ahuja

Why Gross Receipts, Reimbursements and Pass-Through Amounts Cannot Be Mechanically Taxed

“Income is a legal conclusion, not a computational residue.

What appears in Form 26AS may trigger inquiry — it cannot conclude taxability.”

The Core Fallacy in Contemporary Assessments

One of the most persistent and systemic errors in income-tax administration today is the confusion between information and income.

Form 26AS, conceived as a tax credit and information statement, is increasingly treated as a proxy for turnover, and worse, as a substitute for statutory charging provisions. This administrative drift has resulted in mechanical additions, unwarranted demands, refund withholdings, and avoidable litigation—particularly in service sectors involving reimbursements, agency arrangements, and pass-through costs.

This editorial addresses the issue at its legal root: the definition, accrual, and character of income under the Act, tested across every procedural stage—from return filing to final appeal.

What the Statute Actually Taxes

The Income-tax Act, 1961 does not tax receipts. It taxes “total income”.

• Section 4 charges tax only on total income.

• Section 5 confines income to that which accrues, arises, or is received beneficially.

• Section 145 mandates computation in accordance with regularly maintained books, unless lawfully rejected.

Interpretative consequence:
For a receipt to be taxable, it must carry beneficial ownership and profit character. Amounts collected for onward remittance—whether freight, statutory levies, or third-party costs—fail this test at inception.

No provision in the Act creates a deeming fiction that:

“Any amount on which tax is deducted shall be deemed income.”

Such a fiction does not exist—and cannot be implied.

The Legal Status of Form 26AS

Form 26AS is a procedural artifact of the TDS mechanism. Its statutory role is limited to:

• reflecting tax deducted, and

• enabling credit under section 199.

It is not:

• a charging provision,

• a rule of evidence overriding books, or

• a determinant of income character.

Courts have consistently held that erroneous or excessive TDS deduction by the payer does not enlarge the tax base of the payee.

The Delhi ITAT in DCIT v. MKF Logistics (P.) Ltd. (2025) authoritatively reaffirmed that:

Additions cannot be made merely on the basis of Form 26AS unless the Revenue first establishes that the receipt represents compensation for services rendered.

This is not a factual observation—it is a jurisdictional threshold.

Real Income Doctrine: A Limitation on Charging Power

The doctrine of real income is not equitable discretion; it is a legal restraint on taxation.

Judicial authority is uniform:

• CIT v. Industrial Engineering Projects Pvt. Ltd. (Delhi HC)
  Reimbursement without profit element is not income.

• CIT v. Siemens Aktionenge sells chaft (Bombay HC)
  Cost recovery does not result in accrual.

• DCIT v. MKF Logistics (ITAT Delhi)
  Form 26AS entries do not determine taxability.

The burden of proof remains on the Revenue, and it does not shift merely because TDS appears in Form 26AS.

Stage-Wise Legal Consequences

Return Filing
Offering only real income is not aggressive tax planning—it is statutory compliance. Artificial alignment with Form 26AS distorts margins and weakens audit and GST consistency.

CPC (Section 143(1))
Automated additions based on Form 26AS exceed statutory scope. CPC has no adjudicatory power to decide the nature of receipts. Such adjustments are ultra vires.

Assessment / Reassessment
If books are accepted and no defect is found, adding Form 26AS difference is internally contradictory. The AO must either reject books under section 145 or drop the addition.

Demand & Refund
A demand founded on an unsustainable addition is itself vulnerable. Refund withholding in such cases compounds the illegality.

Appeal & ITAT
Appellate authorities have consistently restored discipline by rejecting Form-26AS-based taxation where income character is unproven.

GST and Accounting Alignment: The Overlooked Risk

This issue does not exist in isolation.

Under GST law, reimbursements qualifying as pure agent transactions (Rule 33, CGST Rules) are excluded from value of supply.
Under accounting standards, pass-through amounts are liabilities—not revenue.

