Mumbai,Chennai, February 2, 2018
The Finance Bill has overturned a Delhi High Court decision which struck down several Income Computation and Disclosure Standards (ICDS) introduced by the government.
Taking it a step ahead, the budget has also introduced ICDS with retrospective effect from financial year 2016-17. The Delhi high court had ruled in favour of the Chamber of Tax Consultants who were the petitioners.
The budget proposal means that India Inc, to whom the ICDS norms apply with have to recomputed their income for tax purposes as per ICDS and file revised tax returns.
ICDS in essence, in many instances, requires income to be recognised for tax purposes at an earlier stage and postpones some expenses to arrive at profitability of a company. For instance, a company has to recognise income from export incentives, in the year of making the claim, if there is reasonable certainty of its ultimate collection. Or for that matter, even while the Supreme Court had recognised both the proportionate completion method and contract completion method (where income was recognised at a later date after some milestone was achieved) as valid methods of accounting, ICDS only accepts the former. The tax authorities felt that such options enabled companies to defer their income and thus tax obligations.
"The government introduced ICDS despite huge opposition. When the Delhi high court, struck down some of the accounting standards, the government has sought to amend the law itself," says Ameet Patel, partner Manohar Chowdhry and Associates, who like many other chartered accountants is not in favour of the move to introduce ICDS.
"ICDS casts a huge administrative burden on companies, for what essentially is just a timing difference in recognising revenue or expenditure. The retrospective amendment has come as a huge shock. Staff at most companies is engaged in dealing with new GST requirements and this was uncalled for," says a consultant.
There are some contrary views. ""The changes relating to ICDS proposed are welcome since they provide certainty. Even though they are retrospective in nature, it clears air on the issue. Companies had taken different positions in light of the Delhi high court decision. These amendments are timely for companies to revise their previous year returns. While one may argue on the treatment mandated by the ICDS, it does provides certainty and should reduce litigation," said Ajay Rotti, partner, Dhruva Advisors.
[The Times of India]