Income Computation and Disclosure Standards 3nd Edition - Ready Reckoner in Q & A format

Contents at a glance About the Authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii About the experts who have contributed to the book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Chapter 1 Chapter 1A Chapter 2 Chapter 2a Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12

Brief Introduction of Income Computation and Disclosure Standards (Icds). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Provisions of Income Tax Act, 1961 vis-a-vis - Income Computation and Disclosure Standards. . . . . . . . . . . . . . . . . . . . . . . . . 11 Income Computation and Disclosure Standards—Non applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ICDS Disclosure requirement in the Return of Income. . . . . . . . . . . . . 23 Income Computation and Disclosure Standard – I Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Income Computation and Disclosure Standard –II Valuation of Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Income Computation and Disclosure Standard –III Construction Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Income Computation and Disclosure Standard – IV Relating to Revenue Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Income Computation and Disclosure Standard –V Relating to Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Income Computation and Disclosure Standard – VI Relating to the effect of changes in Foreign Exchange Rates. . . . . . . 163 Income Computation and Disclosure Standard –VII Relating to Government Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Income Computation and Disclosure Standard –VIII Relating to Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Income Computation and Disclosure Standard –IX Relating to Borrowing Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Income Computation and Disclosure Standard –X Provisions, Contingent Liabilities and Contingent Assets. . . . . . . . . . 243

Annexure 1: Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annexure 2: Sections relevant to ICDS, from the Income tax Act, 1961. . . . . . . . . . . . . . .

Annexure 3: Rule 12 of the Income tax Rules, 1962 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annexure 4: AY 2016-17 ITR forms with Schedule ICDS (Relevant sections) . . . . . . . . . .

265 369 371 377 xi

Table of Contents About the Authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii About the experts who have contributed to the book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Contents at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Chapter 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12

1.13 1.14 1.15 1.16 1.17 1.18

Brief Introduction of Income Computation and Disclosure Standards (Icds). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 What is the background for introduction of Income Computation and Disclosure Standards?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 What is the rationale behind bringing out “Income Computation & Disclosure Standards?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Under which provision, has the ICDS has been brought in?. . . . . . . . . . . . . . . . . . . 3 What are Accounting Standards?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 What are the amendments made by the Finance Act, 2014 in this regard?. . . . . . . 4 When were ICDSs notified?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 From which assessment year is ICDS applicable?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Who is required to comply with ICDS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Whether ICDS is applicable to non-residents?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 What are the conditions to be satisfied for applicability of ICDS?. . . . . . . . . . . . . . 5 How many ICDS have been notified and name each of them?. . . . . . . . . . . . . . . . . 5 Why is the expression ‘Tax Accounting Standard’ has been substituted by the expression ‘Income Computation and Disclosure Standards’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Whether the two Accounting Standards notified in 1996 will continue to apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Whether there are any transitional provisions in ICDS?. . . . . . . . . . . . . . . . . . . . . . 6 What is the objective of transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 How does ICDS impact small entities?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 How does ICDS impact very large entities?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Give the list of ICDS and corresponding AS and Ind AS. . . . . . . . . . . . . . . . . . . . . . 7

Chapter 1A

Provisions of Income Tax Act, 1961 vis-a-vis - Income Computation and Disclosure Standards . . . . . . . . . . . . . . . . . . . . . . . . . 11 1a.1 What is the method of accounting to be followed under Income-tax Act, 1961?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 xiii

Income Computation and Disclosure Standards Ready Reckoner, 3e 1a.2 Are there any powers of the Central Government to notify the Accounting Standards?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1a.3 Which ICDS are notified by the Central Government?. . . . . . . . . . . . . . . . . . . . . . 12 1a.4 What is the position in case method of accounting or accounting standards are not followed, as provided under section 145(1) and (2) respectively?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1a.5 Are there any exception to the provisions of section 145?. . . . . . . . . . . . . . . . . . . . 14 1a.6 What is the position of interest on compensation or enhanced compensation? . 14 1a.7 What is the position in case of change in method of accounting?. . . . . . . . . . . . . 15 1a.8 Can Accounting practices followed override the statutory provisions?. . . . . . . . . 15 1a.9 Is ICDS mandatorily required to be followed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1a.10 Can the assessee change the method of accounting? . . . . . . . . . . . . . . . . . . . . . . . . 15 1a.11 Discuss case laws relating to Method of Accounting. . . . . . . . . . . . . . . . . . . . . . . . 16 Income Computation and Disclosure Standards—Non applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.1 Under what circumstances ICDS will not apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2 Whether ICDS will apply for Cash System of Accounting?. . . . . . . . . . . . . . . . . . . 18 2.3 Whether for maintenance of books of accounts ICDS will apply?. . . . . . . . . . . . . 18 2.4 Whether ICDS will apply for Minimum Alternate Tax (MAT)?. . . . . . . . . . . . . . . 18 2.5 Whether ICDS will apply in case of presumptive taxation?. . . . . . . . . . . . . . . . . . . 18 2.6 What is the position in case of ICDS conflicts with provisions of the Income-tax Act, 1961? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.7 Merely because ICDS is applicable, whether Accounting Standards need not be complied with?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.8 Whether ICDS would impact Tax Audit?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.9 What are the consequences of non-compliance with ICDS?. . . . . . . . . . . . . . . . . . 21 2.10 What are the major concerns in ICDS implementation?. . . . . . . . . . . . . . . . . . . . . 21 2.11 What is the Position in respect of section 44AA and presumptive income?. . . . . 22 2.12 What is the position in respect of judicial pronouncements over ICDS? . . . . . . . 22

Chapter 2

Chapter 2a ICDS Disclosure requirement in the Return of Income . . . . . . . . . . . . 23 2a.1 What are the disclosure requirements in the return of income in respect of ICDS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2a.2 Give brief requirement of the information to be furnished with regard to method of accounting followed and changes thereof.. . . . . . . . . . . . . . . 25 2a.3 Can the assessee change the method of accounting? . . . . . . . . . . . . . . . . . . . . . . . . 25 2a.4 What are the requirements of Part A-01 – Other Information in ITR-4, 5 and 6 with regard to accounting policies?. . . . . . . . . . . . . . . . . . . . . . . . . . 26 xiv