Treating the same amount as:

• non-turnover for GST,

• liability in financial statements, but

• income for income-tax,

creates a cross-statute inconsistency that is professionally indefensible in audit, peer review, or litigation.

Where the Law Draws the Boundary

This is not a blanket immunity.

Gross receipts may be taxed where:

• the assessee acts as principal,

• reimbursements include embedded margins,

• books are lawfully rejected, or

• agency is unsubstantiated.

Even then, only the income element is taxable—not the gross inflow.

Conclusion

Form 26AS is evidence, not authority.
Turnover is not income.
Reimbursement is not consideration.

The Income-tax Act taxes legal reality, not accounting reflections or compliance artefacts.

Where administration taxes what merely passes through, courts will continue to intervene—not as a matter of leniency, but as a matter of law.

CPC’s Suo-Motu Rectification U/S 154 Denying Section 87A Rebate on STCG under Section 111A AY 2024-25

 By CA Surekha S Ahuja

A Study in Statutory Interpretation, Judicial Discipline and the Limits of Administrative Power

In December 2025, the Centralised Processing Centre (CPC) undertook a system-driven, suo-motu rectification exercise under section 154 for Assessment Year 2024-25, withdrawing the rebate under section 87A earlier granted on short-term capital gains chargeable under section 111A, and raising consequential demands.

What distinguishes this episode from routine computational adjustments is not merely its scale, but its juridical implications. The exercise raises fundamental questions concerning:

• the true scope of section 154,

• the interpretation of section 87A as it stood for AY 2024-25, and

• the constitutional hierarchy between statute, circular and judicial precedent.

This editorial examines the issue as a matter of law and jurisdiction, not as an operational inconvenience.

Section 87A (AY 2024-25): Plain Language and Legislative Design

Section 87A, as applicable to AY 2024-25, grants a rebate of income-tax where the total income of an individual does not exceed ₹7,00,000 under section 115BAC(1A).

The provision contains a specific and conscious exclusion only in respect of:

• long-term capital gains chargeable under section 112A.

Equally significant is what the provision does not exclude:

• short-term capital gains chargeable under section 111A.

This legislative distinction is deliberate. Parliament, while carving out an exclusion for one category of capital gains, chose not to do so for another. The statutory language leaves no scope for implication.

The interpretative maxim expressio unius est exclusio alterius therefore applies with precision:
the express exclusion of one category necessarily implies the inclusion of others.

For AY 2024-25, STCG under section 111A formed part of “total income” eligible for rebate under section 87A.

Finance Act, 2025: Prospective Restriction and Legislative Consciousness

The Finance Act, 2025 introduced an explicit restriction denying rebate under section 87A against tax payable on income chargeable under section 111A.

The legal consequences are unmistakable:

1. The amendment is prospective, by both language and legislative intent.

2. It amounts to a legislative recognition that the pre-amended provision did not contain such a bar.

It is a settled principle of tax jurisprudence that:

a substantive amendment withdrawing or curtailing a statutory benefit cannot operate retrospectively unless the statute expressly so provides.

The December 2025 CPC action, in substance, seeks to achieve retrospectivity through administrative rectification—a method unknown to the Act.

Judicial Position: The Law Is No Longer Res Integra

The controversy stands conclusively addressed by the Ahmedabad Bench of the Tribunal in:

Jayshreeben Jayantibhai Palsana v. ITO
(177 taxmann.com 411)

The Tribunal held, in unequivocal terms, that:

• rebate under section 87A is allowable on STCG taxable under section 111A,

• the absence of a statutory exclusion is determinative,

• CBDT circulars cannot override the Act, and

• the subsequent amendment reinforces the prospective nature of the restriction.

The decision rests on statutory interpretation, not on equity or administrative discretion.
Unless displaced by a jurisdictional High Court, the ruling is binding on departmental authorities and cannot be neutralised through rectification proceedings.

