Tax Accounting Standards Draft

http://www.itatonline.
org
Bateu
PRESSRELEASE
Subject:FinalReportoftheCommitteeconstitutedforformulatingAccounting
Standardsforthepurposesofnotificationundersection145(2)oftheIncome
taxAct,1961.

Section of the Incometax Act the Act pioviues that the income
chaigeable unuei the heau Piofits anu gains of business oi piofession oi Income
fiom othei souices shall subject to the piovisions of subsection be computeu
in accoiuance with eithei cash oi meicantile system of accounting iegulaily
employeu by the assessee Section pioviues that the Cential uoveinment
may notify Accounting Stanuaius AS foi any class of assessees oi foi any class of
income

The Cential Boaiu of Biiect Taxes CBBT) constituteu a Committee compiising
of uepaitmental officeis anu piofessionals in Becembei to intei alia suggest
AS foi the puiposes of notification unuei section of the Act

The Committee submitteu its fiist Inteiim Repoit in August A uiscussion
papei containing the main iecommenuations of the Committee was issueu in
0ctobei foi inviting commentssuggestions fiom all stakeholueis

The Committee has submitteu its Final Repoit in August The Committee
iecommenueu that the AS notifieu unuei the Act shoulu be maue applicable only to
the computation of taxable income anu a taxpayei woulu not be iequiieu to
maintain books of account on the basis of AS notifieu unuei the Act The Committee
examineu all the AS issueu by the ICAI anu iecommenueu notification of AS on
issues unuei the Act anu foimulateu uiafts of AS on these issues The Committee
has teimeu them as Tax Accounting Stanuaius TAS to uistinguish fiom the AS
issueu by the ICAInotifieu unuei the Companies Act
The Final Repoit of the Committee incluuing uiafts of the TAS submitteu by
the Committee is uploaueu on the Finance Ninistiy website wwwfinminnicin
anu Incometax Bepaitment website wwwincometaxinuiagovin foi comments
fiom stakeholueis anu geneial public

The comments anu suggestions on the final iepoit may be submitteu by th
Novembei at the email auuiesses uiitplnicin oi ikbhootgmailcom oi
by post at the following auuiess with comments on Final Repoit of Accounting
Stanuaius Committee wiitten on the envelope

Biiectoi Tax Policy LegislationIII
Cential Boaiu of Biiect Taxes
Room Nou
Noith Block New Belhi
http://www.itatonline.org
ACCOUNTINGSTANDARDSCOMMITTEE
FINALREPORT
GOVERNMENTOFINDIA
MINISTRYOFFINANCE
DEPARTMENTOFREVENUE
CENTRALBOARDOFDIRECTTAXES
AUGUST2012
CONSTITUTIONOFTHECOMMITTEE

Convenor

Shii B Siinivasulu IRS
Commissionei of IncometaxIv
Byueiabau

Members
Shii Piavin Kumai IRS

Commissionei of Incometax Numbai

Shii Ankui uaig IRS
Commissionei of Incometax Rajkot

Shii I Kiishna Kishoie IRS
Commissionei of Incometax vijayawaua

Shii Pawan Kumai IRS
Biiectoi TPL CBBT

Shii Rajesh Kumai Bhoot IRS
Biiectoi TPL CBBT
anu Secietaiy of the Committee

Shii NP Lohia IRSRetu FCA
Chaiteieu Accountant Numbai

Shii Kamlesh vikamsey FCA

Shii Nilin Nehta FCA
Chaiteieu Accountant vauouaia

Shii Iamil Khatii FCA

ii
CONTENTS
S.No. Chapter Subject PageNos.
Pieface iv v
Chaptei Backgiounu
Chaptei Piesent Accounting Stanuaius Committee
Chaptei Appioach
Chaptei Baimonisation of Accounting Stanuaius
Chaptei Biaft Tax Accounting Stanuaius
Chaptei Inteiim Repoits
Chaptei Limiteu ievision of uiafts of TAS submitteu along
with the inteiim iepoits

Chaptei 0thei teims of iefeience IFRS anu InuAS
Annexuie A Copy of the CBBT oiuei constituting the
Committee

Annexuie B List of Accounting Stanuaius issueu by the ICAI
which aie not iecommenueu foi notification
unuei the Act by the Committee

Annexuie C List of Accounting Stanuaius issueu by the ICAI

which aie haimoniseu with the piovisions of the
Act foi the puiposes of notification unuei the Act

Annexuie B The text of the uiaft Tax Accounting Stanuaius

foimulateu by the Committee foi the puiposes of
notification unuei the Act

iii
P R E F A C E
The Finance Act empoweieu the Cential uoveinment to notify the Accounting
Stanuaius to be followeu foi computing the income unuei the heau Piofits anu gains of
business oi piofession oi Income fiom othei souices The intention in fiaming the
Stanuaius unuei the Incometax Act is to compute the income piecisely anu objectively

In two Accounting Stanuaius ielating to uisclosuie of accounting policies anu
uisclosuie of piioi peiiou anu extiaoiuinaiy items anu changes in accounting policies weie
notifieu The uoveinment constituteu a committee in Iuly foi foimulation of
Accounting Stanuaius foi the puiposes of notification unuei the Incometax Act This
Committee iecommenueu foi notification of the Accounting Stanuaius issueu by the ICAI
without any mouification along with consequential legislative amenuments to the Act foi
pieventing any ievenue leakage

Subsequently the CBBT has constituteu the piesent Committee to haimonise the
Accounting Stanuaius issueu by the ICAI with the piovisions of the Act foi the puiposes of
notification unuei the Act anu also to suggest amenuments to the Act necessitateu by
tiansition to InuASIFRS The Committee compiiseu of biilliant piofessionals anu
knowleugeable officeis fiom the Bepaitment

The Committee uelibeiateu on whethei Accounting Stanuaius issueu by the ICAI can
be notifieu unuei the Act without mouification The Committee concluueu that the
Accounting Stanuaius to be notifieu unuei the Act neeu haimonization with the piovisions
of the Act The Committee also uelibeiateu on whethei aftei notification of the Accounting
Stanuaius unuei the Act the taxpayei is iequiieu to maintain two sets of books of account
ie one in accoiuance with the Accounting Stanuaius issueu by the ICAI anu anothei in
accoiuance with the Accounting Stanuaius notifieu unuei the Act The Committee
iecommenus that the Accounting Stanuaius to be notifieu unuei the Act shoulu be maue

iv
applicable only to the computation of taxable income anu a taxpayei neeu not maintain
sepaiate set of books of account on the basis of these notifieu Accounting Stanuaius The
Committee also iecommenus that the Accounting Stanuaius to be notifieu unuei the Act
may be teimeu as Tax Accounting Stanuaius TAS to uistinguish the same fiom the
Accounting Stanuaius issueu by the ICAI

The Committee examineu all the thiity one Accounting Stanuaius issueu by the ICAI
anu noteu that some of the Accounting Stanuaius issueu by the ICAI ielate to uisclosuie
iequiiement whilst some othei contain mattei that aie auequately uealt within the Act In
view of this the Committee iecommenus that Tax Accounting Stanuaius neeu not to be
notifieu in iespect of seventeen Accounting Stanuaius issueu by the ICAI The Committee
foimulateu the uiafts of Tax Accounting Stanuaius on the issues coveieu by the iest of the
fouiteen Accounting Stanuaius issueu by the ICAI The committee while fiaming the Tax
Accounting Stanuaius bioauly auheieu to the piinciples of ieuuction of litigation
minimization of alteinatives anu giving ceitainty to issues The Committee membeis
uuiing the uelibeiations weie fiank faii anu always kept the inteiest of the nation in minu
The Almighty has been kinu in giving me an oppoitunity to cooiuinate the effoits of the
membeis of the committee who woikeu with ueuication anu selflessness

The Committee places on iecoiu its sinceie thanks to the Chief Commissioneis of
Incometax Numbai Bengaluiu anu Byueiabau foi theii suppoit The Committee
sinceiely conveys its thanks to the Biiectoi ueneial of Incometax Investigation Belhi
anu Numbai foi pioviuing the infiastiuctuial suppoit

B SRINIvAS0L0
Commissionei of IncometaxIv Byueiabau
anu Convenei of the Committee
Place New Belhi
Bate
th
August
v
1
Chapter1
Background

Section of the Incometax Act the Act stipulates that the methou of
accounting foi computation of income unuei the heaus Piofits anu gains of business oi
piofession anu Income fiom othei souices can eithei be cash oi meicantile system of
accounting The Finance Act empoweieu the Cential uoveinment to notify the
Accounting Stanuaius foi any class of assessees oi foi any class of income Explaining the
ieason foi intiouuction of this piovision it was stateu that theie is flexibility in the
stanuaius issueu by the Institute of Chaiteieu Accountants of Inuia ICAI which makes it
possible foi an assessee to avoiu the payment of coiiect taxes by following a paiticulai
system anu theiefoie theie is an uigent neeu to stanuaiuize one oi moie of the
alteinatives in vaiious stanuaius so that income foi tax puipose can be computeu
piecisely anu objectively

Since the intiouuction of these piovisions only two Accounting Stanuaius ielating
to uisclosuie of accounting policies anu uisclosuie of piioi peiiou anu extiaoiuinaiy items
anu changes in accounting policies have been notifieu In Iuly the Cential
goveinment hau constituteu a committee foi foimulation of Accounting Stanuaius unuei
the Income Tax Act the Committee

The Committee submitteu its final iepoit in Novembei which
containeu the following main iecommenuations

i It woulu be impiactical foi a tax payei to maintain two sets of books of account
one in accoiuance with the Accounting Stanuaius issueu by the ICAI anu anothei set
in accoiuance with the Accounting Stanuaius to be notifieu unuei the Act The
2
Committee theiefoie iecommenueu that the Accounting Stanuaius issueu
by the ICAI shoulu be notifieu unuei the Act without any mouifications

ii Appiopiiate legislative amenuments shoulu be maue to the Act to pievent any scope
foi leakage of ievenue on account of notification of Accounting Stanuaius issueu by
the ICAI

Theie have been significant uevelopments since the Committee submitteu its
iepoit notable among them aie

i The uoveinment of Inuia thiough the Ninistiy of Coipoiate Affaiis NCA has
notifieu twenty eight Accounting Stanuaius issueu by the ICAI unuei the Companies
Act

ii The uoveinment of Inuia has ueciueu to conveige Inuian Accounting Stanuaius with
the Inteinational Financial Repoiting Stanuaius IFRS The NCA being the noual
agency foi this conveigence has placeu conveigeu Accounting Stanuaiu InuAS
on its website viue piess ielease uateu

iii In the absence of notification of Accounting Stanuaius unuei the Act unceitainty
anu litigation continues on vaiious accounting ielateu issues such as accounting foi
constiuction contiacts foieign exchange fluctuations anu goveinment giants

3
Chapter2
PresentAccountingStandardsCommittee

The CBBT has constituteu the piesent Accounting Stanuaius Committee the
Committee compiising of uepaitmental officeis anu piofessionals viue 0iuei
NoS0 TPL uateu
th
Becembei copy encloseu as Annexuie A
The teims of iefeience of this Committee aie as unuei

i to stuuy the haimonization of Accounting Stanuaius issueu by the ICAI with
the uiiect tax laws in Inuia anu suggest Accounting Stanuaius which neeu to
be auopteu unuei section of the Act along with the ielevant
mouifications

ii to suggest methou foi ueteimination of tax base book piofit foi the puipose
of NAT in case of companies migiating to IFRS in the initial yeai of auoption
anu theieaftei anu

iii to suggest appiopiiate amenuments to the Act in view of tiansition to InuAS
iegime

4
Chapter3
Approach

The Committee uuiing its meetings uelibeiateu at length vaiious issues which may
aiise in notifying Accounting Stanuaius unuei the Act The issues peitinent to notification
of Accounting Stanuaius unuei the Act anu the iecommenuations of the Committee on the
same aie as unuei

(1) Twosetsofbooksofaccount
Issue Accounting Stanuaius aie geneially unueistoou as stanuaius to be followeu

foi accounting in the books of account Whethei aftei notification of
accounting stanuaius unuei the Act the taxpayei will be iequiieu to
maintain two sets of books of account ie one in accoiuance with the
Accounting Stanuaius issueu by the ICAI anu anothei in accoiuance with
the Accounting Stanuaius notifieu unuei the Act

Recommendations

i To avoiu the iequiiement of maintaining two sets of books of account by the
taxpayei the Committee iecommenus that the accounting stanuaius notifieu
unuei the Act shoulu be maue applicable only to the computation of taxable
income anu a taxpayei shoulu not be iequiieu to maintain books of account
on the basis of accounting stanuaius to be notifieu unuei the Act

ii To uistinguish accounting stanuaius notifieu unuei the Act with the
Accounting Stanuaius issueu by the ICAI the Committee iecommenus that
5
the accounting stanuaius notifieu unuei the Act shoulu be teimeu as Tax
Accounting Stanuaius TAS

iii Each notifieu TAS shoulu incluue the following in pieamble
This Tax Accounting 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
ofaccount.

iv Aftei uelibeiations the Committee acknowleugeu that theie coulu be an
alteinate view that the cuiient piovisions of Section may not enable
the issuance of the TAS as uiscusseu above as the TAS aie not meant to be
applicable foi maintenance of books of account but only foi computation of
income Accoiuingly to set at iest any futuie contioveisy in this iegaiu
appiopiiate amenuments shoulu be maue to the Act
(2) ApplicabilityofTAS

Issue Whethei the TAS shoulu be maue applicable to all taxpayeis oi to a class of
taxpayeis having tuinovei income above a ceitain thiesholu limit

Recommendation

As the TAS woulu be applicable only foi computation of taxable income anu
taxpayeis will not be iequiieu to maintain books of account on the basis of
TAS the Committee iecommenus that the TAS shoulu be maue applicable to
all taxpayeis foi biinging ceitainty on the issues coveieu by the TAS
(3) ConflictbetweentheprovisionsoftheActandtheTAS

6
Issue In case of conflict between the expiess piovisions of the Act anu the TAS
which shall pievail

Recommendation

As the TAS aie intenueu to be in haimony with the piovisions of the Act
theie shoulu not be any conflict between the TAS anu the piovisions of the
Act Bowevei foi iesolving conflict aiising on account of
amenumentinteipietation between the Act anu TAS the Committee
iecommenus that it shoulu be expiessly pioviueu in the TAS that in case of
conflict the piovisions of the Act shall pievail ovei the TAS Foi this
puipose each TAS shoulu incluue the following pieamble

In the case of conflict between the provisions of the Incometax Act,
1961 and this Tax Accounting Standard, the provisions of the Income
taxAct,1961shallprevailtothatextent.

(4) TransitiontoTAS

Issue The notification of TAS fiom a specific uate may leau to a situation wheie
income aiising fiom a paiticulai tiansaction may neithei be taxable in the
pieTAS peiiou noi in the postTAS peiiou oi may be taxable in both the
peiious

Recommendation

The Committee iecommenus that tiansitional piovisions wheievei iequiieu
shoulu also be notifieu along with the TAS

7

(5) EnsuringcompliancewithTASbythetaxpayer

Issue Bow will the uoveinment ensuie that a taxpayei has computeu taxable
income in accoiuance with the piovisions of TAS
Recommendation:

Foi ensuiing compliance with the piovisions of TAS by the taxpayei the
Committee iecommenus appiopiiate mouification in the ietuin of income
Foi tax auuit cases the Foim CB shoulu also be mouifieu so that a tax
auuitoi is iequiieu to ceitify that the computation of taxable income is maue
in accoiuance with the piovisions of TAS
Chapter4
HarmonisationofAccountingStandards

The Committee examineu all the Accounting Stanuaius issueu by the ICAI anu
founu that some of the accounting stanuaius aie not ielevant foi the computation of
taxable income unuei the Act The Committee also noteu that the Act alieauy contains
uetaileu piovisions on the issues coveieu by a few of the accounting stanuaius In view of
this the Committee ueciueu that the following seven accounting stanuaius neeu not be
examineu by the Committee foi the puipose of haimonisation with the piovisions of the
Act

i AS Bepieciation Accounting
ii AS Eaining Pei Shaie
iii AS Consoliuateu Financial Statements
iv AS Accounting foi Taxes on Income
v AS Accounting foi Investments in Associates in Consoliuateu
Financial Statements
vi AS Inteiim Financial Repoiting
vii AS Impaiiment of Assets

The Committee uelibeiateu whethei the accounting stanuaius issueu by the ICAI
coulu be notifieu unuei Section of the Act without mouifications The Committee
noteu that the accounting stanuaius to be notifieu unuei Section of the Act woulu
neeu to be haimoniseu with the piovisions of the Act Fuithei aftei uelibeiation the
Committee is of the view that the notifieu accounting stanuaius shoulu lay uown the
specific iules which woulu enable computation of taxable income with ceitainty anu
9
claiity To ensuie hoiizontal equity anu unifoimity the notifieu accounting stanuaius
shoulu eliminate alteinatives to the extent possible Aftei uelibeiations the Committee
ueciueu to uiaft sepaiate accounting stanuaius foi the puipose of notification unuei
Section of the Act As uiscusseu eailiei the Committee ueciueu to teim such
sepaiate accounting stanuaius as TAS

The Committee uelibeiateu on the following accounting stanuaius foi the
piepaiation of uiaft TAS

