INCOME COMPUTATION AND DISCLOSURE STANDARDS. CA. P T JOY, BCom, LLB, FCA, DISA

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1 INCOME COMPUTATION AND DISCLOSURE STANDARDS CA. P T JOY, BCom, LLB, FCA, DISA

2 DISCLAIMER This power point presentation contains professional view of certain legal or statutory provisions. The ownership of the contents rests with the author. Reproducing, copying or making use of the contents of this presentation for unintended and commercial purposes will be an offence if done without the written consent of the author of this presentation. Also the author of this power point presentation will not be responsible for any decision taken, anything done or course of action adopted based on the contents of this presentation or professional view of the author. 2

3 ORIGINATION OF IFRS International Accounting Standards Committee (IASC) was set up in 1973 to formulate International Accounting Standards (IAS). IASC was supported by Standing Interpretation Committee (SIC). IASC was superseded by International Accounting Standards Board ( IASB) in 2001 which started issuing IFRS. IASB was supported by International Financial Reporting Interpretation Committee ( IFRIC) as successor to SIC. 3

4 As of now there are 26 IAS,(25 wef ), 5 interpretations issued by SIC, 15 IFRS, ( 16 wef ) and 13 interpretations issued by IFRIC. IASB is headquartered at London in UK 4

5 LIST OF IAS IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Statement of Cash Flow IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Reporting Period 5

6 IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases (withdrawn for the period starting from ) IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 6

7 IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosure IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Separate Financial Statements 7

8 IAS 28 Investments in Associates and Joint Ventures IAS 29 Financial Reporting in Hyperinflationary Economies IAS 32 Financial Instruments: Presentation IAS 33 Earnings per Share IAS 34 Interim Financial Reporting 8

9 IAS 36 IAS 37 IAS 38 Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets IAS 40 Financial Instruments: Recognition and Measurement Investment Property IAS 41 Agriculture IAS 39 9

10 LIST OF IFRS IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued 10

11 IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements 11

12 IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interest in Other Entities IFRS 13 Fair Value Measurement IFRS 14 Regulatory Deferral Accounts IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases (issued on applicable with effect from ) 12

13 IFRS COMPLIANCE WORLD OVER Some years ago, there were two set of nations, one having their national accounting standards and the other one not having any national accounting standards. India and US are in the first category and China and UAE are in the second category. European Union member countries adopted IFRS- for listed companies- from the year As of now there are around 120 countries which are IFRS compliant. Many of the balance nations have indicated that they would converge in the next few years. 13

14 IN INDIA Accounting Standards Board was set up in 1977 ( ) First Accounting Standard was issued in

15 CONVERGED IND AS (Ind AS) 101 First-time Adoption of Indian Accounting Standards (Amended) (Ind AS) 102 Share-based Payment (Ind AS) 103 Business Combinations (Amended) (Ind AS) 104 Insurance Contracts (Amended) (Ind AS) 105 Non-current Assets Held for Sale and Discontinued Operations(Amended) 15

16 (Ind AS) 106 Exploration for and Evaluation of Mineral Resources (Ind AS) 107 Financial Instruments: Disclosures (Amended) (Ind AS) 108 Operating Segments (Ind AS) 109 Financial Instruments (Amended) (Ind AS) 110 Consolidated Financial Statements (Amended) (Ind AS) 111 Joint Arrangements 16

17 (Ind AS) 112 Disclosure of Interests in Other Entities (Amended) (Ind AS) 113 Fair Value Measurement (Ind AS) 114 Regulatory Deferral Accounts (Ind AS) 115 Revenue from Contracts with Customers (Omitted) (Ind AS) 1 Presentation of Financial Statements(Amended) (Ind AS) 2 Inventories (Amended) 17

18 (Ind AS) 7 Statement of Cash Flows (Ind AS) 8 Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS) 10 Events after the Reporting Period (Ind AS) 12 Income Taxes (Amended) (Ind AS) 16 Property, Plant and Equipment (Ind AS) 17 Leases (Amended) 18

