Tuesday, September 29, 2015
FINANCE & LAW TODAY: Extend ITR due date to 31st October 2015- P&H HC t...
FINANCE & LAW TODAY: Extend ITR due date to 31st October 2015- P&H HC t...: In the case of Vishal Garg & Ors. Vs. Union of India & Anr., Punjab & Haryana HC instructed CBDT extend due date of Tax A...
Extend ITR due date to 31st October 2015- P&H HC to CBDT
In the case of Vishal Garg & Ors. Vs. Union of India & Anr., Punjab & Haryana HC instructed CBDT extend due date of Tax Audit cases to 31st October 2015 from existing 30th September 2015. Its not clear if the due date for non audit cases also been extended or not for which we have to wait for official order. High Court has also issued guideline for timely issue of Income Tax Return Forms.
We would further like to inform our readers that its just Court Instruction to CBDT to extend the due date, but CBDT has not yet officially issued any Order in Compliance of High Court Order.
High Court Order is Binding on CBDT till Supreme Court Stays it or reverses the High Court Judgment. Further in case of Judgment on same issue by different High Courts, the Judgment of Jurisdiction High Court will prevail and in case of no Judgment by Jurisdiction High Court than Assessee may choose the Judgment of High Court which is more beneficial to him (CIT vs M/S. Vegetables Products Ltd. (Supreme Court) 88 ITR 192). Further Judgment by bench of High Court will prevail over Judgment of Single Judge even if the same is from Judge of different high Court.
Delhi High Court Judgment was Single Bench Judgment which goes against the Assessee and Rajasthan High Court Judgment which is also against the Assessee is by a bench of two judges.
We will share the copy of judgment as soon as same been received by us.
Please confirm also CBDT Notification before relying on the above news.
Regards
For KK Sir's Classes
KK Singh
Sunday, September 27, 2015
FINANCE & LAW TODAY: Hard coding of transactions under Delhi VAT -An in...
FINANCE & LAW TODAY: Hard coding of transactions under Delhi VAT -An in...: Introduction: Almost all the dealers registered under Delhi VAT must have faced heat from their buyer due to mismatch in the sales show...
Hard coding of transactions under Delhi VAT -An initiative to mitigate unnecessary litigation
Introduction:
Almost all the dealers registered under Delhi VAT must have faced heat from their buyer due to mismatch in the sales shown by seller and purchased booked by buyer. This concept is commonly called as mismatch in form 2A and 2B which is creating trouble for the buyers and department in terms of unnecessary litigations and consequential demands of tax and penalties. In order to curb the unnecessary litigations and burden of mismatches the department has issued a circular (No. 21) dated 01-09-2015 which will work as an antivirus for above said diseases. In this article an effort has been made to correctly convey the spirit of this circular and major shift in earlier practice followed by dealers for revision of data in form 2A and 2B.
Why this circular is issued:
If the figure of sales shown by selling dealer matches with that of buyer there is no possible mismatch for the buyer and issue is settled once the seller files the return. But in case the seller either inadvertently or maliciously revise their return the mismatch will be generated for matched transaction also and that will open box of litigations for the buyer without any of his fault. To mitigate the difficulties, it has now been decided that matched transaction of a tax period would be hard coded meaning thereby that after the filling of return such transactions would be unaffected by revision of return. In this way, buyer would not be burdened with unnecessary mismatches, caused due to revision of return by selling dealers, in respect of already matched entries.
Possible cases where transaction will be hardcoded:
Case I: Where the buyer has shown purchase of Rs. 100 with input tax of Rs. 5 and seller has shown the same amount of sales i.e. Rs. 100 with output tax of Rs. 5. This case will be hardcoded by the system and will not be affected by revision of return by selling dealer as the transaction has been matched.
Case II: Where the buyer has shown purchase of Rs. 100 with input tax of Rs. 5 and seller has shown sales of Rs. 80 with output tax of Rs. 4. In this case the mismatch can be rectified by the selling dealer after revising their return and form 2b within the time frame given in section 28 of DVAT Act.
Case III: Where the buyer has shown purchase of Rs. 100 with input tax of Rs. 5 and seller inadvertently skipped to show any sales in his return. In the above case mismatch can be rectified by filing revised return by selling dealer and case will not be hardcoded.
Procedure to decode the hardcoded transaction:
Where the transaction has been hardcoded by system and mistake has been committed by both the buyer and seller in their respective returns. This case is very rare to happen where buyer has shown purchase of Rs. 50 with input tax of Rs. 2.50 and seller has shown the same amount of sales i.e. Rs. 50 and output tax of Rs. 2.50 but actual transaction was for Rs. 100. In this case revision cannot be done easily by revising the original return filed. In this case the buyer has to approach the assessing authority of his ward with a clear message from his selling dealer admitting the mistake committed. The Assessing Authority after checking the copy of invoices and other documents may open the particular hardcoded transaction and allow both buyer and seller to revise their return.
