Newsflash - Certain clauses of ICDS found contrary to the binding judicial precedents and thus, held unconstitutional - Delhi High Court

In a path breaking judgment, the Hon’ble Delhi High Court on 8 November 2017 has ruled that certain clauses of various Income Computation and Disclosure Standards (ICDS) are unconstitutional and also suffers from the vice of excessive delegation. Consequently, to that extent, the High Court has quashed the notification No.87 and 88 of 2016 dated 29 September, 2016 and Circular No.10/2017dated 23 March, 2017.

The Chamber of Tax Consultants had filed writ petition in public interest challenging the constitutional validity of ICDS and related circulars. It argued that in the guise of a delegated power, the Central Government cannot do what is otherwise legally impermissible.

Specific clauses of various ICDS which have been held unconstitutional by the High Court are summarized as under:


Extent to which they were held unconstitutional

ICDS I  Accounting Policies

To the extent it does away with the concept of 'prudence' is contrary to the Act and binding judicial precedents and is therefore unsustainable in law.


ICDS II Valuation of Inventory

Entire ICDS-II

ICDS III Construction contracts


To the extent it relates to  treatment of retention money and deductibility of incidental income against borrowing cost

[Paragraph 10 (a) and 12 (d) of the ICDS]

ICDS IV Revenue Recognition 

To the extent it relates to recognition of export incentive income  and prohibition on completed contract method

[Para 5 and 6 of the ICDS]


Effects of changes in foreign exchange rates

To the extent it states that market to market loss / gain in case of foreign currency derivatives held for trading or speculation purposes are not to be allowed

ICDS VII Government Grants

To the extent it provides that recognition of government grants cannot be postponed beyond the date of actual receipt

ICDS VIII Valuation of Securities

To the extent it requires that closing value of securities held as stock on the basis of bucket approach  rather than on individual basis [Part A of the ICDS VIII]

In this newsflash, we have summarized the decision of the Delhi High Court

We trust you will find our newsflash useful.

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