19 (Ind AS) 19 (Ind AS) 20 (Ind AS) 21 Employee Benefits (Amended) Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange Rates (Ind AS) 23 Borrowing Costs (Amended) (Ind AS) 24 Related Party Disclosures (Ind AS) 27 Separate Financial Statements 19

20 (Ind AS) 28 Investments in Associates and Joint Ventures (Ind AS) 29 Financial Reporting in Hyperinflationary Economies (Ind AS) 32 Financial Instruments: Presentation (Amended) (Ind AS) 33 Earnings per Share (Ind AS) 34 Interim Financial Reporting (Amended) (Ind AS) 36 Impairment of Assets (Amended) 20

21 (Ind AS) 37 Provisions, Contingent Liabilities and Contingent Assets (Amended) (Ind AS) 38 Intangible Assets (Amended) (Ind AS) 40 Investment Property (Amended) (Ind AS) 41 Agriculture 21

22 IND AS ISSUED UNDER COMPANIES (IND AS) (AMENDMENT) RULES 2016 VIDE MCA NOTIFICATION DATED (Ind AS) 11 (Ind AS) 18 Construction Contracts Revenue 22

23 APPLICABILITY OF IND AS Notification dated 16th February 2015 Applicability of Ind AS is specified in Rule 4 of Companies (Indian Accounting Standards) Rules, 2015 in the following manner; Any company may comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting periods beginning on or after 1stApril, 2015, with the comparatives for the periods ending on 31st March, 2015, or thereafter; The following companies shall comply with the Indian Accounting Standards (Ind AS) with comparatives based on the networth 23

24 S. Conditions No Net worth of Rs. 500 Crores or more Net worth less than Rs. 500 Crores (a) Apply to Accounting periods beginning on or aftr 1st April, 2016 with the comparatives for period ending on 31st March, 2016, or thereafter Apply to Accounting period beginning on or after 1st April, with the 2017 comparatives for periods ending on 31st March, 2017, or thereafter Companies whose equity or debt securities are listed or are in the process of being listed in India or outside in India. 24

25 S. Conditions N o Net worth of Rs. Net worth of 500 Crores or Rs.250 Crores more or more but less than Rs. 500 Crores (b) Companies whose or debt equity securities are not listed on any stock exchange in India or outside in India Apply Accounting periods beginning on or after 1st April, 2016 with the comparatives for periods ending on 31st March, 2016, or thereafter 25 Apply for Accounting periods beginning on or after 1st April, 2017 with the comparatives for periods ending on 31st March, 2017, or thereafter

26 (c) Holding, subsidiary, joint venture or associate companies of companies covered in point (a) & (b) of this table 26

27 Comparatives shall mean comparative figures for the preceding accounting period. For the purposes of calculation of net worth of companies the following principles shall apply:(a) the net worth shall be calculated in accordance with the stand-alone financial statements of the company as on 31st March, 2014 or the first audited financial statements for accounting period which ends after that date; 27

28 (b) for companies which are not in existence on 31st March, 2014 or an existing company falling under any of thresholds specified for the first time after 31st March, 2014, the net worth shall be calculated on the basis of the first audited financial statements ending after that date in respect of which it meets the thresholds specified. 28

29 COMPANIES INDIAN ACCOUNTING STANDARDS (IND AS) AMENDMENT RULES, 2016 These Amendment Rules have mainly extended the scope of applicability of Ind AS to certain NBFCs. Therefore, in the Explanation to sub-rule (4),[Obligation to comply with (Ind AS)] a) After the words, figures and letters the Indian Accounting Standards (Ind AS) for the accounting period beginning on 1st April, 2016 the words, figures and letters or 1st April, 2018, as the case may be shall be inserted; 29