AS Bisclosuie of Accounting Policies
AS valuation of Inventoiies
AS Cash Flow Statements
AS Contingencies anu Events 0ccuiiing Aftei the Balance Sheet Bate
AS Net Piofit oi Loss foi the Peiiou Piioi Peiiou Items anu Changes in
Accounting Policies
AS Constiuction Contiacts
AS Revenue Recognition
AS Accounting foi Fixeu Assets
AS The Effects of Changes in Foieign Exchange Rates
AS Accounting foi uoveinment uiants
AS Accounting foi Investments
AS Accounting foi Amalgamations
AS Employee Benefits
AS Boiiowing Costs
AS Segment Repoiting
AS Relateu Paity Bisclosuies
AS Leases
AS Biscontinuing 0peiations
AS Intangible Assets
AS Financial Repoiting of Inteiests in Ioint ventuies
AS Piovisions Contingent Liabilities anu Contingent Assets
10
AS Financial Instiuments Recognition anu Neasuiement
AS Financial Instiuments Piesentation
AS Financial Instiuments Bisclosuies

Buiing the uelibeiations the Committee noteu that some of the accounting
stanuaius which aie selecteu foi haimonisation with the piovisions of the Act mainly ielate
to uisclosuie iequiiements in the financial statements whilst some otheis contain matteis
that aie uealt with in the Act These accounting stanuaius aie uiscusseu below
AS3CashFlowStatements
This stanuaiu ueals with piovision of infoimation about the histoiical changes in
cash anu cash equivalents of an enteipiise by means of a cash flow statement which
classifies cash flows uuiing the peiiou fiom opeiating investing anu financing activities
Infoimation about the cash flows of an enteipiise is useful in pioviuing useis of financial
statements with a basis to assess the ability of the enteipiise to geneiate cash anu cash
equivalents anu the neeus of the enteipiise to utilise those cash flows Bence AS is only
a uisclosuie stanuaiu anu uoes not have any impact on the computation of income unuei
the Act

The Committee accoiuingly iecommenus that no Tax Accounting Stanuaiu foi
Cash Flow Statements neeus to be notifieu unuei the Act

AS14AccountingforAmalgamations

This stanuaiu ueals with accounting foi amalgamations with a piimaiy focus on
accounting foi assets liabilities ieseives anu goouwill in the hanus of the amalgamateu
company AS classifies amalgamations into
i Amalgamation in the natuie of Neigei which aie accounteu foi unuei the Pooling
of Inteiests Nethou
11
ii Amalgamation in the natuie of Puichase which aie accounteu foi unuei the
Puichase Nethou
The Act contains specific piovisions ielating to amalgamations some of which aie
uiscusseu below

a Explanation to Section ueals with cost of acquisition of assets
acquiieu by the amalgamateu company
b Explanation to Section ueals with the wiitten uown value of an asset
block of asset acquiieu in an amalgamation
c Section vi Section viaa anu Section vicaueal with capital gains
aiising to an amalgamating entity on amalgamation
u Section A Section AA anu Section AB ueal with caiiy foiwaiu of
losses anu unabsoibeu uepieciation in the case of amalgamation

Consiueiing the specific piovisions in the Act ielating to amalgamations the
Committee iecommenus that no Tax Accounting Stanuaiu foi Accounting foi
Amalgamations neeus to be notifieu unuei the Act

The Committee also iecommenus that suitable amenuments be maue to the Act to
pioviue ceitainty on the issue of allowability of uepieciation on goouwill aiising on
amalgamation
AS15EmployeeBenefits

This stanuaiu ueals with employee benefits in the natuie of
i. shoit teim benefits such as salaiies wages bonus piofit shaiing incentives leave
encashment
ii. teimination benefits such as giatuity supeiannuation funu pioviuent funu
ietienchment compensation vRS payments
iii. post ietiiement benefits such as pension post ietiiement meuical benefits
12
The Act contains specific piovisions ielating to employee benefits some of which
aie uiscusseu below
a Section ib ueals with insuiance piemium paiu to effect oi keep in
foice insuiance on health of the employees
b Section ii ieau with Section Bc ueals with payment of bonus anu
commission
c Section iv ieau with Section Bb ueals with contiibution by
employei towaius iecogniseu pioviuent funu anu appioveu supeiannuation
funu
u Section iva ueals with any amount paiu by way of contiibution to
new pension scheme
e Section v ieau with Section A anu Section Bb ueals with
giatuity
f Section va ieau x ueals with employee contiibution to
pioviuent funu supeiannuation funu etc
g Section A ueals with contiibution to any tiust funu set up foi benefit
of the employees
h Section Bf ueals with leave salaiy
i Section BBA ueals with voluntaiy Retiiement Scheme

Consiueiing the specific piovisions in the Act ielating to employee benefits the
Committee iecommenus that no Tax Accounting Stanuaiu foi Employee Benefits neeus to
be notifieu unuei the Act
The Committee also iecommenus that suitable amenuments be maue to the Act to
pioviue ceitainty on the issue of allowability of the piovision maue foi the payment of
pension on ietiiement oi teimination of an employee
AS17SegmentReporting
13
The objective of this stanuaiu is to establish piinciples foi iepoiting financial
infoimation about the uiffeient types of piouucts anu seivices an enteipiise piouuces anu
the uiffeient geogiaphical aieas in which it opeiates Bence AS is only a uisclosuie
stanuaiu anu uoes not have any impact on the computation of income unuei the Act

Segment Repoiting neeus to be notifieu unuei the Act

AS18RelatedPartyDisclosures
The objective of this stanuaiu is to make specific uisclosuies in iespect of the

tiansactions with the ielateu paities The Committee noteu that the piovisions of the Act
such as Section AB anu Section E alieauy ueal with uisclosuie of ielateu paity
tiansactions

Relateu Paity Bisclosuies neeus to be notifieu unuei the Act

AS24DiscontinuingOperations

This stanuaiu ueals with uisclosuie of infoimation with iespect to an opeiation
which is being uiscontinueu This infoimation is intenueu to enhance the ability of useis of
financial statements to make piojections of an enteipiises cash flows eainingsgeneiating
capacity anu financial position by segiegating infoimation about uiscontinuing opeiations
fiom infoimation about continuing opeiations AS specifically states that the stanuaiu
uoes not ueal with iecognition oi measuiement Bence AS is only a uisclosuie stanuaiu
anu uoes not have any impact on the computation of income unuei the Act

Biscontinuing 0peiations neeus be notifieu unuei the Act
14
AS27FinancialReportingofInterestsinJointVentures
This stanuaiu ueals with inteiests in joint ventuies AS classifies joint ventuies
into thiee categoiies
i Iointly Contiolleu Entities
ii Iointly Contiolleu Assets oi
iii Iointly Contiolleu 0peiations

In case of Iointly Contiolleu Entities the stanuaiu specifically pioviues that the
income expenuituie of sepaiate entities shoulu be measuieu by applying the ielevant
accounting stanuaius The applicability of this stanuaiu in iespect of Iointly Contiolleu
Entities aiises only in piepaiation of Consoliuateu Financial Statements CFS Since CFS
aie not ielevant unuei the Act theiefoie piovisions of this stanuaiu in iespect of Iointly
Contiolleu Entities aie not iequiieu foi computation of income

In case of Iointly Contiolleu Assets the stanuaiu pioviues foi iecognition of assets
anu liabilities in the books of joint ventuieis These piovisions have been uealt with in the
Tax Accounting Stanuaiu foi Tangible Fixeu Assets The acciual of ievenues oi expenses
ielating to Iointly Contiolleu Assets aie uealt with by othei ielevant accounting stanuaius
anu aie theiefoie not uealt with by this stanuaiu

In case of Iointly Contiolleu 0peiations the stanuaiu pioviues foi iecognition of
assets income anu expense by the joint ventuieis The acciual of ievenues oi expenses
ielating to Iointly Contiolleu 0peiations aie uealt with by othei ielevant accounting
stanuaius anu aie theiefoie not uealt with by this stanuaiu

Inteiests in Ioint ventuies neeus to be notifieu unuei the Act
AS 30, 31, 32 Financial Instruments (Recognition and Measurement, Presentation

andDisclosure)
15

These stanuaius ueal with iecognition measuiement piesentation anu uisclosuies
ielating to financial instiuments These stanuaius have cuiiently not been maue
manuatoiy by the ICAI anu have not been notifieu unuei the Companies Act Fuithei
theie is no ceitainty on the futuie status of these stanuaius The ICAI has issueu an
Announcement encouiaging voluntaiy auoption of these stanuaius to the extent that the
piovisions of these stanuaius aie not in conflict with notifieu accounting stanuaius
Bowevei a substantial majoiity of companies cuiiently uo not follow the piovisions of
these stanuaius in theii financial statements as they aie voluntaiy in natuie with limiteu
applicability uue to the conflicts with the notifieu stanuaius

The Committee noteu that companies which have voluntaiily applieu these
stanuaius have seen an impact geneially in the aiea of ueiivatives anu heuge accounting
thiough maiktomaiket aujustments The issue of maiktomaiket losses has been uealt
with in the TAS on Accounting Policies which pioviues that a maiktomaiket loss oi an
expecteu loss except those coveieu by othei TAS shall not be iecogniseu

In view of the above the Committee iecommenus that no Tax Accounting
Stanuaiu foi Accounting foi Financial Instiuments neeus to be cuiiently notifieu unuei the
Act The Committee also iecommenus that the status of the Financial Instiuments
stanuaius being maue manuatoiy by the ICAI oi theii notification unuei the Companies
Act shoulu be caiefully monitoieu anu appiopiiate TAS shoulu be notifieu unuei the
Act baseu on any such uevelopments in the futuie

16
Chapter5
DraftTaxAccountingStandards
The Committee aftei uue uelibeiations foimulateu the uiafts of the Tax Accounting
Stanuaius on the following issues baseu on the coiiesponuing Accounting Stanuaiu issueu
by the ICAI aftei haimonising the same with the piovisions of the Act

Bisclosuie of Accounting Policies

Coiiesponuing to AS
valuation of Inventoiies

Coiiesponuing to AS
Events 0ccuiiing Aftei the Pievious Yeai Coiiesponuing to AS

Piioi Peiiou Expense

Coiiesponuing to AS
Constiuction Contiacts

Coiiesponuing to AS
Revenue Recognition

Coiiesponuing to AS
Accounting foi Tangible Fixeu
Assets

Coiiesponuing to AS
The Effects of Changes in
Foieign Exchange Rates

Coiiesponuing to AS
uoveinment uiants

Coiiesponuing to AS
Secuiities

Coiiesponuing to AS
Boiiowing Costs

Coiiesponuing to AS
Leases

Coiiesponuing to AS
17
Intangible Assets

Coiiesponuing to AS
Piovisions Contingent
Liabilities anu Contingent Assets

Coiiesponuing to AS
submitteu along with Fiist Inteiim Repoit
submitteu along with Seconu Inteiim Repoit

While foimulating the Tax Accounting Stanuaius the Committee maue ceitain
changes in the Accounting Stanuaiu issueu by the ICAI foi the puiposes of haimonising the
same with the piovisions of the Act The significant changes maue in each of the uiaft Tax
Accounting Stanuaiu visvis the coiiesponuing Accounting Stanuaiu issueu by the ICAI
aie uiscusseu below
TAXACCOUNTINGSTANDARDFORACCOUNTINGPOLICIES

The Tax Accounting Stanuaiu foi Accounting Policies TAS AP is baseu on
Accounting Stanuaiu AS foi Bisclosuie of Accounting Policies issueu by the ICAI
While iecommenuing the TAS the Committee maue the following changes in AS

i Baseu on the concept of piuuence AS piecluues iecognition of anticipateu piofit
anu iequiies iecognition of expecteu losses Since this amounts to uiffeiential
tieatment foi iecognition of income anu losses the TAS AP pioviues that expecteu
losses oi maiktomaiket losses shall not be iecogniseu unless peimitteu by any
othei TAS

ii AS iecognises the concept of mateiiality foi selection of accounting policies Since
the Act uoes not iecognise the concept of mateiiality foi the puipose of computation
of taxable income the same has not been incoipoiateu in the TAS AP

iii AS ieau with AS pioviues that accounting policies may be changeu if it is
consiueieu that the change woulu iesult in a moie appiopiiate piesentation To
18
ieuuce litigation anu to biing consistency the TAS AP pioviues that accounting
policies shall not be changeu without a ieasonable cause
TAXACCOUNTINGSTANDARDFORVALUATIONOFINVENTORIES

The Tax Accounting Stanuaiu foi valuation of Inventoiies TAS vI is baseu on the
Accounting Stanuaiu AS foi valuation of Inventoiies issueu by the ICAI While
iecommenuing the TAS vI the Committee maue the following changes to AS
i AS has not piesciibeu any methou of valuation of inventoiies in the case of a
seivice pioviuei In the Inuian Economy seivice sectoi plays a vital iole anu the
Committee is of the view that to give ceitainty to the taxpayeis in iespect of
computation of income a methou of valuation of inventoiies shoulu be pioviueu foi
The Committee is of the view that the methou of valuation of inventoiies of a seivice
pioviuei baseu on the inteinational best piactices be incoipoiateu in the TAS vI

ii AS stipulates that techniques foi the measuiement of the cost of the inventoiies
such as the stanuaiu cost methou oi the ietail methou may be useu foi convenience
if the iesults appioximate to the actual cost To ieuuce the litigation anu
alteinatives the stanuaiu cost methou is not iecommenueu by the Committee

iii The value of the inventoiy of a business as on the beginning of a pievious yeai shall
be the same as the value of inventoiy at the enu of the immeuiately pieceuing
pievious yeai This is a well establisheu piinciple anu to give ceitainty to the
valuation of inventoiies anu to ieuuce litigation this piinciple has specifically been
incoipoiateu in the TAS vI

iv AS ieau with AS pioviues that the methou of valuation of inventoiies may be
changeu if it is consiueieu that the change woulu iesult in a moie appiopiiate
piesentation To ieuuce litigation anu to biing consistency the TAS vI pioviues
19
that the methou of valuation of inventoiy once auopteu by a peison in any pievious
yeai shall not be changeu without a ieasonable cause

v A is silent on the valuation of inventoiy at the time of uissolution of a paitneiship
fiim association of peisons anu bouy of inuiviuuals To give ceitainty to the tax
tieatment in this iegaiu the TAS vI pioviues that the inventoiy on the uate of
uissolution shall be valueu at the net iealisable value

TAXACCOUNTINGSTANDARDFOREVENTSOCCURINGAFTERTHEENDOFPREVIOUS
YEAR

The Tax Accounting Stanuaiu foi Events 0ccuiiing aftei the Enu of Pievious Yeai
TAS EA is baseu on the Accounting Stanuaiu AS foi Contingencies anu Events
0ccuiiing Aftei the Balance Sheet Bate issueu by the ICAI While iecommenuing the TAS
EA the Committee maue the following change to AS

i AS pioviues foi specific uisclosuies in iespect of events occuiiing aftei the
balance sheet uate that uo not iequiie an aujustment Since such uisclosuies uo not
uiiectly impact the computation of income these piovisions have been iemoveu in the TAS

TAXACCOUNTINGSTANDARDFORPRIORPERIODEXPENSE

The Tax Accounting Stanuaiu foi Piioi Peiiou Expense TAS PP is baseu on the
Accounting Stanuaiu AS foi Net Piofit oi Loss foi the Peiiou Piioi Peiiou Items anu
Changes in Accounting Policies issueu by the ICAI While iecommenuing the TAS PP the
Committee maue the following changes in AS

i AS pioviues foi guiuance on extiaoiuinaiy items anu changes in accounting
policies Since the Act uoes not uistinguish extiaoiuinaiy items fiom oiuinaiy
items these piovisions aie iemoveu in the TAS PP The piovisions in AS ielating
to changes in accounting policies aie coveieu in the TAS on Accounting Policies
20
ii AS meiely pioviues foi sepaiate uisclosuie of piioi peiiou items In oiuei to
pioviue ceitainty anu ieuuce litigation the TAS PP pioviues specific conuitions foi
allowability of piioi peiiou expenses
TAXACCOUNTINGSTANDARDFORCONSTRUCTIONCONTRACTS

The Tax Accounting Stanuaiu foi Constiuction Contiacts TAS CC is baseu on the
Accounting Stanuaiu AS foi Constiuction Contiacts issueu by the ICAI While
iecommenuing the TAS CC the Committee maue the following changes to AS
i AS is silent about tieatment of acciual of income in iespect of the ietention
money Theie aie some juuicial pionouncements holuing that the ietention money
is not ueemeu to have acciueu foi tax puiposes To oveicome this unintenueu
meaning the TAS CC specifically pioviues that the ietention money shall acciue to
the peison foi computing ievenue baseu on the peicentage of completion methou

ii AS pioviues foi ieveisal of ievenue on account of unceitainty aiising on
iealisibilty of contiact ievenue which was alieauy iecognizeu as income The TAS
CC pioviues that befoie ieveisal of ievenue the sum shall be wiitten off in the
books of account in line with the piovisions of Section vii of the Act ielating
to the bau uebts

iii Cuiiently theie is an unceitainty about tieatment of boiiowing costs ielatable to
the constiuction contiacts The TAS on the Boiiowing Costs pioviues foi tieatment
of boiiowing costs ielating to the constiuction contiacts A iefeience to this is
maue in the TAS CC foi ensuiing the unifoimity

iv It is juuicially settleu that the pieconstiuction income in the natuie of inteiest
uiviuenu anu capital gains shall not ieuuce the cost of constiuction Accoiuingly it
has been pioviueu in the TAS CC that such income shall not be ieuuceu fiom the
contiact costs but shall be tieateu anu taxeu as income in accoiuance with the
applicable piovisions of the Act
21

v Foi attiibuting contiact costs to a constiuction contiact one of the conuitions
pioviueu in the AS is that such expenses shoulu be capable of being measuieu
ieliably This may leau to litigation To avoiu litigation this conuition is iemoveu

vi AS iequiies that contiact costs which ielate to futuie activity shall be iecognizeu
as an asset when it is piobable that such costs aie iecoveiable The TAS CC
pioviues foi iecognizing such costs as an asset If such costs aie not iealisable then
the same may be alloweu unuei piovisions of the Act

vii As pei AS contiact ievenues aie iecognizeu if it is possible to ieliably measuie the
outcome of a contiact This issue being subjective in natuie has iesulteu in litigation
anu postponement of tax liability Theiefoie this conuition is iemoveu

viii AS pioviues that the losses incluuing the piobable expecteu losses shall be
iecognizeu fully anu not in piopoition to the peicentage of completion This
amounts to uiffeiential tieatment of iecognition of income anu losses This
uiffeiential tieatment is accoiuingly iemoveu anu theiefoie the losses incuiieu
shall also be alloweu only in piopoition to the stage of completion Futuie oi
anticipateu losses shall not be alloweu unless such losses aie actually incuiieu

ix AS pioviues that ievenue shall not be iecognizeu uuiing eaily stages of contiact
As eaily stage of a contiact is an unceitain anu unuefineu concept it leaus to
ambiguity anu litigation Foi pioviuing ceitainty in this iespect TAS CC pioviues
that once a contiact ciosses of stage of completion the ievenue in iespect of
such contact shall be iecognizeu
TAXACCOUNTINGSTANDARDFORREVENUERECOGNITION