Table of Contents

2a.5 What are the requirements of Part-A-01 of ITR-4 with regard to valuation of inventories in the return of income?. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2a.6 Whether a change in the method of valuation of inventory is permissible?. . . . . 27 2a.7 What is the position of valuation of opening inventory under ICDS-II? . . . . . . . 28 2a.8 What is the requirement of effect of Income Computation Disclosures Standards with regard to Construction Contract in the return of income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2a.9 What is the requirement of effect of Income Computation Disclosures Standards with regard to Revenue Recognition in the Return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2a.10 What is the requirement of effect of Income Computation Disclosures Standards with regard to Tangible Fixed Assets in the Return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2a.11 What is the requirement of effect of Income Computation Disclosures Standards with regard to Changes in Foreign Exchange Rates in the Return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2a.12 What is the requirement of effect of Income Computation Disclosures Standards with regard to Government Grants in the Return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2a.13 What is the requirement of effect of Income Computation Disclosures Standards with regard to Securities in the Return of Income?. . . . . . 30 2a.14 What is the requirement of effect of Income Computation Disclosures Standards with regard to Borrowing Costs in the Return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2a.15 What is the requirement of effect of Income Computation Disclosures Standards with regard to Provisions, Contingent Liabilities and Contingent Assets in the Return of Income?. . . . . . . . . . . . . . . . . . 30 2a.16 Whether effect of changes of various ICDS need be shown individually in return of Income?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Income Computation and Disclosure Standard – I Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 What does ICDS-I relating to Accounting Policies deal with? . . . . . . . . . . . . . . . . 35 What are the basic difference of AS-1 and ICDS-I? . . . . . . . . . . . . . . . . . . . . . . . . . 35 What is the effective date on which ICDS-I will come into force?. . . . . . . . . . . . . 35 Are there any transitional provisions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 To whom ICDS-I will apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 While computing income, can expected losses to be considered under ICDS-I?. 36 While computing income under ICDS-I whether materiality has to be recognized? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Under what circumstances can Accounting Policies be changed under ICDS?. . 37

Chapter 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

xv

Income Computation and Disclosure Standards Ready Reckoner, 3e 3.9 Whether ICDS-I will apply for maintenance of books of accounts?. . . . . . . . . . . . 37 3.10 Are there any solutions in case of conflict between Income-tax Act, 1961 and ICDS-I?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.11 Whether ICDS-I ultra vires Section 145 of Income-tax Act, 1961?. . . . . . . . . . . . 37 3.12 Compare and contrast between ICDS-1 Accounting Policies and AS-1 : Disclosure of Accounting policies and AS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. . . . 37 3.13 Compare and contrast between ICDS-1 Accounting Policies and Ind AS-1 Presentation of Financial Statements Ind AS-8 Accounting Polices, Changes in Accounting Estimates and Errors? . . . . . . . . . . . 40 3.14 What are the differences between Accounting Standards I & II issued earlier under section 145(2) of Income Tax Act, 1961 with ICDS-I?. . . . . 42 3.15 What are the Fundamental Accounting assumptions made under ICDS-I?. . . . . 43 3.16 Whether it is statutorily required to disclose when accounting assumptions were not followed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.17 What is the meaning of ‘Accrual/Mercantile System’ of Accounting in ICDS-I?. 43 3.18 How do you verify whether ‘Accrual/Mercantile System” of Accounting is followed for ICDS-1?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 3.19 What are the considerations to be weighed for selection of accounting policies?.44 3.20 What is the meaning of the expression, ‘Significant Accounting Policies’?. . . . . . 44 3.21 Whether Significant Accounting Policies have to be disclosed?. . . . . . . . . . . . . . . 45 3.22 Whether disclosure of accounting policies can be a remedy for wrong or inappropriate treatment?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.23 When fundamental accounting assumptions are followed, is it necessary to disclose? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.24 What is the object of “True and fair view” of state of affairs under ICDS-I with reference to Section 129 of the Companies Act, 2013? . . . . . . . . . . . 46 3.25 What are the aspects to be considered for true and fair view? . . . . . . . . . . . . . . . . 46 3.26 What are the requirements of ICDS vis-à-vis, method of accounting under Income-tax Act, 1961?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.27 What are the reporting requirements under Tax Audit in relation to ICDS-I?. . . 47 3.28 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Annexure: A. Income Computation and Disclosure Standard I relating to accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Chapter 4 4.1 4.2 4.3 xvi

Income Computation and Disclosure Standard –II Valuation of Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Under what circumstances will ICDS-II apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Under what circumstances ICDS-II will not apply?. . . . . . . . . . . . . . . . . . . . . . . . . 59 What is the scope of ICDS II? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 4.30 4.31 4.32 4.33 4.34

Table of Contents What is the position in case of conflict between provisions of Income-tax Act, 1961 and ICDS-II?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 What is the effective date on which ICDS-II will come into force? . . . . . . . . . . . . 60 In which cases ICDS-II shall not apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Are there any transitional provisions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 What is the meaning of Inventories as per ICDS-II? . . . . . . . . . . . . . . . . . . . . . . . . 61 What are the differences between ICDS-II and AS-2 in respect of Valuation of Inventories? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 What are the differences between ICDS-II and Ind (AS)2 ?. . . . . . . . . . . . . . . . . . 65 Whether costs and duties are includable in valuation of purchase of goods under sec 145A?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 What are the significant changes made in the definition of ‘Cost of Purchase’ in ICDS-II as compared to AS-2? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 What is the meaning of “Net realisable value’ as per ICDS-II?. . . . . . . . . . . . . . . . 69 What is the basic principle of measurement of inventories as per ICDS-II ?. . . . 69 What are the exceptions to the basic principle of measurement of inventories as per ICDS-II? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 What is the position when NRV is negative?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 What is the cost of Inventories as per ICDS-II? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Whether duties are includable as cost?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 What are the cost of services? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 How do you arrive at cost of conversion under ICDS-II? . . . . . . . . . . . . . . . . . . . . 70 What is the position of ‘overheads’? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 What is the position of allocation of overheads to fixed production?. . . . . . . . . . 71 How is conversion cost calculated in case of Joint products where costs of conversion of each product are not separately identifiable? . . . . . . . . . . . 72 How are “Other costs” dealt under ICDS-II?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Under ICDS-II, what are exclusions from the cost of inventories?. . . . . . . . . . . . . 72 What is the position of Administrative costs under ICDS-II?. . . . . . . . . . . . . . . . . 72 Whether interest on borrowings shall be included in the cost of inventory?. . . . 73 What are various components of costs under ICDS-II?. . . . . . . . . . . . . . . . . . . . . . 73 How do you arrive at costs under ICDS-II?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 What are the various methods provided for valuation of inventories? . . . . . . . . . 73 Briefly explain the valuation under “First in First out and weighted average cost formulae.”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Briefly explain the valuation under “FIFO” method?. . . . . . . . . . . . . . . . . . . . . . . . 74 What are the techniques for the measurement of cost?. . . . . . . . . . . . . . . . . . . . . . 74 Briefly explain the valuation under “Standard Cost Method”. . . . . . . . . . . . . . . . . 74 xvii