Concluding Remarks:
Really this is a welcome circular issued by VAT department in order to curb the practice of revising return once the transaction has been matched. As of now many cases pending at OHA level where the selling dealers has revised their return maliciously which caused a mismatch in ITC at buyer’s end and leads to avoidable difficulties. After issuance of above circular the matched transaction will not be affected by revision of return subsequently and will mitigate the difficulties faced by buyers.
Thanks & Regards
For KK Sir's Classes
KK Singh
Thursday, September 24, 2015
FINANCE & LAW TODAY: Vakalatnama V/s Power of Attorney
FINANCE & LAW TODAY: Vakalatnama V/s Power of Attorney: VAKALATNAMA As per Advance Law Lexicon Vakalatnama includes memorandum of appearance or any other document by which an advocate is empo...
Vakalatnama V/s Power of Attorney
VAKALATNAMA
As per Advance Law Lexicon Vakalatnama includes memorandum of appearance or any other document by which an advocate is empowered to appear or plead before any court, tribunal or other authority.
A Vakalatnama is not defined either in the Power -of- Attorney Act, 1882 or in the Civil Procedure Code, 1908. A Vakalatnama is the document empowering a lawyer to act for and on behalf of his client. A Vakalatnama under which a lawyer is empowered to act may be general. it may specifically confer wide authority upon a lawyer.
A lawyer holding a Vakalatnama can hardly be said to be a person without authority. The rule of construction a document appointing an agent is different from that of construing a Vakalatnama appointing a counsel.
A pleader is defined under section 2(15) of the Civil Procedure Code, 1908, as follows-
“Pleader” means any person entitled to appear and plead for another in Court and includes an advocate, a vakil and an attorney of a High Court.
Though in a sense a Vakalatnama is a power-of-attorney, in the matter of construction, courts have drawn a distinction between the two and in the application of the principles of construction, most of the courts while interpreting a power-of-attorney strictly have interpreted a Vakalatnama liberally so as to infer the conferment of large and wide powers on the counsel.
POWER- OF- ATTORNEY
Section 1A – Definition in The Power of Attorney Act, 1882, includes any instrumentals empowering a specified person to act for and in the name of the person executing it.
Osborn’s Concise Law Dictionary, a ‘Power- of – Attorney’ means a formal instrument by which one person empowers another to represent him, or act in his stead, for certain purpose, usually in the form of a deed poll, and attest by two witnesses. The donor of the power is called the principal or constituent; the donee is called the attorney. The latter is not entitled to exercise his powers for this own benefit, e.g. draw cheques on the former’s account to pay his own debts.
Jowitt in his Dictionary of English Law-
Power-of-Attorney, is a formal instrument by which one person empowers another to represent him or act in his stead for certain purposes.
Wharton’s Law Lexicon,1 the person authorised to do any lawful act instead of another is called the attorney or done of the power-of –attorney.
Stroud’s judicial Dictionary a ‘Power-of- Attorney’ is an authority whereby on is ‘said in turn, stead, or place of another’ to act for him.
Mitra’s Legal Dictionary, a ‘Power-of-Attorney’ includes any instrument (not chargeable with a fee under the law relating to court-fees for the time being in force) empowering a specified person to act for and in the name of the person executing it. This is the definition that we get in the Indian Stamp Act, 1899.
DECISIONS
Baru Singh V/s Babu Ram Sharma, 1997 All L J 842
“Signed Vakalatnama is required to be obtained by a lawyer from his client when it is to be filed in Law Court or Tribunal to plead on behalf of his client- No Vakalatnama is needed for performing other legal work viz. giving opinion, sending notices, drafting petition or other documents.- No lawyer is under legal duty to obtain a signed Vakalatnama from his client for performing any legal work, say, giving opinion, sending notices, drafting petitions or other documents. A signed Vakalatnama, however, is required to be obtained when it is to be filed in Law Courts or Tribunals where the law requires such documents to be filed to enable the lawyer to appear and plead cases in Courts and Tribunals on behalf of his client executing the Vakalatnama is his favour”.
Oil & Natural Gas Commissioner V/s M/s Offshore Enterprises Inc. AIR 1993 Bom 217
“Section 30 is as follows- 14. Constituted attorney has no right to plead- A constituted attorney is merely entitled to ‘act’ and ‘appear’ for a party but has no right to ‘ plead’ in a Court. The expressions’ ‘act’ and ‘appear’ do not mean “right to plead’ as such.”
