Income Computation and Disclosure Standards and Judgements

Income Computation and Disclosure Standards (ICDS) and judgement

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. 

PARTICULARS	Judgment	ICDS
I. Marked to Market, Expected and probable losses	Forex loss computed at the end of the financial year on derivatives contract entered for hedging currency related risk had to be allowed as revenue expenditure - Reliance Industries Limited v. CIT (LTU) [2013] 40 taxmann.com 431 (Mumbai - Trib.)	a) No deduction for marked-to-market or expected and probable losses (ICDS - Effects Of Changes In Foreign Exchange Rates) b) Since such mark-to- market gains or losses are unrealized in nature, the TAS provides that all gains or losses on such contracts shall be recognized on settlement (ICDS - Effects Of Changes In Foreign Exchange Rates)
II. Changes to method of valuation of inventory	a) An assessee can change the method of accounting unilaterally in respect of a source of income - Reform Flour Mills (P.) Ltd. v. CIT [1978] 114 ITR 227 (Cal.) b)Where it was found that the change adopted by the assessee was for bona fide purpose and was not actuated by consideration to reduce income for income-tax purposes, the revenue had no right to interfere with the change in the method of valuation of inventory - CIT v. Mopeds India Ltd.[1988] 38 Taxman 123 (AP)	The method of valuation of inventory shall not be changed without a reasonable cause (ICDS – Valuation of inventory)
III. Valuation of inventory on dissolution of firm	a)   Where firm got dissolved due to death of a partner and business was reconstituted with the remaining partners, and business continued 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) b)   Market value has to be adopted where dissolution of firm is accompanied by discontinuance of business and not otherwise - Kwality Steel Suppliers v. CIT [2004] 141 Taxman 177 (Guj.) c)    Partnership firm stood converted into proprietorship firm after retirement of one out of only two partners of the firm, closing stock to be valued at market price instead of book value shown in books of dissolved firm - Madhu Rani Mehra v. CIT [2011] 10 taxmann.com 126 (Delhi)	Inventory on the date of dissolution of partnership firm or AOP or BOI, notwithstanding whether business is discontinued or not, shall be valued at the net realizable value (ICDS – Valuation of inventory)
IV. Taxability of retention money	a)         Retention money could not be said to be accrued to assessee till completion of work - DIT (International Taxation) v. Ballast Nedam International [2013] 33 taxmann.com 139 (Gujarat) b)         On date of submission of bills, assessee had no right to receive entire amount on completion of work and retention money did not accrue to it on such date but on later date in accordance with terms of contracts. The AO was not justified in treating entire contract amount as accrued on submission of bills - CIT v. Simplex Concrete Piles India (P.) Ltd. [1989] 45 Taxman 370 (Cal.)] c)           Retention money was to be taxed in assessment year relevant to 'previous year' in which it became payable to assessee as per terms of contract - Amarshiv Construction (P.) Ltd. v. Dy. CIT [2014] 45 taxmann.com 429 (Gujarat) d)         Retention money to be brought to tax in the year in which contract was successfully completed irrespective of the fact that assessee had adopted mercantile system of accounting -Asst. CIT v. B.G.R. Energy Systems Ltd. [2014] 47 taxmann.com 266 (Hyderabad - Trib.)	Retention money shall accrue to the taxpayer for computing revenue based on percentage of completion method (POCM) (ICDS – Construction Contracts)
V Anticipated losses in construction contracts	a)   AS-7 allowed assessee to make provision for foreseeable losses and therefore, said losses provided by assessee in its books of account had to be allowed in year under consideration – Asst. CIT v. ITD Cementation India Ltd.[2013] 36 taxmann.com 74 (Mumbai - Trib.) b)   Deduction for foreseeable losses allowed by Delhi High Court in CIT v. Triveni Engg. & Industries Ltd. [2010] 8 taxmann.com 146	Future or anticipated losses shall not be allowed unless such losses are actually incurred (ICDS – Construction Contracts)
VI Deferment of revenue	The assessee couldn't be said to be following wrong accounting policy if it didn't recognize the interest accrued on loan given to certain companies which eventually became sick - Kerala State Industrial Products Trading Corporation Ltd. v. Asst. CIT [2012] 22 taxmann.com 78 (Cochin)	Recognition of revenue can be deferred if there is an uncertainty in its ultimate collection (ICDS – Revenue Recognition)
VII.  Depreciation in case of finance lease	a) Depreciation is not allowable to bank leasing out assets on finance lease - State Bank of India v. Dy. CIT [2014] 44 taxmann.com 99 (Mumbai - Trib.)	In the case of finance leases, depreciation will be allowed to the lessee even though the asset is owned by the lessor (ICDS – Leases).