Income Computation and Disclosure Standards Ready Reckoner, 3e 4.35 4.36 4.37 4.38 4.39

Briefly explain the valuation under “retail method”. . . . . . . . . . . . . . . . . . . . . . . . . 74 What is “Net Realizable value”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Whether Inventories can be written down to net realisable value? . . . . . . . . . . . . 75 What are the basis of calculation of net realisable value?. . . . . . . . . . . . . . . . . . . . . 75 Whether materials and other supplies held for production of inventories can be written down below the cost? . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.40 What is the position of net realizable value when there is a decline in market price of material?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 4.41 What is the position of valuation of opening inventory under ICDS-II? . . . . . . . 76 4.42 Whether a change in the method of valuation of inventory is permissible?. . . . . 76 4.43 What is the position in case of dissolution of firm? . . . . . . . . . . . . . . . . . . . . . . . . . 77 4.44 What are the matters to be disclosed in case of valuation of inventories?. . . . . . . 77 4.45 Where and how to be disclosed?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 4.46 What are the reporting requirements under Tax Audit in relation to ICDS-I?. . . 78 4.47 What is the position of selling and distribution cost?. . . . . . . . . . . . . . . . . . . . . . . . 79 4.48 What is the position of Administrative overheads? . . . . . . . . . . . . . . . . . . . . . . . . . 79 4.49 Can demurrage charges be considered as cost of inventories? . . . . . . . . . . . . . . . . 80 4.50 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Annexure: B. Income Computation and Disclosure Standard II relating to valuation of inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Income Computation and Disclosure Standard –III Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Under what circumstances ICDS-III will not apply? . . . . . . . . . . . . . . . . . . . . . . . . 91 What is the scope of ICDS-III? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 What is the meaning of Construction contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 What is the meaning of retentions under ICDS-III?. . . . . . . . . . . . . . . . . . . . . . . . . 92 What is the meaning of Progress Billings?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 What is the meaning of Advances?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 What are the differences between ICDS-III and Accounting Standard-7?. . . . . . 92 What are the differences between ICDS-III and Ind (AS)-11?. . . . . . . . . . . . . . . . 95 What is the nature of construction contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 What are the types of construction contracts?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 What is fixed price contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 What is cost plus contract?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 What is Cost plus contracts with an agreed maximum price?. . . . . . . . . . . . . . . . . 99 What is the position as per AS-7 in respect of fixed price contract? . . . . . . . . . . . 99 Explain the combining and segmenting construction contracts?. . . . . . . . . . . . . . 99

Chapter 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 xviii

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5.16 What is the position when it consists of group of contracts?. . . . . . . . . . . . . . . . . . 99 5.17 What is the position where a contract covers a number of assets?. . . . . . . . . . . . 100 5.18 What is the treatment where a contract provides for a construction of additional assets?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.19 When is contract revenue recognized?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.20 What does contract revenue consist of?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.21 What is the position when contract revenue is not collectable?. . . . . . . . . . . . . . 101 5.22 What are contract costs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 5.23 What is the basis for contract costs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 5.24 What is the position of contract costs relating to future activity?. . . . . . . . . . . . . 101 5.25 When are contract revenue and expenses recognized? . . . . . . . . . . . . . . . . . . . . . 102 5.26 What is the meaning of percentage of completion method?. . . . . . . . . . . . . . . . . 102 5.27 How are revenue and expenses recognized under the percentage of completion method?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 5.28 How are the stages of completion contract determined?. . . . . . . . . . . . . . . . . . . . 102 5.29 Whether progress payments and advances received, customers are determinative of the stage of completion contract? . . . . . . . . . . . . . . . . . . . . . . . . 103 5.30 Which contract costs are excluded when the stage of completion is determined by reference to the contract costs incurred up to the reporting date?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.31 What is the position where the outcome of the contract cannot be estimated reliably?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.32 What is the position in case of changes in estimates?. . . . . . . . . . . . . . . . . . . . . . . 103 5.33 Are there any transitional provisions in ICDS-III?. . . . . . . . . . . . . . . . . . . . . . . . . 103 5.34 What are the disclosures to be made as per ICDS-III?. . . . . . . . . . . . . . . . . . . . . . 104 5.35 Where and how must the disclosures be made? . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.36 What are the reporting requirements under Tax Audit in relation to ICDS-I?. . 105 5.37 Can income be estimated in case of contracts applying ‘networth formula’?. . . 105 5.38 What is the position when advance for flat is received, but no sale is made?. . . 106 5.39 What is the position in case of computing profits and gains of business on presumptive basis?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.40 Can the method of accounting be rejected just because it benefits to the Assessee?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.41 What is the position when project completion method is consistently followed?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.42 What is the nature of ‘contract revenue’ and ‘contract expenses’?. . . . . . . . . . . . . 107 5.43 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Annexure: C. Income Computation and Disclosure Standard III relating to construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 xix

Income Computation and Disclosure Standards Ready Reckoner, 3e Chapter 6

Income Computation and Disclosure Standard – IV Relating to Revenue Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 6.1 Under what circumstances will ICDS-IV apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . 120 6.2 Under what circumstances will ICDS-IV not apply?. . . . . . . . . . . . . . . . . . . . . . . 120 6.3 What is the scope of ICDS-IV? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 6.4 What is the position in case of conflict between provisions of Income-tax Act, 1961 and ICDS-IV? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 6.5 What is the effective date on which ICDS-IV will come into force?. . . . . . . . . . . 121 6.6 What is the meaning of revenue?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 6.7 What are the differences between ICDS-IV and AS-9? . . . . . . . . . . . . . . . . . . . . . 121 6.8 What are the transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 6.9 Whether ICDS-IV applies to ‘duty credit entitlement certificate’ issued under the ‘Served from India Scheme’? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 6.10 What is ‘sale of goods’ as per ICDS-IV?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 6.11 Whether certainty of collection is a prerequisite for recognition of income from ‘sale of goods’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 6.12 Can revenue be recognized in a case where the reasonable certainty of ultimate collection is lacking?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 6.13 How is revenue recognized in case of rendering of services? . . . . . . . . . . . . . . . . 124 6.14 When can interest be recognized as per ICDS-IV?. . . . . . . . . . . . . . . . . . . . . . . . . 124 6.15 How are royalties recognized as per ICDS-IV?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 6.16 When should dividends be recognized as per ICDS-IV?. . . . . . . . . . . . . . . . . . . . 125 6.17 What are the differences between ICDS-IV and Ind AS-18?. . . . . . . . . . . . . . . . . 125 6.18 What are the disclosures to be made as per ICDS-IV?. . . . . . . . . . . . . . . . . . . . . . 127 6.19 Where and how can the disclosure be made? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 6.20 What are the reporting requirements under Tax Audit in relation to ICDS-IV? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 6.21 Can income be recognized where transfer of property in goods is made without transfer of risk and rewards?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 6.22 What is the position of revenue recognition on sale of goods under the following circumstances –. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 6.23 What is the position of advance received?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 6.24 What are the views expressed by ICAI in Compendium of Opinions regarding revenue recognition under various circumstances? . . . . . . 131 6.25 Enumerate different circumstances of services when income is recognized. . . . 132 6.26 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Annexure: D. Income Computation and Disclosure Standard IV relating to revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 xx

