Dear Editor,
Recent article on
‘Reporting in Form 3CD for Assessment year 2017-18 – New elements’ published in
October issue of the Journal was timely and informative. I would like to add the following points:
– Income Computation and Disclosure Standards
(‘ICDS’) are applicable to only those assessees who follow mercantile method of
accounting. Thus, if an assessee who maintains his books of account on cash
method of accounting then the ICDS are not applicable to him. Accordingly, such assessees are not required
to adjust their returned income if the same is not strictly in conformity with the ICDS;
– ICDS IX on Borrowing Cost, requires amongst
others, capitalization of borrowing cost under certain circumstances. As per the Standard, the borrowings would be
of two types viz., specific and general.
As per para 5 of the Standard, funds borrowed specifically for
the purposes of acquisition, construction or production of a qualifying asset,
the amount of borrowing costs to be capitalised on that asset shall be the
actual borrowing costs incurred during the period on the funds so borrowed.
– In case of borrowings other than specific
i.e. general borrowings, the amount of borrowing costs to be capitalised
is in proportion to the cost of qualifying assets to average cost of total
assets (See formula as per Para 5 of the Standard). However, for the purpose,
qualifying asset has been defined as the one that necessarily requires a period
of twelve months or more for the acquisition, construction or production (See
Explanation below para 6 of the Standard). The similar condition of 12 months
period does not exist in case of the specific borrowing.
In my view – the above
points are also important and relevant while applying the principles of ICDS, hence, the same are brought to the notice of the readers by this letter.