22
The Tax Accounting Stanuaiu foi Revenue Recognition TAS RR is baseu on
Accounting Stanuaiu AS foi Revenue Recognition issueu by the ICAI While
iecommenuing the TAS RR the Committee maue the following changes to AS

i AS iecognises both the piopoitionate completion methou oi completeu seivice
contiact methou foi iecognition of ievenue fiom seivice tiansactions In oiuei to
ieuuce litigation anu alteinatives the TAS RR pioviues that ievenue fiom seivice
tiansactions shall only be iecogniseu by following the peicentage completion
methou

ii Wheie the ability to assess the ultimate collection with ieasonable ceitainty is
lacking AS pioviues foi postponement of iecognition of ievenue in ielation to any
claim In view of the specific piovisions in the Act foi bau uebts the postponement
of ievenue uue to unceitainty is iestiicteu to claims foi piice escalation anu expoit
incentives

iii As the Act contains specific piovisions ielating to iecognition of income in the
natuie of uiviuenus the piovisions of AS ielating to iecognition of uiviuenu is not
incoipoiateu in the TAS RR
TAXACCOUNTINGSTANDARDFORTANGIBLEFIXEDASSETS

The Tax Accounting Stanuaiu foi Tangible Fixeu Assets TAS FA is baseu on the
Accounting Stanuaiu Accounting foi Fixeu Assets AS issueu by the ICAI While
iecommenuing the TAS FA the Committee iecommenueu following changes to AS

i AS ueals with accounting foi all fixeu assets subject to ceitain exceptions
such as foiest wasting assets anu livestock The applicability of TAS FA is
iestiicteu to tangible fixeu assets being lanu builuing machineiy plant oi
fuinituie to make the same consistent with the uefinition of block of assets as
pioviueu in the Act
23

ii In the case of acquisition of an asset in exchange foi anothei asset shaies oi
othei secuiities AS pioviues that the faii value of the assetsecuiities given
up oi faii value of the asset acquiieu whichevei is moie cleaily eviuent shoulu
be iecoiueu as actual cost To pioviue ceitainty anu consistency the TAS FA
pioviues that lowei of the faii value of the assetsecuiities given up oi the asset
acquiieu shall be iecoiueu as actual cost

iii As iegaius capitalisation of expenuituie incuiieu on impiovement anu iepaiis
AS pioviues that only those expenses which inciease the futuie benefits fiom
the existing asset shoulu be capitaliseu In line with juuicial pieceuents the
ciiteiia foi capitalisation of impiovement anu iepaiis is mouifieu in the TAS
FA

iv AS pioviues guiuance foi ievaluation of assets As the Act uoes not iecognise
the concept of ievaluation of assets the poition of AS ielating to ievaluation
of assets is omitteu in the TAS FA

v AS pioviues guiuance on ietiiement anu uisposal of assets As the Act
contains specific piovisions ielating to ietiiement anu uisposal of tangible fixeu
assets the same aie not incoipoiateu in the TAS FA
TAX ACCOUNTING STANDARD FOR THE EFFECTS OF CHANGES IN FOREIGN

EXCHANGERATES

The Tax Accounting Stanuaiu foi The Effects of Changes in Foieign Exchange Rates
TAS FE is baseu on the Accounting Stanuaiu AS foi The Effects of Changes in
Foieign Exchange Rates issueu by the ICAI While iecommenuing the TAS FE the
Committee maue the following changes in AS

24
i AS pioviues guiuance on initial anu subsequent iecognition of foieign cuiiency
tiansactions anu the iesultant exchange uiffeiences The TAS FE expiessly
pioviues that these piovisions will be subject to Section A of the Act anu Rule
of the Incometax Rules

ii AS pioviues that exchanges uiffeiences aiising on tianslation of the financial
statements of nonintegial foieign opeiations shoulu be accumulateu in a foieign
cuiiency tianslation ieseive in the balance sheet Since the Act uoes not pioviue foi
a uistinction between integial anu nonintegial foieign opeiations the TAS FE
pioviues that such exchange uiffeiences shall be iecogniseu foi the puipose of
computation of income

iii AS pioviues that foiwaiu exchange oi similai contiacts enteieu into foi tiauing
oi speculation puiposes shoulu be maiktomaiket at each balance sheet uate anu
the iesultant exchange uiffeiences shoulu be iecoiueu in piofit oi loss Since such
maiktomaiket gains oi losses aie uniealiseu in natuie the TAS FE pioviues that
all gains oi losses on such contiacts shall be iecogniseu on settlement
TAXACCOUNTINGSTANDARDFORGOVERNMENTGRANTS

The Tax Accounting Stanuaiu foi uoveinment uiants TAS uu is baseu on the
Accounting Stanuaiu AS foi uoveinment uiants issueu by the ICAI While
iecommenuing the TAS uu the Committee maue the following changes to AS

i AS has auopteu two bioau appioaches foi the accounting tieatment of
uoveinment giants The fiist appioach is the Capital Appioach unuei which a
uoveinment giant is tieateu as a pait of shaie holueis funus anu the seconu
appioach is the Income appioach unuei which a goveinment giant is taken to
income ovei one oi moie peiious The Committee extensively uelibeiateu on the
above appioaches anu also consiueieu the juuicial pieceuence on the issue To
ieuuce litigation anu to give a ceitainty to TAS uu pioviues that the goveinment
25
giants shoulu be tieateu eithei as ievenue ieceipt oi they shoulu be ieuuceu fiom
the cost of fixeu assets baseu on the puipose foi which such giant oi subsiuy is
given

ii AS pioviues that meie ieceipt of a giant is not necessaiily conclusive eviuence
that the conuitions attacheu to the giant have been oi will be fulfilleu To ieuuce
litigation anu to pioviue ceitainty the TAS uu pioviues that iecognition of
uoveinment giant shall not be postponeu beyonu the uate of actual ieceipt.
TAXACCOUNTINGSTANDARDFORSECURITIES

The Tax Accounting Stanuaiu foi Secuiities TAS SC is baseu on the Accounting
Stanuaiu AS Accounting foi Investments issueu by the ICAI While iecommenuing
the TAS SC the Committee maue the following change in AS

i AS ueals with accounting foi cuiient investments long teim investments anu
investment piopeity but excluues shaies uebentuies oi othei secuiities helu as
stockintiaue Since the TAS SC ueal with computation of income unuei the heau
Piofits anu gains of business oi piofession oi Income fiom othei souices the
TAS SC only ueals with secuiities helu as stockintiaue

ii AS inuicates that though it uoes not apply to stockintiaue the mannei in which
they aie accounteu foi is quite similai to cuiient investments To seek alignment
with the piovisions of the Act to pioviue ceitainty anu ieuuce litigation the TAS
SC mouifies the piovisions of AS ielating to valuation of secuiities
TAXACCOUNTINGSTANDARDFORBORROWINGCOSTS

26
The Tax Accounting Stanuaiu foi Boiiowing Costs TAS BC is baseu on the
Accounting Stanuaiu AS foi Boiiowing Costs issueu by the ICAI While
iecommenuing the TAS BC the Committee maue the following changes in AS

i AS pioviues that boiiowing costs may incluue exchange uiffeiences aiising fiom
foieign cuiiency boiiowings to the extent they aie iegaiueu as an aujustment to
inteiest costs To align with the piovisions of the Act this piovision has been
iemoveu in the TAS BC

ii As pei AS a 0ualifying Asset is an asset that necessaiily takes a substantial
peiiou of time to get ieauy foi its intenueu use oi sale To align with the piovisions
of the Act the uefinition of 0ualifying Asset in the TAS BC is mouifieu

iii AS pioviues that the boiiowing costs on 0ualifying Assets shoulu be capitaliseu
when it is piobable that they will iesult in futuie economic benefits anu can be
ieliably measuieu To achieve alignment with the Act this piovision is iemoveu
fiom the TAS BC

iv AS pioviues that juugment shoulu be useu foi ueteimining whethei geneial
boiiowings have been utiliseu to funu 0ualifying Assets To pioviue ceitainty anu
consistency the TAS BC pioviues a specific foimula foi capitalising boiiowing
costs ielating to geneial boiiowings

v As pei AS income on tempoiaiy investments of funus boiioweu shoulu be
ieuuceu fiom boiiowing costs eligible foi capitalisation To align with juuicial
pieceuents this piovision is iemoveu fiom the TAS BC

vi AS pioviues foi commencement cessation anu suspension of capitalisation of
boiiowing costs baseu on specifieu conuitions In the TAS BC the conuitions
ielating to commencement anu cessation have been aligneu to the piovisions of the
Act anu the concept of suspension is iemoveu
27
TAXACCOUNTINGSTANDARDFORLEASES

The Tax Accounting Stanuaiu foi Leases TAS LS is baseu on the Accounting
Stanuaiu AS foi Leases issueu by the ICAI While iecommenuing the TAS LS the
Committee maue the following changes to AS

i AS pioviues foi classification of lease into an opeiating lease oi a finance lease
Application of AS coulu iesult in a uiffeient classification of a lease by the lessoi
anu the lessee Foi ensuiing unifoimity of classification of a lease by the lessoi anu
lessee the TAS LS pioviues foi unifoimity of uefinitions anu iequiies a joint
confiimation iegaiuing consistency of classification between the lessoi anu the
lessee

ii AS incluues concepts of uioss Investment anu Net Investment in case of finance
leases To ensuie consistency anu simplification the TAS LS mouifies these
piovisions

iii Wheie the lessoi is a manufactuieiuealei AS pioposes aujustment in the sale
piice only in the cases of aitificially low iate of inteiest In oiuei to biing unifoimity
of tieatment foi aitificially low anu high iate of inteiest the TAS LS pioviues foi
aujustment in case of aitificially high iate of inteiest as well

iv AS pioviues foi aujustment in the iecognition of incomeexpense on account of
changes in estimates of the iesiuual value To pioviue ceitainty the TAS LS
pioviues that aujustments in the iesiuual shall be caiiieu out only at the enu of the
lease teim

v AS contains piovisions ielating to sale anu lease back tiansactions As the Act
contains specific piovisions foi tieatment of such tiansactions the same has been
iemoveu in the TAS LS

28
The TAS pioviues that in the case of finance leases uepieciation will be alloweu
to the lessee even though the asset is owneu by the lessoi Piovisions of the Act ielating to
uepieciation owneiship block of assets tiansfei etc neeu to be aligneu piioi to
notification of the TAS LS While foimulating the TAS LS the Committee noteu that the
cuiient piovisions of the Act uo not auequately auuiess cases wheie aftei the sale anu
lease back tiansaction the iesulting lease is an opeiating lease The Committee
iecommenus necessaiy amenument to the Act to auuiess these cases

TAXACCOUNTINGSTANDARDFORINTANGIBLEASSETS

The Tax Accounting Stanuaiu foi Intangible Assets TAS IA is baseu on the
Accounting Stanuaiu AS foi Intangible Assets issueu by the ICAI While
iecommenuing the TAS IA the Committee maue the following changes to AS

i In the case of acquisition of an intangible asset in exchange foi anothei asset shaies
oi othei secuiities AS pioviues that the faii value of the assetsecuiities given
up oi faii value of the asset acquiieu whichevei is moie cleaily eviuent shoulu be
iecoiueu as actual cost To pioviue ceitainty anu consistency the TAS IA pioviues
that lowei of the faii value of the assetsecuiities given up oi the asset acquiieu
shall be iecoiueu as actual cost

ii AS pioviues guiuance on amoitisation ietiiement anu uisposal of intangible
assets anu intangible assets acquiieu on amalgamation As the Act contains specific
piovisions ielating to these aieas the same aie not incoipoiateu in the TAS
TAX ACCOUNTING STANDARD FOR PROVISIONS, CONTINGENT LIABILITIES AND

CONTINGENTASSETS

The Tax Accounting Stanuaiu foi Piovisions Contingent Liabilities anu Contingent
Assets TAS PC is baseu on Accounting Stanuaiu AS Piovisions Contingent
29
Liabilities anu Contingent Assets issueu by the ICAI While iecommenuing the TAS PC
the Committee maue the following changes in AS

i AS inteialia stipulates iecognition of a piovision when it is piobable that an
outflow of economic iesouices will be iequiieu to settle an obligation To pioviue
ceitainty anu to align with the piinciples foi iecognition of ievenue the TAS PC
ieplaces the conuition of piobable with ieasonably ceitain foi iecognising a
piovision

ii AS pioviues foi iecognition of a contingent asset when the iealisation of ielateu
income is viitually ceitain In oiuei to iemove the uiffeiential tieatment between
iecognition of income anu expenses the TAS PC ieplaces the conuition of
viitually ceitain with ieasonably ceitain foi iecognition of income anu the
ielateu asset

iii As theie aie specific piovisions in the Act foi iestiuctuiing expenses the piovisions
of AS ielating to iestiuctuiing costs is not incoipoiateu in the TAS PC

The uiafts of the Tax Accounting Stanuaius foimulateu by the Committee aie
encloseu as Annexuie B
30
Chapter6
InterimReports

As the finalisation of uiafts of TAS on all topics iuentifieu by the Committee was
expecteu to take a consiueiable time the Committee ueciueu to submit inteiim iepoits
along with uiafts of TAS finaliseu till the uate of submission of the inteiim iepoits The
Committee submitteu the fiist inteiim iepoit in August along with the uiafts of the
following TAS

i Constiuction Contiacts Coiiesponuing to AS
ii uoveinment uiants Coiiesponuing to AS
iii Intangible Assets Coiiesponuing to AS
Theieaftei the Committee submitteu the seconu inteiim iepoit in Nay along
with the uiafts of the following TAS

i Accounting Policies Coiiesponuing to AS
ii valuation of Inventoiies Coiiesponuing to AS
iii Revenue Recognition Coiiesponuing to AS
iv Tangible Fixeu Assets Coiiesponuing to AS
v Boiiowing Costs Coiiesponuing to AS
vi Piovisions Contingent Liabilities Coiiesponuing to AS
anu Contingent Assets
31
Chapter7
LimitedrevisionofdraftsofTASsubmittedalongwiththeinterim
reports

TASonIntangibleAssets

Subsequent to submission of the uiaft TAS on Intangible Assets the Committee noteu
some inconsistencies between the uiaft TAS on Intangible Assets anu the uiaft TAS on
Tangible Fixeu Assets in the aiea of initial measuiement In oiuei to align the piovisions
foi initial measuiement of intangible assets with the piovisions foi initial measuiement of
tangible fixeu assets the Committee pioposes the following ievision to the uiaft of TAS on
Intangible Assets which was submitteu along with the fiist inteiim iepoit

Paia anu of the uiaft TAS on Intangible Assets submitteu ieaus as unuei

10. Where an intangible asset is acquired in exchange for shares or other securities, the
assetshallberecordedatthefairvalueofthesecuritiesissued.
13. Where an intangible asset is acquired in exchange for another asset, its actual cost
shallbedeterminedbasedonthefairvalueoftheassetgivenup.
14. Theactualcostofanintangibleassetshallbeadjustedsubsequenttoitsacquisitionon
accountofpriceadjustment,changesindutiesorsimilarfactors

Paia anu aie pioposeu to be ieviseu as unuei

32
10. When an intangible asset is acquired in exchange for shares or other securities the
asset shall be recorded at its fair value or the fair value of the securities issued, whichever is
lower.
13. When an intangible asset is acquired in exchange for another asset, its actual cost
shallberecordedatitsfairvalueorthefairvalueoftheassetgivenup,whicheverislower.
14. The cost of an intangible asset may undergo changes subsequent to its acquisition on
accountof:
(i) priceadjustment,changesindutiesorsimilarfactors;or
ii exchangefluctuationasspecifiedinTaxAccountingStandardforTheEffectsof
ChangesinForeignExchangeRates.