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Chapter 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 7.16 7.17 7.18 7.19 7.20 7.21 7.22 7.23 7.24 7.25 7.26

Income Computation and Disclosure Standard –V Relating to Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Under what circumstances ICDS-V will apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Under what circumstances ICDS-V will not apply?. . . . . . . . . . . . . . . . . . . . . . . . 143 What is the scope of ICDS-V?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 What is the position in case of conflict between provisions of Income-tax Act, 1961 and ICDS-V?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 What is the effective date in which the ICDS-V will come into force?. . . . . . . . .144 What is the meaning of ‘Tangible Fixed Asset”?. . . . . . . . . . . . . . . . . . . . . . . . . . . 144 What is the meaning of ‘Fair value’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 What are the differences between ICDS-V and AS-10?. . . . . . . . . . . . . . . . . . . . . 144 Are there transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 How to identify the Tangible Fixed Assets?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 In case of stand-by equipment, whether it has to be capitalized?. . . . . . . . . . . . . 146 What is the position of spares?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146 What is the basis of arriving the actual cost for Tangible Fixed Asset?. . . . . . . . 146 Whether changes made subsequent to the acquisition or construction cost needs to be considered as Fixed Assets?. . . . . . . . . . . . . . . . . . 146 Whether Administration and other general overhead expenses have to be considered as costs of Tangible Fixed Assets? . . . . . . . . . . . . . . . . . . . . . . . . 147 What is the position in respect of start-up projects? . . . . . . . . . . . . . . . . . . . . . . . 147 What is the position of self-constructed tangible fixed assets?. . . . . . . . . . . . . . . 147 If there are any internal profits of self-constructed tangible fixed assets, what is the position? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 What is the position in case of tangible fixed asset is exchanged for another asset?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 What is the position when a tangible fixed asset is acquired in exchange for shares? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Whether improvements and repairs have to be capitalised?. . . . . . . . . . . . . . . . . 148 What is the treatment of cost of addition or extension to an existing tangible fixed asset?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 What is the position when addition or extension to an existing tangible fixed asset is disposed off?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 How do you reflect tangible fixed assets in case of owning jointly with others as per ICDS-V?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 What is the position when several assets are purchased for a consolidated price? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 How depreciation is computed on tangible fixed asset?. . . . . . . . . . . . . . . . . . . . . 148

xxi

Income Computation and Disclosure Standards Ready Reckoner, 3e 7.27 What are the conditions for allowability of depreciation under Income-tax, 1961?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 7.28 Is claiming of depreciation allowance compulsory?. . . . . . . . . . . . . . . . . . . . . . . . 149 7.29 What is the position of depreciation put to use for less than 180 days?. . . . . . . . 149 7.30 What is position of depreciation in case of succession, de-merger and amalgamation?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 7.31 Which are the assets qualified for depreciation?. . . . . . . . . . . . . . . . . . . . . . . . . . . 149 7.32 What is written down value? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 7.33 What is block of assets?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 7.34 What is the difference between ICDS-V and Ind AS-16? . . . . . . . . . . . . . . . . . . . 150 7.35 In case of transfer of tangible fixed asset, how is income computed?. . . . . . . . . . 152 7.36 What is the position of liquidated damages in respect of valuation of fixed assets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 7.37 What is the position of material salvage on dismantled fixed assets?. . . . . . . . . . 153 7.38 What are the disclosures to be made as per ICDS-V? . . . . . . . . . . . . . . . . . . . . . . 153 7.39 Where and how disclosure to be made?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 7.40 What are the reporting requirements in Form 3CD – Tax Audit Report?. . . . . . 154 7.41 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Annexure: E. Income Computation and Disclosure Standard V relating to tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Income Computation and Disclosure Standard – VI Relating to the effect of changes in Foreign Exchange Rates . . . . . . . 163 Under what circumstances ICDS-VI will apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Under what circumstances ICDS-VI will not apply?. . . . . . . . . . . . . . . . . . . . . . . 165 What is the scope of ICDS-VI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 What is the position in case of conflict between provisions of I.T Act, 1961 and ICDS-VI?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 What is the effective date on which ICDS-VI will come into force?. . . . . . . . . . . 165 What is the meaning of ‘Average rate”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 What is the meaning of ‘Closing rate”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 What is the meaning of “Exchange difference”? . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 What is the meaning of “Exchange rate”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 What is the meaning of “Foreign currency”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 What is the meaning of Foreign operations of a person?. . . . . . . . . . . . . . . . . . . . 166 What is the meaning of Foreign Currency transaction? . . . . . . . . . . . . . . . . . . . . 166 What is the meaning of “Forward exchange contract”?. . . . . . . . . . . . . . . . . . . . . 166 How are the income or expenses recognised in respect of Forward Exchange contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Chapter 8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 xxii