CBDT Circular No. 13/2025: Its Place in the Legal Hierarchy

CBDT Circular No. 13/2025 appears to have informed the December 2025 rectification drive.

While circulars are binding on tax authorities for administrative uniformity, the law is settled that:

• a circular cannot impose a tax burden not authorised by statute, and

• a circular cannot prevail over judicial interpretation.

Where a circular conflicts with the Act as judicially interpreted, the statute and the courts must prevail. Administrative guidance cannot become a substitute for legislative amendment.

Section 154: Rectification or Re-adjudication

Section 154 permits rectification only of:

• mistakes apparent from the record, and

• errors that are patent, obvious and incapable of two views.

In the present case:

• the issue involves interpretation of substantive law,

• a binding Tribunal decision exists, and

• the matter is neither clerical nor arithmetical.

The withdrawal of rebate under section 154, therefore, represents not rectification but re-adjudication, a function wholly alien to the provision.

Rectification cannot be employed as an instrument for retrospective policy enforcement.

The Correct Pre-Appeal Discipline

Given that the impugned action is administrative and algorithmic, the appropriate legal response before invoking appellate jurisdiction lies in a graduated approach:

1. Assessee-initiated rectification, to place on record that no mistake apparent from record exists and that the CPC action itself is jurisdictionally flawed.

2. Administrative grievance, to ensure supervisory and human review where the system continues to apply a legally unsustainable adjustment.

3. Appeal, only as a statutory safeguard where correction mechanisms fail.

This sequence preserves judicial economy and respects the architecture of the Act.

The December 2025 suo-motu section 154 exercise by CPC for AY 2024-25:

• disregards the plain text of section 87A,

• overlooks binding judicial precedent,

• seeks to apply a prospective amendment retrospectively, and

• stretches the concept of rectification beyond its statutory limits.

In tax law:

What Parliament has not excluded cannot be excluded by administrative interpretation.
What is prospectively amended cannot be retrospectively withdrawn.
What is judicially settled cannot be reopened through section 154.

For AY 2024-25, rebate under section 87A on STCG chargeable under section 111A remains legally admissible, and demands raised to the contrary are unsustainable in law.

This episode underscores a broader institutional lesson:

Automation may enhance efficiency, but it cannot dilute legality.

E-Commerce Accounting & Compliance: Capturing Hidden Profits Across Platforms

By Surekha S Ahuja

 "In the world of e-commerce, sales are reported on the platform—but profits are only realized in the books. Miss a reconciliation, and silent losses quietly erode your margins."

Introduction: The Hidden Complexity of Multi-Platform Accounting

Managing settlements across Amazon, BigBasket, Flipkart, Meesho, Nykaa, and other platforms may seem straightforward. Yet, without structured accounting procedures, TCS, TDS, GST, promotional adjustments, and platform commissions can silently impact profitability.

Small teams, even with competent accountants, often encounter:

• Misaligned GST/ITC claims across platforms.

• Overlooked TDS obligations on promotional or contract expenses.

• Misclassified promotional freebies affecting reported revenue.

• Inconsistent platform expense recognition, masking true margins.

• Lost recoverables due to non-reconciliation of gross sales vs net settlements.

Professional Insight: Hidden balances on platforms can exceed net monthly profits. A rigorous SOP and structured reconciliation framework is not just compliance—it protects and realizes revenue.

The Multi-Platform Accounts SOP & Workflow

1. Platform Settlement Receipt

• Collect all platform settlement statements and verify totals: gross sales, returns, chargebacks, TCS/TDS deductions, and promotional adjustments.

2. Breakdown & Categorization

• Sales Revenue: Net of returns and chargebacks.

• Promotional Freebies: Document separately; do not reduce revenue.

• Returns / Chargebacks: Link to original invoices.

• Commissions & Fees: FBA, logistics, COD, marketing; segregate from promotional costs.

3. Adjust Platform Expenses

• Record platform-specific costs as operating expenses.