Jaymal Thakore v/s Gujrat State Charity Commissioner, Ahmadabad and others AIR-2001 Guj 279.
“The provisions of Order III Rule 1 and 2 repeatedly came for construction and application before law Courts in civil proceedings. For the purpose of this case reference to one of the earlier decisions of Chhagla C.J. in Aswin Shambhuprasad Patel v. National Rayon corporation Ltd., AIR 1955 Bombay 262 would be profitable. Construing the provisions of Order III Rule 1, it was held that the expression “appearance, application or act” in or to any Court in Order III Rule of C.P.C. does not include pleadings. The recognized agent under power of attorney from the party in his favour may appear, file an application or act on behalf of the party in the proceedings as “recognised agent” of the party. Such power or Authority to appear, file application and act is also available to a “pleader”, but to plead in the case, that is to do something for the party in the case other than what the ‘recognised agent’ can do, that is to practice law or plead for the client, is the monopoly right only of a pleader or a registered advocate, A ‘recognised agent’ appointed by a party may be holding a duly executed power of attorney cannot be said to be a ‘pleader’ and can have no right to plead, The provisions of Advocates Act, 1961 confers a monopoly right of pleading and practicing law only on enrolled or registered advocates.
M/s Goa Antibiotics & Pharmaceuticals Ltd. Vs. R.K. Chawla & Another [2011] (3) KLT 499 (SC)
“A natural person can, of course, appear in person and argue his own case personally but he cannot give a power of attorney to anyone other than a person who is enrolled as an advocate to appear on his behalf. To hold otherwise would be to defeat the provisions of the Advocates Act.”
M/s Shree Chem V/s The Rajasthan Financial Corporation, Jaipur And Others
“The Hon’ble Supreme Court has laid down that the power of attorney holder cannot, unless he is an enrolled Lawyer, appear in the Court on behalf of anyone unless permitted by any Court under Section 32 of the Act.”
Nimbaram Bora V/s Union of India AIR 1992 All 185Gau.54
“A person cannot habitually represent parties in public interest litigations and conduct case. They said that it would be a violation of s 32 of Advocates Act, 1961. The court observed that ‘practise’ means repeated action or habitual performance or succession of acts of a similar kind. A person in whose favour a power-of-attorney has been given. It is absolutely clear that anyone who is not an advocate cannot, as of right, claim to plead for another”.
Regards
KK Singh
Wednesday, September 23, 2015
FINANCE & LAW TODAY: Guide to know ITR applicable: Which ITR Applicable...
FINANCE & LAW TODAY: Guide to know ITR applicable: Which ITR Applicable...: Under the Income-tax Law, different ITR forms (Income Tax Return Forms) are prescribed for different classes of taxpayers. CBDT alrea...
Guide to know ITR applicable: Which ITR Applicable to whom?
Under the Income-tax Law, different ITR forms (Income Tax Return Forms) are prescribed for different classes of taxpayers. CBDT already notified ITR, ITR 2A, ITR 2, ITR 3, ITR 4S,ITR 4, ITR 5, ITR 6 and ITR 7 for A.y. 2015-16. In this article we have discussed which ITR is applicable for a Particular Assessee for Assessment Year 2015-16 i.e. for Financial Year 2014-15.
1. Form ITR – 1 (SAHAJ)
Applicability of ITR – 1 (SAHAJ)
Return Form ITR – 1 (SAHAJ) can be used by an individual whose total income includes:
(1) Income from salary/pension; or
(2) Income from one house property (excluding cases where loss is brought forward from previous years); or
(3) Income from other sources (excluding winnings from lottery and income from race horses).
Further, in a case where the income of another person like spouse, minor child, etc., is to be clubbed with the income of the taxpayer, this return form can be used only when such income falls in any of the above categories.
Who cannot use ITR – 1 (SAHAJ)?
Non-applicability of ITR – 1 (SAHAJ)
Return Form ITR – 1 (SAHAJ) cannot be used by an individual:
• Whose total income for the year includes income from more than one house property.
• Whose total income for the year includes income from winnings from lottery or income from race horses.
• Whose total income for the year includes income chargeable to tax under the head “Capital Gains”.
• Whose total income for the year includes agricultural income of more than Rs. 5,000.
• Whose total income for the year includes income from business or profession.
• Whose total income for the year includes loss under the head “Income from other sources”.
• Who has claimed relief under section 90 and/or section 91.
• Who is having any assets (including financial interest in any entity) located outside India or signing authority in any account located outside India.
• Any resident having income from any source outside India.
2. Form ITR – 2A
Who can use ITR-2A?