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8.15 8.16 8.17 8.18

What are the other requirements of Forward Exchange Contract? . . . . . . . . . . . 167 What is the position of Hedge Transactions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 How are the Exchange rate differences on the contract identified? . . . . . . . . . . . 167 What is the position in respect of Forward Exchange Contract in respect of Trading or speculation purposes?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.19 What is the meaning of “forward rate”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.20 What is the meaning of Indian currency”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.21 What is the meaning of “Monetary Items”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.22 What is the meaning of “Non-monetary items”? . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.23 What is the meaning of “Reporting currency”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.24 What is the position when “words and expressions” are used but not defined under ICDS-VI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 8.25 How is “Foreign Currency Transaction” recognized initially? . . . . . . . . . . . . . . . 169 8.26 How is “Foreign Currency Transaction” recognized when there is a significant fluctuation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 8.27 What are the differences between ICDS-VI and AS-11?. . . . . . . . . . . . . . . . . . . . 169 8.28 Are there transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 8.29 What are the steps in recognition of the effects of changes in Foreign Exchange rates?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 8.30 Briefly explain how should the conversion at the last day of previous year be recognized?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 8.31 How are the exchange differences recognized under ICDS-VI?. . . . . . . . . . . . . . 172 8.32 Are there any exceptions to the rules pertaining to initial recognition, conversion at last date of previous year and recognition of exchange difference at the end of previous year in respect of a foreign exchange transaction?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 8.33 What is the difference between ICDS-VI and Ind AS-21?. . . . . . . . . . . . . . . . . . . 172 8.34 Why classification of Foreign Operations is required?. . . . . . . . . . . . . . . . . . . . . . 174 8.35 Where and how should the disclosures be made?. . . . . . . . . . . . . . . . . . . . . . . . . . 174 8.36 What are the reporting requirements under Form 3CD – Tax Audit Report with regard to effects of changes in foreign exchange rates? . . . . . . . . . . 175 8.37 Practical Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Annexure: F. Income Computation and Disclosure Standard VI relating to the effects of changes in foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . 180 Income Computation and Disclosure Standard –VII Relating to Government Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Under what circumstances ICDS-VII will apply?. . . . . . . . . . . . . . . . . . . . . . . . . . 186 Under what circumstances ICDS-VII will not apply? . . . . . . . . . . . . . . . . . . . . . . 186

Chapter 9 9.1 9.2

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Income Computation and Disclosure Standards Ready Reckoner, 3e 9.3 9.4 9.5

What is the scope of ICDS-VII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 Which are the areas not dealt with in ICDS-VII?. . . . . . . . . . . . . . . . . . . . . . . . . . 186 What is the position in case of conflict between provisions of the Income-tax Act, 1961 and ICDS-VII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 9.6 What is the effective date in which the ICDS-VII will come into force?. . . . . . . 187 9.7 What is the meaning of ‘Government Grants”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 9.8 Whether Agencies and similar bodies can be said to be a ‘Government’ for this ICDS-VII purpose?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 9.9 What is the position when “words and expressions” used but not defined under ICDS-VII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 9.10 What are the conditions to be considered for recognition of Government Grants?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 9.11 What are the factors to be considered for treatment of Government Grants? . . 188 9.12 Give brief explanation the treatment of Government Grants. . . . . . . . . . . . . . . . 188 9.13 What is the position in respect of refund of Government grants?. . . . . . . . . . . . 189 9.14 What are the differences between ICDS-VII and AS-12? . . . . . . . . . . . . . . . . . . . 190 9.15 Are there transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 9.16 What are the differences between ICDS-VII and Ind AS-20?. . . . . . . . . . . . . . . . 194 9.17 What are the disclosures to be made as per ICDS-VII?. . . . . . . . . . . . . . . . . . . . . 196 9.18 Where and how are these disclosures to be made?. . . . . . . . . . . . . . . . . . . . . . . . . 196 9.19 What are the reporting requirements relating to Grants under the Tax Audit Report – Form 3CD?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 9.20 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Annexure: G. Income Computation and Disclosure Standard VII relating to government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Chapter 10 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8

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Income Computation and Disclosure Standard –VIII Relating to Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Under what circumstances will ICDS-VIII apply?. . . . . . . . . . . . . . . . . . . . . . . . . 206 Under what circumstances ICDS-VIII will not apply?. . . . . . . . . . . . . . . . . . . . . . 206 What is the scope of ICDS-VIII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 What are the exceptions to the applicability of ICDS-VIII? . . . . . . . . . . . . . . . . . 206 What is the meaning of the expression “Securities”? . . . . . . . . . . . . . . . . . . . . . . . 207 What “securities” are as defined in section 2(h) of Securities Contract (Regulation) Act, 1956? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 What is the meaning of “fair value”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 What is the position when “words and expressions” used but not defined under ICDS-VIII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Table of Contents

10.9 What is the position in case of conflict between provisions of the Income-tax Act, 1961 and ICDS-VIII?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 10.10 What is the effective date on which the ICDS-VIII will come into force?. . . . . . 208 10.11 What is the basis of recognition of cost of securities? . . . . . . . . . . . . . . . . . . . . . . 208 10.12 What is the treatment in respect of unpaid Interest?. . . . . . . . . . . . . . . . . . . . . . . 208 10.13 How do you measure the securities subsequently?. . . . . . . . . . . . . . . . . . . . . . . . . 209 10.14 How do you measure the securities as at the beginning of the previous year?. . 209 10.15 What is the position of securities not listed on a recognized Stock exchange?. . 209 10.16 What are the differences between ICDS-VIII Securities and AS 13 – Accounting for Investments?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 10.17 What are the differences between ICDS-VIII Securities and Ind AS-109?. . . . . 212 10.18 Does the nature and character of holding of shares play a role in deciding whether the shares are held for investment purpose or for stock in trade?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214 10.19 What is the meaning of the expression “Scheduled Bank”?. . . . . . . . . . . . . . . . . . 216 10.20 What is the basis of recognition of securities held by a scheduled bank or public financial institutions formed under a Central or a State Act or so declared under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (8 of 2013)?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 10.21 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Annexure: H. Income Computation and Disclosure Standard VIII - Relating to securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Income Computation and Disclosure Standard –IX Relating to Borrowing Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Under what circumstances will ICDS-IX apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Under what circumstances will ICDS-IX not apply? . . . . . . . . . . . . . . . . . . . . . . . 224 What is the scope of ICDS-IX? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 What is the position in case of conflict between provisions of Income-tax Act, 1961 and ICDS-IX? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 What is the effective date from which the ICDS-IX will come into force? . . . . . 225 What is the meaning of qualifying asset?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 What is the meaning of ‘Borrowing cost”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 How are the borrowing costs recognized?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 What is the position of borrowing cost which is not eligible for capitalization?.226 What are the borrowing costs eligible for capitalization? . . . . . . . . . . . . . . . . . . . 226 What is the position in the case of the “words and expressions” used, but not defined under ICDS-IX?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Whether inventory can be treated as ‘qualifying asset’?. . . . . . . . . . . . . . . . . . . . . 227

