Difference in ICAI and Income Tax Standard: Revenue Recognition

The CBDT has now notified the Income Disclosure and Tax Accounting Standards vide notification no. 32/2015, F. No. 134/48/2010-TPL, dated March 31, 2015. Comparative study of Accounting Standard issued by ICAI, and notified TAS has been given hereunder

Income Computation and Disclosure Standard IV relating to revenue recognition

This Income Computation and Disclosure Standard is applicable 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

Accounting Standards issued by ICAI	Income Computation and Disclosure Standards (ICDS)
REVENUE RECOGNITION
A. Recognition of revenue from service transactions
AS-9 recognizes both the "proportionate completion method" and "completed service contract method" for recognition of revenue from service transactions.	Revenue from service transactions shall only be recognized by following the "percentage completion method". Requirements of ICDS for Construction Contracts to apply mutatis mutandis for recognition of revenue and associated expenses for a service transaction.[Para 6]
B. Sale of Goods
AS-9 provides that revenue shall be recognized when: a) Risks and rewards are transferred b) Seller doesn't retain any control over goods sold c) No significant uncertainty exists regarding collection	ICDS provides that revenue shall be recognized when: a) Property in the goods is transferred for a price b) All significant risks and rewards are transferred c) Seller retains no effective control of goods sold. d) revenue shall be recognized when there is reasonable certainty of its ultimate collection. [Para 4]
C. Postponement of revenue recognition
Where the ability to assess the ultimate collection with reasonable certainty is lacking, AS-9 provides for postponement of recognition of revenue in relation to any claim.	Recognition of revenue can be deferred if there is an uncertainty in its ultimate collection.  The proposed standard is now in line with Accounting Standard 9 – Revenue Recognition[Para 5]
D. Recognition of dividend income
AS - 9 lays down the criteria for recognition	As the Act contains specific provisions relating to recognition of income in the nature of dividends, the provisions of AS-9 relating to recognition of dividend is not incorporated in the ICDS.[Para 9]
E. Transitional Provisions
	The transitional provisions of Standard on construction contract shall mutatis mutandis apply to the recognition of revenue and the associated costs for a service transaction undertaken on or before 31-03-2015 but not completed by the said date. [Para 11]