Latest Blogs from SBS and Company LLP

    General Meaning of Shell Company:

    The Companies Act does not define “Shell Company” and no other piece of Legislation provides for the guidance on what does it constitutes; however, the general definition is understood as:

    “A shell company is a company that exists only on papers, without active business operations or significant assets and has no office or employees. These types of companies are not necessarily be illegal, but they are sometimes used illegitimately, such as to disguise business ownership from law enforcement or the public. Legitimate reasons for a shell company include such things as a start up using the business entity as a vehicle to raise, funds, conduct a hostile takeover or to go public.”



    High sea sale means a sale where goods will be sold when they are in High sea i.e., Sale transaction will be done when the goods are in transit, before the goods are entered in to customs clearance. The major benefits from High sea sale will be original importer can buy them at cheaper cost and can sell at profit, for original buyer he can buy goods in a short time, where importing from origin country will take more time, further he is not required to buy entire shipment, he can buy part shipment based on his requirement.

    In this article, I am going to discuss about the  Audit considerations of High sea sales.

    Let us understand the meaning of High sea sale and other related definitions first, to gain comfort on those terms.


    The purpose of the audit report is to summarize the findings in a way that auditee management can readily understand and see the impact of these findings. The audit report represents the end result of weeks of reviews, analyses, interviews and discussions. It provides important information to audit clients about the area reviewed by internal audit.

    More importantly, it provides details to management about significant issues that need to be addressed. How well internal auditors communicate that information is critical to getting their client’s acceptance of findings and their agreement with audit recommendations.


    Section  37 of the Income Tax Act, 1961 (‘Act’) provides for deduction of revenue expenditure incurred, not being personal expenses and not being those covered by provisions of  Section 30 to 36 of the Act, wholly and exclusively for the purpose of the business or profession against income chargeable under the head Profits and Gains from Business or Profession.

    Finance Act (No.2) 2014 has inserted Explanation 2 to the Section 37 which provides that any expenditure incurred by the assessee on the activities[1] relating to Corporate Social Responsibility (‘CSR’) referred to in Sec 135 of the Companies Act, 2013 shall not be deemed to incurred for the purpose of business or profession.



    Traditionally, it was a well-accustomed practice under the Indirect Tax laws viz. Excise, Service Tax and VAT laws that interest is payable on the amount of tax due after adjustment of the input tax credit, that remains unpaid by the due date. Coming to GST laws, the said practice got dented under the concept of ‘Electronic Credit Ledger’, ‘Electronic Cash Ledger’ and ‘Electronic Liability Ledger’ and offsetting the liabilities with amounts in cash and credit ledgers through GSTR-3B returns. Recently, the Principal Commissioner, Hyderabad has issued a Standing Order No. 01/2019 dated 04.02.2019 to clarify that interest is payable on gross liability including on the portion of the liability that was adjusted using the accumulated Input Tax Credit (‘ITC’). In this context, let us go through the statutory provisions and legal principles laid down by courts on this issue and accordingly understand the nuances of the clarification given in the said order.