Income Computation And Disclosure Standards (ICDS) RAO & KUMAR Chartered Accountants. Contents 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) Background General principles Key Areas of Impact Hierarchy of Act, ICDSs and ASs ICDS I: Accounting Policies ICDS II: Valuation of Inventories ICDS III: Construction Contracts ICDS IV: Revenue Recognition ICDS V: Tangible Fixed Assets ICDS VI: The effects of changes in foreign exchange rates ICDS VII: Government Grants ICDS VIII: Securities ICDS IX: Borrowing Costs ICDS X: Provisions, Contingent liabilities and Contingent assets Background of ICDS… Section 145(1) of the Income-tax Act, 1961 (Act) stipulates 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 cash or mercantile system of accounting. Section 145(2) of the Act states that the Central Government may notify the accounting standards to be followed by any class of assesses or in respect of any class of income. Accordingly, two tax accounting standards had been notified until now: 1. Disclosure of accounting policies 2. Disclosure of prior period and extraordinary items and changes in accounting policies Background of ICDS… Finance Act, 2014 amended section 145(2) of the Act to substitute “accounting standards” with “income computation and disclosure standards” (ICDS). The CBDT has vide notification no: 32/2015 [F.No. 134/48/2010 – TPL/SO 892(E) notified 10 ICDS effective from 01.04.2015 and shall accordingly apply to the A.Y. 2016-17 and for estimating Advance tax Liability due during F.Y. 2015-16 and all subsequent years. Non-Compliance of ICDS may result in Best Judgement Assessment by tax authorities and may lead to protracted Litigation. General principles Applicable to all tax payers (Corporate and Non-corporate) following mercantile system of accounting including non-resident tax payers. ICDS applies to income computed under the head “profits and gains of business or profession” and “income from other sources” and not for maintaining books of accounts. In case of conflict between the provisions of the Act and ICDS, the provisions of the Act shall prevail to that extent. No impact on computation of book profits for the purpose of MAT. The Provisions of sec-115 JB(1) shall continue to apply. Key Areas of Impact… Expected Losses/Mark to Market losses will not be recognized unless permitted by specific ICDS. Not Clarity w.r.t. MTM Gains. New formula for capitalization of Borrowing Costs is introduced. Applicable for all open Construction Contracts as at 31.03.2015. All Service contracts shall be valued at POC for Revenue Recognition. Hierarchy of Act, ICDSs and ASs Income Tax Act, 1961 Income Tax Rules, 1962 Income Computation and Disclosure Standards – (Ultra-vires Sec-145) Accounting Standards Accounting Policies • No concept of materiality in ICDS unlike, AS-1. • No likely significant tax impact • In absence of materiality concept, considerable time and cost will be involved making trivial adjustments in net profit as per books of accounts to arrive at PGBP since authorities may insist on strict application of ICDS even on small value items. Materiality • Based upon the concept of ‘prudence’, AS-1 precludes recognition of anticipated profits and requires recognition of expected losses. • However, ICDS provides that expected losses or mark to market losses shall not be recognized unless permitted by any other ICDS to avoid differential treatment for recognition of income and losses. • However, ICDS is silent on MTM gain. Prudence • In the absence of prudence as a fundamental assumption, there could be several situations which could result in earlier recognition of income or gains or later recognition of expenses as compared to that under AS. E.g. provision for warranty expenses on sales made. • An ambiguity would arise on deductibility of losses which are not covered in any specific ICDS. E.g. Currently no specific proposed ICDS dealing with MTM loss on derivatives. Prudence Valuation of Inventories • Value of opening inventory should be same as preceding year’s closing inventory. • In case of a newly commenced business, the value of the opening inventory shall be the cost of the inventory. • Cases of conversion of capital asset into stock-in-trade with intent to commence business may remain unaffected due to overriding provisions of Section 45(2) of the Act. • If business is commenced with acquisition of running business on slump sale, price paid will be ‘cost’ of opening inventory. Value of opening inventory • ICDS does not permit standard cost method for the purpose of inventory valuation. • The same will have an impact on taxpayers following standard cost method for valuation of inventory for accounting purpose, who will need to adopt FIFO or weighted average cost formula for tax purposes. • Further, as per ICDS, method of valuation once adopted shall not be changed without reasonable cause. It would not have a significant impact since bonafide change may constitute reasonable cause Method of Valuation AS- 2 • AS-2 does not include work in progress (WIP) arising in the ordinary course of business of service providers. ICDS • Specifies that it does not apply to WIP which is dealt with by other ICDS. • Valuation of service inventory to be the lower of cost or