Return Form ITR – 2A can be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2015-16 includes:-
(a) Income from Salary / Pension; or
(b) Income from House Property; or
(c) Income from Other Sources (including Winning from Lottery and Income from Race Horses).
Further, in a case where the income of another person like spouse, minor child, etc. is to be clubbed with the income of the assessee, this Return Form can be used where such income falls in any of the above categories.
Who can not use ITR-2A?
This Return Form – ITR 2A cannot be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2015-16 includes,-
(a) Income from Capital Gains; or
(b) Income from Business or Profession; or
(c) Any claim of relief/deduction under section 90, 90A or 91; or
(d) Any resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India; or
(e) Any resident having income from any source outside India.
3. Form ITR – 2A
Who can use ITR – 2?
Return Form ITR – 2 can be used by an individual or a Hindu Undivided Family whose total income for the year includes:
• Income from Salary / Pension; or
• Income from House Property; or
• Income from Capital Gains; or
• Income from Other Sources (including winnings from lottery and income from race horses).
Further, in a case where the income of another person like spouse, minor child, etc., is to be clubbed with the income of the taxpayer, this Return Form can be used if income to be clubbed falls in any of the above categories.
Who cannot use ITR – 2?
Return Form ITR – 2 cannot be used by an individual whose total income for the year includes income from Business or Profession.
4. Form ITR – 3
Who can use ITR – 3?
Return Form ITR – 3 can be used by an individual or a Hindu Undivided Family who is a partner in a firm and income chargeable to income-tax in his/its hand under the head “Profits or gains of business or profession” does not include any other income, except the income by way of any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by him from such firm.
In case a partner of the firm does not have any income from the firm by way of interest, salary, etc., and has only exempt income by way of share in the profit of the firm, he shall use Form ITR – 3 only and not Form ITR-2.
Who cannot use ITR – 3?
Form ITR – 3 cannot be used by an individual or HUF whose total income for the year includes income from Business or Profession under any proprietorship.
5. Form ITR – 4S (SUGAM)
Who can use ITR – 4S (SUGAM)?
Form ITR – 4S (SUGAM) can be used by an individual/HUF whose total income for the year includes:
(a) Business income computed as per the provisions of section 44AD or 44AE; or; or
(b) Income from salary/pension; or
(c) Income from one house property (excluding cases where loss is brought forward from previous years); or
(d) Income from other sources (excluding winnings from lottery and income from race horses).
Further, in a case where the income of another person like spouse, minor child, etc., is to be clubbed with the income of the taxpayer, this return form can be used where income to be clubbed falls in any of the above categories.
Who cannot use ITR – 4S (SUGAM)?
Form ITR – 4S (SUGAM) cannot be used by an individual/HUF:
• Whose total income for the year includes income from more than one house property.
• Whose total income for the year includes income from winnings from lottery or income from race horses.
• Whose total income for the year includes income chargeable to tax under the head “Capital Gains”.
• Whose total income for the year includes agricultural income of more than Rs. 5,000.
• Whose total income for the year includes income from speculative business and other special incomes.
• Whose total income for the year includes income from profession as referred to in section 44AA(1).
• Whose total income for the year includes income from agency business or income in the nature of commission or brokerage.
• Who claims relief under section 90, 90A and/or section 91
• Who is a resident and ordinarily resident and has any assets (including financial interest in any entity) located outside India or signing authority in any account located outside India.
In case of a taxpayer who is engaged in any business eligible for the presumptive taxation scheme of section 44AD or section 44AE but he does not opt for the presumptive taxation scheme, then such a taxpayer has to maintain the books of account of the business as per the provisions of section 44AA and has to get these accounts audited. In such a case he cannot use ITR 4S.
In case of a taxpayer who is engaged in any business eligible for the presumptive taxation scheme of section 44AD or section 44AE but he does not opt for the presumptive taxation scheme, then such a taxpayer has to maintain the books of account of the business as per the provisions of section 44AA and has to get his accounts audited. In such a case he cannot use ITR 4S.
6. Form ITR – 4
Who can use ITR – 4?
Form ITR – 4 can be used by an individual or a Hindu Undivided Family who is carrying on a proprietary business or profession.
Who cannot use ITR – 4?
Form ITR – 4 cannot be used by any person other than an individual or a HUF. Further, an individual or a HUF not having income from business or profession cannot use ITR – 4.
7. Form ITR-5
Who can use ITR – 5?
Form ITR – 5 can be used by a person being a firm, LLP, AOP, BOI, artificial juridical person , cooperative society and local authority.
Who cannot use ITR – 5?
Form ITR – 5 cannot be used by a person who is required to file the return of income under section 139(4A) or 139(4B) or 139(4C) or 139(4D) (i.e., trusts, political party, institutions, colleges, etc.).