30 b) After the words, figures and letters effective for the financial year ending on 31st March, 2017 the words, figures and letters or 31st March, 2019, as the case may be, shall be inserted. In the proviso to sub-rule (5), sub-rule (6) and subrule (9), the words either voluntarily or mandatorily shall be omitted. 30

31 BACKGROUND HISTORY OF AS IN TAXATION The Finance act 1995 empowered the Central Government to notify Accounting Standards to be followed for calculating income under the head Profits and gains of business or profession or Income from other sources u/s 145 In 1996, two accounting standards relating to disclosure of accounting policies and disclosure of prior period and extraordinary items and changes in accounting policies were notified. CBDT constituted a committee in 2010 to suggest Tax Accounting Standards(TAS) which were to be notified under sub section (2) of Section 145 of Income Tax Act

32 THE ACCOUNTING STANDARDS ISSUED BY ICAI ARE CLASSIFIED INTO: ACCOUNTING STANDARDS MANDATORY AS ON 15TH NOVEMBER 2016 AS 1 - Disclosure Of Accounting Policies AS 2 - Valuation Of Inventories AS 3 - Cash Flow Statements AS 4 - Contingencies And Events Occurring After Balance Sheet Date 32

33 AS 5 - Net Profit or Loss for the period, prior period items and changes in accounting policies AS 7 - Construction Contracts AS 9 - Revenue Recognition AS 10 Property, Plant and Equipment As 11 The Effect of Changes in Foreign Exchange rates AS 12 Accounting for Government Grants AS 13 Accounting for Investments AS 14 Accounting for Amalgamation AS 15 Employee Benefits 33

34 AS 16 Borrowing Costs AS 17 - Segment Reporting AS 18 Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations 34

35 AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions, Contingent Liabilities and Contingent assets 35

36 Accounting Standards not mandatory as on 15th November 2016 AS 30 Financial Instruments : Recognition and measurement and Limited Revisions to AS 2, AS 11, AS 21, AS 23, AS 26, AS 27,AS 28 and AS 29 AS 31 Financial Instruments : Presentation As 32- Financial Instruments : Disclosures and limited revision to Accounting Standard (AS) 19, Leases 36

37 APPLICABILITY CBDT through its notification No.87/2016 dated 29th September, 2016 notified revised ICDS and repealed its earlier notification no.32/2015 dated 31st March,2015 The revised ICDS is applicable to all assessees other than an individual or a HUF who is required to get his/her accounts of the PY audited in accordance with the provisions of Sec.44AB of Income Tax Act, The notification shall apply to Assessment Year and subsequent Assessment Years 37

38 Applicable for Computation of Income under the head Profits And Gains Of Business Or Profession and Income From Other Sources Such assessees need to follow Mercantile system of Accounting for the purpose of computation of Income. In case of conflict between ICDS and Income Tax Act the Income Tax Act 1961 shall prevail. 38

39 ICDS II VALUATION OF INVENTORIES

40 ICDS II Vs ICAI AS 2 BASIS Scope ICDS ICAI AS Not applicable for: a. Construction contracts b. WIP dealt in other ICDS c. Financial instruments held as stock-in-trade d. Products relating to agriculture e. Machinery spares held as stock in trade Not applicable for: a. Construction contracts b. Financial instruments held as stock-in trade c. Products relating to agriculture 40

41 Previously issued ICDS is applicable for service provider also The revised ICDS removes the reference to the SERVICE PROVIDER. 41

42 ICDS II Vs ICAI AS 2 BASIS ICDS ICAI AS Cost of Services Cost of Services were not included in cost of inventories as per AS 2 issued by ICAI Change method Change in method will amount to change in Accounting Policy in Inclusion of cost of services in cost of inventories to bring inventories to their present location and condition the Not permitted without a reasonable cause 42

43 ICDS II Vs ICAI AS 2 BASIS ICDS Methods 1. Specific Identification of valuation Method 2. FIFO 3. Weight Average Cost 4. Retail method ICAI AS 1. Specific Identification Method 2. FIFO 3. Weight Average Cost 4. Retail method 5.Standard Cost Standard cost is also recognized as a for technique measurement of cost 43

