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:
ICDS |
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] |
ICDS VI 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.