8. Form ITR-6
Who can use ITR – 6?
Form ITR – 6 can be used by a company, other than a company claiming exemption under section 11 (charitable/religious trust can claim exemption under section 11).
Who cannot use ITR – 6?
Form ITR – 6 cannot be used by a company claiming exemption under section 11 (charitable/religious trust can claim exemption under section 11).
9. Form ITR-7
Who can use ITR – 7?
Form ITR – 7 can be used by persons including companies who are required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D) or section 139(4E) (i.e., trusts, political party, institutions, colleges, etc.).
Who cannot use ITR – 7?
Form ITR – 7 cannot be used by a person who is not required to furnish return under s section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D) or section 139(4E) (i.e., trusts, political party, institutions, colleges, etc.).
Thursday, September 10, 2015
FINANCE & LAW TODAY: Major Differences Between ICDS and Accounting Stan...
FINANCE & LAW TODAY: Major Differences Between ICDS and Accounting Stan...: MAJOR DIFFERENCES BETWEEN INCOME COMPUTATION AND DISCLOSURE STANDARDS (ICDS) AND ACCOUNTING STANDARDS A new paradigm for future ahea...
Major Differences Between ICDS and Accounting Standards
MAJOR DIFFERENCES BETWEEN INCOME COMPUTATION AND DISCLOSURE STANDARDS (ICDS) AND ACCOUNTING STANDARDS
A new paradigm for future ahead ! A future for companies, professional and many more.
The actions are enough fast from the side of government, it seems something BIG is being cooked. A draft of 14 ICDS were first issued in august 2012. Than further on January 2015, public comments were called for a draft of 12 ICDS, and finally 10 ICDS came into for a sudden action on 31 st March 2015.
This Income Computation and Disclosure Standard is applicable to all the assesses following mercantile system of accounting for computation of income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” and not for the purpose of maintenance of books of accounts. In the case of conflict between the provisions of the Income‐tax Act, 1961 ‘the Act’ and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent.
The relevant are the ICDS corresponding to accounting Standards
| Income Computation and Disclosure Standards No. | Income Computation and Disclosure Standards | Corresponding to Accounting Standard |
| ICDS I | Accounting Policies | AS – 1 |
| ICDS II | Valuation of Inventories | AS – 2 |
| ICDS III | Construction Contracts | AS – 7 |
| ICDS IV | Revenue Recognition | AS – 9 |
| ICDS V | Tangible Fixed Assets | AS – 10 |
| ICDS VI | The Effects of Changes inForeign ExchangeRates | AS – 11 |
| ICDS VII | Government Grants | AS – 12 |
| ICDS VIII | Securities | AS – 13 |
| ICDS IX | Borrowing Cost | AS – 16 |
| ICDS X | Provision, Contingent Liabilities and Contingent Assets | AS – 29 |
–
| Income Computation And Disclosure Standards | Point of Difference | Income Computation and Disclosure Standard | Accounting Standard |
| Income Computation and Disclosure Standard I Relating toaccounting policies | Disclosure of Accounting Policies – Fundamental Assumption | Removed Prudence from the Fundamental Assumptions. — it said–To represent a true and fair view of the state of affairs and income of the business, profession or vocation, the treatment and presentation of transactions and events shall be governed by their substance and not merely by their legal form. | The major considerations governing the selection and application of accounting policies are: Prudence Substance over form Materiality |
| Disclosure of Accounting Policies – Materiality | The concept of materiality which is an important consideration in preparing financial statements has not been considered under ICDS. | The major considerations governing the selection and application of accounting policies are: Prudence Substance over form Materiality | |
| Disclosure of Accounting Policies – Mark to market losses and expected losses | There is a specific provision that marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is in accordance with the provisions of any other ICDS. However, ICDS is silent on the treatment of mark- to- market unrealised gains. | Mark to market losses will be provided for in view of prudence concept. Expected losses will be provided for in accordance with relevant Indian GAAP standards. | |
| Disclosure of Accounting Policies – Changes in accounting policies | Changes in accounting policy will not be done unless for a ‘reasonable cause’. ICDS does not define reasonable cause and thus would involve exercise of judgement by management and tax authorities. | Changes in accounting policies should be made only if it is required by statute, for compliance with an Accounting Standard or for a more appropriate presentation of the financial statements on a prospective basis. | |
| If a change is made in the accounting policies which has no material effect for the current year but which is reasonably expected to have a material effect in later years, the fact of such change should be appropriately disclosed in the year in which the change is adopted and also in the year in which such change has material effect for the first time | If a change in the accounting policy has no material effect on the financial statements for the current period, but is expected to have a material effect in the later periods, the same should be appropriately disclosed. | ||
| Disclosure of Accounting Policies – Prior period items | ICDS ‘does not’ consider prior period items inclusion in determination of net profit or loss of the period in which the error pertaining to a prior period is discovered. | Prior period items are included in determination of net profit or loss of the period in which the error pertaining to a prior period is discovered and are separately disclosed in the statement of profit and loss in a manner that the impact on current profit or loss can be perceived. | |
