Income Computation and Disclosure Standards
Section 145 of the Act provides that the method of accounting for computation of income under the heads “Profits and gains of business or profession” and “Income from other sources” can either be the cash or mercantile system of accounting. The Finance Act, 1995 empowered the Central Government to notify Accounting Standards (AS) for any class of assessees or for any class of income. Since the introduction of these provisions, only two Accounting Standards relating to disclosure of accounting policies and disclosure of prior period and extraordinary items and changes in accounting policies have been notified.
The Central Board of Direct Taxes (CBDT) had constituted an Accounting Standard Committee in 2010. The Committee has submitted its Final Report in August, 2012. The Committee recommended that the AS notified under the Act should be made applicable only to the computation of taxable income and a taxpayer should not be required to maintain books of account on the basis of AS notified under the Act. The Final Report of the Committee was placed in public domain for inviting comments from stakeholders and general public. After examining the comments/suggestions, the Committee inter alia recommended that the provisions of section 145 of the Act may be suitably amended to clarify that the notified AS are not meant for maintenance of books of account but are to be followed for computation of income.
In order to clarify that the standards notified under section 145(2) of the Act are to be followed for computation of income and disclosure of information by any class of assessees or for any class of income, it is proposed to provide that the Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of or in respect of any class of income. It is further proposed to provide that the Assessing Officer may make an assessment in the manner provided in section 144 of the Act, if the income has not been computed in accordance with the standards notified under section 145(2) of the Act.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.
Source- Memorandum to Finance Bill [ No. 2] 2014
ACTION OF LEARNED OFFICIALS IN CBDT TO HAVE ITS OWN 14 ACCOUNTING STANDARD TO BE FOLLOWED FOR COMPUTATION OF INCOME IS HIGHLY APPRECIATED. BECAUSE, IT INDICATES ITS INDEPENDENCE, NOT RELAYING ON ANY PROFESSIONAL BODY.
On careful study of Section 288(2) of Income-Tax Act read with Rule 12A of Income-Tax Rules, it has to be presumed that all five class of persons referred in Rule 12A possess knowledge of Section 145 read with 14 Accounting Standards of CBDT, required for Income-Tax Practice. Because certain qualification has been fixed in Income-Tax Act for these five class of persons. Further, Accounting Standard framed by ICAI (Financials) & IFRS not required for Income-Tax Practice. Here the question is, when such other four class of Non-CA Tax Professionals are authorized to prepare return under Rule 12A of Income-Tax Rules, there is no justification to prohibit them for issue of Certificates/Reports in Income-Tax Act. Therefore, it is clear that on introduction of Certificates from only CAs in Income-Tax Act, original intention of legislature in Rule 12A of Income-Tax Rules has been struck down.