Chapter 11 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12

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Income Computation and Disclosure Standards Ready Reckoner, 3e 11.13 In the context of inventory, what is the meaning of capitalization of borrowing cost for ICDS-IX?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 11.14 When will capitalization of borrowing cost commence?. . . . . . . . . . . . . . . . . . . . 227 11.15 When will capitalization of borrowing cost cease?. . . . . . . . . . . . . . . . . . . . . . . . . 227 11.16 What is the position in case of a qualifying asset which is completed in part and capable of being used while construction still continues for other parts?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 11.17 Are there transitional provisions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 11.18 What are the differences between ICDS-IX and AS-16? . . . . . . . . . . . . . . . . . . . . 229 11.19 What are the differences between ICDS-IX and Ind AS-23?. . . . . . . . . . . . . . . . . 232 11.20 What are the disclosures to be made as per ICDS-IX?. . . . . . . . . . . . . . . . . . . . . . 234 11.21 Where and how are the disclosures to be made?. . . . . . . . . . . . . . . . . . . . . . . . . . . 234 11.22 What are the reporting requirements relating to Grants under the Tax Audit Report – Form 3CD?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 11.23 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 Annexure: I. Income Computation and Disclosure Standard IX - Relating to borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Chapter 12 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 12.13 12.14 12.15 12.16 xxvi

Income Computation and Disclosure Standard –X Provisions, Contingent Liabilities and Contingent Assets. . . . . . . . . 243 Under what circumstances will ICDS-X apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 Under what circumstances will ICDS-X not apply?. . . . . . . . . . . . . . . . . . . . . . . . 245 What is the scope of ICDS-X?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 What is not dealt with in ICDS-X?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 What is the position in case of conflict between provisions of Income tax Act, 1961 and ICDS-X? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 What is the effective date from which ICDS-X will come into force? . . . . . . . . . 245 What is the meaning of “Provision”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 What is the meaning of “Liability”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What is the meaning of “Obligating event?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What is “Contingent liability”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What is “Contingent asset”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What are “Executory contracts?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What is “Present obligation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 What is the position when words and expressions are used but not defined under ICDS-X?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 Under what circumstances shall provision be recognised?. . . . . . . . . . . . . . . . . . 247 When cost is to be incurred to operate in future, can it be recognised for provision?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Table of Contents

12.17 12.18 12.19 12.20 12.21 12.22

When a new law is yet to be finalized, whether provision can be made?. . . . . . . 247 Whether contingent liability can be recognized under ICDS-X?. . . . . . . . . . . . . 247 Whether a contingent asset can be recognized under ICDS-X?. . . . . . . . . . . . . . 247 How is the provision recognized and measured? . . . . . . . . . . . . . . . . . . . . . . . . . . 248 What is the position of provision in respect of reimbursement? . . . . . . . . . . . . . 248 When a person is not liable for payment of cost, whether provision to be made?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 12.23 What is the position of obligation if a person is jointly and severally liable, can it be a contingent liability?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 12.24 When can the provision be reviewed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 12.25 What is the use of a provision?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .249 12.26 Are there any transitional provisions under ICDS-X?. . . . . . . . . . . . . . . . . . . . . . 249 12.27 What are the exceptions to the applicability of Income Computation and Disclosure Standard–X relating to provisions contingent liabilities and contingent assets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 12.28 What is the difference between ICDS-X and AS-29?. . . . . . . . . . . . . . . . . . . . . . . 250 12.29 What are the difference between ICDS-X and Ind AS-37? . . . . . . . . . . . . . . . . . . 252 12.30 What are the disclosures to be made as per ICDS-X?. . . . . . . . . . . . . . . . . . . . . . . 254 12.31 Where and how are disclosures to be made?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 12.32 What are the reporting requirements relating to Contingent Liabilities, Assets and Provisions under the Tax Audit Report – Form 3CD?. . . 255 12.33 Practical case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Annexure: J. Income Computation and Disclosure Standard - X relating to provisions, contingent liabilities and contingent assets . . . . . . . . . . . . . . . . . . . 259 Annexure 1: Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Accounting Standard–1 Disclosure of Accounting Policies . . . . . . . . . . .

2. Accounting Standard–2 Valuation of Inventories. . . . . . . . . . . . . . . . . .

3. Accounting Standard–7 Construction Contracts. . . . . . . . . . . . . . . . . . .

4. Accounting Standard–9 Revenue Recognition. . . . . . . . . . . . . . . . . . . . .

5. Accounting Standard–10 Accounting for Fixed Assets. . . . . . . . . . . . . . .

6. Accounting Standard–11 The Effects of Changes in Foreign Exchange Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Accounting Standard–12 Accounting for Government Grants. . . . . . . .

8. Accounting Standard–13 Accounting for Investments. . . . . . . . . . . . . . .

9. Accounting Standard–16 Borrowing Costs. . . . . . . . . . . . . . . . . . . . . . . .

10. Accounting Standard–29 Provisions, Contingent Liabilities and Contingent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annexure 2: Sections relevant to ICDS, from the Income tax Act, 1961. . . . . . . . . . . . . . .

Annexure 3: Rule 12 of the Income tax Rules, 1962 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

265 265 271 277 290 299 318 329 336 343 349 369 371

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Income Computation and Disclosure Standards Ready Reckoner, 3e Annexure 4: AY 2016-17 ITR forms with Schedule ICDS (Relevant sections) . . . . . . . . . . 377 ITR 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 ITR 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 ITR 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379

xxviii

Chapter 1

Brief Introduction of Income Computation and Disclosure Standards (ICDS)

1.1

What is the background for introduction of Income Computation and Disclosure Standards? ............................................................................ 2

1.2

What is the rationale behind bringing out “Income Computation & Disclosure Standards? ............................................................................ 3

1.3

Under which provision, has the ICDS has been brought in? .................. 3

1.4

What are Accounting Standards? ........................................................... 4

1.5

What are the amendments made by the Finance Act, 2014 in this regard?.................................................................................................... 4

1.6

When were ICDSs notified? .................................................................... 5

1.7

From which assessment year is ICDS applicable? .................................. 5

1.8

Who is required to comply with ICDS? ................................................... 5

1.9

Whether ICDS is applicable to non-residents? ....................................... 5

1.10

What are the conditions to be satisfied for applicability of ICDS? ......... 5

1.11

How many ICDS have been notified and name each of them? .............. 5

1.12

Why is the expression ‘Tax Accounting Standard’ has been substituted by the expression ‘Income Computation and Disclosure Standards’? ... 6

1.13

Whether the two Accounting Standards notified in 1996 will continue to apply? ................................................................................................. 6

1.14

Whether there are any transitional provisions in ICDS? ........................ 6

1.15

What is the objective of transitional provisions? ................................... 6

1.16

How does ICDS impact small entities? ................................................... 7 1

Income Computation and Disclosure Standards Ready Reckoner, 3e

Chapter 1

1.17

How does ICDS impact very large entities? ............................................ 7

1.18

Give the list of ICDS and corresponding AS and Ind AS .......................... 7

1.1

What is the background for introduction of Income Computation and Disclosure Standards?