• Separate from marketing/promo to reflect true operating margin.

4. Invoice / Debit / Credit Note Posting

• Classify taxable vs non-taxable components in ERP.

• Attach promo documentation / DN-CN references.

• Use correct voucher types for audit traceability.

5. GST / TCS / ITC Classification

• Reconcile GSTR-2B vs ERP entries; verify TCS receivables.

• Claim eligible ITC; exclude freebies/promo adjustments from ITC reversal.

• Ensure compliance with CBIC circulars & notifications.

6. TDS Determination & Recording

• Apply Sec 194C TDS on promotional/service contracts >₹30,000 per quarter.

• ERP entry:

  • Dr Promo Expense

  • Cr TDS Payable

  • Cr Vendor / Platform

• Deposit via Form 26Q; verify Form 26AS.

7. Monthly Reconciliation & Tracker Update

• Compare settlement vs ERP vs portal.

• Track ITC, TCS, TDS, platform expenses, promo costs, net realization.

• Update monthly tracker for variance analysis and audit readiness.

8. Variance Analysis & Escalation

• Flag deviations >1%.

• Escalate to CFO / Head Accounts.

• Document corrective actions for audit trail.

9. Quarterly Review & Audit Documentation

• Conduct full quarterly reconciliation across all platforms.

• Ensure RCM compliance.

• Retain audit-ready vouchers, promo documentation, DNs/CNs, and reconciliations for 7 years.

Platform-Specific Accounting Insights

Platform	Transaction Type	GST	TCS	Accounting Treatment	TDS Applicability	Platform Expenses / Commission
Amazon	Promo Invoice	Yes	1%	Dr Promo Expense, Dr ITC, Cr Vendor	2% Sec 194C >30k	8–15% commission, FBA charges
BigBasket	Debit Note	No	1%	Dr Promo Expense, Cr Sales Adjustment	2% Sec 194C	6–12% commission, logistics charges
Flipkart	Settlement Invoice	Yes	1%	Dr Sales, Dr ITC, Cr Vendor	2% Sec 194C	8–18% commission, packing fees
Meesho	Promo Credit / DN	No	1%	Dr Promo Expense, Cr Vendor	2% Sec 194C	10–20% commission
Nykaa	Invoice / DN	Yes	1%	Dr Expense/Sales, Dr ITC, Cr Vendor	2% Sec 194C	12–22% commission, COD charges

Key Insight: Freebies and promotional adjustments are marketing expenses, not revenue reductions. Platform commissions must always be separated from operating costs to preserve margin clarity.

Professional Insights for CFOs & Audit Committees

• Silent losses are rarely due to sales—they stem from incomplete accounting and reconciliation.

• Small accounting teams can efficiently manage reconciliation with structured SOPs, trackers, and maker–checker control.

• Proper classification of commissions, expenses, and promotional items ensures accurate reporting.

• Timely variance analysis and escalation prevents audit exceptions and unclaimed credits.

To maximize recoverables and maintain compliance:

• Implement platform-specific SOPs for accounting, reconciliation, and compliance.

• Maintain a monthly tracker capturing GST, TCS, TDS, platform expenses, and promotional costs.

• Conduct quarterly variance analysis and escalate material deviations to CFO.

• Seek professional guidance for audit readiness, Ind AS / GST alignment, and cross-platform compliance.

"E-commerce platforms report the sales, but only disciplined accounting ensures the profit story is realized."

ITR-U and Foreign Assets: A Legal–Practical Analysis of Scope, Limits and Risks

 By CA Surekha S Ahuja

The introduction of the Updated Return (ITR-U) under section 139(8A) represents a calibrated compliance mechanism—designed to encourage voluntary correction of past defaults while preserving the deterrent framework of the Income-tax Act, 1961, and the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 (hereinafter “BMA”).

In cases involving foreign assets or foreign-source income, ITR-U operates within particularly narrow legal boundaries, and its misuse or misinterpretation can materially aggravate risk rather than mitigate it.