44 In earlier ICDS Standard cost is not recognized as a technique for measurement of cost Revised ICDS allows STANDARD COST METHOD for measuring inventory. Provided the following disclosures are made : - Details of inventories measured at standard cost - A confirmation that standard cost approximate the actual cost 44

45 ICDS II Vs ICAI AS 2 BASIS Interest Cost ICDS Excluded unless they meet the criteria as specified in the ICDS on borrowing costs. Valuation In the case of dissolution of a of partnership firm or association of inventory persons or body of individuals in case of irrespective of whether the dissolutions business continues or not, the inventories on the date of dissolution shall be valued at net realizable value ICAI AS Usually excluded As 2 does specifically mention valuation inventory in case dissolution not the of the of 45

46 ICDS II Vs ICAI AS 2 BASIS ICDS Cost of The costs of purchase Purchase shall consist of purchase price including duties and taxes, freight inwards and other expenditure directly attributable to the acquisition. ICAI AS The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other directly expenditure attributable to the acquisition. 46

47 ICDS II Vs ICAI AS 2 BASIS Value of Opening Inventory ICDS ICAI AS The value of the inventory as on Value of the beginning of the previous opening year shall be: inventory is not discussed Value of inventory on the day in AS 2 of commencement in case of new business and Value of the inventory as on the close of the preceding PY, in case of existing business. 47

48 DISCLOSURE The following aspects shall be disclosed, namely: a) The accounting policies adopted in measuring inventories including the cost formulae used. Where standard costing has been used as a measurement of cost, details of such inventories and a confirmation of the fact that standard cost approximate the actual cost b) The total carrying cost of inventories and its classification appropriate to a person 48

49 REPORTING REQUIREMENT UNDER FORM 3CD 1) Clause 14 Method of Stock Valuation. 2) Clause 15 Capital Asset Converted Into Stock In Trade 3) Clause 35 Quantitative Details 49

50 CLAUSE 14 METHOD OF STOCK VALUATION APPLICABILITY : To all assessees who carry stock as at the end of the relevant PY, whereas inventories are assets : a) Held for sale in the ordinary course of business b) In the process of production for such sale c) In the form of materials or supplies to be consumed in the production process or in rendering of services 50

51 SECTION 145 Method of accounting 1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income. 51

52 SECTION 145A Notwithstanding anything to the contrary contained in section 145, (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be (i) in accordance with the method of accounting regularly employed by the assessee; and 52

53 SECTION 145A (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. 53

54 SECTION 145A Explanation. For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. 54

55 CLAUSE 15 CAPITAL ASSET CONVERTED INTO STOCK IN TRADE APPLICABILITY : All assessees in respect of whom there is a conversion of capital asset into stock in trade. Following particulars have to be disclosed : Description of capital asset Date of acquisition Cost of acquisition Amount at which the asset is converted into stock in trade 55

56 QUERY 56

57 JUDICIAL PRECEDENTS INVENTORY VALUATION The change in accounting policy is not allowed if there is nothing on record to indicate that the change is intended to be followed regularly in future by the assessee - Snow White Food Products Co. Ltd v CIT (1983) 141 ITR 847 ICDS II also states that the inventory on the date of dissolution of partnership firm or AOP or BOI shall be valued at the net realisable value. 57

58 But in ACIT v Kuldip Chand & Sons [2005] 93 ITD 253(Amritsar), if business of the firm didn t cease to continue as one unit on dissolution The closing stock could not be valued at market price disregarding value shown by the assessee at an average cost price which had been consistently followed by the assessee in past. 58

