• Chamber of Tax Consultants vs Union of India

[2017] 87 taxmann.com 92 (Del HC)

(ICDS) notified by Central Government in exercise of power u/s 145(2) can not override binding judicial precedents or provisions of Act or Rules framed there under

ICDS	Contentions	Decision of Court
Accounting Policies-ICDS 1 Specially provides that expected and MTM Loss are not allowed	Sec 37(1) allows deduction of expenses for business purpose and not only encompasses actual flow of funds but also amounts payable in future with reasonable certainty	Non-acceptance of the concept of prudence in ICDS I is per se contrary to the provisions of the Act and therefore, cannot be countenanced
Valuation of Inventory-ICDS 2 On dissolution of a firm, the business is not discontinued, stock-in-trade has to be valued at NRV	The ICDS does not take note of the decision of the apex court in the case of Shakti Trading Co. v. CIT where it was held that in case of dissolution of firm AO cannot substitute Mkt price instead of regular accounting method	Section 145A begins with a non-obstante clause and is independent of section 145 (2) under which the ICDS has been notified. It is an exercise of excessive delegation of legislative power which is impermissible in law Sec 145A will prevail over ICDS II notified u/s 145(2)

Particulars	Contentions	Decision of Court
Construction Contracts-ICDS 3 A) Retention money would form part of contract revenue & is to be treated as income on proportionate completion method & assessed to tax accordingly B) Para 12 of ICDS III read with para 5 of ICDS IX, dealing with borrowing costs, makes it clear that no incidental income can be reduced from borrowing cost	As per the decision of the cases viz Amarshiv Construction (P) Ltd, retention money was treated income at the Previous year when it was payable to the assessee This is contrary to the decision of the apex court in CIT v. Bokaro Steel Ltd. where it was held that if the assessee receives any amount which is inextricably linked with the process of setting up of plant and machinery, such receipts would go to reduce the cost of its assets.	The court held Retention money when would it accrue depends upon the facts of each case and the conditions attached applying the settled principles of accrual of income ICDS III is interpreted and applied in a manner contrary to the law settled by the various decisions of the Supreme Court and the High Courts, it cannot be sustained

Particulars	Contentions	Decision of Court
Revenue Recognition-ICDS 4 1) The claim of escalation price and export incentives shall be postponed to the extent of uncertainty involved 2) in respect of service transactions revenue shall be matched with service transaction cost and income be recognized on the proportion of work completed	As per apex court in CIT v. Excel Industries Ltd, the recognition of export incentives is to be recognized as income only when the claim is accepted by the Government. In case of Paras Buildtech India (P.) Ltd. v. CIT, it was held that the assessee can either follow proportionate completion method or contract completion method and also as per AS-9	ICDS -IV seeking recognition of income from export incentives is inconsistent with the law explained by the Supreme Court Para 6 of ICDS VI permits only one method, i.e proportionate completion method which is contrary to the various decisions of the Court. Thus, it is ultra vires the Act and has to be struck down

Particulars	Contentions	Decision of Court
Foreign Exchange –ICDS – 6 Loans taken for capital purposes is to be valued at closing rate and difference is to be booked as Gain/Loss Any marked-to-market loss /gain in foreign currency derivatives for trading or speculation purposes is not to be allowed as an expenditure/deduction	Apex court in Sutlej Cotton Mills Ltd. v. CIT explained that exchange loss or gain in relation to capital item would be capital in nature Supreme Court in Sutlej Cotton Mills Ltd. v. CIT , insofar as it relates to marked to market loss arising out of forward exchange contracts held for trading or speculation purposes is allowable.	It was held that the ICDS VI seeking effect of change in foreign exchange to be treated as income would be contrary to the apex court’s decision and hence, would have to be struck down as ultra vires the Act