Nature of ITR-U: Curative, Not Amnesty

ITR-U is not an amnesty scheme. Legislatively, it is structured as a cost-bearing corrective facility, available only where additional tax is payable and subject to strict disqualifications.

Its design reflects a conscious policy choice: to reward early, voluntary compliance while denying relief once the tax administration has detected or acted upon information.

This distinction is critical in foreign-asset cases, where detection is increasingly data-driven rather than complaint-driven, and the consequences of misreporting can extend to penalty and prosecution under the BMA.

Assessment Year Scope and Temporal Finality

ITR-U is assessment-year specific and strictly time-bound.

• Currently, it can be filed for up to four preceding Assessment Years, subject to the statutory outer limit (culminating on 31 March 2026, year-wise).

• Each year must independently satisfy eligibility conditions.

• The facility does not revive closed years and cannot be extended beyond statutory expiry.

Key takeaway: Once the window closes for a particular year, no discretionary power exists to condone delay.

Statutory Conditions Where ITR-U Is Barred

The law expressly prohibits ITR-U for any AY where:

• Filing would result in a refund, reduction of tax liability, or increase in losses;

• A search, survey, or requisition has been initiated;

• Assessment, reassessment, revision, or recomputation proceedings are pending or completed;

• Information received under CRS, FATCA, or international exchange has been acted upon by the Department.

Absolute exclusion: Once triggered, the ITR-U route is irreversibly foreclosed for that year.

Foreign Assets: Disclosure Regime Remains Intact

A common misconception is that ITR-U regularises past foreign-asset non-disclosure. It does not.

• Schedule FA disclosure remains mandatory for Resident and Ordinarily Resident taxpayers, regardless of:

  • Whether income arose;

  • Whether income is exempt or taxed abroad;

  • Duration of holding during the year.

• Consistency across Schedule FA, FSI, TR, AL, and Part A is not procedural—it is substantive.

Implication: Failure or inaccuracy in disclosure constitutes a standalone statutory violation, even if the additional tax is paid via ITR-U.

CRS/FATCA Environment: The Shrinking Compliance Window

The contemporary enforcement landscape fundamentally alters the risk calculus:

• Foreign financial institutions routinely report balances, interest, and beneficial ownership under CRS and FATCA;

• These data are ingested into AIS/TIS risk engines, triggering automated scrutiny.

Consequences:

• Once such data is processed, ITR-U is no longer available;

• The matter transitions from voluntary compliance to enforcement mode.

Practical insight: ITR-U is therefore a pre-detection remedy, and its value diminishes rapidly once external data flows are processed.

Penalty Exposure Under the Black Money Act

Even after filing ITR-U, the Assessing Officer may initiate penalty proceedings under:

• Section 42 BMA – Failure to file return with foreign assets;

• Section 43 BMA – Failure to disclose foreign assets.

Penalty quantum: Typically ₹10 lakh per year, subject to statutory thresholds.

Crucial point: Payment of additional tax under section 140B does not neutralise this penalty risk. These operate in parallel statutory domains.

Prosecution: Limited Mitigation, No Immunity

ITR-U does not confer immunity from prosecution.

• At best, voluntary, pre-detection full disclosure, supported by credible explanation of source and ownership, may mitigate enforcement action.

• In cases of wilful concealment, complex offshore structures, or repeated defaults, ITR-U offers limited protection.

Practical counsel: Filing must be coupled with accurate documentation and rationale; otherwise, prosecution risk persists.

Practical Failure Points in Foreign-Asset ITR-U Filings

Experience highlights frequent failure points:

• Reporting foreign income without asset disclosure;

• Selection of incorrect Schedule FA tables;

• Mismatches between FA, AL, and FSI;

• Ignoring indirect beneficial interests or signing authority;

• Assuming NR-period assets are automatically exempt from disclosure.