TaxAccountingStandardforValuationofInventories

Paia c of the Tax Accounting Stanuaiu foi valuation of Inventoiies submitteu
along with the seconu inteiim iepoit ieaus as unuei

Shares, debentures and other financial instruments held as stockintrade which are dealt
withbytheTaxAccountingStandardonInvestments;

Subsequently aftei uelibeiations the TAS foi Investments is pioposeu to be
ienameu as TAS on Secuiities Accoiuingly paia c of the TAS foi valuation of
Inventoiies is pioposeu to be ieviseu as unuei

Shares, debentures and other financial instruments held as stockintrade which are dealt
withbytheTaxAccountingStandardforSecurities;

Fuithei paia of the TAS ieaus as unuei
33

DissolutionofPartnershipFirm
24. In case of dissolution of a partnership firm, notwithstanding whether business is

discontinued or not, the inventory on the date of dissolution shall be valued at the net
realisablevalue;

Subsequently aftei uelibeiations the Committee consiueieu it appiopiiate to
incluue othei similai entities within the scope of the above paia Accoiuingly paia of
the TAS is pioposeu to be ieviseu as unuei

DissolutionofPartnershipFirmorAssociationofPersonsorBodyofIndividuals
24. In case of dissolution of a partnership firm or association of persons or body of

individuals,
notwithstanding whether business is discontinued or not, the inventory on the date of its
dissolutionshallbevaluedatthenetrealisablevalue;
34
Chapter8
OthertermsofreferenceIFRSandIndAS

The Committee noteu that the pioposeu TAS along with the piovisions of the Act
will pioviue a compiehensive fiamewoik foi computation of income othei than NAT
even if InuAS aie maue manuatoiy

The concept of NAT is baseu on book piofits which aie geneially aligneu to
uistiibutable piofits as computeu unuei the Companies Act In the absence of claiity
on amenuments to the Companies Act ielating to the impact of the tiansition to Inu
AS on the computation of uistiibutable piofits the coiiesponuing impact on computation
of NAT unuei the Act cannot be cuiiently ueteimineu with ceitainty

Fuithei subsequent to the Piess Release No IFRS uateu
Febiuaiy issueu by the Ninistiy of Coipoiate Affaiis neithei have the InuAS
stanuaius been notifieu noi has a fiim scheuule of implementation been announceu
Similaily othei sectoi iegulatois aie also yet to announce a fiim scheuule anu basis foi
implementation Noieovei subsequent to the Piess Release ceitain new IFRS have been
issueu by the Inteinational Accounting Stanuaius Boaiu as a iesult of which new
uiffeiences have emeigeu between InuAS anu IFRS It is uncleai whethei the InuAS
woulu be mouifieu foi such changes in IFRS

uiven the fluiu anu unceitain situation iegaiuing the tiansition to InuAS the
Committee ueciueu to piimaiily focus on the foimulation of TAS haimoniseu with the
piovisions of the Act

35
The Committee iecommenus that the status of the tiansition to InuAS shoulu be
caiefully monitoieu anu appiopiiate amenuments in the Act especially to the piovisions
ielating to computation of NAT shoulu be consiueieu baseu on any such uevelopments in
the futuie

The manuate of the Committee was to haimonise the accounting stanuaius issueu by
ICAI with the piovisions of the Act Bowevei the Committee noteu that theie aie ceitain
aieas on which the ICAI is yet to issue any accounting stanuaius but wheie guiuance on
computation of income unuei the Act is iequiieu to ieuuce litigation anu pioviue ceitainty
Accoiuingly the Committee iecommenus that TAS coveiing the following aieas may also
be consiueieu foi notification unuei the Act
i Shaie baseu payment
ii Revenue iecognition by ieal estate uevelopeis
iii Seivice concession aiiangements example Built 0peiate Tiansfei agieements
iv Exploiation foi anu evaluation of mineial iesouices

36

AnnexureA
F. No. 134/48/2010-SO (TPL)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
****
Dated: 20
th
December, 2010

ORDER

Subject: Constitution of Accounting Standard Committee regarding

CBDT has constituted a committee comprising of the following member for
formulation of Accounting Standard to be notified under sub section (2) of section
145 of the Income Tax Act, 1961(the Act) and to suggest appropriate amendments to
the Act required on account of transition to IFRS regime:-

(i) Shri H. Srinivasulu, CIT-2, Hyderabad, as Convenor
(ii) Shri Pravin Kumar, CIT (A)-40, Mumbai, Member
(iii) Shri Pawan Kumar, Director, CBDT, Member
(iv) Shri Ankur Garg, Addl. CIT, Mumbai, Member
(v) Shri Rajesh Bhoot, Director, CBDT, Member Secretary
(vi) Shri M.P. Lohia, Executive Director, E&Y, Mumbai, Member
(vii) Shri Kamlesh Vikamsey, C.A., Member
(viii) Shri Jamil Khatri, C.A., Member
(ix) Shri Milin Mehta, C.A., Member

2. The term of reference of the committee are as under: -

i) to study the harmonization of all accounting standards issued by ICAI with
the direct tax laws in India, and suggest accounting standards which need to
be adopted under section 145(2) of the Act along with relevant modifications;

ii) to suggest method of determining tax base (book profit) for the purpose of
MAT in case of companies migrating to IFRS in the initial year of adoption
and thereafter.

3. Committee may submit its interim report by 15
th
February, 2011 and its final
report by 31
st
March, 2011.

(M. Rajan)
Under Secretary (TPL-III), CBDT
Mob.: 09717308858
37
Copy to:-

(i) Shri H. Srinivasulu, CIT-2, Hyderabad
(ii) Shri Pravin Kumar, CIT (A)-40, Mumbai
(iii) Shri Pawan Kumar, Director, CBDT
(iv) Shri Ankur Garg, Addl. CIT, Mumbai
(v) Shri Rajesh Bhoot, Director, CBDT
(vi) Shri M.P. Lohia, Executive Director, E&Y, Mumbai
(vii) Shri Kamlesh Vikamsey, C.A.
(viii) Shri Jamil Khatri, C.A.
(ix) Shri Milin Mehta, C.A.

with a request to acknowledge the receipt of this order by sending e-mail to
ustpl3@nic.in at their earliest convenience.
38

F. No. 134/48/2010-SO (TPL)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
****

New Delhi, dated the 19
th
January,2011.
ORDER
Subject: Nomination of Shri J. Krishna Kishore, Additional
Commissioner of Income Tax, Hyderabad as a member in the
Accounting Standard Committee regarding.
You have been nominated as member to the Accounting Standard
Committee constituted by the CBDT vide Order dated 20
th
December, 2010 in
F.No.134/48/2010-SO(TPL).
2. This issues with the approval of Member(L&C).
(M. Rajan)
Under Secretary (TPL-III), CBDT
Mob.: 09717308858
To
Shri J. Krishna Kishore,
Additional Commissioner of Income Tax,
Range-2, 8
th
Floor, B-Block, Income Tax Towers,
Masab Tank, Hyderabad 500 004.
e-mail : krishnakishore@hotmail.com
Copy to :
(i) Shri H. Srinivasulu, CIT-2, Hyderabad
(ii) Shri Pravin Kumar, CIT (A)-40, Mumbai
(iii) Shri Pawan Kumar, Director, CBDT
(iv) Shri Ankur Garg, Addl. CIT, Mumbai
(v) Shri Rajesh Bhoot, Director, CBDT
(vi) Shri M.P. Lohia, Executive Director, E&Y, Mumbai
(vii) Shri Kamlesh Vikamsey, C.A.
(viii) Shri Jamil Khatri, C.A.
(ix) Shri Milin Mehta, C.A.
39
AnnexureB

ListofAccountingStandardsissuedbytheICAIwhicharenot
recommendedfornotificationundertheActbytheCommittee
Sl.No. ASNo. TitleoftheAccountingStandard

AS Cash Flow Statements
AS Bepieciation Accounting
AS Accounting foi Amalgamations
AS Employee Benefits
AS Segment Repoiting
AS Relateu Paity Bisclosuies
AS Eainings Pei Shaie
AS Consoliuateu Financial Statements
AS Accounting foi Taxes on Income
AS Accounting foi Investments in Associates in Consoliuateu
finance Statements
AS Biscontinuing 0peiations
AS Inteiim Financial Repoiting
AS Financial Repoiting of Inteiests in Ioint ventuies
AS Impaiiment of Assets
AS Financial Instiuments Recognition anu Neasuiement
AS Financial Instiuments Piesentation
AS Financial Instiuments Bisclosuies

40

AnnexureC

ListofAccountingStandardsissuedbytheICAIwhichare
harmonisedwiththeprovisionsoftheActforthepurposesof
notificationundertheAct
Sl.No. ASNo. TitleoftheAccountingStandard

AS Bisclosuie of Accounting Policies
AS valuation of Inventoiies
AS Contingencies anu Events 0ccuiiing Aftei the Balance Sheet
Bate
AS Net Piofit oi Loss foi the Peiiou Piioi Peiiou Items anu
changes in Accounting Policies
AS Constiuction Contiacts
AS Revenue Recognition
AS Accounting foi Fixeu Assets
AS The Effects of Changes in Foieign Exchange Rates
AS Accounting foi uoveinment uiants
AS Accounting foi Investments
AS Boiiowing Costs
AS Leases
AS Intangible Assets
AS Piovisions Contingent Liabilities anu Contingent Assets

41

AnnexureD
ThetextofthedraftTaxAccountingStandardsformulatedbythe
CommitteeforthepurposesofnotificationundertheAct
Sl. No.
TitleofTaxAccountingStandard PageNo.
1. Bisclosuie of Accounting Policies
Coiiesponuing to AS

2. valuation of Inventoiies
Coiiesponuing to AS

3. Events 0ccuiiing Aftei the Pievious Yeai
Coiiesponuing to AS

4. Piioi Peiiou Items
Coiiesponuing to AS

5. Constiuction Contiacts
Coiiesponuing to AS

6. Revenue Recognition
Coiiesponuing to AS

7. Accounting foi Tangible Fixeu Assets
Coiiesponuing to AS

8. The Effects of Changes in Foieign Exchange Rates
Coiiesponuing to AS

9. uoveinment uiants
Coiiesponuing to AS

10. Secuiities
Coiiesponuing to AS

11. Boiiowing Costs
Coiiesponuing to AS

12. Leases
Coiiesponuing to AS

13. Intangible Assets
Coiiesponuing to AS

14. Piovisions Contingent Liabilities anu Contingent Assets
Coiiesponuing to AS

42
TaxAccountingStandard[TAS]
AccountingPolicies
Preamble
This Tax Accounting Stanuaiu is applicable foi computation of income chaigeable unuei
the heau Piofits anu gains of business oi piofession oi Income fiom othei souices anu
not foi the puipose of maintenance of books of accounts
In the case of conflict between the piovisions of the Incometax Act the Act anu
this Tax Accounting Stanuaiu the piovisions of the Act shall pievail to that extent
Scope

This Tax Accounting Stanuaiu ueals with significant accounting policies

FundamentalAccountingAssumptions

The following aie funuamental accounting assumptions
aGoingConcern

uoing concein iefeis to the assumption that the peison has neithei the intention
noi the necessity of liquiuation oi of cuitailing mateiially the scale of the business
piofession oi vocation anu intenus to continue his business piofession oi vocation
foi the foieseeable futuie
43

b Consistency

Consistency iefeis to the assumption that accounting policies aie consistent fiom
one peiiou to anothei
c Accrual
Acciual iefeis to the assumption that ievenues anu costs aie acciueu that is
iecogniseu as they aie eaineu oi incuiieu anu not as money is ieceiveu oi paiu
anu iecoiueu in the pievious yeai to which they ielate
AccountingPolicies

The accounting policies iefei to the specific accounting piinciples anu the methous
of applying those piinciples auopteu by a peison
ConsiderationsintheSelectionandChangeofAccountingPolicies

Accounting policies auopteu by a peison shall be such so as to iepiesent a tiue anu faii
view of the state of affaiis anu income of the business piofession oi vocation Foi this
puipose
i the tieatment anu piesentation of tiansactions anu events shall be goveineu by theii
substance anu not meiely by the legal foim anu
ii maikeu to maiket loss oi an expecteu loss shall not be iecogniseu unless the
iecognition of such loss is in accoiuance with the piovisions of any othei Tax Accounting
Stanuaiu
44

An accounting policy shall not be changeu without ieasonable cause

DisclosureofAccountingPolicies

All significant accounting policies auopteu by a peison shall be uiscloseu

Any change in an accounting policy which has a mateiial effect shall be uiscloseu
The amount by which any item is affecteu by such change shall also be uiscloseu to the
extent asceitainable Wheie such amount is not asceitainable wholly oi in pait the fact
shall be inuicateu If a change is maue in the accounting policies which has no mateiial
effect foi the cuiient pievious yeai but which is ieasonably expecteu to have a mateiial
effect in latei pievious yeais the fact of such change shall be appiopiiately uiscloseu in the
pievious yeai in which the change is auopteu anu also in the pievious yeai in which such
change has mateiial effect foi the fiist time

Bisclosuie of accounting policies oi of changes theiein cannot iemeuy a wiong oi
inappiopiiate tieatment of the item
If the funuamental accounting assumptions of uoing Concein Consistency anu

Acciual aie followeu specific uisclosuie is not iequiieu If a funuamental accounting
assumption is not followeu the fact shall be uiscloseu

45

ValuationofInventories
Preamble
This Tax accounting Stanuaiu is applicable foi computation of income chaigeable unuei the
heau Piofits anu gains of Business oi piofession oi Income fiom othei souices anu not
foi the puipose of maintenance of books of accounts

In the case of conflict between the piovisions of Income Tax Act the Act anu this
Tax Accounting Stanuaiu the piovisions of the Act shall pievail to that extent
Scope
This Tax Accounting Stanuaiu shall be applieu foi valuation of inventoiies except

a Woikinpiogiess aiising unuei constiuction contiact incluuing uiiectly
ielateu seivice contiact which is uealt with by the Tax Accounting Stanuaiu
on constiuction contiacts

b Woikinpiogiess which is uealt with by othei Tax Accounting Stanuaius

c Shaies uebentuies anu othei financial instiuments helu as stockintiaue
which aie uealt with by the Tax Accounting Stanuaiu on Investments

u Piouuceis inventoiies of livestock agiicultuie anu foiest piouucts mineial
oils oies anu gases to the extent that they aie measuieu at net iealizable
value

46
e Nachineiy spaies which can be useu only in connection with a tangible fixeu
asset anu theii use is expecteu to be iiiegulai shall be uealt with in
accoiuance with the Tax Accounting Stanuaiu on tangible fixeu assets
Definitions
The following teims aie useu in this Tax Accounting Stanuaiu with the meanings
specifieu

a Inventories aie assets

i helu foi sale in the oiuinaiy couise of business

ii in the piocess of piouuction foi such sale

iii in the foim of mateiials oi supplies to be consumeu in the piouuction
piocess oi in the ienueiing of seivices

b Net realizable value is the estimateu selling piice in the oiuinaiy couise
of business less the estimateu costs of completion anu the estimateu costs
necessaiy to make the sale

Woius anu expiessions useu anu not uefineu in this Tax Accounting Stanuaiu but
uefineu in the Income Tax Act shall have the meanings assigneu to them in that Act
Measurement
Inventoiies shall be valueu at cost oi net iealizable value whichevei is lowei

except in the case of a seivice pioviuei the inventoiies of seivices shall be valueu at cost
47
CostofInventories

Cost of inventoiies shall compiise of all costs of puichase costs of seivices costs of
conveision anu othei costs incuiieu in biinging the inventoiies to theii piesent location
anu conuition
CostsofPurchase
The costs of puichase shall consist of puichase piice incluuing uuties anu taxes fieight
inwaius anu othei expenuituie uiiectly attiibutable to the acquisition Tiaue uiscounts
iebates anu othei similai items shall be ueuucteu in ueteimining the costs of puichase

CostsofServices
The costs of seivices in the case of a seivice pioviuei shall consist of laboui anu othei
costs of peisonnel uiiectly engageu in pioviuing the seivice incluuing supeivisoiy
peisonnel anu attiibutable oveiheaus

CostsofConversion
The costs of conveision of inventoiies shall incluue costs uiiectly ielateu to the units of
piouuction anu a systematic allocation of fixeu anu vaiiable piouuction oveiheaus that aie
incuiieu in conveiting mateiials into finisheu goous Fixeu piouuction oveiheaus shall be
those inuiiect costs of piouuction that iemain ielatively constant iegaiuless of the volume
of piouuction vaiiable piouuction oveiheaus shall be those inuiiect costs of piouuction
that vaiy uiiectly oi neaily uiiectly with the volume of piouuction

The allocation of fixeu piouuction oveiheaus foi the puipose of theii inclusion in the
costs of conveision shall be baseu on the noimal capacity of the piouuction facilities
Noimal capacity shall be the piouuction expecteu to be achieveu on an aveiage ovei a
48
numbei of peiious oi seasons unuei noimal ciicumstances taking into account the loss of
capacity iesulting fiom planneu maintenance The actual level of piouuction shall be useu
when it appioximates to noimal capacity The amount of fixeu piouuction oveiheaus
allocateu to each unit of piouuction shall not be incieaseu as a consequence of low
piouuction oi iule plant 0nallocateu oveiheaus shall be iecognizeu as an expense in the
peiiou in which they aie incuiieu In peiious of abnoimally high piouuction the amount of
fixeu piouuction oveiheaus allocateu to each unit of piouuction is uecieaseu so that
inventoiies aie not measuieu above the cost vaiiable piouuction oveiheaus shall be
assigneu to each unit of piouuction on the basis of the actual use of the piouuction
facilities
Wheie a piouuction piocess iesults in moie than one piouuct being piouuceu
simultaneously anu the costs of conveision of each piouuct aie not sepaiately iuentifiable
the costs shall be allocateu between the piouucts on a iational anu consistent basis Wheie
bypiouucts sciap oi waste mateiial aie immateiial they shall be measuieu at net
iealizable value anu this value shall be ueuucteu fiom the cost of the main piouuct

OtherCosts

0thei costs shall be incluueu in the cost of inventoiies only to the extent that they
aie incuiieu in biinging the inventoiies to theii piesent location anu conuition
Inteiest anu othei boiiowing costs shall not be incluueu in the costs of inventoiies
unless they meet the ciiteiia foi iecognition of inteiest as a component of the cost as
specifieu in the Tax Accounting Stanuaiu on Boiiowing Costs
ExclusionsfromtheCostofInventories
49
In ueteimining the cost of inventoiies in accoiuance with paiagiaphs to paiagiaphs
the following costs shall be excluueu anu iecognizeu as expenses of the peiiou in
which they aie incuiieu

a Abnoimal amounts of wasteu mateiials laboui oi othei piouuction costs
b Stoiage costs unless those costs aie necessaiy in the piouuction piocess piioi to
a fuithei piouuction stage
c Auministiative oveiheaus that uo not contiibute to biinging the inventoiies to
theii piesent location anu conuition
u Selling costs
CostFormulae
The Cost of inventoiies of items

i that aie not oiuinaiily inteichangeable anu
ii goous oi seivices piouuceu anu segiegateu foi specific piojects shall be
assigneu by specific iuentification of theii inuiviuual costs