NRV. • Cost to include labor and other costs of personnel directly engaged in providing services including supervisory personnel and attributable overheads. • Difficulty would arise in case of services whose chargeability depends on the success of the service. Valuation of inventories in case of service providers Construction Contract Construction Contracts AS - 7 ICDS III Contract Cost Contract Cost includes: The scope of the Contract Cost has been - Direct cost widened to include “Allocated Borrowing Cost” - Cost allocated to the contract in accordance with ICDS on Borrowing Cost. - Cost specially charged to the customer under the terms of the contract Construction Contracts AS - 7 ICDS III Recognition of Contract Revenue Contract revenue to be recognized if it is The criteria “if it is possible to reliably measure the possible to reliably estimate the outcome of a contract” has been omitted. outcome of a contract. Contract revenue to be recognized when there is reasonable certainty of its ultimate collection. Impact: The recognition of contract revenue may be preponed under ICDS. It lays down the conditions to ICDS is silent on the same estimate the outcome of construction contract in case of :- Fixed Price Contract - Cost plus Contract Construction Contract AS-7 ICDS III Situation when outcome of contract cannot be reliably estimated Contract revenue and contract costs to be recognized as revenue or expenses by reference to the POCM if the outcome of the contract can be estimated reliably; else, revenue should be recognized only to the extent of contract costs incurred. ICDS provides that early stage of a contract shall not exceed 25% of the stage of completion. In other words, upto 25% of the stage of completion, if the outcome of No quantitative threshold laid down for determining construction contract cannot be reliably the stage of completion, until when, the outcome of a measured, contract revenue is recognized contract cannot be reliably measured. only to the extent of cost incurred. Impact: Under ICDS, profit recognition has to start compulsorily once 25% stage is completed but the same is not the case currently under AS – 7. Construction Contract AS-7 ICDS III Retention Money Contract revenue shall comprise: The initial amount of revenue agreed in the contract Contract revenue shall comprise: The initial amount of revenue agreed in the contract, including retentions. Impact Analysis: There are various judicial precedents like Angelique International Ltd. vs Department of Income Tax [ITA No.4085/DEL/2011] which does not recognize retention money as income for tax purpose if there is no enforceable debt. ICDS leads to deviation from the settled judicial position. Incidental Income Any incidental income, not included in the contract Contract cost shall be reduced by any incidental revenue, shall be deducted while computing income, not being in the nature of interest, dividends construction cost. or capital gains, that is not included in the contract revenue. Therefore, those interest income, dividend income and capital gains shall be taxed as income in accordance with the applicable provisions of the Act. Construction Contract AS-7 ICDS III Recognition of foreseeable losses It permits to recognise immediately the ICDS does not permit recognition of the foreseeable losses on a contract regardless of foreseeable/expected losses on a contract. commencement or stage of completion of contract. ICDS on accounting policies also does not permit recognition of foreseeable loss. Impact: ICDS deviates from the present legal settled position in the case of CIT V/s. Triveni Engineering & Industries Ltd (49 DTR 253) (Del) & CIT v. Advance Construction Co. (P) Ltd (275 ITR 30) (Guj)) in which foreseeable losses on construction contracts were allowed as a deduction for tax purpose. Construction Contract AS-7 ICDS III Recognition of incentive payments Incentive payment to be recognised only when (i) probability exists that specified performance standards would be met or exceeded (Guidance para in ICAI AS, links probability to contract progress upto sufficiently advanced stage); (ii) incentive is reliably measurable. Recognition of claims Claims against customers to be recognised when (i) probability exists that the customer will accept the claim (Guidance para in ICAI AS, links probability to negotiation progress upto advanced stage); (ii) amount is reliably measurable. Requires recognition under POCM if incentive reliably measurable and it is probable that it will result in revenue. In absence of further guidance, ambiguity may arise if the requirement of “sufficiently advanced stage of contract” is deleted/diluted. Requires recognition under POCM if claims are reliably measurable and it is probable that it will result in revenue. In absence of further guidance, ambiguity may arise if the requirement of “advanced stage of negotiation” is deleted/diluted. Revenue Recognition AS - 9 ICDS It does not apply to companies ICDS is silent on same. engaged in insurance business. Revenue from service transactions ICDS provides only for percentage are recognised as percentage completion method for recognition completion method or by the of service transactions. completed service contract method. Impact: May have minimal impact since service sector largely follows POCM or Cost plus method. ICDS requires application of ICDS on construction contracts for recognition of revenue on mutatis mutandis basis. • Threshold of 25% stage of completion for recognition of income • No recognition of the foreseeable losses on a contract. However, AS-7 permits immediate recognition of the foreseeable losses on a contract regardless of commencement or stage of completion of contract. • Stage of completion can be determined with reference to (a) total estimated costs v/s. cost incurred till balance sheet date; or (b) survey of work performed; or (c) completion of physical proportion of work Tangible Fixed Assets AS- 10 ICDS It applies to tangible fixed assets as well It applies to only tangible fixed assets. as goodwill Cost of fixed asset comprises its purchase It has similar definition to AS 10 but the price, non refundable taxes and any words used are actual cost as compared to directly attributable cost of bringing the cost in AS -10. asset to its working condition for its intended use. Impact: The Act provides for the definition of the term ‘actual cost’ and it is again repeated in the ICDS but it does not modify the concept of actual cost. However when there is conflict in interpreting the abovementioned term under ICDS and Act, the Act will prevail over ICDS. Such a narrow definition in ICDS might encourage the taxpayer to contend that expenditure on acquisition which is not part of actual cost should be deductible as revenue instead of capitalising. AS- 10 ICDS AS 10 read with guidance note on It provides that machinery spares Machinery for Spares provides for which can be used only in connection charge to P/L, however spares to with an item of tangible fixed asset specific asset should be capitalised and their use is expected to be and shall form part of that Asset . irregular, shall be capitalized. Impact: ICDS specifies that machinery spares dedicated to a tangible fixed asset should be capitalized, it does not provide any further guidance on subsequent treatment that whether it will form part of the block of the asset. However, in absence of such clarification spares would form part of the block and once the principal asset is put to use, the spares shall qualify for the depreciation at the same rate. Assets acquired against non-monetary consideration AS- 10 ICDS When a fixed asset is acquired in exchange When a tangible fixed asset is or in part exchange for another asset, the cost acquired in exchange for other asset, of acquired asset should be recorded either at the fair value of the tangible fixed FMV or NBV of asset given up, adjusted for asset so acquired shall be its actual any balancing payment or receipt of cash or cost other consideration. Fixed asset acquired in exchange for shares When a tangible fixed asset is or other securities in the enterprise should be acquired in exchange for shares or recorded at its FMV, or the FMV of the other securities, the fair value of the securities issued, whichever is more clearly tangible fixed asset so acquired shall evident. be its actual cost. Usual Practice: Concept of cost should normally relate to what is given up. Assets acquired for a consolidated price AS- 10 ICDS Para 15.3 says that when several assets are When several assets are purchased for purchased for consolidated price, the a consolidated price, the consideration is apportioned on fair basis as consideration shall be apportioned to the various assets on a fair basis. determined by competent valuers. Impact: In absence of determination by registered valuers in ICDS words “fair basis” becomes subjective and might be prone to litigation. Misc. Depreciation on a tangible fixed asset and income arising on transfer of a tangible fixed asset shall be computed in accordance with the provisions of the Act. The requirement of maintenance of ICDS specific tangible fixed asset register as proposed earlier has been done away with. The Effects of Changes in Foreign Exchange Rates Revenue monetary items (like trade receivables, payables, bank balance, etc.) AS- 11 ICDS Reported using the closing rate Exchange difference recognised in P&L A/c Allowed under the Act also. Converted into reporting currency by applying the closing rate Recognised as income or expense subject to provisions of Rule 115 Impact: No change in tax position Capital monetary items – Relating to Imported assets AS- 11 ICDS Requires recognition in P&L A/c. Requires recognition in Option of capitalization u/s 211(3C) of companies Act, P&L A/c subject to 1956 as per which (Para 46 & 46A) exchange provisions of Section 43A. differences arising in case of long-term foreign No Para 46 & 46A exists. currency monetary items shall be either adjusted to capital asset or accumulated in FCMITDA. Impact: Presently, Section 43A permits capitalization on payment basis of exchange differences relating to asset acquired from a country outside India. Hence, there would be no change in the tax position. Capital monetary items – Not relating to Imported assets AS- 11 ICDS Requires recognition in P&L A/c. Requires recognition in Option of capitalization u/s 211(3C) of companies Act, P&L A/c subject to 1956 as per which (Para 46 & 46A) exchange