59 ICDS III CONSTRUCTION CONTRACTS

60 ICDS III Vs ICAI AS 7 BASIS ICDS Retenti Contract Revenue comprise of initial on Money amount of revenue agreed including retentions Borrow ICDS III specifically ing costs consider borrowing cost as a part of contract cost ICAI AS Retentions are not specifically mentioned in Contract Revenue as per AS 2 AS 7 does not specifically mention borrowing costs as a part of contract cost. But AS 7 considers borrowing cost as a part of cost that are allocated to contract activity in general and can be allocated to the contract cost. 60

61 ICDS III Vs ICAI AS 7 BASIS Interest, dividend and capital gain ICDS Preconstruction income in the nature of interest, dividend and capital gain shall not be reduced from the cost of construction. They shall be treated and taxed as income Early ICDS III clearly defines stage of a early stage of a contract contract shall not extend 25% of the stage of completion ICAI AS AS 7 states that incidental income that is not included in contract revenue shall be reduced from contract costs, but it does not specifically mention about interest, dividend and capital gain. AS 7 does not clearly define the early stage of a contract 61

62 ICDS III Vs ICAI AS 7 BASIS ICDS ICAI AS Anticipate Does not permit All expected losses shall be d loss recognition of recognized fully and not in anticipated losses proportion to percentage of completion Incentives ICDS III does not Incentive payments are and claims mention about the included in contract revenue specific performance only when the specific standards to be met performance standards are in case of incentives met and amount of incentive and claims payment can be measured reliably 62

63 ICDS III Vs ICAI AS 7 BASIS ICDS Reversal Provides for write-off of revenue in line with the provisions of Section 36 (1)(vii) Sec 36(1)(vii)- bad debts written off ICAI AS Provides for reversal of revenue on account of uncertainty arising on realisable value of contract revenue which was already recognised as income. 63

64 ICDS III Vs ICAI AS 7 BASIS ICDS Attributing The condition for contract cost attributing contract cost that such expenses should be capable of being measured reliably is removed. Contract If such costs are not Costs realizable then the same may be allowed under provisions of the Act. ICAI AS For attributing contract costs to a construction contract, one condition is that such expenses should be capable of being measured reliably. Contract costs which relate to future activity shall be recognized as an asset when it is probable that such costs are recoverable. 64

65 DISCLOSURE A person shall disclose: a) The amount of contract revenue recognised as revenue in the period. b) The methods used to determine the stage of completion of contracts in progress. 65

66 DISCLOSURE A person shall disclose the following for contracts in progress at the reporting date, namely : a) Amount of costs incurred and recognised profits ( less recognised losses) upto the reporting date b) The amount of advances received c) The amount of retentions 66

67 REPORTING REQUIREMENT UNDER FORM 3CD 1) Clause 12 Presumptive Income 2) Clause 13 Method Of Accounting 3) Clause 16 Amounts Not Credited To Profit and Loss Account 67

68 CLAUSE 12 PRESUMPTIVE INCOME APPLICABILITY : If the profit and loss account include any profits and gains assessable under presumptive schemes u/s 44AD, 44AE, 44AB, 44BBA, 44BBB or any other relevant section. REPROTING REQUIREMENT: Whether assessable under the above said sections If yes, The amount and The relevant sections 68

69 CLAUSE 13 METHOD OF ACCOUNTING APPLICABILITY : Applicable for computation of Income chargeable under the head Profits And Gains Of Business Or Profession or Income From Other Sources. To all assessees following mercantile system of accounting. Companies to follow Accrual method only. LLP may follow accrual or cash basis. 69

70 CLAUSE 16 : AMOUNTS NOT CREDITED TO PROFIT AND LOSS AC COUNT Amounts not credited to profit and loss account, being a) The items falling within the scope of section 28 b) The proforma credits, drawbacks, refunds of duty of customs or excise or service tax, or refunds of sales tax or VAT, where such credits, drawbacks or refunds are admitted as due by the authorities concerned c) Escalation claims accepted during the PY d) Any other item of income e) Capital receipt., if any 70