Specific iuentification of cost means specific costs aie attiibuteu to iuentifieu items of
inventoiy

Wheie theie aie a laige numbeis of items of inventoiy which aie oiuinaiily
inteichangeable specific iuentification of costs shall not be maue

FirstinFirstoutandWeightedAverageCostFormula
Cost of inventoiies othei than the inventoiy uealt with in paiagiaph shall be
assigneu by using the Fiistin Fiistout FIF0 oi weighteu aveiage cost foimula The
50
foimula useu shall ieflect the faiiest possible appioximation to the cost incuiieu in
biinging the items of inventoiy to theii piesent location anu conuition

The FIF0 foimula assumes that the items of inventoiy which weie puichaseu oi
piouuceu fiist aie consumeu oi solu fiist anu consequently the items iemaining in
inventoiy at the enu of the peiiou aie those most iecently puichaseu oi piouuceu 0nuei
the weighteu aveiage cost foimula the cost of each item is ueteimineu fiom the weighteu
aveiage of the cost of similai items at the beginning of a peiiou anu the cost of similai items
puichaseu oi piouuceu uuiing the peiiou The aveiage shall be calculateu on a peiiouic
basis oi as each auuitional shipment is ieceiveu uepenuing upon the ciicumstances
RetailMethod
Wheie it is impiacticable to use the costing methous iefeiieu to in paiagiaph

the ietail methou can be useu in the ietail tiaue foi measuiing inventoiies of laige numbei
of iapiuly changing items that have similai maigins The cost of the inventoiy is
ueteimineu by ieuucing fiom the sales value of the inventoiy the appiopiiate peicentage
gioss maigin The peicentage useu takes into consiueiation inventoiy which has been
maikeu uown to below its oiiginal selling piice
NetRealisableValue

Inventoiies shall be wiitten uown to net iealisable value on an itembyitem basis
Wheie items of inventoiy ielating to the same piouuct line having similai puiposes oi enu
uses anu aie piouuceu anu maiketeu in the same geogiaphical aiea anu cannot be
piacticably evaluateu sepaiately fiom othei items in that piouuct line such inventoiies
shall be gioupeu togethei anu wiitten uown to net iealizable value on an aggiegate basis

51
Net iealizable value shall be baseu on the most ieliable eviuence available at the time
of valuation The estimates of net iealizable value shall also take into consiueiation the
puipose foi which the inventoiy is helu The estimates shall take into consiueiation
fluctuations of piice oi cost uiiectly ielating to events occuiiing aftei the enu of pievious
yeai to the extent that such events confiim the conuitions existing on the last uay of the
pievious yeai

Nateiials anu othei supplies helu foi use in the piouuction of inventoiies shall not
be wiitten uown below the cost wheie the finisheu piouucts in which they shall be
incoipoiateu aie expecteu to be solu at oi above the cost Wheie theie has been a uecline
in the piice of mateiials anu it is estimateu that the cost of finisheu piouucts will exceeu the
net iealizable value the value of mateiials shall be wiitten uown to net iealizable value
which shall be the ieplacement cost of such mateiials
ValueofOpeningStock

The value of the inventoiy as on the beginning of the pievious yeai shall be

i nil if the business has commenceu uuiing the pievious yeai anu
ii the value of the inventoiy as on the close of the immeuiately pieceuing
pievious yeai in any othei case
ChangeofMethodofValuationofInventory

The methou of valuation of inventoiies once auopteu by a peison in any pievious
yeai shall not be changeu without ieasonable cause
DissolutionofPartnershipFirm

52
In case of uissolution of a paitneiship fiim notwithstanuing whethei business is
uiscontinueu oi not the inventoiy on the uate of uissolution shall be valueu at the net
iealizable value
Disclosure

The following aspects shall be uiscloseu

a the accounting policies auopteu in measuiing inventoiies incluuing the cost
of foimulae useu
b The total caiiying amount of inventoiies anu its classification appiopiiate to
a peison

53

EventsOccurringAftertheEndofPreviousYear
Preamble
Scope

This Tax Accounting Stanuaiu ueals with tax accounting foi events occuiiing aftei
the enu of the pievious yeai
Definitions
The following teim is useu in this Tax Accounting Stanuaiu with the meanings
specifieu

a Events occurring after end of the previous year aie those significant events
both favouiable anu unfavouiable that occui aftei enu of the ielevant pievious yeai
but on oi befoie the uate on which the financial statements aie appioveu by the
Boaiu of Biiectois in the case of a company anu by the coiiesponuing appioving
authoiity in the case of any othei entity

54
uefineu in the Act shall have the meaning iespectively assigneu to them in the Act
Recognition

Aujustment to assets liabilities income oi expense shall be maue foi events
occuiiing aftei the pievious yeai that pioviue auuitional infoimation mateiially affecting
the ueteimination of the amounts ielating to conuitions existing at the enu of the ielevant
pievious yeai
Disclosure
Following uisclosuie shall be maue in iespect of each class of piovision
a a biief uesciiption of the item of income expense asset oi liability

iecognizeu on account of events occuiiing aftei balance sheet uate

b amount iecognizeu

55

PriorPeriodExpense
Preamble
not foi the puipose of maintenance of books of account

In the case of conflict between the piovisions of the Incometax Act the Act anu this
Scope
This Tax Accounting Stanuaiu ueals with tieatment of piioi peiiou expense
PriorPeriodExpense

Piioi peiiou expense means an expense which is iecoiueu in the cuiient
pievious yeai as a iesult of eiioi oi omission in any pieceuing yeais
Piioi peiiou expense shall not be consiueieu as allowable ueuuction in the
pievious yeai in which it is iecoiueu unless the peison pioves that such
expense acciueu uuiing the saiu pievious yeai
The expense aiising on account of change in accounting estimate shall not
constitute an eiioi oi omission foi the puiposes of classifying the same as
piioi peiiou expense
56
Disclosure

Piioi peiiou expense whethei consiueieu as allowable ueuuction oi not shall be
uiscloseu with iefeience to its natuie anu amount sepaiately

57

ConstructionContracts
Preamble
Scope

This Tax Accounting Stanuaiu shoulu be applieu in ueteimination of income foi a
constiuction contiact of a contiactoi
Definitions

specifieu

a A construction contract is a contiact specifically negotiateu foi the
constiuction of an asset oi a combination of assets that aie closely inteiielateu
oi inteiuepenuent in teims of theii uesign technology anu function oi theii
ultimate puipose oi use anu incluues

58
i contiact foi the ienueiing of seivices which aie uiiectly ielateu to the
constiuction of the asset foi example those foi the seivices of pioject
manageis anu aichitects

ii contiact foi uestiuction oi iestoiation of assets anu the iestoiation of
the enviionment following the uemolition of assets

b A fixed price contract is a constiuction contiact in which the contiactoi
agiees to a fixeu contiact piice oi a fixeu iate pei unit of output which may be
subject to cost escalation clauses

c A cost plus contract is a constiuction contiact in which the contiactoi is
ieimbuiseu foi allowable oi otheiwise uefineu costs plus a maik up on these
costs oi a fixeu fee
u Retentions aie amounts of piogiess billings which aie not paiu until the
satisfaction of conuitions specifieu in the contiact foi the payment of such
amounts oi until uefects have been iectifieu

e Progress billings aie amounts billeu foi woik peifoimeu on a contiact
whethei oi not they have been paiu by the customei

f Advances aie amounts ieceiveu by the contiactoi befoie the ielateu woik is
peifoimeu

A constiuction contiact may be negotiateu foi the constiuction of a single asset A

constiuction contiact may also ueal with the constiuction of a numbei of assets
59
which aie closely inteiielateu oi inteiuepenuent in teims of theii uesign
technology anu function oi theii ultimate puipose oi use

Constiuction contiacts aie foimulateu in a numbei of ways which foi the puiposes
of this Tax Accounting Stanuaiu aie classifieu as fixeu piice contiacts anu cost plus
contiacts Some constiuction contiacts may contain chaiacteiistics of both a fixeu
piice contiact anu a cost plus contiact foi example in the case of a cost plus
contiact with an agieeu maximum piice

CombiningandSegmentingConstructionContracts

The iequiiements of this Tax Accounting Stanuaiu shall be applieu sepaiately to
each constiuction contiact except as pioviueu foi in paiagiaphs anu heiein
Foi ieflecting the substance of a contiact oi a gioup of contiacts wheie it is
necessaiy the Tax Accounting Stanuaiu shoulu be applieu to the sepaiately
iuentifiable components of a single contiact oi to a gioup of contiacts togethei

Wheie a contiact coveis a numbei of assets the constiuction of each asset shoulu
be tieateu as a sepaiate constiuction contiact when

a sepaiate pioposals have been submitteu foi each asset
b each asset has been subject to sepaiate negotiation anu the contiactoi anu
customei have been able to accept oi ieject that pait of the contiact ielating
to each asset anu
c the costs anu ievenues of each asset can be iuentifieu

A gioup of contiacts whethei with a single customei oi with seveial customeis
shoulu be tieateu as a single constiuction contiact when

a the gioup of contiacts is negotiateu as a single package
60
b the contiacts aie so closely inteiielateu that they aie in effect pait of a single
pioject with an oveiall piofit maigin anu
c the contiacts aie peifoimeu concuiiently oi in a continuous sequence

Wheie a contiact pioviues foi the constiuction of an auuitional asset at the option
of the customei oi is amenueu to incluue the constiuction of an auuitional asset the
constiuction of the auuitional asset shoulu be tieateu as a sepaiate constiuction
contiact when

a the asset uiffeis significantly in uesign technology oi function fiom the asset
oi assets coveieu by the oiiginal contiact oi
b the piice of the asset is negotiateu without having iegaiu to the oiiginal
contiact piice

ContractRevenue

Contiact ievenue shall compiise of

a the initial amount of ievenue agieeu in the contiact incluuing ietentions anu
b vaiiations in contiact woik claims anu incentive payments

i to the extent that it is piobable that they will iesult in ievenue anu
ii they aie capable of being ieliably measuieu

Wheie contiact ievenue alieauy iecogniseu as income is subsequently wiitten off
in the books of accounts as uncollectible the same shall be iecogniseu as an
expense anu not as an aujustment of the amount of contiact ievenue

ContractCosts

61
Contiact costs shall compiise of

a costs that ielate uiiectly to the specific contiact
b costs that aie attiibutable to contiact activity in geneial anu can be allocateu
to the contiact
c such othei costs as aie specifically chaigeable to the customei unuei the
teims of the contiact anu
u allocateu boiiowing costs in accoiuance with the Tax Accounting Stanuaiu
on Boiiowing Costs

These costs shall be ieuuceu by any inciuental income not being in the natuie of
inteiest uiviuenus oi capital gains that is not incluueu in contiact ievenue

Costs that cannot be attiibuteu to any contiact activity oi cannot be allocateu to a
contiact shall be excluueu fiom the costs of a constiuction contiact

Contiact costs incluue the costs attiibutable to a contiact foi the peiiou fiom the
uate of secuiing the contiact to the final completion of the contiact Costs that aie
incuiieu in secuiing the contiact aie also incluueu as pait of the contiact costs
pioviueu

a they can be sepaiately iuentifieu anu
b it is piobable that the contiact shall be obtaineu

When costs incuiieu in secuiing a contiact aie iecogniseu as an expense in the
peiiou in which they aie incuiieu they aie not incluueu in contiact costs when
the contiact is obtaineu in a subsequent peiiou

Contiact costs that ielate to futuie activity on the contiact aie iecogniseu as an
asset Such costs iepiesent an amount uue fiom the customei anu aie classifieu as
contiact woik in piogiess
62

RecognitionofContractRevenueandExpenses

Contiact ievenue anu contiact costs associateu with the constiuction contiact
shoulu be iecogniseu as ievenue anu expenses iespectively by iefeience to the
stage of completion of the contiact activity at the iepoiting uate

The iecognition of ievenue anu expenses by iefeience to the stage of completion of
a contiact is iefeiieu to as the peicentage of completion methou 0nuei this
methou contiact ievenue is matcheu with the contiact costs incuiieu in ieaching
the stage of completion iesulting in the iepoiting of ievenue expenses anu piofit
which can be attiibuteu to the piopoition of woik completeu

The stage of completion of a contiact shall be ueteimineu with iefeience to

a the piopoition that contiact costs incuiieu foi woik peifoimeu upto the
iepoiting uate beai to the estimateu total contiact costs oi
b suiveys of woik peifoimeu oi
c completion of a physical piopoition of the contiact woik

Piogiess payments anu auvances ieceiveu fiom customeis aie not ueteiminative of
the stage of completion of a contiact

When the stage of completion is ueteimineu by iefeience to the contiact costs
incuiieu upto the iepoiting uate only those contiact costs that ieflect woik
peifoimeu aie incluueu in costs incuiieu upto the iepoiting uate Contiact costs
which aie excluueu aie
63

a contiact costs that ielate to futuie activity on the contiact anu
b payments maue to subcontiactois in auvance of woik peifoimeu unuei the
subcontiact

Buiing the eaily stages of a contiact wheie the outcome of the contiact cannot be
estimateu ieliably contiact ievenue is iecogniseu only to the extent of costs
incuiieu The eaily stage of a contiact shall not extenu beyonu of the stage of
completion

ChangesinEstimates

The peicentage of completion methou is applieu on a cumulative basis in each
accounting peiiou to the cuiient estimates of contiact ievenue anu contiact costs
Wheie theie is change in estimates the changeu estimates shall be useu in
ueteimination of the amount of ievenue anu expenses in the peiiou in which the
change is maue anu in subsequent peiious
Disclosure

A peison shall uisclose

a the amount of contiact ievenue iecogniseu as ievenue in the peiiou anu
b the methous useu to ueteimine the stage of completion of contiacts in
piogiess

A peison shall uisclose the following foi contiacts in piogiess at the iepoiting uate

a Amount of costs incuiieu anu iecognizeu piofits less iecognizeu losses
upto the iepoiting uate
64
b the amount of auvances ieceiveu anu
c the amount of ietentions

65

RevenueRecognition
Preamble
Scope
This Tax Accounting Stanuaiu ueals with the bases foi iecognition of ievenue aiising
in the couise of the oiuinaiy activities of a peison fiom

i the sale of goous

ii the ienueiing of seivices

iii the use by otheis of the peisons iesouices yieluing inteiest ioyalties oi
uiviuenus

This Tax Accounting Stanuaiu uoes not ueal with the aspects of ievenue iecognition
which aie uealt with by othei Tax Accounting Stanuaius
66
Definitions
The following teim is useu in this Tax Accounting Stanuaiu with the meanings
specifieu
a Revenue is the gioss inflow of cash ieceivables oi othei consiueiation aiising

in the couise of the oiuinaiy activities of a peison fiom the sale of goous fiom
the ienueiing of seivices oi fiom the use by otheis of the peisons iesouices
yieluing inteiest ioyalties oi uiviuenus

uefineu in the Act shall have the meanings assigneu to them in that Act
SaleofGoods
In a tiansaction involving the sale of goous the ievenue shall be iecogniseu when the
sellei of goous has tiansfeiieu to the buyei the piopeity in the goous foi a piice oi all
significant iisks anu iewaius of owneiship have been tiansfeiieu to the buyei anu the
sellei ietains no effective contiol of the goous tiansfeiieu to a uegiee usually associateu
with owneiship
Wheie the ability to assess the ultimate collection with ieasonable ceitainty is lacking at
the time of iaising any claim foi escalation of piice anu expoit incentives ievenue
iecognition in iespect of such claim shall be postponeu to the extent of unceitainty
involveu
67
Renderingofservices
Revenue fiom seivice tiansactions shall be iecogniseu by the peicentage completion

methou 0nuei this methou ievenue fiom seivice tiansactions is matcheu with the seivice
tiansactions costs incuiieu in ieaching the stage of completion iesulting in the
ueteimination of ievenue expenses anu piofit which can be attiibuteu to the piopoition of
woik completeu Tax Accounting Stanuaiu on constiuction contiact also iequiies the
iecognition of ievenue on this basis The iequiiements of that Stanuaiu shall mutatis
mutandis apply to the iecognition of ievenue anu the associateu expenses foi a seivice
tiansaction
TheUseofResourcesbyOthersYieldingInterest,RoyaltiesorDividends

Inteiest shall acciue on the time basis ueteimineu by the amount outstanuing anu the
iate applicable Biscount oi piemium on uebt secuiities helu is tieateu as though it weie
acciuing ovei the peiiou to matuiity

Royalties shall acciue in accoiuance with the teims of the ielevant agieement anu shall
be iecogniseu on that basis unless having iegaiu to the substance of the tiansaction it is
moie appiopiiate to iecognise ievenue on some othei systematic anu iational basis