Such errors trigger scrutiny and undermine the intended benefit of ITR-U.

Analytical Position

From a legal-policy perspective, ITR-U in foreign-asset cases is best understood as:

• A last voluntary compliance checkpoint before enforcement;

• Valuable only if timely, complete, and accurate;

• Not a shield against detection, penalty, or prosecution.

Key principle: The quality and timing of disclosure matters more than the mere act of filing.

Conclusion

In foreign-asset cases, ITR-U is narrow, conditional, and unforgiving:

• Its availability is lost easily;

• Misuse is costly;

• Benefits are strictly limited.

Strategic guidance:

• Used early and correctly, ITR-U can substantially reduce downstream exposure;

• Used late, partially, or mechanically, it may intensify consequences under both the Income-tax Act and the BMA.

Professional evaluation is not optional—it is a legal and practical necessity in all foreign-asset compliance matters.

Amendment to Director KYC Filing Framework

The Ministry of Corporate Affairs (MCA), vide notification dated 31 December 2025, has amended the rules governing Director Know Your Customer (KYC) compliance.

As per the amendment, directors shall be required to file Form DIR-3 KYC / DIR-3 KYC Web once every three consecutive financial years, in place of the earlier annual filing requirement. The amended provisions shall come into force with effect from 31 March 2026.

The KYC filing is required to be completed on or before 30 June of the immediately succeeding third consecutive financial year.

Directors who have already completed their KYC up to the date of the notification shall be required to file their next DIR-3 KYC by 30 June 2028.

It is further clarified that the obligation to intimate and update any change in personal particulars—including mobile number, email address, or residential address—within 30 days of such change shall continue to apply and shall operate independently of the three-year KYC filing cycle.

The amendment is aimed at rationalising compliance requirements while maintaining the accuracy and integrity of director information on MCA records. 

New Year Wish — Where Bhāv Changes, Prosperity Begins

 As the New Year unfolds,

may families invite not just success,
but grace.

May this year awaken a change of bhāv
towards the Mother—
the silent strength, the living Shakti Swaroopa of every home.

Shastras are clear:
where the Mother is respected, Lakshmi stays.
Where she is taken for granted, prosperity loses its roots.

May this New Year bring awareness before regret,
respect before rituals, and affection while she is present.

Because when the Mother is honoured,
families remain united, businesses endure, and futures prosper.

Wishing a New Year blessed with Dharma, dignity, and lasting abundance.

The Eye That Never Sleeps: Audit Brain, AI, and the 360° Redesign of Compliance in India

By CA Surekha S Ahuja 

Introduction: From Post-Mortem Audit to 360° Predictive Oversight

Traditional audit—retrospective, sample-based, and periodic—is dead. By 2025, compliance is continuous, intelligent, and integrated across GST, Income Tax, and corporate regulations. Every transaction leaves a digital footprint, every vendor interaction is traceable, and every anomaly can trigger real-time alerts.

The Audit Brain is the strategic layer that interprets AI-driven insights, guides human judgment, and transforms audit from a reactive exercise into predictive, preventive intelligence. Firms leveraging this 360° approach not only minimize fraud risk but also gain a competitive advantage, staying ahead of regulators and peers alike.

India’s 360° AI Compliance Ecosystem

A. Income Tax – Project Insight

Project Insight is no longer just a data repository; it is a behavioral prediction engine:

• 360° Profiling: Integrates bank statements, property records, SFT filings, credit card data, social media, and third-party inputs.

• Behavioral Scoring: Detects discrepancies, e.g., declared income ₹5L vs. spending ₹50L, triggering automated risk interventions.

• Escalation Logic: Gentle nudges escalate to scrutiny notices when thresholds are breached.

• Competitive Edge: Firms that reconcile data proactively prevent alerts, protect reputation, and maintain cash flow continuity.

