As we are kindly aware that ICAI, being a partner in nation building, has always supported the efforts of the government to achieve its objectives to optimize tax collection and prevent tax avoidance/evasion on one hand and to ensure timely compliance of statutory obligations by the tax payers on the other hand. It has also been ICAI’s prerogative to strengthen the relationship between the tax payers and the department.
Here, enlisting the difficulties being faced by the assessee and/or chartered accountants.
Implementation of ICDS has been a matter of utmost concern not only for assessees, chartered accountants, but also the department officials.
- Implementation of ICDS will increase complexity rather than promoting case of doing business: A whole new set of standards would create confusion, increase complexity and drastically reduce the ease of doing business in India, which is not desirable. Taxpayers are already grappling with the regulatory changes of the Companies Act, 2013, IND AS and the proposed GST. Implementation of ICDS would further add to the agony hence time needs to provide to assessee to understand the new platform of standards and points of divergence with existing standards. Also, ICDSs introduces new concepts which have been left undefined, for instance, ‘reasonable cause’ for change in accounting policy or ‘reasonable certainty’ for recognition of provisions and contingent assets. These terms have not been defined and would involve exercise of judgement by management & tax authorities. These are highly subjective and hence prone to different interpretations and litigation prone.
- Maintenance of separate books of accounts is unavoidable: The notification introducing ICDS specifically clarifies that no separate books of accounts are required to be maintained for ICDS. However, practically this will pose a serious challenge to taxpayers given some significant differences between current accounting standards and ICDS. Since there very few standards where a different treatment has been adopted by ICDS either due to provisions of the present law or any judicial pronouncement, only a reconciliation statement is required to be notified instead of notifying new set of standards. For ease of taxpayers, this reconciliation statement is otherwise also required for ensuring the implementation of ICDS.
- Would increase litigation: The traditional provisions in ICDS are also a bit vaguely worded and could create more disputes and surge in litigation. This would defeat the very objective of introducing ICDS to provide certainty in tax matters. Even the income tax simplification committee headed by justice R. V. Easwar observed that many other provisions of the ICDS are capable of generating a legal debate about which at present there is no clarity.
- Training required for both Department and Assessees: Since ICDS are based on Acounting standards and require use of fair valuation, not many tax affairs and small assessee in elaborated areas would be able to appreciate its implementation without any minimum income or turnover base. The tax officers and assesee would be required to be trained in these new areas. Implementation of ICDS at this stage, i.e. without imparting proper training would be a challenging task for the department as well as taxpayers since both have to cope with accounting concepts and complex situations to achieve agreement on the treatment during assessments. The determination of fair value as envisaged in notified ICDSs may be quite difficult and it is to be remembered that IND AS applying fair value is only applicable to larger companies as per road map of ministry of corporate affairs, GOI. For IND AS, there is some guidance in IND AS 113 fair value measurement but for ICDSs, as of now, no such guidance is there, and ultimately, it would lead to disputes and more litigation. Already there are a lot of disputes when capital gain computation is made with regard to fair value. The ICDSs would add to the complexity.
- Significant difference between the provisions of ICDS and judicial pronouncements: The preamble states that if there is any conflict between the provisions of the act and the ICDS, the act will prevail. ICDSs, at many places, differ significantly from decisions pronounced by the Supreme Court and High Courts. A clarification would be required in respect of cases where there is difference in treatment owing to judicial pronouncements. In this regard, Annexure I contains an illustrative list of judicial decisions which appear to be in conflict with the principles notified in ICDSs.
- Disclosures for “Income from other sources” not provided in the ITR forms: As pr the notification no. 32/2015 dated 31.03.2015, ICDS are applicable for all assessees following mercantile system of accounting, for the purposes of computation of income chargeable to tax under the head “Profit and gain from business or profession” or “Income from other sources”. While “Schedule ICDS” has been inserted in all relevant forms to report effect of ICDS on “Profit”, there is no schedule to report the disclosures required in respect of income under the head “Income from other sources”.
- Difference in notified ICDSs and ASs will increase the timing difference between income and accounting income: There are significant deviations between the notified ICDSs and ASs which are likely to have the effect of advancing the recognition of income or gains or postponing the recognition of expenditure or losses under tax laws and consequently, impacting the computation of tax liability under the income tax act, 1961. These deviations would also increase the timing differences between taxable income and accounting income.