Biviuenus aie iecogniseu in accoiuance with the piovisions of the Act
Disclosure

Following uisclosuies shall be maue in iespect of ievenue iecognition

68
a In a tiansaction involving sale of goou total amount of claim iaiseu foi
escalation of piice anu expoit incentives but not iecogniseu as ievenue
uuiing the pievious yeai along with natuie of unceitainty about such claims

b the amount of ievenue fiom seivice tiansactions iecogniseu as ievenue
uuiing the pievious yeai anu

c the methous useu to ueteimine the stage of completion of seivice
tiansactions in piogiess

u foi seivice tiansactions in piogiess at the enu of pievious yeai

i amount of costs incuiieu anu iecognizeu piofits less iecognizeu
losses upto enu of pievious yeai

ii the amount of auvances ieceiveu anu

iii the amount of ietentions

69

TangibleFixedAssets

Preamble

Scope

This Tax Accounting Stanuaiu ueals with the tieatment of tangible fixeu assets

Definitions
specifieu
a Tangible fixed asset is an asset being lanu builuing machineiy plant oi

fuinituie helu with the intention of being useu foi the puipose of piouucing oi
pioviuing goous oi seivices anu is not helu foi sale in the noimal couise of business

b Fair value of an asset is the amount foi which that asset coulu be
exchangeu between knowleugeable willing paities in an aims length tiansaction
70

uefineu in the Act shall have the meanings assigneu to them in that Act
IdentificationofTangibleFixedAssets

The uefinition in paiagiaph a pioviues ciiteiia foi ueteimining whethei an
item is to be classifieu as a tangible fixeu asset

Stanuby equipment anu seivicing equipment aie to be capitaliseu Nachineiy
spaies subject to the fulfillment of the ciiteiia mentioneu in paiagiaph shall be
chaigeu to the ievenue as anu when consumeu When such spaies can be useu only
in connection with an item of tangible fixeu asset anu theii use is expecteu to be
iiiegulai they shall be capitaliseu

ComponentsofActualCost

The actual cost of an acquiieu tangible fixeu asset shall compiise its puichase piice
impoit uuties anu othei taxes excluuing those subsequently iecoveiable anu any
uiiectly attiibutable expenuituie on making the asset ieauy foi its intenueu use Any
tiaue uiscounts anu iebates shall be ueuucteu in aiiiving at the actual cost

The cost of a tangible fixeu asset may unueigo changes subsequent to its acquisition
oi constiuction on account of

i piice aujustment changes in uuties oi similai factois oi

ii exchange fluctuation as specifieu in Tax Accounting Stanuaiu on The Effects of
Changes in Foieign Exchange Rates

71
Auministiation anu othei geneial oveiheau expenses aie to be excluueu fiom the
cost of tangible fixeu assets if they uo not ielate to a specific tangible fixeu asset
Expenses which aie specifically attiibutable to constiuction of a pioject oi to the
acquisition of a tangible fixeu asset oi biinging it to its woiking conuition shall be
incluueu as a pait of the cost of the pioject oi as a pait of the cost of the tangible
fixeu asset

The expenuituie incuiieu on staitup anu commissioning of the pioject incluuing
the expenuituie incuiieu on test iuns anu expeiimental piouuction shall be
capitaliseu The expenuituie incuiieu aftei the plant has begun commeicial
piouuction ie piouuction intenueu foi sale oi captive consumption shall be
tieateu as ievenue expenuituie

SelfconstructedTangibleFixedAssets

In aiiiving at the actual cost of selfconstiucteu tangible fixeu assets the same
piinciples shall apply as those uesciibeu in paiagiaphs to Cost of constiuction
that ielate uiiectly to the specific tangible fixeu asset anu costs that aie attiibutable
to the constiuction activity in geneial anu can be allocateu to the specific tangible
fixeu asset shall be incluueu in actual cost Any inteinal piofits shall be eliminateu
in aiiiving at such costs

NonmonetaryConsideration

When a tangible fixeu asset is acquiieu in exchange foi anothei asset its actual cost
shall be iecoiueu at its faii maiket value oi the faii value of the asset given up
whichevei is lowei

72
When a tangible fixeu asset is acquiieu in exchange foi shaies oi othei secuiities
the asset shall be iecoiueu at its faii maiket value oi the faii value of the secuiities
issueu whichevei is lowei

ImprovementsandRepairs

Expenuituie foi the puipose of pieseiving oi maintaining an alieauy existing
tangible fixeu asset anu which uoes not biing a new asset into existence oi uoes not
iesult into a new oi uiffeient auvantage that incieases the futuie benefits fiom the
existing asset shall be chaigeu to ievenue

Expenuituie which uoes not meet the ciiteiia mentioneu in paiagiaph is to be
capitaliseu

The cost of an auuition oi extension to an existing tangible fixeu asset which is of a
capital natuie anu which becomes an integial pait of the existing tangible fixeu asset
is to be auueu to its actual cost Any auuition oi extension which has a sepaiate
iuentity anu is capable of being useu aftei the existing tangible fixeu asset is
uisposeu of shall be tieateu as sepaiate asset

ValuationofTangibleFixedAssetsinSpecialCases
Wheie a peison owns tangible fixeu assets jointly with otheis the piopoition in the
actual cost accumulateu uepieciation anu wiitten uown value is gioupeu togethei
with similai fully owneu tangible fixeu assets Betails of such jointly owneu tangible
fixeu assets shall be inuicateu sepaiately in the tangible fixeu assets iegistei

Wheie seveial assets aie puichaseu foi a consoliuateu piice the consiueiation shall
be appoitioneu to the vaiious assets on a faii basis
73
Depreciation

Bepieciation on a tangible fixeu asset shall be computeu in accoiuance with the
Transfers

Income aiising on tiansfei of a tangible fixeu asset shall be computeu in accoiuance
with the piovisions of the Act
TangibleFixedAssetsRegister
The iecoiu of tangible fixeu assets shall be maintaineu in the tangible fixeu asset
iegistei containing the following uetails

a Besciiption of asset

b Location anu iuentification of asset

c Actual cost incluuing aujustments on account of

i Nouifieu value Auueu Tax cieuit claimeu anu alloweu unuei the
Cential Excise Rules in iespect of assets acquiieu on oi aftei
st

Naich
74

ii change in iate of exchange of cuiiency anu

iii subsiuy oi giant oi ieimbuisement by whatevei name calleu

u Bate on which the asset is fiist put to use
Disclosures

Following uisclosuie shall be maue in iespect of tangible fixeu assets

a Besciiption of assetblock of assets

b Rate of uepieciation

c Actual cost oi wiitten uown value as the case may be

u Auuitionsueuuctions uuiing the yeai with uates in the case of any auuition
of an asset uate put to use incluuing aujustments on account of

i Nouifieu value Auueu Tax cieuit claimeu anu alloweu unuei the
Cential Excise Rules in iespect of assets acquiieu on oi aftei
st

Naich

ii change in iate of exchange of cuiiency anu

iii subsiuy oi giant oi ieimbuisement by whatevei name calleu

e Bepieciation Allowable

75
f Wiitten uown value at the enu of yeai

76

TheEffectsofChangesinForeignExchangeRates
Preamble

Scope

This Tax Accounting Stanuaiu ueals with

a tieatment of tiansactions in foieign cuiiencies

b tianslating the financial statements of foieign opeiations

c tieatment of foieign cuiiency tiansactions in the natuie of foiwaiu exchange
contiacts

Definitions

specifieu

77
a closingrate is the exchange iate at the last uay of the pievious yeai

b exchange difference is the uiffeience iesulting fiom iepoiting the same
numbei of units of a foieign cuiiency in the iepoiting cuiiency of a peison at
uiffeient exchange iates

c exchangerate is the iatio foi exchange of two cuiiencies

u fairvalue is the amount foi which an asset coulu be exchangeu oi a liability
settleu between knowleugeable willing paities in an aims length tiansaction

e foreigncurrency is a cuiiency othei than the iepoiting cuiiency of a peison

f foreignoperationsofaperson is a bianch by whatevei name calleu of that
peison the activities of which aie baseu oi conuucteu in a countiy othei than
Inuia

g foreign currency transaction is a tiansaction which is uenominateu in oi
iequiies settlement in a foieign cuiiency incluuing tiansactions aiising when a
peison

i buys oi sells goous oi seivices whose piice is uenominateu in a foieign
cuiiency oi

ii boiiows oi lenus funus when the amounts payable oi ieceivable aie
uenominateu in a foieign cuiiency oi

iii becomes a paity to an unpeifoimeu foiwaiu exchange contiact oi

iv 0theiwise acquiies oi uisposes of assets oi incuis oi settles liabilities
uenominateu in a foieign cuiiency
78

h forward exchange contract means an agieement to exchange uiffeient
cuiiencies at a foiwaiu iate anu incluues a foieign cuiiency option contiact oi
anothei financial instiument of a similai natuie

i forwardrate is the specifieu exchange iate foi exchange of two Cuiiencies at
a specifieu futuie uate

j Indian currency shall have the meaning as assigneu to it in section of the
Foieign Exchange Nanagement Act of

k integralforeignoperation is a foieign opeiation the activities of which aie
an integial pait of the opeiation of the peison

l monetaryitems aie money helu anu assets to be ieceiveu oi liabilities to be
paiu in fixeu oi ueteiminable amounts of money Cash ieceivables anu
payables aie examples of monetaiy items

m nonintegralforeignoperation is a foieign opeiation that is not an integial
foieign opeiation

n nonmonetary items aie assets anu liabilities othei than monetaiy items
Fixeu assets inventoiies anu investments in equity shaies aie examples of non
monetaiy items

o reporting currency means Inuian cuiiency except foi foieign opeiations
wheie it shall mean cuiiency of the countiy wheie the opeiations aie caiiieu
out

uefineu in the Act shall have the meaning assigneu to them in the Act
79

ForeignCurrencyTransactions
InitialRecognition

A foieign cuiiency tiansaction shall be iecoiueu on initial iecognition in the iepoiting
cuiiency by applying to the foieign cuiiency amount the exchange iate between the
iepoiting cuiiency anu the foieign cuiiency at the uate of the tiansaction
ConversionatLastDateofPreviousYear

At last uay of each pievious yeai

a Foieign cuiiency monetaiy items shall be conveiteu into iepoiting cuiiency by
applying the closing iate

b nonmonetaiy items in a foieign cuiiency shall be conveiteu into iepoiting
cuiiency by using the exchange iate at the uate of the tiansaction

RecognitionofExchangeDifferences

i In iespect of monetaiy items exchange uiffeiences aiising on the settlement theieof
oi on conveision theieof at last uay of the pievious yeai shall be iecogniseu as income
oi as expense in that pievious yeai

ii In iespect of nonmonetaiy items exchange uiffeiences aiising on conveision
theieof at the last uay of the pievious yeai shall not be iecognizeu as income oi as
expense in that pievious yeai
80
Exceptionstoparagraph4,5and6

Notwithstanuing anything containeu in paiagiaph anu initial iecognition
conveision anu iecognition of exchange uiffeience shall be subject to piovisions of
section A of the Act oi Rule of Incometax Rules as the case may be

FinancialStatementsofForeignOperations
ClassificationofForeignOperations

The methou useu to tianslate the financial statements of a foieign opeiation
uepenus on the way in which it is financeu anu opeiates in ielation to a peison Foi
this puipose foieign opeiations aie classifieu as eithei integial foieign
opeiations oi nonintegial foieign opeiations

The following aie inuications that a foieign opeiation is a nonintegial foieign
opeiation iathei than an integial foieign opeiation

a while the peison may contiol the foieign opeiation the activities of the foieign
opeiation aie caiiieu out with a significant uegiee of autonomy fiom the
activities of the peison

b tiansactions with the peison aie not a high piopoition of the foieign
opeiations activities

c the activities of the foieign opeiation aie financeu mainly fiom its own
opeiations oi local boiiowings

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u costs of laboui mateiial anu othei components of the foieign opeiations
piouucts oi seivices aie piimaiily paiu oi settleu in the local cuiiency

e the foieign opeiations sales aie mainly in cuiiencies othei than Inuian
cuiiency

f cash flows of the peison aie insulateu fiom the uaytouay activities of the
foieign opeiation

g sales piices foi the foieign opeiations piouucts oi seivices aie not piimaiily
iesponsive on a shoitteim basis to changes in exchange iates but aie
ueteimineu moie by local competition oi local goveinment iegulation

h theie is an active local sales maiket foi the foieign opeiations piouucts oi
seivices although theie also might be significant amounts of expoits

IntegralForeignOperations

The financial statements of an integial foieign opeiation shall be tianslateu using the
piinciples anu pioceuuies in paiagiaphs to as if the tiansactions of the foieign
opeiation hau been those of the peison himself

NonintegralForeignOperations

In tianslating the financial statements of a nonintegial foieign opeiation foi a
pievious yeai the peison shall apply the following

a the assets anu liabilities both monetaiy anu nonmonetaiy of the nonintegial
foieign opeiation shall be tianslateu at the closing iate

82
b income anu expense items of the nonintegial foieign opeiation shall be
tianslateu at exchange iates at the uates of the tiansactions anu

c all iesulting exchange uiffeiences shall be iecogniseu as income oi as expenses
in that pievious yeai

Notwithstanuing anything stateu in subpaiagiaph tianslation anu iecognition of
exchange uiffeience in cases iefeiieu to in section A of the Act oi Rule of
Incometax Rules shall be caiiieu out in accoiuance with the piovisions
containeu in that section oi that Rule as the case may be
ChangeintheClassificationofaForeignOperation

When theie is a change in the classification of a foieign opeiation the tianslation
pioceuuies applicable to the ieviseu classification shoulu be applieu fiom the uate of
the change in the classification

The consistency piinciple iequiies that foieign opeiation once classifieu as integial oi
nonintegial is continueu to be so classifieu Bowevei a change in the way in which a
foieign opeiation is financeu anu opeiates in ielation to the peison may leau to a
change in the classification of that foieign opeiation
ForwardExchangeContracts

Any piemium oi uiscount aiising at the inception of a foiwaiu exchange contiact
shall be amoitiseu as expense oi income ovei the life of the contiact Exchange
uiffeiences on such a contiact shall be iecogniseu as income oi as expense in the
pievious yeai in which the exchange iates change Any piofit oi loss aiising on
cancellation oi ienewal shall be iecognizeu as income oi as expense foi the
pievious yeai

83
The piovisions of subpaia shall apply pioviueu that the contiact

a is not intenueu foi tiauing oi speculation puiposes anu

b is enteieu into to establish the amount of the iepoiting cuiiency iequiieu oi
available at the settlement uate of the tiansaction

The piovisions of subpaia shall not apply to the contiact that is enteieu
into to heuge the foieign cuiiency iisk of a fiim commitment oi a highly
piobable foiecast tiansaction Foi this puipose fiim commitment shall not
incluue assets anu liabilities existing at the enu of the pievious yeai

The piemium oi uiscount that aiises on the contiact is measuieu by the
uiffeience between the exchange iate at the uate of the inception of the
contiact anu the foiwaiu iate specifieu in the contiact Exchange uiffeience
on the contiact is the uiffeience between

a the foieign cuiiency amount of the contiact tianslateu at the exchange
iate at the last uay of the pievious yeai oi the settlement uate wheie the
tiansaction is settleu uuiing the pievious yeai anu

b the same foieign cuiiency amount tianslateu at the uate of inception of
the contiact oi the last uay of the immeuiately pieceuing pievious yeai
whichevei is latei

Piemium uiscount oi exchange uiffeience on contiacts that aie intenueu foi
tiauing oi speculation puiposes oi that aie enteieu into to heuge the foieign
cuiiency iisk of a fiim commitment oi a highly piobable foiecast tiansaction
shall be iecogniseu at the time of settlement

84

85

GovernmentGrants

Preamble

In case of conflict between the piovisions of the Income Tax Act the Act anu this
Scope
This Tax Accounting Stanuaiu ueals with the tieatment of uoveinment giants The
uoveinment giants aie sometimes calleu by othei names such as subsiuies cash
incentives uuty uiawbacks waivei concessions ieimbuisements etc
This Tax Accounting Stanuaiu uoes not ueal with

a uoveinment assistance othei than in the foim of uoveinment giants

b uoveinment paiticipation in the owneiship of the enteipiise

86
Definitions

The following teims aie useu in the Tax Accounting Stanuaiu with the meanings
specifieu
a Government iefeis to the Cential uoveinment State uoveinments
agencies anu similai bouies whethei local national oi inteinational
b Government grants aie assistance by uoveinment in cash oi kinu to a
peison foi past oi futuie compliance with ceitain conuitions They excluue
those foims of uoveinment assistance which cannot have a value placeu upon
them anu the tiansactions with uoveinment which cannot be uistinguisheu
fiom the noimal tiauing tiansactions of the peison
Woius anu expiessions useu anu not uefineu in this Tax Accounting Stanuaiu
but uefineu in the Act shall have the meaning assigneu to them in the Act
RecognitionofGovernmentgrants
uoveinment giants shoulu not be iecognizeu until theie is ieasonable assuiance
that i the peison shall comply with the conuitions attacheu to them anu ii the
giants shall be ieceiveu

Recognition of uoveinment giant shall not be postponeu beyonu the uate of actual
ieceipt
TreatmentofGovernmentgrants
Wheie the uoveinment giant ielates to a uepieciable fixeu asset oi assets of a peison
the giant shall be ueuucteu fiom the actual cost of the asset oi assets conceineu oi
fiom the wiitten uown value of block of assets to which conceineu asset oi assets
belongeu to
87

Wheie the uoveinment giant ielates to a nonuepieciable asset oi assets of a
peison iequiiing fulfillment of ceitain obligations the giant shall be iecognizeu as
income ovei the same peiiou ovei which the cost of meeting such obligations is
chaigeu to income
Wheie the uoveinment giant is of such a natuie that it cannot be uiiectly ielatable
to the asset acquiieu so much of the amount which beais to the total uoveinment
giant the same piopoition as such asset beais to all the assets in iespect of oi with
iefeience to which the uoveinment giant is so ieceiveu shall be ueuucteu fiom the
actual cost of the asset oi shall be ieuuceu fiom the wiitten uown value of block of
assets to which the asset oi assets belongeu to
The uoveinment giant that is ieceivable as compensation foi expenses oi losses
incuiieu in a pievious financial yeai oi foi the puipose of giving immeuiate financial
suppoit to the peison with no fuithei ielateu costs shall be iecognizeu as income of
the peiiou in which it is ieceivable