B. GST – ADVAIT: The Network Hunter

ADVAIT provides transaction-level, real-time detection of indirect tax risks:

• Network Graph Analysis: Detects circular trading, collusion, and repeated ITC fraud.

• Vendor Contagion Risk: Compliance lapses propagate across supply chains; proactive vendor hygiene reduces exposure.

• Physical-Digital Integration: RFID and FASTag confirm actual goods movement, eliminating “bill trading.”

• Fraud Patterns Prevented: Bill recycling, ghost vendors, false ITC claims—all mitigated before enforcement action.

Feature	Global Standard (UK/EU/Brazil)	India (ADVAIT/GSTN)
Data Matching	Post-filing, monthly/quarterly	Real-time, transaction-level
Physical Tracking	Spot checks	Automated RFID/FASTag integration
Fraud Detection	Retrospective recovery	Pre-emptive blocking
Network Analysis	Ad-hoc investigation	Continuous automated graph intelligence

C. MCA21 V3 – Corporate Sentinel

The revamped MCA21 integrates corporate filings with tax and GST data for holistic oversight:

• Early Warning System: Detects unusual financial patterns, repeated directors, and shell-company behavior.

• Auto-Adjudication: Routine penalties are automated; complex cases escalate.

• Proactive Compliance: Moves from complaint-driven to predictive enforcement, reducing the risk of fraud.

The Audit Paradigm Shift: Continuous, Intelligent, and Fraud-Proof

From Sampling to Population-Level Analysis

Entire datasets are now analyzed in real time. AI identifies anomalies and risks that traditional sampling would miss.

From Retrospective to Continuous Audit

Internal audits are no longer periodic—they are continuous, integrated, and predictive. Audit Brain intelligence interprets AI alerts, prioritizes issues, and prevents unnecessary regulatory triggers.

Fraud Prevention as Core Principle

• AI Detects: Unusual transactions, vendor anomalies, network contagion.

• Audit Brain Decides: Which alerts are material and which are false positives.

• Internal Controls Ensure: Policy enforcement, materiality judgment, and preemptive mitigation.

Audit Brain in Action: Strategic Compliance Intelligence

Component	Role	Strategic Value
AI Tools	Detect anomalies and network risks	Pre-emptive alerts and fraud prevention
Audit Brain	Interpret AI output, prioritize, shape responses	Reduces false positives, strengthens controls, ensures materiality
Internal Controls	Embed policies, enforce thresholds	Prevents unnecessary triggers, strengthens governance
Compliance Triggers	Automated escalations for high-risk events	Ensures timely intervention, continuous monitoring

Applications for Competitive Advantage:

• Monthly reconciliations across GST, IT, and MCA filings.

• Vendor and supply chain compliance hygiene to prevent contagion risk.

• Continuous monitoring of key transactions and network interactions.

• Strategic pre-emptive advisory to avoid regulatory flags.

Key Takeaways for a 360° Compliance Strategy

• Government is Ahead: Real-time, AI-powered, population-level enforcement is active.

• Human Judgment is Scarce and Critical: Materiality, intent, and commercial rationale cannot be automated.

• Internal Audit is Indispensable: It is the last filter against unnecessary triggers.

• Continuous Monitoring is Non-Negotiable: Monthly reconciliations, vendor network checks, and documentation discipline are essential.

• Strategic Edge Through Audit Brain: Firms that interpret AI insights, preempt triggers, and enforce robust controls minimize fraud risk and outperform competitors.

Conclusion: The 360° Glass House Economy

Audit is no longer about detecting errors—it is about shaping outcomes before alerts arise. AI captures data, detects patterns, and predicts risk. The Audit Brain interprets, prioritizes, and guides action. Internal controls enforce discipline. Together, they create a fraud-resistant, predictive compliance ecosystem.

Firms that master this 360° approach—across GST, Income Tax, and MCA compliance—not only survive the regulatory gaze but gain strategic advantage over competitors, staying on top in India’s digital, data-driven compliance landscape.