71 JUDICIAL PRECEDENTS RETENTION MONEY If retention money and security deposit were repayable to the assessee after completion of the contract to the satisfaction of the contractee, it could not be said that amount had accrued to assessee and therefore it could not be taxed in assessee s hand CIT v P & C Constructions (P) Ltd It could not be said to be accrued to assessee till completion of work DIT(International Taxation) v Ballast Nedam International (2013) 71

72 Retention money was to be taxed in AY relevant to the PY in which it became payable to the assessee as per terms of contract Amarshiv Construction (P) Ltd v DCIT(2014). Retention money to be brought to tax in the year in which contract was successfully completed irrespective of the fact that assessee had adopted mercantile system of accounting ACIT v B.G.R Energy Systems Ltd.(2014). 72

73 As per ICDS III, the retention money shall accrue to allowed unless such losses are actually incurred. However in ACIT v ITD Cementation India Ltd(2013), it was held that AS-7 allows the assessee to make provision for foreseeable losses and therefore, said losses provided by assessee in its books of account had to be allowed in year under consideration. 73

74 ICDS IV- REVENUE RECOGNITION

75 ICDS IV Vs ICAI AS 9 BASIS Rendering of Services ICDS ICAI AS Consider completed service contract method for recognition of revenue from service transactions AS 9 recognizes both completed service contract method and proportionate completion method for recognition of revenue from service transactions 75

76 Previously issued ICDS required revenue from service transactions to be recognized by the PERCENTAGE OF COMPLETION METHOD IN ALL CASES The revised ICDS introduces following two exceptions : a) When services are provided by an indeterminate number of acts over a specific period of time, revenue may be recognized on a straight line basis over the specific period. 76

77 b) Revenue from the service contracts with duration of not more than 90 days may be recognized when the rendering of services under that contract is completed or substantially completed. 77

78 The previously issued ICDS required interest revenue to be accrued on time basis determined by the amount outstanding and the rate applicable. Revised ICDS provides that the interest on tax, duty or cess would be recognized in the PREVIOUS YEAR in which it is received. 78

79 With respect to construction contracts commenced prior to the applicability of ICDS, but not completed by 31st March 2016, the revised ICDS requires that the contract revenue and contract costs associated with such contracts to be recognized based on the method followed by an entity prior to the applicability of ICDS, ie, 1st April

80 DISCLOSURE Following disclosures shall be made in respect of revenue recognition namely : a) In a transaction involving sale of good, total amount not recognised as revenue during the previous year due to uncertainty of its ultimate collection along with the nature of uncertainty b) The amount of revenue from service transactions recognised as a revenue during the previous year c) The method used to determine the stage of completion of service transactions in progress 80

81 DISCLOSURE d) For service transactions in progress at the end of the previous year: i. Amounts to costs incurred and recognised profits(less recognised losses) upto end of previous year ii. The amount of advances received iii. The amount of retentions 81

82 REPORTING REQUIREMENT UNDER FORM 3CD 1) Clause 16 Amounts Not Credited To Profit And Loss Account 2) Clause 24 Amount Deemed To Be P & G u/s 33AB or 33 AC or 33 ABA 3) Clause 25 Any Amount Of Profit Chargeable To Tax u/s 41 4) Clause 27(b) Particulars Of Income Or Expenditure Of Prior Credited Or Debited To The Profit And Loss Account 82

83 JUDICIAL PRECEDENTS Under ICDS recognition of revenue can be deferred if there is an uncertainty in its ultimate collection. However in Kerala State Industrial Products Trading Corporation Ltd v ACIT (2012), the assessee couldn t be said to be following wrong accounting policy if it didn t recognise the interest accrued on loan given to certain companies which eventually became sick. 83

84 ICDS V- TANGIBLE FIXED ASSETS

85 ICDS V Vs ICAI AS 10 BASIS Scope ICDS Covers all tangible fixed assets such as land, building, machinery, plant or furniture ICAI AS Covers all assets with exceptions certain such as forests, plantations, regenerative natural resources, wasting assets, livestock etc 85