provisions of Section 43A. differences arising in case of long-term foreign No Para 46 & 46A exists. currency monetary items shall be either adjusted to capital asset or accumulated in FCMITDA. Impact: Section 43A does not apply since it applies only if it relates to the imported assets. Presently, such FE differences are not recognized for tax purposes i.e. gain is not taxable, loss is not deductible/ allowable. Capital monetary items – Not relating to Imported assets Conclusion Since ICDS requires recognition in P&L A/c subject to provisions of Section 43A and Section 43A applies only if it relates to imported assets, a controversy may arise, whether such exchange fluctuation gain or loss on capital monetary items (not relating to imported assets) would be allowable as an income or expense as per ICDS or not. May be considered as non-cognizable for tax purposes based on its Capital nature. It is also arguable that judicial settled position would remain unchanged as the Act shall prevail in case of conflicts with ICDS. Foreign operations AS - 11 ICDS Foreign Operation is a subsidiary, “Foreign operations of a person” is a associate, joint venture or branch of branch, by whatever name called, of the reporting enterprise, the activities that person, the activities of which are of which are based or conducted in a based or conducted in a country other country other than the country of the than India. reporting enterprise. Impact: The definition of foreign operations given under ICDS does not include a subsidiary, associate or joint venture of the reporting enterprise. Hence, the tax positions will remain the same in the case of foreign operations being a subsidiary, associate or joint venture of the person Integral operations – No change in tax positions Non-integral foreign operations AS - 11 ICDS Exchange Differences arising on translating Exchange Differences arising on translating of monetary items of non-integral foreign assets and liabilities both monetary and non operations shall be transferred to “Foreign monetary of non integral foreign operations Currency Translation Reserve”(FCTR). shall be recognised as “income or expense” in that previous year. Impact: FE differences arising from the translation of the financials on MTM basis will have to be considered in Computation of Income Statement. Capital and revenue items are not distinguished in ICDS. MTM to be recognised even on tangible fixed assets. Recognition of the amount lying in the FCTR on 31st March, 2015. In case of change of foreign operations from integral to non-integral and vice-versa, no adjustment is required for the foreign exchange difference, since unlike AS, no FCTR is maintained under ICDS. DTL or DTA will be created as the case may be due to the above difference. E.g. Suppose Exchange Differences arising on translating financial statements of nonintegral foreign operations results into FE income. This will result into creation of DTA subject to condition of AS 22 i.e. consideration of prudence and virtual certainty as to sufficiency of future taxable income in case of unabsorbed depreciation or carry forward of losses under tax laws. On disposal of Net Investment in Non Integral Operation, according to AS 11 the balance in FCTR will be recognized as income which will result into reversal of DTA. AS 11 ICDS Foreign Currency Translation Reserve (FCTR) Treated as income for tax purpose AS 22 Applicability Forex derivatives – Forward exchange contracts Purpose Others (i.e. trading, speculation, firm commitment, highly probable forecast) AS - 11 ICDS Marked to market at each balance Premium, discount or exchange sheet date and the gain or loss be difference on contracts be recognised in the P&L a/c. recognised at the time of settlement only. No amortization of premium/ discount. Impact: SB ruling in Bank of Bahrain & Kuwait (41 SOT 290) which relied on SC ruling in Woodward Governor’s case supports MTM recognition. Contradiction would arise between the ICDS and settled position under the Act. Forex derivatives – Other Other forex derivatives like, futures, interest rate swaps, etc. are not covered by ICDS VI. ICDS I on accounting policies provides that marked to market loss or an expected loss shall not be recognized unless the recognition of such loss is in accordance with the provisions of any other Income Computation and Disclosure Standard. . Hence, in case of forex derivatives not covered by ICDS VI, ICDS I would apply. Forward exchange contract includes foreign currency option contract also. Government Grants Government Grants AS- 12 ICDS VII Recognition of grant • On reasonable assurance of compliance of • On reasonable assurance of compliance of attached conditions and reasonable certainty attached conditions and reasonable certainty of ultimate collection of ultimate collection • Mere receipt is not sufficient • Recognition cannot be postponed beyond date of actual receipt Impact: If the grant is recognized on receipt basis, it would create DTA/DTL and MAT mismatch also. Further, an issue may arise whether grants received in earlier years but not recognized pending fulfillment of conditions will require recognition on receipt basis as per ICDS in year of transition. Grants other than those covered