Preface

Tax collection is the backbone of economy of any country. India is a unique country where out of an estimated population of 130 crore only three crore people file returns and irony is that out of these three crore, two crore file nil returns. Entire direct tax collection is because of these balance 1 crore people who pay taxes. The Government is doing all round efforts to improve direct tax collection and also the tax-GDP ratio. In order to collect tax at the earliest point of time, the government devised Income Computation And Disclosure Standards. These Standards are designed to ensure that income is taxed at the earliest point in time though the assessee may have reported the related income in any of the following assessment years. An example of this can be found in ICDS-III which deals with Construction Contracts. In construction contracts there is a provision for retention money which is released after satisfactory performance of the contract. Usually the contractors do offer this retention money to tax in the year of receipt. As per paragraph 10(a) of ICDS III, retentions would comprise the part of the contract revenue of the relevant year and will be taxed accordingly.

In order to achieve the above object of tax collection, sub-section (2) of section 145 of the Act was amended vide Finance (No. 2) Act, 2014, empowering the Central Government to issue Income Computation and Disclosure Standards (ICDSs) to be followed by certain class of assessees or in respect of certain class of income.

In pursuance of above, the Central Government vide Notification No. 32/2015, dt. 31-3-2015 [S.O. 892(E), dt. 31-3-2015], issued ten Income Computation and Disclosure Standards (ICDSs). This Notification was challenged before the Delhi High Court in Chamber of Tax Consultants v. UOI. The Delhi High Court struck down a few paras of certain ICDSs.

Later the Central Government vide Notification No. 87/2016, dated 29-9-2016 re-notified the ten ICDSs effective from the assessment year 2017-18 and rescinded the Notification Number 32/2015, dt. 31-3-2015. This Notification is to be followed by all assessees (other than an individual or a Hindu undivided family, not required to get accounts audited under section 44AB) following mercantile system of accounting, for the purposes of computation of income chargeable to income-tax. 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 order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDSs, the Finance Act, 2018 has --

(i) amended section 36 of the Act;

(ii) amended section 40A of the Act;

(iii) inserted a new section 43AA in the Act;

(iv) inserted a new section 43CB in the Act;

(v) substituted section 145A of the Act; and

(vi) inserted a new section 145B in the Act.

The Central Government has thus attempted to give legal backing to ICDSs.

This Book has been conceived and written with a view to imparting an objective discussion on the nature, scope and implications of the ICDSs on the computation of tax under the Act, of course involving inter alia explanatory discussions of the ICDSs themselves.

The Book is divided into Two Parts, comprising Seventeen Chapters.

Scheme of presentation is as under :

Part I : ICDS : General Issues

1. Introduction and Applicability

2. Provisions of Section 145- Current Perspective

3. Delhi High Court Judgment and Amendments by Finance Act, 2018

4. FAQs on ICDSs

5. Overview of ICDSs

6. Overview of Common Principles Contained in all ICDSs

7. ICDS and Income Tax Returns Forms/Tax Audit Report

Part II : Commentary on ICDSs

8. ICDS-I : Accounting Policies

9. ICDS-II : Valuation of Inventories

10. ICDS-III : Construction Contracts

11. ICDS-IV : Revenue Recognition

12. ICDS-V : Tangible Fixed Assets

13. ICDS-VI : Effect of Changes in Foreign Exchange Rates

14. ICDS-VII : Government Grants

15. ICDS-VIII : Securities

16. ICDS-IX : Borrowing Costs

17. ICDS-X : Provisions, Contingent Liabilities and Contingent Assets

We have discussed the ICDS provisions in detail with relevant back-up material derived from the case laws decided under the Income Tax Act, 1961. The full text of each ICDS has been reproduced as an Appendix at the end of the related Chapter. A useful discussion on the ratio of select judicial pronouncements, which are in agreement as well as in conflict with the principles contained in ICDSs has also been made at appropriate places within the text, in order to throw light on the perception of the implications of the ICDSs on judicially settled legal positions.

We believe that this book will be useful to all stakeholders, be it assessees, tax consultants, Chartered Accountants or tax administrators.

With this we present this book to our esteemed readers. We as usual would be waiting for readers, comments about the book.

JODHPUR	Dr. AVADHESH OJHA
GURU PURNIMA	CA MANOJ GUPTA
27 JULY, 2018