The uoveinment giants othei than coveieu by paiagiaph anu shall be
iecognizeu as income ovei the peiious necessaiy to match them with the ielateu
costs which they aie intenueu to compensate

The uoveinment giants in the foim of nonmonetaiy assets given at a concessional
iate shall be accounteu foi on the basis of theii acquisition cost
RefundofGovernmentGrants

The amount iefunuable in iespect of a uoveinment giant iefeiieu to in paiagiaphs
anu shall be applieu fiist against any unamoitizeu uefeiieu cieuit iemaining
in iespect of the uoveinment giant To the extent that the amount iefunuable
88
exceeus any such uefeiieu cieuit oi wheie no uefeiieu cieuit exists the amount
shall be chaigeu to piofit anu loss statement

The amount iefunuable in iespect of a uoveinment giant ielateu to a fixeu asset oi
assets shall be iecoiueu by incieasing the actual cost oi wiitten uown value of block
of assets by the amount iefunuable Wheie the actual cost of the asset is incieaseu
uepieciation on the ieviseu actual cost oi wiitten uown value shall be pioviueu
piospectively at the piesciibeu iate

Disclosures

Following uisclosuie shall be maue in iespect of uoveinment giants
a Natuie anu extent of uoveinment giants iecogniseu uuiing the pievious yeai
by way of ueuuction fiom the actual cost of the asset oi assets oi fiom the
wiitten uown value of block of assets uuiing the pievious yeai

b Natuie anu extent of uoveinment giants iecogniseu uuiing the pievious yeai
as income
c Natuie anu extent of uoveinment giants not iecogniseu uuiing the pievious
yeai by way of ueuuction fiom the actual cost of the asset oi assets oi fiom
the wiitten uown value of block of assets anu ieasons theieof
u Natuie anu extent of uoveinment giants not iecogniseu uuiing the pievious
yeai as income anu ieasons theieof

89

TaxAccountingStandard(TAS)
Securities
Preamble



Scope

This Tax Accounting Stanuaiu ueals with secuiities helu as stockintiaue

This Tax Accounting Stanuaiu uoes not ueal with

a the bases foi iecognition of inteiest anu uiviuenus on secuiities which aie
coveieu by the Tax Accounting Stanuaiu on Revenue Recognition

b secuiities helu by a peison engageu in the business of insuiance

c secuiities helu by mutual funus ventuie capital funus banks anu public
financial institutions foimeu unuei a Cential oi a State Act oi so ueclaieu
unuei the Companies Act

90
Definitions

specifieu

a Fair value is the amount foi which an asset coulu be exchangeu between a
knowleugeable willing buyei anu a knowleugeable willing sellei in an aims
length tiansaction

b Securities shall have the meaning assigneu to it in clause h of Section of
the Secuiities Contiact Regulation Act othei than Beiivatives iefeiieu to
in subclause a of that clause


Recognitionandinitialmeasurementofsecurities

A secuiity on acquisition shall be iecogniseu at actual cost

The actual cost of a secuiity shall compiise of its puichase piice anu incluue acquisition
chaiges such as biokeiage fees tax uuty oi cess

Wheie a secuiity is acquiieu in exchange foi othei secuiities the secuiity acquiieu shall
be iecogniseu at its faii value oi the faii value of the secuiities issueu whichevei is lowei

Wheie a secuiity is acquiieu in exchange foi anothei asset its actual cost shall be
iecogniseu at its faii value oi the faii value of the asset given up whichevei is lowei

91
Wheie unpaiu inteiest has acciueu befoie the acquisition of an inteiestbeaiing secuiity
anu is incluueu in the piice paiu foi the secuiity the subsequent ieceipt of inteiest is
allocateu between pieacquisition anu postacquisition peiious the pieacquisition poition
of the inteiest is ueuucteu fiom the actual cost
Subsequentmeasurementofsecurities

At the enu of any pievious yeai secuiities helu as stockintiaue shall be valueu at
actual cost initially iecogniseu oi net iealisable value at the enu of that pievious yeai
whichevei is lowei

Foi the puipose of paia the compaiison of actual cost initially iecogniseu anu net
iealisable value shall be uone categoiywise anu not foi each inuiviuual secuiity Foi this
puipose secuiities shall be classifieu into the following categoiies

a Shaies

b Bebt secuiities

c Conveitible secuiities anu

u Any othei secuiities not coveieu above

The value of secuiities helu as stockintiaue of a business as at the beginning of the
pievious yeai shall be

a Nil if the business is commenceu uuiing the pievious yeai anu

b The value of the secuiities of the business as on the close of the immeuiately
pieceuing pievious yeai in any othei case
92

Notwithstanuing anything containeu in paia anu at the enu of any pievious
yeai secuiities not listeu on a iecogniseu stock exchange oi listeu but not quoteu on a
iecogniseu stock exchange with iegulaiity fiom time to time shall be valueu at actual cost
initially iecogniseu

Foi the puipose of paia anu wheie the actual cost initially iecogniseu cannot
be asceitaineu by iefeience to specific iuentification the cost of such secuiity shall be
ueteimineu on the basis of fiistinfiistout methou

93

BorrowingCosts
Preamble

Scope
This Tax Accounting Stanuaiu ueals with tieatment of boiiowing costs

This Tax Accounting Stanuaiu uoes not ueal with the actual oi imputeu cost of
owneis equity anu piefeience shaie capital

Definitions

specifieu

a borrowing costs aie inteiest anu othei costs incuiieu by a peison in
connection with the boiiowing of funus anu incluue
i commitment chaiges on boiiowings

94
ii amoitiseu amount of uiscounts oi piemiums ielating to boiiowings

iii amoitiseu amount of ancillaiy costs incuiieu in connection with the
aiiangement of boiiowings

iv finance chaiges in iespect of assets acquiieu unuei finance leases oi
unuei othei similai aiiangements
b qualifyingasset means

i lanu builuing machineiy plant oi fuinituie being tangible assets

ii knowhow patents copyiights tiaue maiks licences fianchises oi any
othei business oi commeicial iights of similai natuie being intangible
assets

iii inventoiies that iequiie a peiiou of twelve months oi moie to biing
them to a saleable conuition

Recognition

Boiiowing costs that aie uiiectly attiibutable to the acquisition constiuction oi
piouuction of a qualifying asset shall be capitaliseu as pait of the cost of that asset The
amount of boiiowing costs eligible foi capitalisation shall be ueteimineu in accoiuance
with this Tax Accounting Stanuaiu 0thei boiiowing costs shall be iecogniseu in
accoiuance with the piovisions of the Act

95
Foi the puipose of this Tax Accounting Stanuaiu capitalisation in the context of
inventoiy iefeiieu to in paiagiaph biii means auuition of boiiowing cost to the
cost of inventoiy
BorrowingcostsEligibleforCapitalisation

To the extent the funus aie boiioweu specifically foi the puiposes of acquisition of a
qualifying asset the amount of boiiowing costs to be capitaliseu on that asset shall be
the actual boiiowing costs incuiieu uuiing the peiiou on the funus so boiioweu

To the extent the funus aie boiioweu geneially anu utiliseu foi the puiposes of
acquisition of a qualifying asset the amount of boiiowing costs to be capitaliseu shall
be computeu in accoiuance with the following foimula namely

B

A X
C

Wheie A boiiowing costs incuiieu uuiing the pievious yeai except on
boiiowings uiiectly ielatable to specific puiposes

B the aveiage cost of qualifying asset as appeaiing in the balance
sheet of a peison on the fiist uay anu the last uay of the pievious
yeai othei than those qualifying assets which aie uiiectly
funueu out of specific boiiowings

C the aveiage of total assets as appeaiing in the balance sheet of a
peison on the fiist uay anu the last uay of the pievious yeai
othei than those assets which aie uiiectly funueu out of specific
boiiowings

96
CommencementofCapitalisation

The capitalisation of boiiowing costs shall commence

a in a case iefeiieu to in paiagiaph fiom the uate on which funus weie
boiioweu

b in a case iefeiieu to in paiagiaph fiom the uate on which funus weie utiliseu
CessationofCapitalisation

Capitalisation of boiiowing costs shall cease

a in case of a qualifying asset iefeiieu to in paiagiaph bi anu ii when
such asset is fiist put to use

b in case of inventoiy iefeiieu to in paiagiaph biii when substantially all
the activities necessaiy to piepaie such inventoiy foi its intenueu sale aie
complete
When the constiuction of a qualifying asset is completeu in paits anu a completeu pait
is capable of being useu while constiuction continues foi the othei paits capitalisation
of boiiowing costs in ielation to a pait shall cease

a in case of pait of a qualifying asset iefeiieu to in paiagiaph bi anu ii
when such pait of a qualifying asset is fiist put to use

97
b in case of pait of inventoiy iefeiieu to in paiagiaph biii when
substantially all the activities necessaiy to piepaie such pait of inventoiy foi
its intenueu sale aie complete
Disclosure
The following uisclosuie shall be maue in iespect of boiiowing costs

a the accounting policy auopteu foi boiiowing costs

b the amount of boiiowing costs capitaliseu uuiing the pievious yeai

98

Leases

Preamble

Scope

This Tax Accounting Stanuaiu shall be applieu foi leases othei than

a lease agieements to exploie foi oi use of natuial iesouices such as
oil gas timbei metals anu othei mineial iights

b licensing agieements such as agieement of motion pictuie film viueo
iecoiuing play manusciipt patent anu copyiight

c lease agieements to use lanus

This Tax Accounting Stanuaiu shall apply to agieements that tiansfei the iight to
use assets even though substantial seivices by the lessoi may be calleu foi in
connection with the opeiation oi maintenance of such assets This Tax Accounting
99
Stanuaiu shall not apply to agieements that aie contiacts foi seivices that uo not
tiansfei the iight to use assets fiom one contiacting paity to the othei
Definitions

specifieu
(a) A lease is an agieement wheieby the lessoi conveys to the lessee in ietuin foi
a payment oi seiies of payments the iight to use an asset foi an agieeu peiiou of
time anu incluues a hiie puichase agieement

(b) A financelease is a lease that tiansfeis substantially all the iisks anu iewaius
inciuent to owneiship of an asset

(c) An
operatinglease is a lease othei than a finance lease

(d) A noncancellablelease is a lease that is cancellable only
i upon the occuiience of a iemote contingency
ii with the peimission of the lessoi
iii if the lessee enteis into a new lease foi the same oi an equivalent asset
with the same lessoi oi
iv upon payment by the lessee of an auuitional amount such that at
inception continuation of the lease is ieasonably ceitain

(e) The inception of the lease is the eailiei of the uate of the lease agieement
anu the uate of a commitment by the paities to the piincipal piovisions of the
lease

(f) The leaseterm is the noncancellable peiiou foi which the lessee has agieeu
100
to take the asset on lease togethei with any fuithei peiious foi which the lessee
has the option to continue the lease of the asset with oi without fuithei
payment which option at the inception of the lease it is ieasonably ceitain that
the lessee will exeicise

(g) Minimum lease payments aie the payments ovei the lease teim that the
lessee is oi can be iequiieu to make excluuing contingent ient costs foi
seivices anu taxes to be paiu by anu ieimbuiseu to the lessoi togethei with any
iesiuual value guaianteeu by oi on behalf of the lessee Wheie the lessee has an
option to puichase the asset at a piice which is expecteu to be sufficiently lowei
than the faii value at the uate the option becomes exeicisable anu that option at
the inception of the lease is ieasonably ceitain to be exeiciseu the minimum
lease payments shall compiise of minimum payments payable ovei the lease
teim anu the payment iequiieu to exeicise the puichase option

(h) Fairvalue is the amount foi which an asset coulu be exchangeu oi a liability
coulu be settleu between knowleugeable anu willing paities in an aims length
tiansaction

(i) Economiclife is eithei

i the peiiou ovei which an asset is expecteu to be economically usable by
one oi moie useis oi

b the numbei of units expecteu to be obtaineu fiom the asset by one oi
moie useis

(j) Usefullife of a leaseu asset is eithei
i the peiiou ovei which the leaseu asset is expecteu to be useu by the
lessee oi
101
ii the numbei of units expecteu to be obtaineu fiom the use of the asset by
the lessee

(k) Residualvalue of a leaseu asset is the estimateu faii value of the asset at the
enu of the lease teim as estimateu at the inception of the lease

(l) Guaranteedresidualvalue is that pait of the iesiuual value which is the
maximum amount guaianteeu by the lessee oi by a paity on behalf of the lessee

(m)Unguaranteed residual value of a leaseu asset is the amount by which the
iesiuual value of the asset exceeus its guaianteeu iesiuual value

(n) The interest rate implicit in the lease is the uiscount iate that at the
inception of the lease which equals the faii value of the leaseu asset to the
aggiegate piesent value of
a the minimum lease payments unuei a finance lease anu
b any unguaianteeu iesiuual value

(o) The lessees incremental borrowing rate of interest is the iate of inteiest
the lessee woulu have to pay on a similai lease oi if that is not ueteiminable
the iate that at the inception of the lease the lessee woulu incui to boiiow ovei
a similai teim anu with a similai secuiity the funus necessaiy to puichase the
asset

(p) Contingent rent is that poition of the lease payments that is not fixeu in
amount but is baseu on a factoi othei than the passage of time

102
ClassificationofLeases

Classification of a lease as a finance lease oi an opeiating lease shall uepenu on the
substance of the tiansaction iathei than its foim

A lease shall be ueemeu to be a finance lease wheie

a the lease tiansfeis the owneiship of the asset to the lessee by the enu of the
lease teim

b the lessee has the option to puichase the asset at a piice which is expecteu to
be sufficiently lowei than the faii value at the uate the option becomes
exeicisable such that at the inception of the lease it is ieasonably ceitain
that the option will be exeiciseu

c the lease teim is foi the majoi pait of the economic life of the asset although
the title is not tiansfeiieu

u at the inception of the lease the piesent value of the minimum lease
payments constitutes at least substantially the faii value of the leaseu asset
oi

e the leaseu asset is of a specializeu natuie such that only the lessee can use it
without majoi mouifications being maue

Lease classification shall be maue at the inception of the lease anu shall not be
changeu except as pioviueu in Paia

If at any time the lessee anu the lessoi agiee to change the piovisions of the lease
agieement othei than by ienewing the lease in a mannei that woulu have iesulteu
103
in a uiffeient classification of the lease hau the changeu teims been in effect at the
inception of the lease the ieviseu agieement is consiueieu as a new agieement
ovei its ieviseu teim anu shall be classifieu accoiuingly
Classification of a lease agieement shall be same foi the lessoi anu the lessee anu
they shall execute a joint confiimation iegaiuing such classification
TaxTreatmentofLeasesincaseofLessees

FinanceLeases

At the inception of a finance lease the lessee shall iecognise the asset acquiieu
unuei lease as his own asset with coiiesponuing liability The cost of acquisition of
such asset shall be the piesent value of the minimum lease payments oi faii value
of such asset whichevei is lowei In calculating the piesent value of the minimum
lease payments the uiscount iates hall be the inteiest iate implicit in the lease if
this is piacticable to ueteimine if not the lessees inciemental boiiowing iate
shall be useu

The costs iuentifieu as uiiectly attiibutable to activities peifoimeu by the lessee foi
a finance lease aie incluueu as pait of the cost of acquisition of the asset

Boiiowing cost shall be the amount by which the minimum lease payments exceeu
the outstanuing liability at the inception of the lease The boiiowing cost shall be
allocateu to peiious uuiing the lease teim so as to piouuce a constant peiiouic iate
of inteiest on the iemaining balance of the liability foi each peiiou

104
Subject to execution of the joint confiimation iefeiieu to in Paia lessee shall be
entitleu to uepieciation on the asset acquiieu unuei finance lease in accoiuance

OperatingLeases

Lease payments unuei an opeiating lease shall be iecogniseu as an expense on
stiaight line basis ovei the lease teim
TaxTreatmentofLeasesincaseofLessors

FinanceLeases

The lessoi othei than manufactuiei oi uealei shall iecognise the asset given
unuei a finance lease as sale anu iecognize the coiiesponuing ieceivable at a sum
equal to
i the cost of acquisition of such asset wheie the asset is acquiieu anu given on
lease immeuiately oi
ii the faii value of such asset in any othei case

The manufactuiei oi uealei lessoi shall iecognize the asset given unuei a finance
lease as sale anu iecognize the coiiesponuing ieceivable at a sum equal to the faii
value of the leaseu asset Wheie aitificially low oi high iate of inteiest is quoteu
then the piesent value of the minimum lease payments anu unguaianteeu iesiuual
value acciuing to the lessoi computeu at a commeicial iate of inteiest shall be
iecoiueu as sales ievenue anu coiiesponuing ieceivable

Finance Income shall be amount by which the aggiegate of lease ieceipts anu
iesiuual value exceeus the ieceivable at the inception of the lease The finance
income net of costs iuentifieu as uiiectly attiibutable to the activities peifoimeu
by the lessoi foi a finance lease shall be allocateu to peiious uuiing the lease teim
105
so as to piouuce a constant peiiouic iate of inteiest on the iemaining balance of
the ieceivable foi each peiiou

The balance of the ieceivable at the enu of the lease teim shall be tieateu as the
cost of acquisition oi actual cost of the asset given unuei finance lease at the time
of enu of the lease teim

The Lessoi shall not be entitleu to uepieciation on asset given on a finance lease in
accoiuance with the piovisions of the Act

OperatingLeases

Lease income unuei an opeiating lease shall be iecogniseu as an income on a
stiaight line basis ovei the lease teim

Initial uiiect costs incuiieu specifically to eain ievenues fiom an opeiating lease
aie uefeiieu anu allocateu on a stiaight line basis ovei the lease teim

Subject to execution of the joint confiimation iefeiieu to in Paia lesssoi shall be
entitleu to uepieciation on the asset given unuei opeiating lease in accoiuance
SaleandLeasebackTransactions

A sale anu leaseback tiansaction shall be uealt with in accoiuance with the

106

IntangibleAssets

Preamble
Scope

This Tax Accounting Stanuaiu ueals with the tieatment of intangible assets This Tax
Accounting Stanuaiu uoes not ueal with
a intangible assets that aie coveieu by anothei Tax Accounting Stanuaiu
b financial assets
c mineial iights anu expenuituie on the exploiation foi oi uevelopment anu
extiaction of mineials oil natuial gas anu similai noniegeneiative iesouices
u intangible assets aiising fiom contiacts with policyholueis
e expenuituie in iespect of teimination benefits
f intangible assets helu foi sale in the oiuinaiy couise of business
107
g uefeiieu tax assets
h leases anu
i uoouwill
Definitions

specifieu

a An intangible asset is an iuentifiable nonmonetaiy asset without physical
substance helu foi use in the piouuction oi supply of goous oi seivices foi iental to otheis
oi foi auministiative puiposes

b An asset is a iesouice

i contiolleu by a peison as a iesult of past events anu
ii fiom which futuie economic benefits aie expecteu to flow to the peison

c Monetary assets aie money helu anu assets to be ieceiveu in fixeu oi
ueteiminable amounts of money

u Nonmonetaryassets aie assets othei than monetaiy assets

e Research is oiiginal anu planneu investigation unueitaken with the piospect of
gaining new scientific oi technical knowleuge anu unueistanuing

f Development is the application of ieseaich finuings oi othei knowleuge to a plan
oi uesign foi the piouuction of new oi substantially impioveu mateiials uevices piouucts
108
piocesses systems oi seivices piioi to the commencement of commeicial piouuction oi
use

g Depreciation is the systematic allocation of the uepieciable amount of an
intangible asset

h Depreciableamount is the actual cost of an asset

i Fair value of an asset is the amount foi which that asset coulu be exchangeu
between knowleugeable willing paities in an aims length tiansaction

j Written down value is the uepieciable amount of an asset net of any
accumulateu uepieciation

k A financialassetis any asset that is eithei cash a contiactual iight to ieceive cash
oi anothei financial asset a contiactual iight to exchange financial instiuments unuei
conuitions that aie potentially favouiable oi an owneiship inteiest.