by specific provisions • Revenue grant to be credited as income or • Same as AS-12 but no clarification that it is reduced from related expense. restricted only to revenue grants. Government Grants AS- 12 ICDS VII Relatable to depreciable fixed assets • Requires reduction from the cost of fixed asset or recognition as deferred revenue by systematic credit to P&L A/c. • Consistent with Explanation 10 to Section 43(1), requires reduction from the cost of fixed asset. Relatable to non depreciable fixed assets • To be credited as capital reserve, if no conditions attached to the grant. To be treated as income – • on an upfront basis, if there are no conditions • To be credited to P&L A/c over period of attached to grant. incurring cost of meeting conditions of grant. • over period over which cost of meeting conditions is incurred. Government Grants AS- 12 ICDS VII Grant in the nature of promoter’s contribution • To be credited to capital reserve and to be treated as shareholders funds. • No such clarity for grants in the nature of promoter’s contribution. Therefore, by implication, requires recognition as income. Compensation for expenses / loss incurred or for giving immediate financial support • To be recognised in P&L A/c in the year in • Same as AS-12 which it is receivable Disclosure requirement • No disclosure of unrecognized grants • Disclosure of unrecognized grants Securities Securities AS- 13 ICDS VIII Applicability This Standard deals with accounting for investments in the financial statements of enterprises. This ICDS deals with securities held as stock-intrade. Assets held as stock-in-trade are not ‘investments’* *However, as per AS 13, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provision of AS 13 in respect of current investments are applicable to securities held as stock-intrade. Securities AS- 13 ICDS VIII Carrying amount Current investments are valued at lower of cost and fair value. Securities held as Stock-in-trade shall be valued at actual cost or NRV, whichever is lower. (where the actual cost cannot be ascertained by reference to specific identification, the cost shall be determined on the basis of FIFO.) Individual Scrip wise Valuation Category wise Valuation Classification into four categories namely, (a) shares; (b) debt securities; (c) convertible securities; and (d) any other securities not covered above. Valuation of unlisted/ thinly traded securities at cost - At the end of any previous year, securities not listed on a recognized stock exchange; or listed but not quoted on a recognized stock exchange with regularity from time to time, shall be valued at actual cost initially recognized. Securities AS- 13 If an investment is acquired by the issue of shares or assets, the acquisition cost should be the fair value of the securities issued/fair value of the asset given up. Alternatively, the acquisition cost of the investment may be determined with reference to the fair value of the investment acquired if it is more clearly evident. ICDS VIII Where a security is acquired in exchange for other securities or asset, the fair value of the security so acquired shall be its actual cost. Usual Practice: Concept of cost should normally relate to what is given up. Borrowing Cost Borrowing Costs AS - 16 ICDS Borrowing costs include exchange differences Borrowing costs do not include exchange differences. arising from foreign currency borrowings to the extent they are an adjustment to interest costs. • Qualifying Asset is an asset that takes • Qualifying Assets mean: substantial period of time to get ready o Tangible Assets – land, plant, etc. for its intended use or sale. o Intangible Assets – patents, licenses, etc. o Inventories – that require 12 months or more to bring them to saleable condition. • ICDS includes ‘land’ also in the definition of qualifying assets, unlike AS-16. As per ICDS, the borrowing cost in respect of land shall be capitalized. The depreciation shall not be allowed on the same since the land is a non-depreciable asset. However, the capitalized cost shall form part of a cost of asset while calculating Income from Capital Gain in respect of that land. Borrowing Costs AS - 16 ICDS • Commencement of Capitalisation: The date of fulfilment of three conditions viz. incurrence of capex, incurrence of borrowing costs and preparatory activities are in progress. a) Specific borrowings – Date on which funds were borrowed b)General borrowings – Date on which funds were utilised. Impact: The capitalisation period starts early under the ICDS as compared to AS-16. Borrowing Costs AS - 16 ICDS • Method of Capitalisation: Specific Borrowings: Specific Borrowings: Actual borrowing costs incurred on the Actual borrowing costs borrowing during the period less any income incurred during the period from temporary investment of those borrowings. on the funds borrowed. Impact: AS-16 requires income from temporary deployment of unutilised funds to be reduced from borrowing cost. However, ICDS does not provide for the same. The income from temporary deployment of unutilised funds from specific loans shall be taxable as Income from other sources under the ICDS. Borrowing Costs AS - 16 ICDS General Borrowings: General Borrowings: Costs determined by applying