Ans.

Section 145(1) of the Income-tax Act, 1961 (the ‘Act’), provides for method of accounting to be followed under the head ‘profits and gains of business or profession’ or ‘income from other sources’. Power has been vested under s 145(2) of the Act where the government may notify Accounting Standards (AS) from time to time.

Originally, the Finance Act 1995 empowered the central government under s 145A of the Act to notify AS to be followed by any class of assessee or in respect of any class of income. Accordingly, in 1996 two Accounting Standards namely, “Disclosure of Accounting Policies” and “Disclosure of Prior period and Extraordinary items and Changes in Accounting Policies” were notified.

The Central Board of Direct Taxes (“CBDT”) had constituted an Accounting Standard Committee in 2010. This committee had recommended 14 Tax Accounting Standards popularly known as TAS. The committee had submitted its final report in August 2012 along with drafts of 14 Tax Accounting Standards and certain recommendations and solicited suggestions from stakeholders. The said committee recommended that AS notified under the Act should be made applicable only to the computation and taxable income.

By Finance (No 2) Act, 2014 in s 145(2), the words “accounting standards” were substituted with “Income Computation and Disclosure Standards” In January 2015 on the basis of comments and suggestions received from stakeholders, CBDT released 12 draft ICDS for comments of stakeholders.

On 31 March 2015, the central government notified 10 ICDS out of 12 draft ICDS issued without any changes to the draft ICDS released in January 2015.

Also, earlier notified two Accounting Standards under s 145(2) were withdrawn.

Vide notification no. S.O. 3078(E ) dated 29th September 2016, the central government in exercise of the powers conferred by sub-s (2) of s 145 of the Income Tax Act, 1961, rescinded notification no. S.O. 892(E) dated 31st March 2015.

2

Chapter 1

Brief Introduction of Income Computation—Non applicability

Subsequently, vide notification no. S.O. 3079(E) dated 29th September 2016, the central government notified the Income Computation and Disclosure Standards that shall apply to the Assessment Year 2017-18 and subsequent assessment years.

Copy of the notifications are given in Annexure to this Chapter.

1.2

What is the rationale behind bringing out “Income Computation & Disclosure Standards?

Ans.

The rationale behind bringing out Income Computation & Disclosure Standards (“ICDS”) is to bring uniformity in computation of income for Income Tax purposes.

In this regard, it is imperative to understand the factors that triggered issuance of ICDS. During 2010, the Ministry of Corporate Affairs announced a roadmap for converging Indian financial reporting with IFRS in phased manner. As a result, corporate sector faced one of the biggest challenge in financial reporting. The challenge being “how this change in financial reporting would impact taxable income as many companies would report as per the older Accounting Standards (AS) while others would report using Ind AS”.

In response, CBDT constituted Accounting Standard Committee in 2010 in order to ensure tax neutrality which recommended Tax Accounting Standards which were finally termed and notified as ICDS. The objective behind issuance of these standards is to provide transparency in computation of total income in respect of “profits and gains of business or profession” and “income from other sources”. At present, two sets of Accounting Standards are applicable viz AS and Ind AS. Different companies follow different Accounting Standards for preparation and presentation of financial Statements. However, with the adoption of ICDS, companies would have to necessarily compute their taxable income as per ICDS, irrespective of the standards, AS or Ind AS, followed for reporting its financial results.

Introduction of ICDS would also facilitate implementation of Ind AS.

1.3

Under which provision, has the ICDS has been brought in?

Ans.

Section 145(2) empowers the central government to notify in official gazette from time to time Income Computation and Disclosure Standards.

Exercising the power granted under s 145(2) of the Act, the central government has notified Accounting Standards to be followed for the said computation of income which are known as ‘Income Computation and Disclosure Standards’.

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1.4

What are Accounting Standards?

Ans.

Accounting Standards are written documents, policy documents issued by the government or regulatory body consisting of various aspects such as recognition, measurement, treatment, presentation and disclosure of accounting transactions in the financial statements. Accounting Standards are notified by the central government under the Companies (Accounting Standards) Rule, 2006 vide Notification no. G.S.R. 739(E) dated 7 December 2006. Same are applicable to all companies.

Indian Accounting Standards (Ind AS) are a set of accounting standards notified by the Ministry of Corporate Affairs on 16 February 2015 which are in line with the International Financial Reporting Standards. These standards are formulated by the Institute of Chartered Accountants of India.

National Advisory Committee on Accounting Standards (NACAS) has recommended these standards to the Ministry of Corporate Affairs. Ind AS are applicable on voluntary basis for the financial statements for the accounting period beginning on or after 1 April 2015 and mandatory basis for the accounting period beginning on or after 1 April 2016 for certain specified companies.

The Income Computation and Disclosure Standards are the standards prescribed by the government under s 145(2) for computing the income under the head ‘profits and gains of business or profession’ or ‘income from other sources’. The ICDS is not for the purposes of maintenance of the books of accounts.

1.5

What are the amendments made by the Finance Act, 2014 in this regard?

Ans.

Section 145(2) has been amended by the Finance Act (No.2) 2014 to provide that the central government may notify from time to time, Income Computation and Disclosure Standards to be followed by any class of assessee or in respect of any class of income. Words "income computation and disclosure standards" substituted for "accounting standards" by the Finance (No. 2) Act, 2014, w.e.f. 1 April 2015.

It also, amended s 145(3) to provide that if the assessing officer is not satisfied with the correctness or completeness of the accounts of the Assessee or where the method of accounting provided in sub-s (1) has not been regularly followed by the assessee or income has not been computed in according to the standards under sub-s (2), the assessing officer may make an assessment in the manner provided in the Act. The said amendment takes effect from 1st April 2015 in relation to the assessment years 2015-16 and onwards.

Words "has not been regularly followed by the assessee, or income has not

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been computed in accordance with the standards notified under sub-section (2)" has been substituted for "or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee", by the Finance (No. 2) Act, 2014, w.e.f. 1 April 2015.

1.6

When were ICDSs notified?

The Income Computation and Disclosure Standards were notified by CBDT vide notification no. S.O. 3078(E), dated 29th September 2016.