86 ICDS V Vs ICAI AS 10 BASIS ICDS Acquisition of an Fair value of assets asset in exchange of acquired shall be asset, shares or other taken as actual cost securities ICAI AS Fair value of assets acquired or fair value value of assets, shares, securities given up or acquired whichever is clearly evident shall be taken as actual cost 86

87 The previously issued ICDS required an entity holding jointly owned tangible fixed assets to indicate separately such assets in the tangible fixed assets register. The revised ICDS have removed this requirement. 87

88 DISCLOSURE Following disclosures shall be made in respect of tangible fixed assets namely : a) Description of asset or block of assets b) Rate of depreciation c) Actual cost or written down value, as the case may be d) Depreciation allowable e) WDV at the end of the year 88

89 DISCLOSURE f) Additions or deductions during the year with dates g) In case of any addition of an asset, date put to use, including adjustments on account of : i. CENVAT credit claimed and allowable under the CENVAT credit rules, 2004 ii. Change in rate of exchange of currency iii. Subsidy or grant or reimbursement, by whatever name called 89

90 REPORTING REQUIREMENT UNDER FORM 3CD 1) Clause 15 Capital Asset Converted Into stock in Trade 2) Clause 17 Transfer of Land and/or Building 3) Clause 18 - Depreciation 4) Clause 28 Implications of Transfer without Consideration 90

91 CLAUSE 17 TRANSFER OF LAND AND/OR BUILDING Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred in section 43 CA or 50C, furnish the details regarding : Details of property Consideration received or accrued Value adopted or assesses or assessable 91

92 CLAUSE 18 - DEPRECIATION APPLICABILITY : To all assessees who are following mercantile system of accounting and claiming depreciation u/s 32 of the Income Tax Act, Particulars of depreciation allowable as per the Income Tax Act, 1961 in respect of each asset or block of assets, as the case may be, in the following form : Description of asset/block of assets Rate of depreciation Actual cost or WDV as the case may be. 92

93 Additions/deductions during the year with dates In the case of any addition of an asset, date put to use, including adjustments on account of a) CENVAT credit claimed b) Change in rate of exchange of currency c) Subsidy or grant or reimbursement, by whatever name called Depreciation allowable WDV at the end of the year 93

94 FAQ ON ICDS Does ICDS apply to non-residents? Yes, ICDS applies to non-residents and residents as well in so far as they have income under the heads Profit and gains of business or profession and Income from Other Sources. Sec 145 speaks of Accounting Standards but these are Income Computation Standards? The Tax Accounting Standards have been renamed as ICDS suggesting that these standards relate to Income computation and not accounting in a larger context. The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income 94

95 Will this impact our tax audit? Yes, as the taxable income is required to be computed in accordance with these standards, they would impact tax audit as well. What are the consequences if an assessee does not comply with ICDS? The Assessee may be subjected to assessment under section 144 -best judgment assessment What are the key concerns of ICDS? The computation of net income as per the financial statements and taxable income as computed under ICDS may differ even substantially in certain cases. All assesses ( not only Corporate ) will be required to follow these 95

96 Standards in respect of P & G of Business or Profession and Income from other sources. Materiality and Prudence are not considered in the ICDS framework. What do you understand marked to market loss concept in ICDS? This is a concept which is brought replacing the concept of prudence. As per marked to market loss concept, loss shall not be recognised unless recognition of such loss is in accordance with the provisions of any other Income Computation and Disclosure Standard. Does ICDS -V applies to all assets? ICDS V applies only to tangible fixed assets in contrast with AS 10 which applies to all assets with certain exceptions 96

97 Does ICDS requires maintenance of books of accounts? ICDS relates to computation of income and is not related to maintenance of books of accounts Specify the ICDS that deals with accounting treatment of investments? ICDS VIII Securities deals only with securities held as stock in trade. Thus, presently there are no ICDS which deals with all investments. 97

98 id: 98

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