capitalisation Costs determined rate to the expenditure incurred on the asset. following formula; The rate is weighted average of borrowing A* B costs applicable to the borrowings during the C period other than specific borrowings. by Borrowing Costs In the formula given in ICDS for capitalisation of general borrowing costs A, B and C stands for: A = Borrowing costs incurred during previous year except on specific borrowings B =a)Average cost of QA appearing in balance sheet on first and last day of the previous year b)Half of the cost of QA, if it does not appear in balance sheet on the first day or both first and last day of the previous year c)Average cost of QA as on first day of previous year and date of completion, if it does not appear in balance sheet on the last day of the previous year C = Average of total assets, other than those funded by specific borrowings, as appearing in balance sheet as on first and last day of previous year * QA = Qualifying Assets other than those funded by specific borrowings. Borrowing Costs AS - 16 • ICDS Suspension of Capitalisation: During extended periods in which active No provision regarding suspension of capitalisation development of the asset is interrupted. of borrowing cost. Impact: Borrowing cost incurred during the periods in which active development of the asset is interrupted can also be capitalised under the ICDS. • Cessation of Capitalisation: When substantially all activities necessary to prepare the qualifying asset for its intended use or sale are complete. a) Qualifying Asset – when such asset is first put to use. b) Inventory – when substantially all activities necessary to prepare it for its intended sale are complete. Date of borrowing Asset ready to use Asset purchased Capitalization period Asset put to use ICDS: Specific borrowings General borrowings AS-16 Provisions, Contingent Liabilities and Contingent Assets Recognition of provisions AS - 29 ICDS Provisions shall be recognised if it is Provisions shall be recognised if it is probable that outflow of economic reasonably certain that outflow of resources will be required. economic resources will be required. Provision is not discounted to NPV Provision is not discounted to NPV Impact: The criteria for recognition of provisions on the basis of the test of ‘probable’ (i.e. more likely than not criteria) replaced with the requirement of ‘reasonably certain’. In the absence of definition and scope of ‘reasonably certain’ criteria, an ambiguity would arise on assessment of ‘reasonably certain’ criteria. In the Act, there is no specific provision for recognition of provisions. However, provisions are allowed based on accrued liabilities as per ordinary principles of commercial accounting. Recognition of provisions Impact: Provision for Warranty is allowed as an expenditure upholding the test of ‘probable’ warranty obligation in the following judgments. o Rotork Controls India P. Ltd. (2009) 314 ITR 62 (SC) (extract on next slide) o Himalaya Machinery (P) Limited v DCIT 334 ITR 64 o CIT vs. Luk India P. Ltd. 52 DTR 117. o Siemens Public communication Networks Limited v CIT o CIT v Indian Transformer Limited. 270 ITR 259 Meaning of obligation AS 29 ICDS Clarifies that obligations may be legally enforceable and No specific may also arise from normal business practice, custom guidance on and a desire to maintain good business relations or act in meaning of an equitable manner. ‘obligation’ Impact: Provisions made on obligations recognized out of customary business practices or voluntary obligations may not be allowed. (e.g. informal refunds policy to dissatisfied customers, employee welfare, etc.) Onerous executory contracts AS - 29 ICDS AS-29 is not applicable to “executory It is not applicable to “executory contracts” except where contract is contracts”. onerous. However, here “onerous contracts” are Since “onerous contracts” are not specifically excluded from excluded from executory contracts, executory contracts. AS is applicable to onerous contracts. Requires upfront recognition of liabilities under onerous contracts Impact: Deduction for the accrued liabilities on onerous contracts in books will be allowed in a year in which liability to pay arises. Contingent assets & reimbursement claims AS - 29 ICDS Contingent assets/ reimbursement Contingent assets/ reimbursement claims are recognized if inflow of claims to be recognized if inflow of economic benefits/ economic benefits/ reimbursement is “virtually reimbursements is “reasonably certain”. certain”. Impact: Revenue authorities may contend that ‘reasonably certain’ is a lower threshold than ‘virtually certain’. It is not made clear whether transitional provision requires recognition of all past accumulated contingent assets in F.Y. 2015-16. Conclusion Certain Essential Definitions missing – Like – Reasonable Cause, Reasonable Certainty. Where to make the disclosures required by the ICDS. The ICDS seem to be based on the current AS issued by ICAI. However, listed companies are required to adopt IND AS from 1st April, 2016. Thus, the accounting policies for these companies under IND AS could be significantly different from ICDS. Thus, providing clarity on the tax position in ICDS in alignment with the IND AS is also essential.