| Income Computation and Disclosure Standard II Relating to valuation ofinventories | Valuation of Inventories – Inventory of services | ICDS requires valuation of inventory of services at cost or net realizable value, whichever is lower. Cost of services shall consist of labour and other cost of personnel directly engaged in providing the service including supervisory personnel and attributable overheads. | Earlier not services but stores, spares, raw material and consumables included while providing services were to be valued according to AS – 2. |
| Valuation of Inventories – Methods for ascertaining cost of inventories | Retail method is permitted as technique for measurement of cost if it is impracticable to use ‘FIFO’ or ‘Weighted Average Cost Formula’. | Techniques such as standard cost or retail method may be used for convenience, if the results approximate the actual cost. | |
| Valuation of Inventories – Value of inventory at the beginning of the previous year | As per ICDS the value of the inventory as on the beginning of the previous year shall be the cost of inventory available, if any, on the day of the commencement of the business when the business has commenced during the previous year; and the value of the inventory as on the close of the immediately preceding previous year, in any other case. | Whereas as per AS -2, there is no such specific provision in it. | |
| Valuation of Inventories – Change of method of valuation of inventory | As per ICDS the method of valuation of inventories once adopted by a person in any previous year shall not be changed without reasonable cause. | As per AS – 2 , a change in method of valuation of inventories should be made only if it is required by statue or for compliance with an AS or if it is considered that the change would result in a more appropriate presentation of the financial statements of the enterprise. | |
| Valuation of Inventories – In case of certain dissolutions | As per ICDS, in case of dissolution of a partnership firm or association of person or body of individuals, notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value. | As per AS – 2, these situations are not considered under it considering the going concern assumption. | |
| Income Computation and Disclosure Standard III Relating toconstruction contracts | Construction Contracts – Method for recognising cost and revenue | ICDS prescribes use of percentage of completion method except during early stages of a contract when the outcome of the contract cannot be estimated reliably. In this case, revenue is recognised to the extent of cost incurred. This is possible only upto 25% of the work is completed otherwise proportionate method will apply. Thus, profit recognition has to start compulsorily once 25% stage is completed. | Under AS 7, contract revenue and contract cost are recognised by reference to the percentage of completion method if the outcome of the contract can be estimated reliably, else, revenue is recognised only to the extent of costs incurred if recovery is probable. |
| Construction Contracts – Pre construction income | As per ICDS, pre – construction income in the nature of interest,dividend and capital gains shall not be reduced from the cost of construction, rather they will be taxed as income. But incomes other than interest, dividend and capital gains shall be reduced from contract cost which are not included in contract revenue. | As per AS – 7, cost that relate directly to a specific contract may be reduced by ‘any’ incidental income that is not included in contract revenue. | |
| Construction Contracts – Recognition of loss | As per ICDS, contract costs are to be recognised as an expense in the period in which they are incurred and thus expected loss should be recognised in proportion of work completed. | As per AS – 7, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognised as an expense immediately. | |
| Construction Contracts – Condition on non recognition of revenue | ICDS, no where emphasises non recognition of contract revenue, if it is not possible to reliably measure the outcome of a contract. | Whereas, AS – 7, posses a tight condition of recognising revenue i.e. total contract revenue could be measured reliably. | |
| Income Computation and Disclosure Standard IV relating to revenue recognition. | Revenue Recognition – Methods of measuring performance of service | ICDS, prescribes only one method for recognising revenue from service transaction i.e. ‘percentage completion method’ alone. | AS – 9, prescribes two methods for recognising revenue from service transactions that are ‘percentage completion method’ and ‘completed service contract method’. The methods could be used either or ways . |
| Income Computation and Disclosure Standard V relating to tangible fixed assets. | Accounting for Fixed Assets – Non monetary consideration | ICDS, prescribes that when a tangible fixed asset is acquired in exchange for another asset, or in exchange for shares or other securities , the fair value of the tangible fixed asset so acquired shall be its actual cost. | AS – 10, prescribes that when fixed asset is acquired in exchange for another asset, shares or other securities issued, cost of asset acquired should be recorded either at fair market value of asset given up / shares or securities issued or fair market value of asset aquired, whichever is more clearly evident. |
| Accounting for Fixed Assets – Identification of tangible fixed assets | ICDS, prescribes capitalization of machinery spares which can be used only in connection of tangible fixed asset and its use is irregular. | As per AS -10, spares which can be used only in an item of fixed asset and its use is expected to be irregular should be allocated on a systematic basis over a period not exceeding the useful life of the priciple item. | |