Particulars	Contentions	Decision of Court
Government Grants-ICDS – 7 Government grants will have to be recognized as income and cannot be postponed beyond the date of actual receipt regardless of whether the income has accrued or not, it has to be taxed.	There could be a situation where some conditions are attached to government grant. Non-fullfilment of such condition may lead to return of such grant.	It cannot be said that there is accrual of income merely because the amount has been received. ICDS VII, however, requires the amount to be taxed in the year of receipt, which is contrary to and in conflict with accrual system of accounting. Hence, it has to be held as ultra vires and struck down.
Securities-ICDS 8 Part A of ICDS deals with entities other than scheduled bank and public financial institutions while part B deals with scheduled banks and public financial institutions. Part B seeks valuation of securities in accordance with RBI guidelines.	The valuation of securities as per Accounting Standard is different from ICDS and the entities have to maintain separate records for income-tax purposes for every year since the closing value of the securities would be valued separately for income-tax purposes and for accounting purposes.	Para 10 says that the actual cost of securities held shall be done category-wise and not for each individual security. Thus, the Part A of ICDS-VIII is ultra vires the Act.

• Sec 69C – ITO vs. Ashok Viradia

[2017] 87 taxmann.com 156 (Mum Trib.)

Where addition was made to assessee’s income u/s 69C in respect of accommodation entry received from ‘R’, since assessee failed to prove genuineness of purchase transaction, entire amount of purchase was to be added to assessee’s income and not only profit element thereon

• Sec 54G – Everest Industries Ltd. vs ACIT

[2017] 87 taxmann.com 252 (Mum Trib.)

When there is time lag between shifting of industrial undertaking from urban to rural areas and sale of assets and receipt of capital gains, in such a case, in order to allow deduction u/s 54G, prescribed time period has to be reckoned from date of sale of assets and not from date of shifting of industrial undertaking

• Sec. 28(i) r.w.s. 22 – Oberoi Investments (P.) Ltd. vs ACIT

[2017] 87 taxmann.com 33 (Kol Trib.)

Where in terms of memorandum of association, main object of assessee company was to acquire properties and to further let out such properties, income earned from such letting out was to be brought to tax as ‘business income’ and not as ‘income from house property’

• Section 50B – L&T Finance Ltd. vs DCIT

[2017] 87 taxmann.com 93 (Mum Trib.)

Mere transfer of business leads (being individual asset) to sister concern does not constitute transfer of business activity or business undertaking as a whole and hence would not fall within ambit of slump sale

• Sec 201(1A) – Bank of Baroda vs DCIT

[2017] 88 taxmann.com 103 (Ahd Trib.)

Where assessee-bank had deducted TDS u/s 194A but same was deposited after a delay, interest u/s 201(1A) should be levied only from the date on which tax was deducted and till date on which such tax was deposited

Eg.

Date of deduction – 10.09.2014

Date of tax deposit – 08.10.2014

AS per AO /CIT(A) – Interest for 2 months

As per ITAT – Interest for 1 month since delay in days < 1 month (excl. date of deduction – 10.09.2014)

• Claris Life Sciences Ltd vs. CIT

[2017] 86 taxmann.com 56 (Ahd Trib.)

Where an assessee does not pay self assessment tax under section 140A at time of filing original return of income, he is liable to pay penalty under section 221(1) even though he subsequently revises his return of income and pays self assessment tax at time of filing said revised return of income

• Sun Pharmaceuticals Industries Ltd.vs. CIT (Vadodra)

[2017] 87 taxmann.com 215 (Gujarat HC)

For computation of book profits under section 115JB, entire profit of eligible business under section 10B has to be reduced and not only that profit which is computed for purpose of deduction in terms of sub-section (1) read with sub-section (4) of section 10B

• OTC Exchange of India vs. ACIT

[2017] 85 taxmann.com 329 (Mumbai – Trib.)

Where assessee recognized stock-exchange with a view to create scripless, screen based multi-tiered fully automated securities market created WOS and made investment in it, disallowance under section 13(1)(d)(iii) could not be made since investment made was as per requirement of section 11(5)/