1.7

From which assessment year is ICDS applicable?

Ans.

The ICDS will be applicable from 1st April 2016 and will accordingly apply in relation to the Assessment Year 2017-18 and subsequent years.

1.8

Who is required to comply with ICDS?

Ans.

The Income Computation and Disclosure Standards will apply to the following category of assessees who follow mercantile system of Accounting and have Income chargeable to Income Tax under the heads: (a)

‘Profits and gains of business or profession’ or

(b)

‘Income from other sources’

1.9

Whether ICDS is applicable to non-residents?

Ans.

As per the notification no. S.O. 3078(E), dated 29th September 2016 issued by the Central Government, the Income Computation & Disclosure Standards as specified in the Annexure to the Notification has to be followed by all assesseess following mercantile system of accounting.

Therefore, ICDS will apply to non-residents as well.

1.10

What are the conditions to be satisfied for applicability of ICDS?

Ans.

The conditions to be satisfied for applicability of ICDS are as follows: (a)

The Assessee should follow mercantile system of accounting and

(b)

Must have income that is chargeable under the heads ‘profits and gains of business or profession’ or ‘income from other sources’.

1.11

How many ICDS have been notified and name each of them?

Ans.

As per notification no. S.O. 3078(E) dated 29th September 2016, the following have been notified under Income Computation and Disclosure Standards: 5

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ICDS-I

Accounting Policies

ICDS-II

Inventories

ICDS-III

Construction Contracts

ICDS-IV

Revenue Recognition

ICDS-V

Tangible Fixed Assets

ICDS-VI

Effects of changes in Foreign Exchange Rates

ICDS-VII

Government Grants

ICDS-VIII

Securities

ICDS-IX

Borrowing Costs

ICDS-X

Provisions, Contingent Liabilities and Contingent Assets.

1.12

Why is the expression ‘Tax Accounting Standard’ has been substituted by the expression ‘Income Computation and Disclosure Standards’?

Ans.

The expression ‘Tax Accounting Standards’ was recommended by the Committee for the purposes of s 145(2). Since these standards are meant only for computation of income and not for the purposes of maintaining books of accounts, the expression ‘Income Computation and Disclosure Standards’ has been used.

1.13

Whether the two Accounting Standards notified in 1996 will continue to apply?

Ans.

The two Accounting Standards notified by the Government vide Notification no S.O.69 (E), dated 25th January, 1996 i)

Disclosure of Accounting Policies (TAS-I)

ii)

Disclosure of prior period and extraordinary items and changes in accounting policies (TAS-II)

will be superseded by the Income Computation and Disclosure Standards.

1.14

Whether there are any transitional provisions in ICDS?

Ans.

Yes. There are transitional provisions built-in for each of the ICDS except in the case of ICDS VIII relating to Securities.

1.15

What is the objective of transitional provisions?

Ans.

The objective of the transitional provisions is to ensure that ICDS will

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apply for those transactions which are existing on the 1st day of April 2015 or entered into on or after 1st day of April 2015.

1.16

How does ICDS impact small entities?

Ans.

The ICDS will have a significant impact on the small entities. These entities would have to comply with the requirement of the ICDS irrespective of their turnover. As a result, cost of compliance for the smaller entities would increase.

1.17

How does ICDS impact very large entities?

Ans.

Ind AS are applicable on voluntary basis for the financial statements for the accounting period beginning on or after 1 April 2016 and mandatory basis for the accounting period beginning on or after 1 April 2017 for certain specified companies. Its implementation, would lead to conflict in arriving at profits in accordance with Ind AS and ICDS. This will have an impact on the applicability of the Minimum Alternate Tax for the Corporates.

Further, the mismatch between ICDS and book profits will have an impact on Computation of Income as well as deferred tax calculations.

1.18

Give the list of ICDS and corresponding AS and Ind AS

Ans.

List of ICDS and corresponding AS and Ind AS is given as below: COMPARATIVE STATEMENT

Particulars

ICDS

AS

Ind AS

Accounting policies

I

AS-1

Ind AS-1

Disclosure of Accounting policies

Presentation of Financial Statements

AS-5

Ind AS-8

Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Accounting policies, Changes in Accounting estimates and errors

AS-2

Ind AS-2

Valuation of Inventories

Inventories

AS-7

Ind AS-11(not yet notified)

Inventories Construction contracts

II III

Construction costs

Construction Contracts 7

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Particulars

ICDS

AS

Ind AS

Revenue recognition

IV

AS-9

Ind AS-18 Revenue

Tangible Fixed Assets

V

Effects of Changes in Foreign Exchange Rates

VI

Revenue recognition AS-10 Accounting for Fixed Assets

Ind AS-16 Property, Plant and Equipment

AS-11

Ind AS-21

Effects of changes in Foreign Exchange Rates

Effects of changes in Foreign Exchange Rates.

Ind AS-109 Financial Instruments

8

Government Grants

VII

Securities

VIII

Borrowing Costs

IX

Provisions, Contingent Liabilities and Contingent

X

AS-12

Ind AS-20

Accounting for Government Grants

Accounting for Govt.

Grants and Disclosures of Govt. Assistance.

AS-13

Ind AS-109

Accounting for Investments

Financial Instruments – Recognition, measurement and classification of financial assets

AS-16

Ind AS-23

Borrowing costs

Borrowing costs

AS-29

Ind AS-37

Provisions, Contingent Liabilities and Contingent Assets

Provisions, Contingent Liabilities and Contingent Assets

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Annexure NOTIFICATION New Delhi, 29th September, 2016 S.O. 3078(E). — In exercise of the powers conferred by sub-section (2) of section 145 of the Income-tax Act, 1961(43 of 1961), the Central Government hereby rescinds the notification of the Government of India in the Ministry of Finance, Department of Revenue, published in the Gazette of India, Part-II, Section 3, Subsection (ii), vide notification number S.O. 892(E) dated the 31st March, 2015, except as respects things done or omitted to be done before such rescission.

[Notification No. 86/2016/F.No.133/23/2015-TPL] *** NOTIFICATION New Delhi, 29th September, 2016 S.O. 3079 (E) In exercise of the powers conferred by sub-section (2) of section 145 of the Income-tax Act, 1961 (43 of 1961, the Central Government hereby notifies the income computation and disclosure standards as specified in the Annexure to this notification to be followed by all assessees (other than an individual or a Hindu undivided family who is not required to get his accounts of the previous year audited in accordance with the provisions of section 44AB of the said Act) following the mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”.

2. This notification shall apply to the assessment year 2017-18 and subsequent assessment years. ***

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