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The High Court held that the power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If done so it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution. Thus, in context of the amendment to Section 145(2) the High Court held that ICDS are not meant to overrule the provisions of the Act, the Rules thereunder and the judicial precedents.
Section 145 (2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145 (2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution.
This Article contains a detailed analysis of ICDS notified u/s 145 of Income-tax Act, 1961 alongwith Suggested Reporting in Form 3CD. The Article is extremely relevant for Tax Audits.
Adjustments under ICDS will mean additions to arrive at total income in beginning and in later years same additions will have to be deducted in computation of Total income. The adjustments thus are in the nature of only timing difference – advancing the revenue collection – But Tax neutral in the long run. Disclosure with respect to ICDS to be done in Form 3CD – only if assesse is subject to tax audit. Impact of ICDS would be more to those who were Never following Accounting Standards of ICAI / Companies Accounting Standard Rules
ICDS does not specifically provide for the exclusion of WIP arising in the ordinary course of service provider. However it is also not specified any provision for the valuation of inventories.
This ICDS deals with application of significant accounting assumptions and policies in computation of income for the purposes of the Act. Financial statements of an Assessee reflect his state of financial affairs. They form the base for computation of taxable income under the Act. The income for a particular year is significantly affected by the accounting assumptions and policies followed in the preparation of the financial statements.
a. Inventories are valued at lower of Cost and Net Realizable Value. The cost has been measured at FIFO / Weighted average basis and includes cost of purchase, cost of services, cost of conversation and other costs incurred in bringing them into their present location and condition. Also refer clause 14 (b) to Form 3CD
The Income Computation and Disclosure Standards (for short the ICDSs) undoubtedly is a beginning of a new epoch in the method of computation of income under the head of Profits and Gains of Business or Profession and Income from Other Sources.
ICDS have been a talking point between a tax fraternity since last one year.An effort has been made to provide sample disclosures which may serve as base for chartered accountants to draft their own disclosures.Request you to provide your comments and suggestions. Happy Tax Audit Time !!!
I. Changes in Tax Audit Report – Form 3CD for AY 2017-18 relating to ICDS Reporting Adjustments CBDT Notification No.88/2016 dt. 29 Sept. 2016 – ICDS Rules 2016 The CBDT has amended/ revised Form 3CD, applicable from AY 2017-18 (i.e. corresponding to Financial/ Previous Year 2016-17) to facilitate changes relating to ICDS Reporting Adjustments thru […]
