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com 54 (Article)
Income Computation and Disclosure Standards v. Judicial Precedents
PARTICULARS WHAT JUDICIAL PRECEDENTS WHAT PROPOSED ICDS1 PRESCRIBE
PROVIDE
I. Marked to Market, Expected a) Loss incurred on account of a) No deduction for marked-to-market
and probable losses evaluation of contract on last date ofor expected and probable losses (ICDS
accounting period, (before date of- Effects Of Changes In Foreign
maturity of forward contract) is an Exchange Rates)
allowable deduction - Dy. CIT
(International Taxation) v. Bank of b) Since such mark-to- market gains or
Bahrain & Kuwait [2010] 41 SOTlosses are unrealized in nature, the TAS
290 (Mum.)(SB) provides that all gains or losses on such
contracts shall be recognized on
b) The losses incurred by assesseesettlement (ICDS - Effects Of Changes
due to revaluation of an un-In Foreign Exchange Rates)
materialized oil exchange contract
were allowable as deductions - Addl.
DIT (IT) v. British Bank of Middle
East [2011] 44 SOT 109 (Mum.)
(URO)
II. Changes to method ofa) Change in accounting policy isn't The method of valuation of inventory
valuation of inventory allowed if there is nothing on recordshall not be changed without a
to indicate that the change isreasonable cause (ICDS Valuation of
intended to be followed regularly ininventory)
future by the assessee Snow White
Food Products Co. Ltd. v. CIT [1983]
141 ITR 847 (Cal.)
III. Valuation of inventory ona) Where firm got dissolved due toInventory on the date of dissolution of
dissolution of firm death of a partner and business waspartnership firm or AOP or BOI shall
reconstituted with the remainingbe valued at the net realizable value
partners, and business continued(ICDS Valuation of inventory)
without any interruption, the closing
stock was to be valued at the cost or
market price, whichever was lower,
and not at market value - Sakthi
Trading Co. v. CIT [2001] 118
Taxman 301 (SC)
IV. Prior-period expenses a) Expenses pertaining to earlier yearThe earlier version of TAS proposed
were not allowable as they were not that prior-period expenditure should
pertaining to year undernot be allowable, except where it has
consideration- Dy. CIT v. Rediff.com crystallized during the year in which it
India (P.) Ltd. [2011] 12is claimed. However, the current
taxmann.com 22 (Mumbai) version of ICDS does not provide
anything on allowability of prior period
b) If liability to pay an amountexpenditure. Hence, it can be presumed
crystallized only in previous year onthat the treatment of prior period
receipt of bills, travel claims, etc., the expenditure shall be decided as per
expenditure could not be disallowedjudicial precedents and the provisions
as prior-period expenditure merelyof the Act.
because same related to earlier years
- SRF Ltd. v. Dy. CIT [2009] 34 SOT
1 (Delhi)
V. Taxability of retention money a) Where retention money andRetention money shall accrue to the
security deposit were repayable totaxpayer for computing revenue based
the assessee after completion of the on percentage of completion method
contract to the satisfaction of the(POCM) (ICDS Construction
contractee, it could not be said that Contracts)
said amount had accrued to assessee
and, therefore, could not be taxed in
assessee's hand - CIT v. P & C
Constructions (P.) Ltd. [2009] 318
ITR 113 (Mad.)
VI. Anticipated losses ina) Where construction project hasFuture or anticipated losses shall not be
construction contracts long gestation period and POCM isallowed unless such losses are actually
adopted for income-tax purpose,incurred (ICDS Construction
losses only proportionate to workContracts)
completed during year can be
allowed and not entire anticipated
losses - Shivshahi Punarvasan
Prakalp Ltd. v. ITO [2011] 15
taxmann.com 352 (Mum.)
VII. Deferment of revenue The assessee couldn't be said to beRecognition of revenue can be deferred
following wrong accounting policy ifif there is an uncertainty in its ultimate
it didn't recognize the interestcollection (TAS Revenue
accrued on loan given to certain Recognition)
companies which eventually became
sick - Kerala State Industrial
Products Trading Corporation Ltd. v.
Asst. CIT [2012] 22 taxmann.com 78
(Cochin)
VIII. Depreciation in case ofa) In case of finance lease, lessee is In the case of finance leases,
finance lease entitled to depreciation in respect of depreciation will be allowed to the
asset leased out - IndusInd Bank Ltd. lessee even though the asset is owned
v. Addl. CIT [2012] 19 taxmann.comby the lessor (ICDS Leases).
173 (Mumbai)(SB)
1 Word 'Income Computation and Disclosure Standards (ICDS)' has been substituted for 'accounting
standards' by the Finance (No. 2) Act, 2014 w.e.f 1-4-2015