Page 35 - Banking Finance August 2021

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respondent or complainant as he may consider f) The NFRA may be caused to maintain such books of
appropriate. accounts prescribed by the Central Government in
consultation with the Comptroller and Auditor General
Mode of sending notice: of India (CAG).
Every notice or letter issued by the Member Enforcement g) The accounts of NFRA must be audited and certified by
shall be sent to the member or the firm by registered post the CAG together with the audit report and forwarded
with acknowledgement due or by speed post. to the Central Government by NFRA.
h) NFRA has to prepare an annual report stating a list of
Additional guidelines activities undertaken in a financial year and forward a
a) The headquarters of NFRA shall be at New Delhi, copy to the Central Government. Thereafter the audit

b) The Central Government may constitute and Appellate and annual report given by CAG has to be laid before
Authority consisting of a Chairperson and not more than each house of Parliament.
two other members for hearing appeals arising out of
orders of NFRA. Conclusion

c) Any person aggrieved by any order of NFRA may prefer The introduction of NFRA is an important step to build up a
an appeal to such Appellate Authority constituted by transparent mechanism for accounting, auditing and
the Central Government.
financial reporting. Unlike NACAS, NFRA will not be just
d) The qualifications for appointment, manner of selection being an advisory body; instead it has been empowered to
and terms of service of the Chairperson and other regulate accounting standards and auditing policies along
members for appointment to the Appellate Authority with powers to investigate certain matters related to
are to be followed by NFRA as prescribed. professional misconduct by chartered accountants in
e) The Central Government may appoint a secretary or corporate bodies. Therefore, it has a huge role to play in
other employees for the smooth functioning of NFRA, if the field of financial reporting for effective corporate
it deems necessary. governance. R

CBDT notifies new tax rules on goodwill accounting

Businesses which made acquisitions in recent years will need to take note of the new rules the Central Board of
Direct Taxes (CBDT) has notified on accounting of goodwill and the tax liability arising from such transactions. The
purchase price of an asset often includes a premium, which is regarded as goodwill on the books of the buyer. The
government amended the Income Tax Act through Finance Act 2021 disallowing goodwill to be treated as an intan-
gible asset and denied depreciation benefit on this. Accordingly, businesses have to remove goodwill from the block
of asset as on 1 April, 2020.
The Income Tax Amendment (19th Amendment) Rules brought out provides for a computation mechanism to tax the
impact of such removal, deeming it as a transfer. The notification, according to experts, states that where the value
of net goodwill removed from the block is in excess of the opening written down value as on 1 April 2020, such excess
will now be offered to tax as short term capital gain. Cases where goodwill was the only asset in the block, there is
no impact.
"India Inc. has witnessed a record number of mergers and acquisition deals and emergence of Indian unicorns with
intangibles fetching substantial value in these transactions. Transactions done in the past five years in sectors such as
pharmaceuticals, life sciences, start-ups lining for IPO would have to closely evaluate the financial impact of this
amendment," said Aravind Srivatsan, partner and tax leader at Nangia Andersen LLP, a consultancy.

Companies, where typically, the goodwill has not been substantially depreciated by April 2020, need to immediately
quantify their tax impact, said Srivatsan. The impact for such corporates is that now short-term capital gain taxes
need to be computed and be paid before filing of return of income for FY 2020-21.

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