| Accounting for Fixed Assets – Revaluation of assets | ICDS, does not incorporates in itself the provisions relating to revaluation of fixed assets, hence revaluation would not be recognised while computing income. | Whereas AS -10, recognised the concept of revaluation well while calculating income. | |
| Accounting for Fixed Assets – Transfers | ICDS, suggests that income arising on transfer of a tangible fixed asset shall be computed in accordance to the provisons of the Act. | Whereas as per AS -10, the gain or loss arising on disposal are generally recognised in the profit and loss statement and in case of loss arising out of revalued asset, an increase which was previously recorded as credit to revaluation reserve and which has not been subsequently reversed or utilised, it is charged directly to that account. | |
| Income Computation and Disclosure Standard VI relating to the effects of changes in foreign exchange rates. | Effects of changes in foreign exchange rates – Scope Exception | ICDS contains no scope exception for exchange differences arising from foreign currency borrowings which may be regarded as an adjustment to interest cost. | Whereas as AS -11, contains an exception for exchange differences arising from foreign currency borrowings to the extent considered as an adjustment to interest costs. |
| Income Computation and Diclosure Standard VII relating to government grants. | Government Grants – Treatment of government grants | ICDS, does not prescribes the capitalization of government grants i.e. Government grant should either be treated as revenue receipt or should be reduced from the cost of fixed assets based on the purpose for which such grant or subsidy is given. | Whereas AS – 12, prescribes two broad approaches i.e capital approach or the income approach. |
| Government Grants – Recognition of government grants | ICDS prescribes the conditions for recognition of government grants. They are : The person receiving the grant shall comply with the conditions attached to them and the grants will be received, but it firmly states that the recognition of government grants shall not be postponed beyond the date of actual receipt. | Whereas AS – 12, states the conditions for recognising the grants as follows : where there is reasonable assurance that the enterprise will comply with the conditions attached to them and where such benefits have been earned by the enterprise and it is reasonably certain that the ultimate collection will be made. It firmly states that the mere receipt of a grant in no ways stands as a coclusive evidence that the conditions attaching to the grant have been or will be fufilled. | |
| Income Computation and Diclosure Standard VIII relating to securities. | Securities ( Realted to AS -13, Accounting for investments ) – Scope | As ICDS, deals with computation of income under business or other sources heads hence it only deals with securities held as stock – in – trade. | Whereas under AS – 13, securities held as stock-in-trade are outside the scope, however provisions of AS -13 relating to current investments are applicable to securities held as stock in trade with suitable modifications. |
| Securities ( Realted to AS -13, Accounting for investments ) – Subsequent measurement of securities | ICDS states that the securities should be valued at lower of cost or net realizable value. It further elaborates that the comparison of cost and NRV shall be done category wise and not for each individual security. The major heads of classification are (i) shares (ii) debt securities (iii) convertible securities (iv) any other securities not covered above. | Whereas, AS – 13, values long term and current investments differently, i.e long term investments are valued at cost and current investments are valued at cost or fair value which ever is lower. | |
| Securities ( Realted to AS -13, Accounting for investments ) – Subsequent measurement of securities | ICDS, prescribes that the securities not listed on a recognised stock exchange; or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised. | AS -13, incorporates in itself no such condition related to recognition of cost of unlisted or listed but not quoted on a recognised stock exchange. | |
| Securities ( Realted to AS -13, Accounting for investments ) – Subsequent measurement of securities | ICDS prescribes that where the actual cost initially recognised cannot be ascertained by reference to specific identification, the cost of such security shall be determined on the basis of first-in-first-out method. | AS – 13, incorporates in itself no such condition of first-in-first-out method. | |
| Securities (Related to AS -13, Accounting for investments ) – Recognition and initial measurement of securities | ICDS, prescribes that when a security is acquired in exchange for other securities or for another asset, the fair value of the security so acquired shall be its actual cost. | Whereas AS -13, firmly prescribes that in case a security is acquired in exchange for another security, the fair value of the securities issued should be its actual cost. Whereas in case a security is acquired in exchange for another asset, acquistion cost of investment is fair value of the asset given up or fair value of the investment received if it is more clearly evident. | |
| Income Computation and Diclosure Standard IX relating to Borrowing costs. | Borrowing Cost – Meaning and Inclusion | ICDS is similar to AS -16 except that exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost are not covered under it. | Whereas AS – 16, includes in itself exchange difference arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. |
