Presentation by CA M.R.HUNDIWALA M.R.HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD/PUNE
Synopsis of Contents………………………… 2 Background of Section 145 Journey of notified standards under Section 145 Notified ICDS Common Basic Features of ICDS Consequent Issues that could arise Typical Features of ten notified ICDS M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Background of Section 145 3 For computing income chargeable under ―Profits and gains of business or profession‖ or ―Income from other sources‖ . Method of Accounting regularly employed by assessee. Substitution by Finance Act 1995 : either cash or mercantile. Central Govt. may notify Accounting Standards. Notified Accounting Standards not being followed, Assessing Officer may make best judgment assessment u/s. 144. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Journey of notified standards under Section 145 4 CBDT constituted Finance Act, 1995 Two Accounting Standards were committee in 2010 to empowered the notified by notification no. SO 69(E) dt. suggest Accounting Central Govt. to issue 25-01-1996 Standards for notification. Accounting Standards • Disclosure of Accounting Policies by amending 145(2). • Disclosure of prior period and extraordinary items and changes in accounting policies Finance Act 2014 Final Report submitted in 10 ICDS notified in March, 2015 substituted the term 2012 along with 14 Draft applicable from A.Y. 2016-17 ―accounting standard‖ in Tax Accounting by Notification No. 32/2015 section 145(2) with ―ICDS‖ . Standards. F.N0. 134/48/2010-TPL. Eswar Committee recommended for deferment, FAQs issued to clarify certain applicability postponed to AY 2017-18, implementation issues. Stakeholders comment invited, ITR and Form 3CD amended for disclosures of impact, certain ICDS revised. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Notified ICDS …………………… 5 Income Computation & Disclosure Standards Corresponding ICAI – AS 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 Effects of Changes in Foreign Exchange Rates AS 11 ICDS VII Government Grants AS 12 ICDS VIII Securities ICDS IX Borrowing Costs AS 16 ICDS X Provisions, Contingent Liabilities, Assets AS 29 M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Amendments in Form 3CD : clause 13 (d) and (e) Whether any adjustment is required to be made to the profits or loss for complying 6 with the provisions of ICDS notified u/s. 145(2) If answer is affirmative, give details of such adjustments. Increase Decrease Net effect ICDS No. Particulars in profit in profit (Rs.) (Rs.) (Rs.) ICDS I Accounting Policies ICDS II Valuation of Inventories ICDS III Construction Contracts ICDS IV Revenue Recognition ICDS V Tangible Fixed Assets ICDS VI Change in Foreign Exchange Rates ICDS VII Government Grants ICDS VIII Securities ICDS IX Borrowing Costs Provisions, Contingent Liabilities and ICDS X Contingent Assets M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Amendments in Form 3CD : clause 13 (f) 7 Disclosure as per ICDS Sr Particulars 1 ICDS I - Accounting Policies 2 ICDS II - Valuation of Inventories 3 ICDS III - Construction Contracts 4 ICDS IV - Revenue Recognition 5 ICDS V - Tangible Fixed Assets 6 ICDS VII - Government Grants 7 ICDS IX - Borrowing Costs 8 ICDS X - Provisions, Contingent Liabilities and Contingent Assets M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Common Basic Features of ICDS 8 Primarily simplified versions of corresponding AS issued by ICAI. ICDS are applicable to assesses having ―income from business or profession‖ and ―income from other sources‖ . ICDS are applicable to assesses following mercantile system of accounting. Not applicable in case of cash system. ICDS are to be complied while computing the income, no books of account are required to be maintained following ICDS. Where ICDS conflicts with the provisions of IT Act, then the provisions of IT Act shall prevail. Expressions used in ICDS but not defined, will have the meaning as defined in IT Act. Provision made for transition to ICDS during A.Y. 2017-18. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Applicability Of ICDS and Disclosure requirements In Tax Audit Report 9 Sr. Assessee Status ICDS Disclosure Disclosure Compliance FORM 3CD ITR 1 All assessees ( Ind., HUF, LLP, Partnership, Co., Others ) Not Required Not Required Not Required following cash system of accounting 2 All assesses ( Ind., HUF, LLP, Partnership, Co., Others )not having income from Business/Profession or income from Not Required Not Required Not Required Other Sources 3 Individual /HUF not required to get accounts audited u/s. Not Required Not Required Not Required 44AB 4 Partnership/AOP/LLP/Companies/Others not required to Not Required Required get audited u/s. 44AB Applicable 5 Partnership Firms under Presumptive Taxation 44AD ( Refer Not Required Required Q. 3 of FAQ) Applicable 6 Partners (Ind.) having remuneration and interest from firms Required Required Required and subject to audit u/s. 44AB 7 Companies subject to MAT provisions ( Refer Q. 6 of FAQ) Not Not Required Applicable Not Required 8 Assessees subject to AMT provisions ( Refer Q. 6 of FAQ) Required Required Required M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Consequent issues that could arise ………….. 10 When ICDS is in conflict with the Act, the provisions of Act will prevail, then why ICDS ? When treatment as per ICDS is at cross purpose with a settled judicial opinion/interpretation, which will prevail ? Mismatch between book profits under MAT and income as per ICDS. Challenge to maintain trail of reconciliations between accounts under AS/Ind. AS and carrying amounts under various ICDS. Will ICDS apply to assessees taxed on gross income basis for example under Sec. 44AD, 44AE, 44D, 44DA etc … .. Can ICDS bring to charge any receipt which is not income as per Sec. 2(24). Huge responsibility of the auditors to certify compliance and disclosures under ICDS. Dual reporting responsibility in case of non corporate assessees under SA 700 and under ICDS. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
11 ICDS I : ACCOUNTING POLICIES M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
ICDS I : Relating to Accounting Policies 12 Generally based on the principles laid in earlier notified AS 1 under Section 145 , similar to AS 1 of ICAI except few fundamental changes. Not merely a disclosure standard but also provides underneath principles. While framing accounting policies, although the concepts of ‗Going Concern‘, ‗Consistency‘ and ‗Accrual‘ are accepted, the concept of ‗Prudence‘ and ‗Materiality‘ have been either curtailed or ignored. Materiality concept is not even adopted by the Income Tax Act. Prudence concept provided differential treatment to provision for expenses and provision for income. Change in accounting policy has to be for a ‗reasonable cause‘ . What is reasonable cause is not defined. CBDT has elaborated on this issue in FAQs ( No. 9) : the concept of ― Reasonable Cause‖ is an existing concept under the Act and has evolved well over a period of time conferring desired flexibility to the tax payer in deserving cases. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
Accounting Policies ………. 13 an inappropriate treatment of an item of revenue or expenditure in computation cannot be justified or remedied by disclosure of such inappropriate treatment in accounting policy. Accounting Policies that divert from fundamental assumptions of going concern, consistency and accrual, need to be reported. Disclosure Requirements : a) All significant accounting policies adopted by a person shall be disclosed. b) Any change in an accounting policy which has a material effect shall be disclosed. c) If a fundamental accounting assumption is not followed, the fact shall be disclosed. M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
14 ICDS II : VALUATION OF INVENTORIES M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
ICDS II : Relating to Valuation of Inventories 15 Generally aligned to AS 2 issued by ICAI. Except few changes suggesting very conservative approach. ICDS II not applicable to : * inventory covered by other ICDS ( contracts, securities, etc..) * producer‘s inventory of livestock, agriculture produce, mining, mineral oil, ores and gases * machinery spares of irregular use specific to a tangible fixed asset Inventories are assets : * held for sale in the ordinary course of business * In the process of production for such sale * In the form of material or supplies to be consumed in the production process or in rendering of services (Thus will include finished, WIP, raw material, consumables, tools etc.) M.R. HUNDIWALA & CO. CHARTERED ACCOUNTANTS AURANGABAD / PUNE
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