IdentificationofIntangibleAssets

The uefinition in paiagiaph a pioviues the ciiteiia foi ueteimining whethei
an item is to be classifieu as an intangible asset Wheie the expenuituie on an intangible
item uoes not meet the uefinition of an intangible asset such expenuituie shall be
iecogniseu as an expense when it is incuiieu Wheie such item is acquiieu in an
amalgamation it shall be iecogniseu in accoiuance with the Tax Accounting Stanuaiu on
Amalgamations

109
Intangible assets containeu in oi on a physical substance shall be classifieu as
intangible assets even though they aie containeu in oi on a physical substance Wheie an
asset incoipoiates both intangible anu tangible elements that aie in piactice insepaiable
the asset shall be classifieu baseu on the pieuominant element

The uefinition of an intangible asset iequiies that an intangible asset shall be
iuentifiable To be iuentifiable it is necessaiy that the intangible asset is cleaily
uistinguisheu fiom goouwill An intangible asset can be cleaily uistinguisheu fiom goouwill
if the asset is sepaiable An asset is sepaiable if a peison coulu ient sell exchange oi
uistiibute the specific futuie economic benefits attiibutable to the asset without uisposing
of futuie economic benefits that flow fiom othei assets useu in the same ievenue eaining
activity Sepaiability is not a necessaiy conuition foi iuentifying an intangible asset wheie
the asset can be otheiwise iuentifieu Wheie an intangible asset is iepiesenteu by legal
iights such iights woulu enable iuentification of the intangible asset

Contiol of an intangible asset shall stem fiom legal iights that aie enfoiceable in a
couit of law

The futuie economic benefits flowing fiom an intangible asset
incluue ievenue fiom the sale of piouucts oi seivices cost savings oi othei
benefits iesulting fiom the use of the asset

RecognitionandInitialMeasurementofanIntangibleAsset

An intangible asset shall be measuieu initially at actual cost
The actual cost of an acquiieu intangible asset shall compiise its puichase piice
impoit uuties anu othei taxes excluuing those subsequently iecoveiable anu any uiiectly
attiibutable expenuituie on making the asset ieauy foi its intenueu use Any tiaue
uiscounts anu iebates shall be ueuucteu in aiiiving at the actual cost
110
Wheie an intangible asset is acquiieu in exchange foi shaies oi othei secuiities the
asset shall be iecoiueu at the faii value of the secuiities issueu
Wheie an intangible asset is acquiieu as a pait of a gioup of assets foi a
consoliuateu piice the consiueiation shall be appoitioneu to the intangible asset baseu on
its faii value
Wheie an intangible asset is acquiieu by way of a goveinment giant it shall be
iecogniseu in accoiuance with the Tax Accounting Stanuaiu on uoveinment uiants
Wheie an intangible asset is acquiieu in exchange foi anothei asset its actual cost
shall be ueteimineu baseu on the faii value of the asset given up
The actual cost of an intangible asset shall be aujusteu subsequent to its acquisition
on account of piice aujustment changes in uuties oi similai factois

InternallyGeneratedIntangibleAssets

To assess whethei an inteinally geneiateu intangible asset meets the
ciiteiia foi iecognition the geneiation of the asset is classifieu into
(a) ieseaich anu
(b) uevelopment

Expenuituie on ieseaich shall be iecogniseu as an expense when it is incuiieu

Examples of ieseaich activities aie
a activities aimeu at obtaining new knowleuge
b the seaich foi evaluation anu final selection of applications of ieseaich finuings oi
othei knowleuge
111
c the seaich foi alteinatives foi mateiials uevices piouucts piocesses systems oi
seivices anu
u the foimulation uesign evaluation anu final selection of possible alteinatives foi new
oi impioveu mateiials uevices piouucts piocesses systems oi seivices
An intangible asset aiising fiom uevelopment shall be iecogniseu as an intangible
asset if all of the following conuitions aie satisfieu
a the technical feasibility of completing the intangible asset is achieveu anu
b the peison has the intention anu ability to complete the uevelopment of the
intangible asset anu use oi sell it
Examples of uevelopment activities aie
a the uesign constiuction anu testing of piepiouuction oi pieuse piototypes anu
mouels
b the uesign of tools jigs moulus anu uies involving new technology
c the uesign constiuction anu opeiation of a pilot plant that is not of a scale
economically feasible foi commeicial piouuction anu
u the uesign constiuction anu testing of a chosen alteinative foi new oi impioveu
mateiials uevices piouucts piocesses systems oi seivices

Inteinally geneiateu bianus mastheaus publishing titles customei lists anu items
similai in substance shall not be iecogniseu as intangible assets

ActualCostofanInternallyGeneratedIntangibleAsset

The actual cost of an inteinally geneiateu intangible asset is the sum of expenuituie
incuiieu fiom the time when the intangible asset fiist meets the iecognition ciiteiia
112

The actual cost of an inteinally geneiateu intangible asset shall compiise all
expenuituie that can be uiiectly attiibuteu oi allocateu on a ieasonable anu consistent
basis to cieating piouucing anu making the asset ieauy foi its intenueu use The cost shall
incluue

a expenuituie on mateiials anu seivices useu oi consumeu in geneiating the
intangible asset
b the salaiies wages anu othei employment ielateu costs of peisonnel uiiectly
engageu in geneiating the asset
c any expenuituie that is uiiectly attiibutable to geneiating the asset anu
u oveiheaus that aie necessaiy to geneiate the asset anu that can be allocateu on a
ieasonable anu consistent basis to the asset Allocations of oveiheaus shoulu be maue on
bases similai to those useu in allocating oveiheaus to inventoiies as pei the Tax Accounting
Stanuaiu on Inventoiies The Tax Accounting Stanuaiu on Boiiowing Costs establishes
ciiteiia foi the iecognition of inteiest as a component of the actual cost of a qualifying
asset These ciiteiia shall also be applieu foi the iecognition of inteiest as a component of
the actual cost of an inteinally geneiateu intangible asset
SubsequentExpenditure

Subsequent expenuituie on an intangible asset aftei it is ieauy foi its intenueu use
shall be iecogniseu as an expense when it is incuiieu unless
a the expenuituie will enable the asset to geneiate futuie economic benefits in excess
of its oiiginally assesseu stanuaiu of peifoimance anu

b the expenuituie can be measuieu anu attiibuteu to the asset ieliably
113
Wheie these conuitions aie met the subsequent expenuituie shall be auueu to the actual
cost of the intangible asset
Depreciation

Bepieciation on an intangible asset shall be ueteimineu in accoiuance with the Act

Transfers

Income aiising on tiansfei of an intangible asset shall be ueteimineu in accoiuance
with the Act
Disclosures
Following uisclosuie shall be maue in iespect of intangible assets

a Besciiption of assetblock of assets

b Rate of uepieciation

c Actual cost oi wiitten uown value as the case maybe

u Auuitionsueuuctions uuiing the yeai with uates incase of any auuition of an asset
uate put to use incluuing aujustments on account of

i Nouifieu value auueu tax cieuit claimeu anu alloweu unuei the cential exeicise
114
iules in iespect of assets acquiieu on oi aftei Naich

ii Change in iate of exchange of cuiiency anu

iii Subsiuy oi giant oi ieimbuisement by whatevei name calleu

e Bepieciation allowable

f Wiitten uown value at the enu of yeai

*******
115
Provisions,ContingentLiabilitiesandContingentAssets
Preamble
Scope

This Tax Accounting Stanuaiu ueals with piovisions contingent liabilities anu
contingent assets except those

a iesulting fiom financial instiuments
b iesulting fiom executoiy contiacts
c aiising in insuiance business fiom contiacts with policyholueis anu
u coveieu by anothei Tax Accounting Stanuaiu

This Tax Accounting Stanuaiu uoes not ueal with the iecognition of ievenue which
is uealt with by Tax Accounting Stanuaiu Revenue Recognition

The teim piovision is also useu in the context of items such as uepieciation
impaiiment of assets anu uoubtful uebts which aie aujustments to the caiiying amounts of
assets anu aie not auuiesseu in this Tax Accounting Stanuaiu
116
Definitions
specifieu

a A provision is a liability which can be measuieu only by using a substantial
uegiee of estimation

b A liability is a piesent obligation of the peison aiising fiom past events
the settlement of which is expecteu to iesult in an outflow fiom the peison of
iesouices embouying economic benefits

c An obligatingevent is an event that cieates an obligation that iesults in a
peison having no iealistic alteinative to settling that obligation

u A contingentliability is

i a possible obligation that aiises fiom past events anu the existence of
which will be confiimeu only by the occuiience oi nonoccuiience of
one oi moie unceitain futuie events not wholly within the contiol of
the peison oi

ii a piesent obligation that aiises fiom past events but is not iecogniseu
because

A it is not ieasonably ceitain that an outflow of iesouices
embouying economic benefits will be iequiieu to settle the
obligation oi

117
B a ieliable estimate of the amount of the obligation cannot be
maue

e A contingent asset is a possible asset that aiises fiom past events the
existence of which will be confiimeu only by the occuiience oi
nonoccuiience of one oi moie unceitain futuie events not wholly within the
contiol of the peison

f Executory contracts aie contiacts unuei which neithei paity has
peifoimeu any of its obligations oi both paities have paitially peifoimeu
theii obligations to an equal extent

g A present obligation is a piesent obligation if baseu on the eviuence
available its existence at the enu of the pievious yeai is consiueieu
ieasonably ceitain

Recognition
Provisions

A piovision shall be iecogniseu when

a a peison has a piesent obligation as a iesult of a past event

b it is ieasonably ceitain that an outflow of iesouices embouying economic
benefits will be iequiieu to settle the obligation anu

118
c a ieliable estimate can be maue of the amount of the obligation

If these conuitions aie not met no piovision shall be iecogniseu

No piovision shall be iecogniseu foi costs that neeu to be incuiieu to opeiate in the
futuie

It is only those obligations aiising fiom past events existing inuepenuently of a
peisons futuie actions ie the futuie conuuct of its business that aie iecogniseu as
piovisions

Wheie uetails of a pioposeu new law have yet to be finaliseu an obligation aiises
only when the legislation is enacteu
ContingentLiabilities
A peison shall not iecognise a contingent liability

ContingentAssets
A peison shall not iecognise a contingent asset.

Contingent assets aie assesseu continually anu when it becomes ieasonably ceitain
that inflow of economic benefit will aiise the asset anu ielateu income aie iecogniseu in
the pievious yeai in which the change occuis
119
Measurement
BestEstimate

The amount iecogniseu as a piovision shall be the best estimate of the expenuituie
iequiieu to settle the piesent obligation at the enu of the pievious yeai The amount of a
piovision shall not be uiscounteu to its piesent value.

The amount iecogniseu as asset anu ielateu income shall be the best estimate of the
value of economic benefit aiising at the enu of the pievious yeai The amount anu ielateu
income shall not be uiscounteu to its piesent value
Reimbursements

Wheie some oi all of the expenuituie iequiieu to settle a piovision is expecteu to be
ieimbuiseu by anothei paity the ieimbuisement shall be iecogniseu when it is ieasonably
ceitain that ieimbuisement will be ieceiveu if the peison settles the obligation The
amount iecogniseu foi the ieimbuisement shall not exceeu the amount of the piovision

Wheie a peison is not liable foi payment of costs in case the thiiu paity fails to pay
no piovision shall be maue foi those costs

An obligation foi which a peison is jointly anu seveially liable is a contingent
liability to the extent that it is expecteu that the obligation will be settleu by the othei
paities
Review
Piovisions shall be ievieweu at the enu of each pievious yeai anu aujusteu to ieflect
the cuiient best estimate If it is no longei ieasonably ceitain that an outflow of iesouices
120
embouying economic benefits will be iequiieu to settle the obligation the piovision shoulu
be ieveiseu
An asset anu ielateu income iecogniseu as pioviueu in paia shall be ievieweu at

the enu of each pievious yeai anu aujusteu to ieflect the cuiient best estimate If it is no
longei ieasonably ceitain that an inflow of economic benefits will aiise the asset anu
ielateu income shall be ieveiseu
UseofProvisions
A piovision shall be useu only foi expenuituies foi which the piovision was
oiiginally iecogniseu.
Disclosure
Following uisclosuie shall be maue in iespect of each class of piovision
a a biief uesciiption of the natuie of the obligation

b the caiiying amount at the beginning anu enu of the pievious yeai

c auuitional piovisions maue uuiing the pievious yeai incluuing incieases to
existing piovisions

u amounts useu ie incuiieu anu chaigeu against the piovision uuiing the
pievious yeai

e unuseu amounts ieveiseu uuiing the pievious yeai anu

121
f the amount of any expecteu ieimbuisement stating the amount of any asset
that has been iecogniseu foi that expecteu ieimbuisement
Following uisclosuie shall be maue in iespect of each class of asset anu ielateu
income iecogniseu as pioviueu in paia

a a biief uesciiption of the natuie of the asset anu ielateu income

b the caiiying amount of asset at the beginning anu enu of the pievious yeai

c auuitional amount of asset anu ielateu income iecogniseu uuiing the yeai
incluuing incieases to assets anu ielateu income alieauy iecogniseu anu

u amount of asset anu ielateu income ieveiseu uuiing the pievious yeai

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Shii Piavin Kumai IRS

S.No. Chapter Subject PageNos.

Annexuie C List of Accounting Stanuaius issueu by the ICAI

Annexuie B The text of the uiaft Tax Accounting Stanuaius

Issue Accounting Stanuaius aie geneially unueistoou as stanuaius to be followeu

The objective of this stanuaiu is to make specific uisclosuies in iespect of the

AS 30, 31, 32 Financial Instruments (Recognition and Measurement, Presentation

TAX ACCOUNTING STANDARD FOR THE EFFECTS OF CHANGES IN FOREIGN

TAX ACCOUNTING STANDARD FOR PROVISIONS, CONTINGENT LIABILITIES AND

24. In case of dissolution of a partnership firm, notwithstanding whether business is

24. In case of dissolution of a partnership firm or association of persons or body of

Sl.No. ASNo. TitleoftheAccountingStandard

Sl.No. ASNo. TitleoftheAccountingStandard

If the funuamental accounting assumptions of uoing Concein Consistency anu

Inventoiies shall be valueu at cost oi net iealizable value whichevei is lowei

The Cost of inventoiies of items

Wheie it is impiacticable to use the costing methous iefeiieu to in paiagiaph

Following uisclosuie shall be maue in iespect of each class of piovision

a a biief uesciiption of the item of income expense asset oi liability

A constiuction contiact may be negotiateu foi the constiuction of a single asset A

a Revenue is the gioss inflow of cash ieceivables oi othei consiueiation aiising

Revenue fiom seivice tiansactions shall be iecogniseu by the peicentage completion

a Tangible fixed asset is an asset being lanu builuing machineiy plant oi

This Tax Accounting Stanuaiu ueals with tieatment of boiiowing costs

i commitment chaiges on boiiowings

The following uisclosuie shall be maue in iespect of boiiowing costs

Following uisclosuie shall be maue in iespect of intangible assets

A peison shall not iecognise a contingent liability

A peison shall not iecognise a contingent asset.

An asset anu ielateu income iecogniseu as pioviueu in paia shall be ievieweu at

Following uisclosuie shall be maue in iespect of each class of piovision

a a biief uesciiption of the natuie of the obligation

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