[TO BE PUBLISHED IN THE GAZETTE OF INDIA,
EXTRAORDINARY, PART-II, SECTION 3, SUB-SECTION (ii)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 29th September, 2016
S.O. 3079 (E) In exercise of the powers conferred by sub-section (2) of section
145 of the Income-tax Act, 1961 (43 of 1961, the Central Government hereby
notifies the income computation and disclosure standards as specified in the
Annexure to this notification to be followed by all assessees (other than an
individual or a Hindu undivided family who is not required to get his accounts
of the previous year audited in accordance with the provisions of section 44AB
of the said Act) following the mercantile system of accounting, for the purposes
of computation of income chargeable to income-tax under the head “Profits and
gains of business or profession” or “Income from other sources”.
2.
This notification shall apply to the assessment year 2017-18 and
subsequent assessment years.
Annexure
A. Income Computation and Disclosure Standard I relating to accounting
policies
Preamble
This Income Computation and Disclosure Standard is applicable for computation of income
chargeable under the head “Profits and gains of business or profession” or “Income from other
sources” and not for the purpose of maintenance of books of accounts.
In the case of conflict between the provisions of the Income-tax Act, 1961 (‘the Act’) and this
Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent.
Scope
1.
This Income Computation and Disclosure Standard deals with significant accounting
policies.
Fundamental Accounting Assumptions
2.
The following are fundamental accounting assumptions, namely:—
(a) Going Concern
“Going concern” refers to the assumption that the person has neither the intention nor the
necessity of liquidation or of curtailing materially the scale of the business, profession or
vocation and intends to continue his business, profession or vocation for the foreseeable
future.
(b) Consistency
“Consistency” refers to the assumption that accounting policies are consistent from one
period to another;
(c) Accrual
“Accrual” refers to the assumption that revenues and costs are accrued, that is, recognised as
they are earned or incurred (and not as money is received or paid) and recorded in the
previous year to which they relate.
Accounting Policies
3.
The accounting policies refer to the specific accounting principles and the methods of
applying those principles adopted by a person.
Considerations in the Selection and Change of Accounting Policies
4. Accounting policies adopted by a person shall be such so as to represent a true and fair view of
the state of affairs and income of the business, profession or vocation. For this purpose,
(i) the treatment and presentation of transactions and events shall be governed by their substance
and not merely by the legal form; and
(ii) marked to market loss or an expected loss shall not be recognised unless the recognition of such
loss is in accordance with the provisions of any other Income Computation and Disclosure
Standard.
5. An accounting policy shall not be changed without reasonable cause.
Disclosure of Accounting Policies
6.
All significant accounting policies adopted by a person shall be disclosed.
7.
Any change in an accounting policy which has a material effect shall be disclosed. The
amount by which any item is affected by such change shall also be disclosed to the extent
ascertainable. Where such amount is not ascertainable, wholly or in part, the fact shall be indicated.
If a change is made in the accounting policies which has no material effect for the current previous
year but which is reasonably expected to have a material effect in later previous years, the fact of
such change shall be appropriately disclosed in the previous year in which the change is adopted and
also in the previous year in which such change has material effect for the first time.
8.
Disclosure of accounting policies or of changes therein cannot remedy a wrong or
inappropriate treatment of the item.
9.
If the fundamental accounting assumptions of Going Concern, Consistency and Accrual are
followed, specific disclosure is not required. If a fundamental accounting assumption is not
followed, the fact shall be disclosed.
Transitional Provisions
10. All contract or transaction existing on the 1st day of April, 2016 or entered into on or after the 1st
day of April, 2016 shall be dealt with in accordance with the provisions of this standard after taking
into account the income, expense or loss, if any, recognised in respect of the said contract or
transaction for the previous year ending on or before the 31st March,2016.
B. Income Computation and Disclosure Standard II relating to valuation of
inventories
Preamble
This Income Computation and Disclosure Standard is applicable for computation of income
chargeable under the head “Profits and gains of Business or profession” or “Income from other
sources” and not for the purpose of maintenance of books of accounts.
In the case of conflict between the provisions of Income Tax Act, 1961 (‘the Act’) and this Income
Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent.
Scope
1. This Income Computation and Disclosure Standard shall be applied for valuation of
inventories, except :
(a)
Work-in-progress arising under ‘construction contract’ including directly
related service contract which is dealt with by the Income Computation and
Disclosure Standard on construction contracts;
(b)
Work-in-progress which is dealt with by other Income Computation and
Disclosure Standard;
(c)
Shares, debentures and other financial instruments held as stock-in-trade
which are dealt with by the Income Computation and Disclosure Standard on
securities;
(d)
Producers’ inventories of livestock, agriculture and forest products, mineral
oils, ores and gases to the extent that they are measured at net realisable
value;
(e)
Machinery spares, which can be used only in connection with a tangible fixed
asset and their use is expected to be irregular, shall be dealt with in
accordance with the Income Computation and Disclosure Standard on
tangible fixed assets.
Definitions
2(1)
The following terms are used in this Income Computation and Disclosure Standard with the
meanings specified:
(a)
“Inventories” are assets:
(i)
held for sale in the ordinary course of business;
(ii)
in the process of production for such sale;
(iii)
in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
(b)
“Net realisable value” is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
2(2) Words and expressions used and not defined in this Income Computation and Disclosure
Standard but defined in the Act shall have the meanings assigned to them in that Act.
Measurement
3.
Inventories shall be valued at cost, or net realisable value, whichever is lower.
Cost of Inventories
4. Cost of inventories shall comprise of all costs of purchase, costs of services, costs of conversion
and other costs incurred in bringing the inventories to their present location and condition.
Costs of Purchase
5. The costs of purchase shall consist of purchase price including duties and taxes, freight inwards
and other expenditure directly attributable to the acquisition. Trade discounts, rebates and other
similar items shall be deducted in determining the costs of purchase.