| Borrowing Cost – Meaning of qualifying asset | ICDS, to remain in tandem with the Act brought a major change. I.e all assets ( tangible as well as intangible ) other than inventories regardless of the time, will be considered for capitalization of borrowing cost. Hence for capitalization the condition of extension has been removed. | As per AS – 16, Qualifying asset is one which takes substantial period of time to get ready for its intended use or sale. | |
| Borrowing Cost – eligibilty for capitalization ( specific borrowing ) | In case of specific borrowing, ICDS does not allows income earned on temporary investment of borrowed amount to be deducted from the actual borrowing cost. | Whereas, AS -16, prescribes that if funds are borrowed specifically for purchase of qualifying assets, the temporary income earned on those borrowed amount to be deducted from the actual borrowing cost. | |
| Borrowing Cost – eligibilty for capitalization ( general borrowing ) | ICDS, perscribes the following method of capitalization of generally borrowed fund. i.e. A * B / C (detailed formula at last*) | Under AS – 16, borrowing cost eligible for capitalisation should be determined by applying a capitalisation rate to the expenditure on that asset. i.e. weighted average rate of the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period other than borrowings made specifically for the purpose of obtaining qualifying asset. Amount of borrowing cost capitalized during a period should not exceed the amount of borrowing cost incurred during that period. | |
| Borrowing Cost – commencement for capitalization | ICDS, prescribes that commencement of capitalization should begin as follows: In case of specific borrowings from the date on which funds were borrowed and in case of general borrowings from the date on which funds were utilised. | Whereas AS – 16, prescribes three conditions to be fulfilled in entirety before the commencement of capitalization of borrowing cost. Those are: (i) Activities, which are essential to prepare the asset for its intended use, should be in progress. (ii) Borrowing cost is incurred. (iii) Expenditure for acquisition, construction or production of a qualifying asset is being incurred. | |
| Borrowing Cost – commencement for capitalization | ICDS, contains in itself no condition as to suspension of capitalisation during interruption of active development. | Whereas AS- 16, prescribes that capitalisation of borrowing costs should be suspended during extended periods in which active development is interrupted. | |
| Income Computation and Diclosure Standard X relating to provisions, contingent laibilties and contingent assets. | Provisions, Contingent laibilities and Contigent assets – Scope | ICDS while defining the scope excludes the following: (a) resulting from financial instruments;
(b) resulting from executory contracts;
(c) arising in insurance business from contracts with policyholders; and
(d) covered by another Income Computation and Disclosure Standard.
| Whereas AS -29, while defining the scope excludes the following : (a) Those resulting from financial instrument that are carried at fair value. (b) Those resulting from executory contracts, except where the contract is onerous. ( c) Those arising in insurance enterprise from contracts with policy holders. (d) Those covered by another Accounting Standard. |
| Provisions, Contingent laibilities and Contigent assets – Recognition ( Provision ) | According to ICDS, A provision should be recognised when it is reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation. | According to AS – 29, A provision should be recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. | |
| Provisions, Contingent laibilities and Contigent assets – Recognition ( Contingent Assets ) | According to ICDS, contingent assets should be assessed continually and when it becomes reasonably certain that inflow of economic benefit will arise, the asset and related income are recognised in the previous year in which the change occurs. | According to AS – 29, contingent assets are assesed continually and if it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. |
* where A = borrowing costs incurred during the previous year except on borrowings directly relatable to specific purposes;
B = (i) the average of costs of qualifying asset as appearing in the balance sheet of a person on the first day and the last day of the previous year
(ii) in case the qualifying asset does not appear in the balance sheet of a person on the first day or both on the first day and the last day of previous year, half of the cost of qualifying asset;
(iii) in case the qualifying asset does not appear in the balance sheet of a person on the last day of previous year, the average of the costs of qualifying asset as appearing in the balance sheet of a person on the first day of the previous year and on the date of put to use or completion, as the case may be other than those qualifying assets which are directly funded out of specific borrowings; or
C = the average of the amount of total assets as appearing in the balance sheet of a person on the first day and the last day of the previous year, other than those assets which are directly funded out of specific borrowings.
Thus a paradigm that is expected to relieve the sytstem of Income tax laws from the complexties it was facing. At this moment of change, the experienced chartered would be at par with the freshers, but obviously the experienced one with their great grasping power and experience would be ruling once again. It is this economy period which along with GST, Companies Act, 2013, ICDS etc is bringing a major change not only for the industry to change but also a challenging period for Chartered and many more Professionals.
FOR K.K SIR'S CLASSES
K.K.SINGH
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